Compensation

Claims for Damages and Calculation Bases

In the field of industrial property rights, the following basic calculation methods for claims for damages have now crystallized:

  • Concrete Damage Calculation (Lost Profits)
  • Abstract Damage Calculation (Surrender of Infringer’s Profits)
  • License Analogy

When calculating damages, it should be noted that overhead costs are calculated differently from business management calculation methods in favor of the injured party.

Concrete Damage

If it is possible for the injured party to calculate the concrete damage, they can claim this as compensation in the case of a culpable infringement of their rights. The concrete damage usually corresponds to the lost profit. However, proving its amount is often difficult. Therefore, such claims for compensation of concrete damage are rather rare.

Abstract Damage Calculation (Surrender of Infringer’s Profits)

If a concrete damage calculation is not possible, there is the option of basing the calculation of the claim for damages on the typically occurring damage.

However, even this damage calculation is often not possible. This is because frequently no actual or regularly occurring damage can be determined. For example, when a high-quality watch brand is infringed by inferior and low-priced goods, there is not necessarily a loss in sales, as the target customer groups are different. So where is the damage?

Therefore, case law has allowed for another alternative for damage calculation:

License Analogy

For damage calculation by way of license analogy, it is determined what an appropriate license fee for the specific product would have been if the infringer had acquired such a license. Whether the injured party would have been willing to grant a license at all is disregarded and not examined.

The “license fee” determined in this way is then awarded to the injured party as compensation (BGHZ 119, 20, 27 – Tchibo/ Rolex II). Unlike with a “real” license, the infringer does not acquire any rights of use through this. They must pay the funds without receiving any right to use and without their behavior being subsequently considered permissible.

Calculation of Overhead Costs

Important for profit determination are recent decisions of the Federal Court of Justice (BGH) on the determination of overhead costs that an infringer may deduct if a concrete or abstract damage calculation is made or if the profit is demanded.

Here, the infringer is now put in a significantly worse position than an authorized licensee. This is because overhead costs can, simply put, only be deducted if they are directly and immediately attributable to the product. However, these are regularly significantly lower cost rates than when considering all overhead costs. For example, deductions for general administration and general rent or lease costs, insurance, etc. are excluded. Only costs directly attributable to the product and its production are deductible, such as the costs of employees specifically involved in the production of the infringing product or the proportional rental costs for the specific machine or the specific storage costs.

The BGH states in its judgment of 02.11.2000, Case No. I ZR 246/98:

According to the purpose and intent of the claim for surrender of the infringer’s profits, it is generally justified, when determining the infringer’s profits, to deduct only the variable costs (i.e., those dependent on the level of activity) for the production and distribution of the infringing items from the revenues achieved, and not the fixed costs, i.e., costs that are independent of the respective level of activity (e.g., rent, time-dependent depreciation of fixed assets; cf. Lehmann, BB 1988, 1680, 1683 ff.; Möhring/Nicolini, Copyright Act, § 97 note 11b; Teplitzky, Competition Law Claims, 7th ed., chap. 34 para. 33; Körner in Festschrift für Steindorff, 1990, p. 877, 886 f.; different opinion OLG Köln GRUR 1983, 752, 753; Schricker/Wild, Copyright, 2nd ed., § 97 UrhG para. 67; Eichmann/v. Falckenstein, Design Act, 2nd ed., § 14a para. 15). If the infringer were unrestricted in deducting a share of overhead costs from their revenues, the profit derived from the infringement would generally not be fully skimmed off. Rather, the infringer would retain a contribution to their fixed costs (cf. for more details Lehmann, BB 1988, 1680, 1686 f.). This would contradict the purpose and intent of compensation for damages in the form of surrendering the infringer’s profits, and particularly the idea that the injured party should be placed in the position, through the surrender of the infringer’s profits, as if they had achieved the same profit as the infringer without the infringement. For in this case, the injured party could have generated a contribution to their own overhead costs by employing their own company for production and distribution.

This restrictive approach is intended to encourage the infringer to acquire a “genuine” license in advance, rather than relying on not being caught, and if caught, being treated as if they had acquired a proper license.