Owning IP rights or IP titles without directly using them may raise serious difficulties when the legal framework is not appropriate.
There can be many reasons why people or companies own IP rights and choose to have them used or managed by other companies. Often it results from a strategy aiming at keeping control over the main assets of one’s company, among which intellectual and industrial property rights. There are of course financial, accounting and fiscal reasons as well.
But whatever the reasons, they should be legally examined and studied together with the appropriate counsels, such as Patent & Trademark Attorneys or tax specialists.
We already warned about companies that do not own their trademarks and about the complications they may undergo (here). Now, we want to comment a recent decision in a patent infringement lawsuit initiated by a French holding company, owner of a European patent, and its subsidiaries, all being licensees of said patent.
During a successful first trial, both in first instance (First Instance Court of Paris, 20 March 2014, case number 2011/07904) and in appeal (Court of Appeals of Paris, 6 September 2016, case number 2014/09893), two companies were condemned for infringing several claims of the patent. However, the question of damages was not debated because the courts did not have sufficient evidence and information from the parties.
A second trial took place to evaluate and award damages to the injured parties, the patent owner on the one hand (the holding company) and the patent licensees on the other hand (the subsidiaries).
That’s when the trouble began for the patent owner.
On January 14, 2016, the First Instance Court of Paris (case number 2014/17385) awarded the patent owner (the holding company) more than 600.000 euros as compensation for damaging financial and commercial consequences due to the patent infringement.
But on December 9, 2016, the Court of Appeals of Paris (case number 2016/02891) reversed the sentence and reduced the amount of damages to… 0 euro!
According to the Court of Appeals, the patent owner (the holding company) did not suffer any commercial damage since it did not directly use the invention.
The Court of Appeals observed that, although it did not directly exploit the patent, the patent owner (the holding company) had deliberately chosen not to use a special compensation mechanism provided for in Article L.615-7 of the French Intellectual Property Code and according to which the plaintiff may ask the courts to receive a flat sum instead of a proportional compensation for financial damages, such sum being higher than what it would have received in case of a negotiated license (sort of a court-ordered license royalty; see our comment about the new Article L.615-7 here).
The Court of Appeals was clearly in favour of implementing this special compensation mechanism to the case because it was specifically designed for such cases where the patent owner does not directly exploit the patent and where it is therefore almost impossible to evaluate damaging financial consequences of the infringement (which must include lost profits and financial or commercial losses incurred by the victim).
But the patent owner (the holding company) explicitly refused this type of compensation, arguing that it did directly suffer damaging financial consequences because the patent infringement had had damaging financial consequences for the licensees which are its subsidiaries. And its reasoning was that damaging financial consequences suffered by subsidiaries necessarily have damaging financial consequences for their holding company.
The Court of Appeals rejected this claim however. First, the Court reminded the patent owner that one cannot claim compensation for a damage that originates in a damage suffered by a third party. Second, the Court must have taken into consideration the fact that the license agreements between the holding company and its subsidiaries were without payment of royalty. So even if the subsidiaries had indeed suffered financial damages, the holding company could not have suffered a loss in royalty. And third, the Court pointed out that there were no real evidence showing the existence of a group of companies or of ties between the patent owner and the licensees that would resemble ties between a holding company and its subsidiaries.
For the Court of Appeals, it is clear that if financial damages were suffered because of the patent infringement, these damages were suffered by the licensees and only by the licensees.
You would think that it is not a big deal then. The licensees just had to claim compensation for their own financial damages. And you would be right of course. That’s what the licensees tried to do in first instance but their actions were dismissed for lack of registration of the patent licenses at the patent registers.
For the record, the subsidiaries did not claim damages for unfair competition, which would have been a possibility since they could not rely on an opposable IP title.
Finally, the patent owner also lost in appeal the compensation of 100.000 euros that was obtained for moral damages. The Court of Appeals declared that there was no evidence that the patent infringement had caused damages to the reputation or the credit of the patent owner.
What you need to remember
You don’t want to own IP rights and have them used by other companies or individuals without a well-planned strategy and a well-organized system.
It involves IP law, contract law, business law, company law, tax law, etc.
Take it seriously from the start and go see your favourite Patent & Trademark Attorney!
© [INSCRIPTA]
