Spanish Supreme Court asks: does compensation for moral prejudice tie in with lump sum IP infringement damages?

A Spanish Supreme Court decision of 12 January 2015 referred a question to the Court of Justice of the European Union (CJEU) for a preliminary ruling concerning the implementation of Directive 48/2004 (the IP Enforcement Directive) in Spain and in particular the relationship between compensation for damage by means of a lump sum in the form of hypothetical licence royalties and damages for the restoration of moral prejudice.

The question was this:

Can Article 13(1) of Directive 48/2004 be interpreted as meaning that the party injured by an intellectual property infringement, claiming compensation for damage based on royalties or fees which would have been due if the infringer had requested authorization to use the intellectual property right in question, also request compensation for the moral damage caused?

Dos patrias,
Cuba y la noche

This question arose from an action brought by Mr Christian Liffers against Producciones Mandarina, S.L. and Gestevisión Telecinco, S.A.  Mr Liffers was the director, screenwriter and producer of the audiovisual work titled in Spanish “Dos patrias, Cuba y la noche”. This work told the private and intimate stories of Habana's inhabitants, whose common characteristic was their homosexuality and their transsexuality. Mandarina, a Spanish company, released an audiovisual documentary about children prostitution in Cuba, including unauthorized fragments of Liffers' work, this documentary being subsequently broadcast by Spanish TV company Telecinco. 

Mr. Liffers successfully claimed before the Court of Madrid that Mandarina and Telecinco had infringed his author's rights in “Dos patrias, Cuba y la noche”. He obtained an order that the defendants both cease the infringement and pay economic damages of 3,370 euros together with damages for moral prejudice of 10,000 euros. In determining the economic damages, the plaintiff applied the criteria of the lump sum with reference to hypothetical licence royalties according to the scale of Egeda (the Spanish collective society for audiovisual producers) while, for the moral prejudice, he took into account the type of the infringing work –- a documentary on child prostitution –- and the audience share, which amounted to 13.4%.

Producciones Mandarina

On appeal, the Madrid Court of Appeal reversed the first instance decision, holding that compensation for the moral prejudice was incompatible with compensation for damage based on the licence royalty criteria, in the light of Recital 26 and Article 13 of Directive 48/2004: they both set forth exclusive options as between the reparation of actual damage [intended as the negative economic consequences, lost profits included, which the injured party suffered and the unfair profits made by the infringer] in connection with the moral prejudice, on the on hand, and licence royalties when the amount of damages would be difficult to determine, on the other. The Court of Appeal added that the framework for damages compensation provided in Article 13 had been implemented in Article 140 of the Spanish Intellectual Property Law (TRLPI). Accordingly it revoked the moral prejudice award.

Telecinco

Mr Liffers' argument that the recovery of damages for moral prejudice must be independent of criteria for compensatory damages –- based either on actual damages or hypothetical royalties -– then came before the Spanish Supreme Court. This Court particularly emphasised that such compensation must be proportionate to the actual prejudice, as required by the wording of Article 13(1). So, the Court wondered, when a choice has to be made in favour of a lump sum in the form of licence royalties which excludes damages for moral prejudice, how was it possible to provide effective compensation for infringement if, as was the case here, the moral prejudice was greater than the economic damages?

The Supreme Court recalled that Recital 10 of Directive 48/2004 sets the basis for harmonised enforcement of IP rights in the EU:

'The objective of this Directive is to approximate legislative systems so as to ensure a high, equivalent and homogeneous level of protection in the internal market.'

That said, as pointed out by Mr Liffers, in a sensitive matter like compensation for damages, which is a leading issue when its comes to litigation and which has practical consequences wherever forum shopping is permitted, the scope of Directive 48/2004 can be hampered if lower protection was afforded by the Spanish courts in the light of the restrictive interpretation of Article 13(1) of the Directive than that given in other Member States. As the Supreme Court reported, in Germany, Italy and France, although a plaintiff still has to chose between the two alternative criteria for the determination of damages cumulatively, the recovery of damages for moral prejudice can be claimed in either case. 

Now it is over to Luxembourg, so let's wait and see what happens.