Damages for IP infringement - a true deterrent?

Under Brazilian law, the injured party in an infringement lawsuit can request compensatory damages in addition to obtaining a court order that the infringing practice be ceased. Such damages can be divided into two main categories: (i) moral damages, and (ii) material damages, which include actual damages and the loss of profit.

For moral damages, courts will assess the amount to be granted to the injured party on a case-by-case basis, depending on the financial capability of each party, the reasonableness and proportionality in relation to the injury.

In terms of material damages, compensation has the purpose of restoring the injured party to his or her status prior to the violation. Consequently, Brazilian law does not provide for punitive damages.

Under Section 210 of the Brazilian IP Act, a patent/trademark holder can file a civil complaint to stop the infringement and request compensation for its losses. The damages (i.e., loss of profits) will be calculated based on criteria most favorable to the injured party, considering the following: (i) the benefits that would have been gained by the injured party if the violation had not occurred; (ii) the benefits gained by the infringer of the rights; or (iii) the remuneration that the infringer would have paid to the right’s holder for the grant of a license that would have legally permitted the infringer to exploit the subject’s rights.

It is important to keep in mind, though, that the quantification phase in Brazil is a separate proceeding, started only after the trial court has already rendered a merits decision on the infringement and generally after the decision is no longer appealable. Moral damages (if applicable) will be fixed in the trial court decision.

After the quantification phase is started by the plaintiff, the judge will appoint an unbiased expert accountant, who will be tasked with examining the accounting information provided by the parties, in order to decide on the final figures of material damages. Thereafter, the parties can nominate their own accounting assistants, and each will submit queries to the expert.

The expert analysis is comprised of a report with the answers to the queries, and the final amount of damages due on the grounds of the merits decision. The parties’ can challenge both the report and the trial court decision confirming the expert’s assessments, through an interlocutory appeal.

This means that the quantification phase can take significant time, but by having the constitutional right to challenge arguments/evidence of all parties involved in the dispute (“direito ao contraditório”), the parties are guaranteed that due process of law is being applied in all stages of the proceedings.

Common questions relate to how much in damages are recoverable, under which parameters, and how long it will take to actually receive the amount related to a damages award. Based on a case law analysis, it is clear that the decisions rendered by the São Paulo Court of Appeals have been setting the tone.

Infringement lawsuits need to be filed with the state courts. The São Paulo State Court receives a large number of disputes, since most major companies are established in the State of São Paulo, which has IP specialized judges and chambers, that frequently address the applicability of section 210 of the Brazilian IP Act.

On the grounds of the parameters established in Section 210, the expert will calculate the damages, using the criteria most favorable to the injured party. In this sense, the São Paulo Court of Appeals considers that for the purpose of quantification, the net value of the infringing products will guide the expert in determining the damages figures.

So, when very few products have been sold, and for a short period of time, the final amount due may not be significant, which can be quite frustrating after facing a fierce legal battle.

The good news is that under Brazilian law the damages do not need to be evidenced or attested to be awarded.

Most recently, the 2nd Civil Court of São Paulo[1], when determining the damages due to Societé Des Produits Nestlé S.a. by Grupo Rsx Comércio de Café Ltda – Epp (Human Coffee) in view of the infringement of the plaintiff’s patent for the Dolce Gusto® coffee machine capsule, found that:

“Once the reproduction, even if partial of the patent, has been found, it is possible to order the infringers to compensate the material damages to be fixed in the quantification phase (…) It is necessary to clarify that it is unnecessary to prove the actual damage, as this is intrinsic in the violation of the IP holders claims. So, damages quantification does not depend on a concrete demonstration for its demand, since it inevitably results from the gravity of the offensive fact itself, so that, once the fact is proven, the material damage is proven”.

Therefore, although the quantification phase can be quite lengthy, the IP holder can expect that, in Brazil, material damages related to infringement of Industrial Property rights are due regardless of proof of actual loss[2], and that once the infringement is attested, damages will follow.

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Source: Lexology - https://www.lexology.com/library/detail.aspx?g=97cb3863-7ce8-4e93-8c30-ae3f3e620d38