international intellectual property copyright ...

INTELLECTUAL PROPERTY DAMAGES IN EU & US LAW

INTERNATIONAL INTELLECTUAL PROPERTY COPYRIGHT & TRADEMARK CIVIL DAMAGES AWARDS An investigation of TRIP’s Article 45 and Harmonization efforts for Copyright & Trademarks Civil Damages Awards. Analysis of different award approaches in UK/EU and USA.

Philip Corsano-Leopizzi

September 2017 Swansea University LLM Thesis: International Commercial & Maritime Law

© Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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Table of Contents COVER 1. INTRODUCTION PART1 2. TRIP's & CONSEQUENCES OF HARMONIZATION EFFORTS OF IP LAW 3. HARMONIZATION 4. ENFORCEMENT UNDER TRIP's 5. NATURE OF DAMAGES IN COPYRIGHT & TRADEMARK 6. COPYRIGHT 7. REQUIREMENTS FOR COPYRIGHT 8. TRADEMARK 9. HARMONIZATION EFFORTS IN EU 10. COHERENCE BETWEEN THE WTO APPELLATE TRIBUNAL & CJEU 11. ILLUSTRATIVE CASE OF ANHEUSER-BUSCH & BUDVAR 12. CJEU RULES OF INTERPRETATION 13. EXAMPLES OF CJEU RULINGS 14. PROTECTION OF TRADE NAMES AND GOODWILL 15. EXCLUSIVE RIGHTS - TRIP's INTERPRETATION BY CJEU, HAVANA CLUB 16. CJEU SCOPE OF EXCLUSIVE RIGHTS PUSUANT TO TRIP's 17. EVALUATING LEGITIMACY OF TM LAW HARMONIZATION 18. CJEU TRANSNATIONAL LAW AND IPR 19. WTO APPELLATE BODY ADJUDICATIONS 20. POTENTIAL DISADVNTAGES OF TM LAW HARMONIZATION 21. OTHER DISADVANTAGES OF WTO, WIPO CJEU SYSTEM 22. RAMIFICATIONS TRADE NAMES INCORPORATION INTO TRIP's PART 2. 23. DAMAGES CALCULATIONS BASICS FOR CALCULATION OF AWARDS 24. ACCOUNTING STANDARDS USED TO VALUE IPR 25. MEASURING INCREMENTAL COSTS BY REGRESSION ANALYSIS 26. HEADS OF DAMAGES: COPYRIGHT 27. CALCULATING EROSION FROM PRICE ELASTCITITY OF DEMAND 28. MORAL RIGHT DAMAGES 29. HEADS OF DAMAGES - TRADEMARK - POTENTIAL LOSSES 30. TRADEMARK PASSING OFF 31. UNFAIR COMPETITION & UNJUST ENRICHMENT CROSS JURISDICTIONS 32. INFRINGEMENT: ECONOMIC DAMAGES 33. UK & CONTINENTAL EUROPE DAMAGES COMPARED 34. INQUIRY AS TO DAMAGES 35. IP OWNER'S LOST PROFIT 36. ACCOUNT OF PROFITS 37. CONCLUSION BIBLIOGRAPHY APPENDIX 1 DEVELOPMENT OF INTELLECTUAL PROPERTY INTENSIVE INDUSTRIES APPENDIX 2 TRIP'S ART'S ON INFRINGEMENT APPENDIX 3 LIST OF CONVENTIONS ADMINISTERED BY WIPO APPENDIX 4 TYPES OF INTRA EU DAMAGES AWARDS BY JURISDICTION. APPENDIX 5 US APPROACH TO CALCULATION OF DAMAGES:

1 6 8 10 13 16 16 19 20 21 23 23 26 27 29 31 33 36 37 39 41 43 44 46 47 51 53 55 56 57 58 62 63 64 65 66 67 70 71 73 78 80 84 85 90


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ABSTRACT Intellectual Property [IP] creates exclusive legal rights in a very wide universe: artistic works, literary works, computer programs, databases, films and television broadcasts, performances, dress and fashion design, pharmaceuticals and perhaps most controversially of all, genetically modified plants and animals. Although IP is a relatively new area of law, it has its roots in the English empiricist tradition, with John Locke as perhaps the source of the “fruits of labour” principle that underpins the premise that an individual’s efforts can and should be protected from being copied, and thus granted a “monopoly protection” from competition. To have any value this temporary monopoly must, if infringed, have some monetary consequence [damages] to the infringer, such that he/she do not profit unjustly from the violation. The purpose of this paper is to investigate whether the TRIP’s international framework provides for acceptable levels of commercial consistency between awards made in different jurisdictions. It is for Members national jurisdictions to make Copyright/Trademark awards for damages. Too much variability in these national awards creates uncertainty with consequent reduction of trade; - precisely what TRIP’s was supposed to prevent. The discussion treats Copyright/Trademark as if there were no overlap. This is a simplification for the purpose of analysis. In practice the relationships between Copyright, Trademark, Design & Patent share many fundamental principles which any good lawyer will be able use for the benefit of his clients [such as using Copyright’s instant protection vs. the enduring protection of say patents, or the use of Copyright’s lesser disclosure rights]. Boundaries between different IP rights are far more uncertain in practice, especially when examined across jurisdictions, making an analysis of harmonization of both the IP rights and consequent damages awards highly complex. In particular, it is possible for both Copyright and Trademark rights to co-exist on the same product, with Copyright preventing the copying of substantially similar work, and Trademark preventing the use of identical or similar marks which cause consumer confusion in the marketplace. Nevertheless the author will attempt to do so by analyzing how rights are enforced in the EU and the US, as well as how damages are calculated in practice in these afore mentioned jurisdictions.


