Licence Analogy Back in the Game - with the worst Licensee you can Imagine

The calculation of damages using the licence analogy method has become somewhat unfashionable in Germany as the calculation of damages using the infringer’s profit is usually considered to give more favourable results for the patentee. This holds in particular since the possibilities of the infringer to deduce overhead costs have been limited strongly by the Federal Supreme Court (BGH) in the decision “Gemeinkostenanteil”.

The Munich District court has now issued a decision which might bring the licence analogy method back into the game.

The court finds that for the purpose of assessing the damages in a patent infringement procedure, the calculatory royalties should be noticeably higher than those on obtainable on the free licensing market.

The interesting point about this decision is that the court does not support this finding by arguing that a certain amount of punitive damages would be fair in order to achieve a discouraging effect as one might have expected. Rather, the court’s (and maybe the plaintiff’s) argument is entirely based on fairness arguments in line with Art. 13 lit. b of Directive 2004/48/EC.

Basically, the court accounts for the particular circumstances at the end of the procedure differing from those on the free licensing market. According to the court, the royalties paid on the free market are discounted for the following reasons:

• the general risk of the legal validity of the right,
  
• the risk due to the uncertainty of the infringement of the right
  
• the fact of asking for a license demonstrates a fair business conduct, which implies a certain credit worthiness.
  

The above factors are, however, not relevant at the end of the litigation where the validity is proven as well as the infringement and where the right owner risks to face further problems in enforcing his rights to timely payment of the royalties and to obtain documentary evidence for the sales. The delay of the payments to be expected increases the risk of insolvency of the infringer, which has to be accounted for.

In other words, the convicted infringer is considered to be comparable to a licensee with very low credit worthiness and the poorest payment record you can imagine in a case where the no uncertainty with regard to the validity of the right or with regard to the infringement exists. In the case at issue, the court found an increment of 66% over the usual royalties in the technical field to be reasonable.