Compensable losses typically include the costs incurred by the party that received the warning to hire attorneys and/or patent attorneys to defend against the claims asserted in the warning.
In its judgment in the “Ballerinaschuh” case, File No.: I ZR 187/16, dated 11 January 2018, the German Federal Court of Justice had the opportunity to rule on the scope of such a claim for damages in a case where further sales of the contested product were discontinued. The BGH held that losses incurred after the filing of the complaint are also compensable. This is not a matter of course, because the filing of an (unjustified) complaint generally does not constitute interference with the right to operate an established and functioning business, since protection of the opposing party is generally guaranteed by the legal structure of judicial proceedings, particularly by the prevailing party’s claim to reimbursement of costs as well as by its claim for damages for unjustified enforcement of a judgment of the Court of First Instance under Sec. 717 (2) of the German Code of Civil Procedure (ZPO) and its claim for unjust enrichment for unjustified enforcement of a judgment of a Higher Regional Court under Sec. 717 (3) ZPO.
The decision of the German Federal Court of Justice was based on the following facts:
The plaintiff is the owner of a registered Community design for a shoe model (a “ballerina shoe”). The (subsequent) defendant sold a shoe model, which, in plaintiff’s opinion, infringed its Community design. The plaintiff warned the defendant against infringing its Community design and also based its claim on the ancillary protection of intellectual property rights provided by competition law (wettbewerbsrechtlichen Leistungsschutz) under Sec. 4 No. 3 of the German Law Against Unfair Competition (UWG). The defendant discontinued further sales of the contested shoe model but did not provide the requested declaration of discontinuance and formal obligation backed by a penalty clause. The plaintiff then filed a complaint with the Regional Court of Düsseldorf, which was primarily based on infringement of the Community design but also invoked to Sec. 4 No. 3 UWG. The defendant petitioned the Court to dismiss the complaint and filed a counter-claim seeking a declaration that the plaintiff must pay damages for past losses caused by its unjustified warning of infringement of intellectual property rights and those incurred in the future.
The Regional Court of Düsseldorf sustained the complaint for infringement of the Community design. The Higher Regional Court (OLG) of Düsseldorf ruled that there was no infringement of the Community design and no claim under Sec. 4 No. 3 UWG. Therefore, in the opinion of the Higher Regional Court, the pre-judicial warning had been unlawful. Accordingly, the OLG set aside the judgment of the Court of First Instance and dismissed the complaint. The OLG sustained the counter-claim for a declaration that the plaintiff was obliged to pay damages for issuing an unjustified warning of infringement of intellectual property rights.
The German Federal Court of Justice sustained the Higher Regional Court’s ruling that the defendant had not infringed the plaintiff’s Community design. However, the Federal Court of Justice opined that the plaintiff may have a claim under Sec. 4 No. 3 UWG, which would require additional findings by the appellate court. Accordingly, the BGH overturned the judgment of the Higher Regional Court and remanded the matter to the Higher Regional Court for a new hearing and decision. The judgment on appeal was also overturned with respect to the sustained counter-claim for a declaration that the plaintiff was obliged to pay damages for its unjustified warning of infringement of intellectual property rights. According to the court, the defendant had not infringed the Community design, so that the warning had not been justified in this regard. However, as the court had already stated, the plaintiff was deemed to have a claim under Sec. 4 No. 3 UWG. If this claim was sustained, the warning would have been justified and consequently the counter-claim seeking a declaration of the duty to pay damages would fail. The Federal Court of Justice did not doubt that the claim seeking a declaration of the duty to pay damages was permissible. If the warning had been unjustified, there was a legitimate interest in a declaratory judgment. Even if the claim were to become quantifiable in the course of the proceedings, the (counter) claimant would not have to resort to an action for damages (BGH, German Association for the Protection of Intellectual Property (GRUR) 2008, 258 et seq., Marginal no. 18 – INTERCONNECT/T-InterConnect).
As guidance for the new decision by the Higher Regional Court, the BGH pointed out the following with respect to the counter-claim: If, after making additional findings, the Higher Regional Court were to conclude that the plaintiff had no claim under Sec. 4 No. 3 UWG, the pre-judicial warning would not be justified and may have constituted interference with the right to operate an established and functioning business, which requires payment of damages. The defendant would be able to charge both the losses it suffered up until the filing of the complaint and those incurred thereafter. If a cessation of production and sales, which had already been implemented, were to be maintained after the filing of the complaint, the causal connection between the warning and the loss that was ultimately suffered could not be denied in principle, even if the loss did not arise until after the filing of the complaint. The warned party’s decision to discontinue sales of the contested product had been triggered by the warning. The owner of the intellectual property right had added additional force to its request to cease and desist selling the contested product by filing a complaint, so that a complaint filed after an unjustified warning of infringement of intellectual property rights generally cannot be deemed to interrupt the causal connection triggered by the warning of infringement of intellectual property rights.
Note: In the author’s opinion, the decisive factor in determining the scope of the damage claim based on a discontinuance of sales due to an unjustified warning of infringement of intellectual property rights is the time when the party receiving the warning discontinued selling the contested product. If this was done on account of the unjustified warning of infringement of intellectual property rights, the party receiving the warning may demand compensation not only for the losses incurred up until the complaint was filed but also for the losses incurred after the complaint was filed. In the author’s opinion, if sales of the contested product are not discontinued based on the warning, but only after the complaint was filed, the resulting losses are not attributable to the warning but to the (privileged) filing of the complaint. In this case, there is no causal link between the losses incurred after the filing of the complaint and the infringing act (the unjustified warning of infringement of intellectual property rights). The same applies if the party receiving the warning does not discontinue sales of the product until the issuance of a conditionally enforceable judgment by the Court of First Instance, which is later overturned by a higher court. When a complaint based on an intellectual property right, which has been sustained by a judgment of the Regional Court, is overturned by a higher court, this means that there was no infringement of the intellectual property right. Consequently, the pre-judicial warning was unjustified. However, sales were not discontinued due to the unjustified warning, but due to the judgment of the Court of First Instance. In this case, too, there was no causal link between the loss and the infringing act. In this regard, consideration should also be given to the fact that the damage claim under Sec. 717 (2) ZPO only covers losses suffered “due to enforcement”. Therefore, a claim for damages under Sec. 717 (2) ZPO presupposes that the plaintiff/creditor has actually enforced the judgment of the Court of First Instance or has built up “enforcement pressure”. In particular, such “enforcement pressure” exists when the plaintiff/creditor has met all the prerequisites for enforcement of a provisionally enforceable judgment of the Court of First Instance, particularly if the plaintiff/creditor has posted the security required by the Regional Court (cf. BGH, GRUR 2011, 364 – Steroidbeladene Körner). If the plaintiff/creditor does not enforce the provisionally enforceable judgment of the Court of First Instance and does not build up “enforcement pressure”, the defendant/debtor cannot seek damages resulting from the discontinuance of sales under Sec. 717 (2) ZPO. In that case, the only remaining basis for a claim for such damages is Sec. 823 (1) BGB (“Interference with the right to operate an established and functioning business through an unjustified warning of the infringement of intellectual property rights”). However, this also presupposes that the defendant/debtor discontinued sales due to the warning and did not wait until the complaint was filed or the judgment of the Court of First Instance was issued. If the defendant/debtor did not discontinue sales based on the warning, but only at a later date, the defendant/debtor comes away “empty-handed”.
