Germany - Changes in Approach to Damage Awards in Patent Litigation

As of late, patent litigation in Germany has provided a more rewarding outcome for successful patent holders. A judgment on the merits in favor of the patent holder usually includes injunctive relief enjoining the infringer from further manufacturing, selling, offering for sale, distributing, or possessing infringing goods. In addition, the plaintiff usually suggests a “value at issue,” to the court enabling it to determine a certain value for the patent infringement action. However, this “value” is merely a theoretical figure for the assessment of court costs and attorney fees and does not limit the recoverable damages caused by the infringement.

To determine recoverable damages, first a declaration that the defendant has to pay damages is issued by the court and is accompanied by an order against the infringer to provide the successful plaintiff with an account of the acts of infringement. This information is meant to enable the plaintiff to assess damages and to identify further infringers in the supply chain. The plaintiff has to calculate his damages based on the information provided by the defendant and, if the defendant does not pay, then the plaintiff is required to bring a separate action to recover the damages.

Three methods are available to the plaintiff to calculate damages including; (1) a reasonable royalty; (2) infringer’s profits , or (3) plaintiff’s lost profits. For the most part, only the first two methods were previously used because the burden of proof for the plaintiff to prove that he suffered lost profits has been relatively high in Germany. Of the first two, the more common method for calculating damages in the past has been determining a reasonable royalty.

Recently, however, patent owners are choosing to calculate damages based on the infringer’s profits due to a shift in case law. In the past, infringers were allowed to deduct overhead costs from their turnover with the infringing products. Since infringers found ways to reduce the damage calculation through creative accounting, using the infringer’s profits method of determining damages was less attractive to the plaintiff. This loophole has been effectively closed by the German Federal Supreme Court’s decision in “Gemeinkostenanteil”.

In “Gemeinkostenanteil” the Court held that infringers are only entitled to deduct variable costs and such overhead costs that are directly linked to the production/distribution of the infringing product. Moreover, the burden of proof to establish the latter overhead costs lies with the infringer. The Court’s decision in “Gemeinkostenanteil,” therefore, makes using the infringer’s profits method to calculate damages significantly more attractive in Germany. It is likely, therefore, that the amount of damages awarded in Germany will be substantially higher in the future in view of this shift in precedent. Currently, the “Gemeinkostenanteil” decision is being routinely followed by lower courts in patent cases.