Damages in Maltese Intellectual Property Cases: A Brief Look at Article 12 of Chapter 488 of the Laws of Malta

Damages in Maltese Intellectual Property Cases: A Brief Look at Article 12 of Chapter 488 of the Laws of Malta

Introduction

The Enforcement of Intellectual Property Rights (Regulation) Act, 2006 [1] came into effect at the end of 2006 [2] and fully implements the provisions of Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights (the Directive).

It is fair to say that Maltese practitioners took some time getting used to the broad implications of Chapter 488. It is also fair to say that even the Maltese Courts themselves initially seemed to exhibit trepidation in granting some of the remedies stemming from this new law. Many of these remedies are more extensive than anything contained in the Maltese Code of Organisation and Civil Procedure (Chapter 12 of the Laws of Malta) or even the Maltese Civil Code (Chapter 16 of the Laws of Malta). These include the right to receive information from the other party, measures to preserve evidence, various interim measures [1] Chapter 488 of the Laws of Malta (hereafter referred to as 'the Act' or 'Chapter 488'. [2] 12th December 2006 (by Act XX of that same year). (such as specific injunctions) and damages which are not restricted to material losses alone. It is these 'damages' that are the scope of this article.

The relevant provision of the Act (Article 12) is found in Part VI and deals with damages with regard to the infringement of intellectual property rights as regulated by Maltese law.The provision states as follows:

12. (1) The Court shall on an application filed by the injured party, order any infringer who has, either knowingly or being reasonably expected to know, engaged in an infringing activity, to pay the rightholder damages commensurate with the actual prejudice suffered by the said rightholder as a result of the infringement.

(2) In setting the amount of damages due, the Court shall take into account all relevant aspects, including all the negative economic consequences that may have been suffered by the injured party including lost profits, as well as any unfair profits made by the infringer and, where it deems appropriate, other elements such as the moral prejudice caused to the rightholder by the infringement:

Provided that instead of the above method of calculation of damages, the Court may, where it so considers appropriate, choose to apply an alternative method of calculation involving the setting of a lump sum of damages payable which shall include elements such as at least the amount of royalties or fees which would have been due had the infringer requested authorisation to use the intellectual right in question.

(3) Where the Court is of the opinion that the infringer did not knowingly engage in infringing activity, it may order the recovery of profits or the payment of damages, as may be pre-established in regulations made under the relevant legislation.


 Available Methods of Calculating Damages


Excluding Article 12 sub-article (3) (discussed separately below), Article 12 of the Act offers two methods for calculating the damages due to the plaintiff.In both methods, the assessment of damages is commensurate with the actual prejudice suffered, and damages are only due if the infringer knowingly engaged in an infringing activity, or was reasonably expected to know of the infringing nature of the particular activity:

Method 1: The methods of calculation of damages listed in Article 12 (2)

This sub-article states that in setting the amount of damages due to the rightholder the Court shall take into account all relevant aspects including:

-Negative economic consequences including lost profits which the injured party has suffered; and

-Unfair profits made by the infringer, and;

  • -where it deems appropriate, the Court shall also take account of other elements such as the moral prejudice caused to the rightholder by the infringement.

Method 2: The methods of calculation of damages listed in the proviso of Article 12 (2)

This proviso creates an alternative method for calculating the damages due to the rightholderwhere the Court may consider it appropriate to resort to. This method is as follows:

- An alternative method of calculation involving the setting of a lump sum of damages payable which shall include elements such as:

  • -Lump sum payable to rightholder which shall be equal to at least the amount in royalties and fees which would have been due had the infringer requested authorization to use the intellectual right in question. This so-called"license analogy" is available in Malta as one of the methods of calculating the damages due to rightholders under Method 2, but is only available in specific circumstances when the Maltese Court deems it appropriate, as opposed to the methods of calculation illustrated in Method 1 above.

It must be said that there appears to exist a certain overlap between the discretionary powers given to Maltese Courts under these methods [3].

