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May 15 2017
The holder of an IP right which considers that right to be infringed will often seek a preliminary injunction. If the injunction is wrongfully granted and then overturned, the plaintiff is liable to pay damages to the defendant. A recent Supreme Court case discussed several issues relevant to proceedings concerning such damages and damages in general and is likely to be a leading case for years to come.
A company (A) holding a trademark for food supplements obtained a preliminary injunction against another company (Z) which had recently launched a similar product under a similar trademark. After about four-and-a-half years – during which time Z refrained from launching the product under a different trademark – the preliminary injunction was finally lifted by a Court of Appeal judgment which became final. The security lodged for the preliminary injunction was limited to Skr800,000, which was considered insufficient by Z. Z then initiated proceedings against A. In the first and second instances, Z was awarded approximately Skr20 million in damages.
The case before the Supreme Court raised several interesting issues, many of which may be relevant to any case including a claim for damages.
There is a general obligation under Swedish law that requires a party to try to limit the harm it has suffered as a consequence of a harmful act. The Supreme Court stated that examples of such actions may be to use reasonable efforts to have the decision overturned. However, it did not consider that the party could generally be required to start using a different trademark or a generic term.
Basing its argument on the trademark's essential functions and the trademark owner's interest in creating a connection between the mark and the goods in question, the court considered that choosing a different trademark in the interim could be problematic.
First, it could put the company at risk of infringing the injunction or another company's trademark. Second, it could force the company to invest in a new but less preferred trademark – which it would use for only a limited time – thus limiting the benefits of customer loyalty and potentially harming the trademark it had been prevented from using and would want to start using again once the injunction is lifted. Consequently, Z's decision not to launch under a different trademark was accepted and the resulting lost sales should in principle be compensated.
The court confirmed that the party alleging harm has the burden of proof, both in relation to causality between the act and the harm and in relation to the claimed amount.
Stating that the normal method of calculation would be to compare the actual outcome with the hypothetical situation where no injunction has been granted, the court noted that it was impossible to know what the alternative outcome would have been. Instead, the information available had to be relied on.
In this case, Z relied heavily on its internal projections and calculations, which were confirmed in testimony by Z's representatives, as well as in relation to wholesalers. However, according to the Supreme Court, this was insufficient. The court noted that it would have been possible for the plaintiff to submit further evidence, such as an independent expert opinion on the projections and calculations or certified accountant affidavits supporting the underlying figures, as well as testimonial evidence from the persons responsible for the projections and calculations. It further complained about the lack of evidence relating to the consumer segment.
Although there is a general procedural rule in Sweden which allows the court to make a fair assessment of the damages incurred in situations where it is difficult or impossible to produce sufficient evidence, the Supreme Court ruled that the underlying facts in question were not difficult to produce – although thorough analysis could have been costly and time consuming. Consequently, much of the evidence relied on by Z was considered insufficient and subsequently affected the awarded damages.
One exception was certain information held by A that had been the subject of a request for the production of documents. Had the request succeeded, A would have been ordered to provide access to certain documents that it held and which could have been relevant to the calculation of damages. However, the court denied the request, but stated that it was up to A to consider the potential effects of refusing to provide access. The court ruled that it was possible to make a fair assessment in relation to the damages concerned.
A specific part of the claim related to lost sales in certain other countries in which Z had intended to launch the product but refrained from doing so when it received the injunction in Sweden. Considering the national scope of the injunction, the court considered such harm to be outside of what could normally be expected and ruled that in this case such harm was not reimbursable.
The Supreme Court awarded Skr2 million in damages – significantly lower than in the first and second instances. With only a proportion of the claimed damages awarded to Z, the Supreme Court ruled that the parties should each bear their own costs.
Rights holders should be even more careful when considering whether to request a preliminary injunction. In proceedings based only on the merits, the alleged infringer could be said to risk being right in its assessment of infringement, whereas if a preliminary injunction is granted, the ultimate risk shifts to the plaintiff.
Where the defendant is an established company in the market and has sound financial standing, there may now be more frequent situations where it is better to initiate proceedings solely on the merits to avoid risks associated with a preliminary injunction. This may be especially so if the new Patent and Market Court successfully shortens handling times.
In this case the Supreme Court did not state that companies would always be excused for not launching under a different trademark. It will be interesting to see how such case law develops, as there may be ways in which trademark owners could potentially affect an injuncted party's actions and chances of success in claiming damages for an extended period of no sales. Different considerations may apply for different rights and depending on the defence of the infringement defendant – if, for example, it is claimed that the allegedly infringed trademark is generic, it may be difficult to assert that the choice of the similar trademark under injunction was important in order to serve as a trademark.
The court also stated that a party with an injunction can sometimes be required to use reasonable efforts to have the decision overturned on appeal.
Alleged infringers sometimes request a statement of what the trademark owner considers its scope of protection to be or approval of alternative trademarks in order to use a trademark which is sufficiently dissimilar, thus avoiding further disputes. Trademark owners, on the other hand, often refuse to give such statements more or less on principle. This is often based on them not wanting to assist a competitor and being afraid that such a statement could be used against them in the future. Considering the outcome of this case, situations may be foreseen where it could be worthwhile for a trademark owner to provide the alleged infringer with such a statement, to the extent that the suggestions are reasonable in comparison with the financial risk of the infringer refraining from launching a product entirely.
This ruling may lead to significantly more expensive proceedings for damages, as the Supreme Court has in effect ruled that plaintiffs must be thorough in gathering and providing evidence. The lower instance courts awarded damages of Skr20 million, but the Supreme Court awarded only Skr2 million, which is a significant difference attributable to lack of evidence. This may be reasonable from a cost perspective in proceedings relating to significant sums, but it is already quite common that litigation costs surpass the claim for damages. How this will translate into Patent and Market Court practice remains to be seen, but it will affect litigation strategy in a large number of cases. For defendants, this may in some situations be an argument for accepting the amount per se of a claim for damages, to avoid costly litigation over smaller amounts where costs for evidence and argumentation will exceed the claim.
For further information on this topic please contact Ludvig Holm at Advokatfirman Lindahl by telephone (+46 8 670 58 00) or email (email@example.com). The Advokatfirman Lindahl KB website can be accessed at www.lindahl.se.
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