A primary benefit for future users of the UPC is that legal proceedings in relation to a Unitary patent or a non-opt-out European patent will not need to be divided throughout Europe and can instead be heard by a single court, with judgement applied to the entire territory – potentially 24 countries. This promises to reduce costs and time associated with the litigative process and may minimize the risk of ‘Forum Shopping’ within the E.U., where parties seek to take advantage of differences in the procedures and judgements of national courts. Given the importance of the UPC, we wish to outline the important factors that must be considered by parties when it comes to damage calculations.
Determination of damages: routes
On the 8th July 2022 the UPC’s Administrative Committee adopted the final version of the Rules of Procedure (RoP, accessible here). Those rules offer two routes for determining damages and compensation in the event patent infringement is found to have occurred. Rule 118.1 outlines that “[t]he amount of the damages or the compensation may be stated in the order or determined in separate proceedings”. A successful party can – within one year of the final decision – apply for separate proceedings for the determination of damages (Rule 126). The court may also award interim damages (Rule 119), to “cover the expected costs of the procedure for the award of damages … on the part of the successful party”.
Determination of damages: calculation factors
When seeking to understand what factors contribute to damage calculation we lookto the UPC Agreement (UPCA, available here), which defines the legal basis of court activity. That makes two commitments in relation to the award of damages: (1) the court will instruct an infringer to pay the injured party damages “appropriate to the harm actually suffered … as a result of the infringement” and (2) the court will – as far as is possible – place the injured party in a position as if no infringement had taken place. Additionally, the infringer shall not benefit from the infringement and damages shall somewhat not be punitive.
Having made these commitments the Agreement then seeks to define what the court should look to when calculating damages. The court is to take account of “all appropriate aspects” such as negative economic consequences, which may includelost profits, any unfair profits made by the infringer, and non-economic factors where necessary (for example, damage to a brand’s reputation). The court can also set damages on the basis of royalties that would have been due if the infringer had sought a licence. In a case where the infringer did so not knowingly, the court can order compensation.
Determination of damages: IP valuation expertise
Whilst the UPCA suggests areas of consideration for damage calculation, there remains substantial room for the presence of expert analysis in reaching that calculation. OxFirst Director Dr Roya Ghafele has authored many scholarly articleson patent valuation methods for assessing damages in patent infringement cases before the UPC. This work illustrates three important means of valuation: the income, cost and market approaches. These approaches appear in publicly sanctioned IP guidelines and assist in portraying value in a dynamic manner. All three play a role in delivering effective valuation and OxFirst operates a proprietaryvaluation method which accounts for their advantages. Method selection represents a crucial consideration when embarking upon a valuation and pays particular attention to the utility of the income method as the only method that can incorporate risk as a consideration. Using the income method, patent value is presumed to be based on future returns over the course of the time it retains protection. Whilst the commonly applied method by courts and regulators, the income method requires particular attention to be paid to contextual information and so requires particular expertise for its effective application.
The UPC is well equipped to exercise judgement on patents at question themselves – the technical judges bring the specialist knowledge required for this. Yet when calculating appropriate damages, the UPC will – like other courts – require assistance from patent valuation experts. This will be particularly true when the UPC has to, inevitably, consider FRAND cases. In these cases, debate has already been established around defining a royalty base, either the smallest saleable practicing unit (SSPU) or the entire market value (EMV). The choice of royalty base is decisive in calculations of appropriate FRAND rates as, in most cases, damages are calculated by factoring a royalty base with a royalty rate to establish a valuation. Patent valuation expertise will therefore be especially valuable in such circumstances.
Yet in all cases where damage calculations must be made as a consequence of infringement, well evidenced, well communicated and clear expert patent valuation analysis is potentially worth a great deal. OxFirst remains an experienced specialist in patent valuation for litigation.