Under Method 1, the Court shall "where it deems appropriate" also take account of other elements, such as the moral prejudice caused to the rightholder by the infringement. Under Method 2 the Court may, where it deems appropriate, choose to apply an alternative method of calculation involving the setting of a lump sum of damages payable, which shall include elements such as the amount of royalties or fees which would have been due had the infringer requested authorisation to use the intellectual right in question.

Therefore, under both methods, the Court has the discretion to award damages on an arbitrio boni viri basis.However, it is not clear under which of these methods the Court has wider discretionary powers. For example, it is not clear whether moral prejudices and/or similar considerations are precluded from being included in the lump sum that can be awarded by the Court under the proviso to Article 12(2) (i.e. Method 2).


How have the Maltese Courts Applied Article 12 in Practice?

Excluding cases that did not enter into the issue of damages, cases for the recovery of royalties due to the Performing Rights Society (which deal more with "civil debts" rather than "damages" as understood by Article 12 of the Act) and certain other Intellectual Property ('IP') cases, there seem to be only a few judgments that actually discuss Article 12 of the Act, some of which are subject to Appeal proceedings. Having said that, from the cases at hand, certain trends are already starting to emerge:

Case law dealing with 'Moral Prejudices'

As seen above, Article 12(2) includes the right of the Court to entertain elements including the "moral prejudice caused to the rightholder by the infringement"​ when setting the amount of damages due. Unlike other relevant aspects under Article 12(2) including "all the negative economic consequences that may have been suffered by the injured party ..." which the Court "shall" take into account in setting the amount of damages due, moral prejudices may only be considered in such calculations under Article 12(2) "where [the Court] deems appropriate". Although there is no reason why, if sufficiently proven, the Court should not take such prejudices into account, this remains one of the very few instances in Maltese law where moral prejudices are explicitly taken into consideration when liquidating damages. Until recently, under the general Civil law provisions regulating tort, moral damages have generally been rejected explicitly by the Court on the ground of "lack of legal basis", although it is worth noting that the Courts have sought to make up for this by adjusting the calculations accordingly. [4]

One of the first IP judgments to award damages invoking moral prejudices explicitly is the case Air Malta P.L.C. vs Efly Company limited [5]. Having said that, this was done on an arbitrio boni viri basis and therefore no explanation of the methods of calculation in question were entertained by the Court.

This case dealt with the unlawful use of the plaintiff's registered trademark (a white Maltese cross over a red background) by the defendant. The Court acknowledged that the use of such trademark by the defendant in certain advertisements constituted a breach of Article 10 of the Malta Trademarks Act (Chapter 416 of the Laws of Malta). Consequently the Court went on to accept the plaintiff's general claim for damages on the basis of Article 12 of Chapter 488 of the Laws of Malta (outlined above). In awarding the plaintiff EUR 500 as damages resulting from the breach described above, the Court states the following:

"[The Court] … liquidates arbitro boni viri the amount of damages taking into consideration the contents of Article 12 as well as the moral prejudice caused to the plaintiff in the amount of five hundred Euros (€500) …" [6]

It must be reiterated that this case was one of the first to be decided on the basis of Article 12 of Chapter 488 and the fact that the damages awarded seemingly relied on the method of calculating damages found in Article 12(2) of the Act (i.e. Method 1 - where moral damages are mentioned), this does not mean that this is a trend that can be relied upon with any accuracy. In truth, it would seem that in the absence of clearly proven damages in the form of lost profits or other negative economic consequences, there are better chances that the Court will resort to the method of calculating damages found in the proviso of Article 12(2) (i.e. Method 2) rather than other components of Article 12(2) itself (moral damages being one of these components). Examples of this can be seen below.


Trends in Recent Case-law

A recent trend that seems to be more reliable as a norm in Maltese IP cases invoking Article 12 is the fact that the Courts will presumably only award the plaintiff specifically requested damages under the first method of calculating damages, that is, under Article 12(2) (i.e. Method 1) as outlined above (i.e. negative economic consequences, lost profits, unfair profits made by the infringer etc.) only if the plaintiff sufficiently proves such damages. If the plaintiff is unable to do so, then the Courts will probably resort to the alternative method of calculating the damages due, namely; the method outlined in the proviso to Article 12(2) (i.e. Method 2). Doing so gives the Courts more discretion in the amount awarded, bearing in mind that the proviso merely gives examples of what must be taken into account by the Court when awarding the lump sum payment in question. Having said that, it is unclear to what extent (if at all) the Courts may also take into account "other elements such as the moral prejudice caused to the rightholder by the infringement" as mentioned in Method 1 (Article 12(2)) when awarding the lump sum mentioned in the proviso to Article 12(2) (i.e. in Method 2).

