In a decision published on 29 July 2021 regarding patent infringement, the Italian Supreme Court clarified the possibility that an Intellectual Property Right (“IPR”) holder can apply for disgorgement of profits obtained by the infringer under Article 125 of the Italian Intellectual Property Code (“IIPC”). They also commented on the relationship between the disgorgement of profits and compensation for damages.
Legal background
Article 125 of the IIPC, entitled “Compensation for damages and disgorgement of profits of the infringer” provides that:
1. “Compensation due to the damaged party shall be set according to the provisions of Articles 1223, 1226 and 1227 of the Civil Code, taking into account all of the pertinent aspects, such as the negative economic consequences, including lost profits of the owner of the infringed right, the profits achieved by the infringer, and in the appropriate cases, non-economic elements, such as the moral damage caused to the right owner by the infringement.
2. The decision on the compensation of damages may calculate them in a lump sum to be based on documentation of the case and on the assumptions deriving from them. In such case, the lost profits shall be determined in an amount not lower than the royalties which the infringer should have paid if he had obtained a license by the right owner.
3. In any case, the owner of the infringed right may request the restitution of the profits gained by the infringer, alternatively to the compensation for the lost profits or if they exceed such compensation".
The judgment
The Supreme Court addressed, for the first time, the two following questions:
a. The relationship between the IPR holder’s loss of profits and the disgorgement of the profits
The Supreme Court highlighted the sui generis nature of the disgorgement of profits, as it is both a compensatory remedy and a deterrent. The disgorgement of profits is based on unjust enrichment, where the IPR holder acquires the profits made at the expense of the infringer. It is claimed in addition to compensation for damages.
Moreover, the Supreme Court emphasized the wording of Article 125 paragraph 3 providing that the disgorgement of profits could be requested “in any event”, meaning they can be awarded even when the owner of the IPR lacks the requirements needed to seek compensation for damages.
The Supreme Court concluded that the IPR holder may claim the disgorgement of the profits obtained by the infringer instead of the compensation for damages, without having to demonstrate that the infringement caused the IPR holder to lose profits themselves. .
b. Misconduct or negligence by the infringer is a requirement to apply for the disgorgement of profits
The Supreme Court held that the IPR holder may seek the disgorgement of profits even in the absence of any subjective mental element on the part of the infringer, e.g. malice, negligence or any misconduct. The contrary would entail a lack of protection of the IPR holder’s position.
In other words, if a subjective mental element is present, the IPR holder can obtain both compensation for damages and the disgorgement of profits. If the subjective mental element is absent, the IPR holder can only obtain disgorgement of profits.
Conclusion
The judgment of the Italian Supreme Court provides food for thought on the controversial topic of disgorgement of profits. It ensures further protection for IPR holders, compensating them not only for their lost profit but also for what the infringers have gained in violating their IPR, regardless of whether the violations were unconscious.