The recent judgment Saviour Mallia vs MK Leisure Limited [7], dealt inter alia with copyright claims over theatrical and related works, wherein both Article 43 of the Copyright Act as well as Article 12 of the Act were invoked.In this case, although the plaintiff requested damages including lost profits in connection with the alleged copyright infringement in question, in its deliberations the Court said that:

"… no realistic evidence was presented regarding damages (both in terms of compensation due to the copyright holder as well as profits resulting from the infringement)…This notwithstanding, the Court deems the author [the plaintiff] to have a right to be compensated for the damages suffered [as a result of the infringement in question]. However, without precise parameters, the Court is resorting to its discretion on the basis of the proviso of Article 12(2) of Chapter 488 and therefore, on an arbitro boni viri basis deems that the damages and lost profits suffered from August 2010 to April 2011…should be in the amount of EUR3,500." [8] [emphasis added]

The defendant was ordered to pay the said damages to the plaintiff, in addition to the judicial costs involved in the case.

In the case A.M.A. Company Limited vs Tat-Taljan Company Limited [9] , both Article 37 of the Commercial Code [10] as well as Article 12 of Chapter 488 were invoked in the judicial demand for damages. The Court accepted the claim that a trademark infringement had occurred and in awarding damages, it simply said that "… the defendant must answer for the damage caused to the plaintiff and in this respect the Court is liquidating the sum of EUR 5000 …" The Court then ordered the defendant to pay the plaintiff the said amount of EUR 5000 "as  damages on the basis of Article 12 of Chapter 488 and a penalty on the basis of Article 37" [11]. It is therefore unclear on what basis these damages were awarded in terms of Article 12 since no further deliberations were specifically entertained by the Court on this point. However, it would appear that the proviso was being used (i.e. Method 2) rather than Article 12(2) (i.e. Method 1), even though it is unclear to what extent the components specifically mentioned therein were taken into consideration by the Court. The Court also ordered the plaintiff to publish a brief summary of what was decided in the local press at the expense of the defendant. The Court established a maximum of EUR 600 which had to be paid by the defendant in this regard. This case has been appealed.

An example of the "precise parameters" required by the Maltese Courts (as mentioned above in the case Saviour Mallia vs MK leisure Limited) to be able to award the plaintiff the amount of damages requested by the same can be seen in the case 'Atlantic Industries Limited et. Vs K.T.A. Import Trading Limited'. [12] In this case, dealing with an alleged trademark infringement, the plaintiff invoked, inter alia, Chapter 488 of the Laws of Malta and requested damages under Article 12 thereof without specifying further which sub-headings were being invoked. The Court considered that the damages claimed by the plaintiff were based "on Article 12" which allows for damages commensurate with the actual prejudice suffered including negative economic consequences, including lost profits by the plaintiff and unfair profits made by the defendant taking into account the moral prejudice suffered. The Court also noted that the financial controller of one of the plaintiffs presented a document containing an estimate of the damages suffered (i.e. EUR 4,976 in damages by way of unfair profits made by the defendant and EUR 4,976 in damages by way of profits lost by the plaintiffs – for a total of EUR 9,952). After evaluating the evidence, the Court said that: 

 "This Court deems the damages [calculated by the plaintiff] to be conservative and in line with the requirements of the law in question and the Court has no doubt that the estimated damages are in fact realistic and justified. [13]"

In addition to the other decisions taken by the Court (including the order to destroy the items in question subject to a daily fine of EUR 500 until so done by the defendant), it ordered the defendant to pay to the plaintiffs the amount of EUR 9,952 with interest commencing to accrue as of the date of the judgment as well as judicial costs to be incurred by the same.

In this case, it is evidently clear that in relying on the plaintiff's own computations, Article 12(2) (i.e. Method 1) was used by the Court as the legal basis for awarding the damages in question.


Article 12(3) of Chapter 488 

As seen above, this provision imposes a limit on the liability of the infringer provided he/she did not knowingly engage in infringing activity. This provision states that in such cases the Court may order the recovery of profits or the payment of damages, as may be pre-established in regulations made under the relevant legislation.

The reference to such regulations may allow for damages to be claimed at some time in the future, but at the moment it appears that no such damages may be claimed, since there are no such regulations which regulate the recovery of profits or the payment of damages in cases where the infringer did not knowingly engage in infringing activity.

The Copyright Act is the only one of the IP Acts (apart from Chapter 488 itself) to deal with the issue of intent. The proviso to Article 43 of the Copyright Act states that: 

"Provided that where the defendant proves to the satisfaction of the Court that at the time of the infringement he was not aware and could not reasonably be expected to be aware that copyright, neighbouring rights or sui generis rights subsisted in the work to which the action relates, the Court shall not condemn him to the restitution of the profit".

This confirms explicitly that in copyright cases, when the infringer did not knowingly engage in infringing activity, restitution of profits cannot be claimed by the rightholder. Having said that, damages may still be claimed under the general provisions of Maltese law.

In all other cases (i.e. relating to Copyright, Trademarks, Patents and Designs etc), the Maltese principles of Civil law (including tort) also generally apply.


Conclusions

Whilst the jurisprudence on this particular point is limited, the indication so far has been that the Courts will reckon damages due in IP infringement proceedings in line with conservative principles. If the plaintiff can prove the precise extent of the alleged damages suffered, the Courts will in all probability proceed to award such damages on the basis of Method 1 as illustrated above. In other cases, including cases where the extent of damages is not clear, the Courts may be inclined to award damages on an arbitrio boni viri basis. In this regard, it will probably be Method 2 that is resorted to by the Courts. Of course, it remains to be seen how Article 12 of Chapter 488 is interpreted in the years ahead. Of particular interest will be the deliberations of the Maltese Court of Appeal on the points raised above. 


Footnotes

​[1] Chapter 488 of the Laws of Malta (hereafter referred to as 'the Act' or 'Chapter 488'.
[2] 12th December 2006 (by Act XX of that same year).
[3] Seemingly resulting from the way the Directive was implemented into Maltese law. ​​​
[4] In fact, it must also be pointed out that in Maltese law of Tort 'actual prejudices' are not generally deemed to include 'moral prejudices' (even though a legal basis may exist which supports such view).
[5] Air Malta PLC (C-2685) vs Efly Company Limited (C-46370) – 30th March 2010 – First Hall, Civil Court per Mr. Justice Raymond C. Pace.
[6] Translated from the original Maltese text.
[7] Saviour Mallia vs MK Leisure Limited – 4th July 2013 – First Hall Civil Court per Mr. Justice Mark Chetcuti
[8] Translated from the original Maltese text.
[9] 11th December 2012 – First Hall Civil Court – per Mr. Justice Mark Chetcuti
[10] Setting a penalty for violations of certain provisions of the Commercial Code including Article 32 dealing with unlawful use of names, marks or distinctive devices.
[11] Translated from the original Maltese text
[12] Chetcuti Cauchi Advisors Limited acting as special mandatories of the foreign company Atlantic Industries Limited and the General Soft Drinks Company Limited vs K.T.A. Import Trading Limited – 2nd May 2011 – First Hall Civil       Court – as per Mr. Justice Mark Chetcuti LL.D.
[13] Translated from the original Maltese text.

© 2014 Mamo TCV Advocates. Reproduction of extracts from this document is permitted provided that clear acknowledgment is made of Mamo TCV Advocates and the author as the source.


Disclaimer

This document does not purport to give legal, financial or tax advice. Should you require further information or legal assistance, please do not hesitate to contact Dr. Claude Micallef Grimaud.

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