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INTELLECTUAL PROPERTY DAMAGES IN EU & US LAW ACKNOWLEDGEMENTS This paper is a part of the LLM thesis at Swansea University in International Commercial and Maritime Law. When I undertook the study of Intellectual Property Law, as a former economist, I thought I understood the value of this intangible asset [IP] in modern commerce. There is however, in my view, a huge gulf between understanding the economics of intangible asset valuation, and the legally applicable rules for determining the value of IP. I have been helped immeasurably by the insights provided Professor A. Beale OBE from the day I arrived in Swansea. His first lecture in which he explained the different approach of IP relative to the very “black letter” law of Admiralty and other Maritime law, fascinated me. When asked on numerous occasions why in undertaking an LLM in Maritime Law, [and choosing three Maritime elective courses], I chose a single IP course, all I could answer is, “because it is the application of law to economic principles”. In this year, I have struggled with various legal concepts, none more than the concept of damages in English Law. In the final analysis, I believe to my core that intangible assets are the most valuable of all in our intellectual property driven economy. Yet their essential intangibility renders them extremely fragile in the law. For this reason alone, I felt it necessary, having undertaken the effort to pursue an LLM, to at least try to produce some original legal research into the subject of the variability of IP damages in different jurisdictions, given the TRIP’s mandated “national treatment” of these. This type of research is a solitary and at times frustrating effort. I have to thank Professor A. Beale OBE for his “Olympic” patience, as I seemed to struggle even to find an acceptable title for this dissertation. His hand on the tiller, to use a maritime term, has allowed me to first have some idea of what course I wanted to steer, and secondly, to keep me from veering off various tangential dead ends. I thank the support staff at Swansea University, [Sunny who put up with my many changes to the project] and the head of department, B Soyer who again has shown an uncommon kindness. Thanks also go to Ms. S. Radcliffe who ran the LLM course in International IP for most of the year. Lastly I want to thank my friends and supporters this year, particularly Pamela Murdock; and my children Cecilia and Mickey and my many friends; without their support, none of this work would have been possible. Amelia, 22th September 2017


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1. INTRODUCTION “When awarding damages, the law does not adhere slavishly to the concept of compensation for financially measurable loss. When the circumstances require, damages are measured by reference to the benefit obtained by the wrong-doer”1. In February 1998, I found myself wandering the famous Izmailovo2 market in Moscow. Among the many former Soviet Union curios/souvenirs for sale, one could find the latest versions of [“officially” licensed] Microsoft Office as well as Hollywood block-buster movies/music CD’s for less than 1/5 of the official retail sales price. Today these types of “physical markets” have practically vanished, as the Russian Federation and many other nations around the world have “harmonized” the TRIP’s protection of minimum Intellectual Property Rights [IPR]. The frontier in IPR is now the effective enforcement of national laws for protecting IPR holders: online infringement hides in plain site on the web3. This paper focuses on whether it is possible, given national treatment4 of IPR damages awards, to expect consistent treatment of IPR for Copyright and Trademark across different national 1 Lord Nicholls of Birkenhead: Attorney General v Blake [2001] 1 AC 268 HL 285 2 Izmailovo is a market in North Moscow, situated in , 73Жс2, Измайловское ш., 73Жс2, Moscow,

Russia, 105122, in which hundreds of vendors sell everything from novel souvenirs to electronics to expensive art carpets and jewelry. 3 In 2015, the Dutch District Court referred the case Netherlands-based Filmspeler.nl (Movie Player), an online store that found itself targeted by Dutch anti-piracy group BREIN to the Court of Justice of the EU, [CJEU]. It was asked to consider whether it’s illegal to sell a product (in this case a media player) with pre-installed add-ons containing hyperlinks to websites from where copyrighted works such as movies, TV shows and live broadcasts are made available without copyright holders’ permission. On the crucial question of whether the copyright works were transmitted to a “new public”, the Court found that the audience for these devices was not something taken into account by the copyright holders when they first gave permission for their works to be distributed. 4 TRIP’s imposes national treatment obligations, including the availability of local laws to compensate and remedy IPR infringement abuses, [see Art 41.1 TRIP’s general obligations]. “These procedures shall be applied in a manner to avoid the creation of barriers to legitimate trade and to provide for safeguards against their abuse”. © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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jurisdictions5. Excessive variability in awards creates un-hedgeable uncertainty in commercial risk, which in turn, may reduce economic activity and investment in Intellectual Property [IP]. This paper has two parts: Part 1 deals with the intra and inter jurisdiction issues faced by owners of IPR: essentially an analysis of the law as it relates to IPR damages harmonization, in EU and the US. Part 2 deals with the specifics of variability of different awards across the EU and the US. It is always important in the law to understand that variability in awards may be primarily due to the facts of the case. No two cases are identical, which means we will focus on the methods of determining IPR awards. 5 Patents, Integrated Circuits and Industrial Designs are not covered by this analysis as best left to a

subsequent separate analysis. © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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PART 1: 2. TRIP’s & CONSEQUENCES OF HARMONIZATION EFFORTS OF IP LAW The TRIP’s6 agreement arose out of the efforts of the international business community7 to regulate trade recognizing the increasing importance and exponential growth of IPR in international trade8. As economic actors around the world sought to escape the pressure of competitions commoditization’s 9 resulting down-ward pressure on profitability, they have invested heavily in IP [from branded drinks, to cosmetics, to sporting goods, to luxury goods]. This has allowed products with High IP content to resist competitive price erosion10. IPR have consequently become a critical component of the fabric of commercial law, as they create legally enforceable time based monopolies11. 6 Final Act Embodying the Results of the Uruguay Round of multilateral Trade Negotiations,

Marrakesh Agreement Establishing the World Trade Organization, signed at Marrakesh (Morocco), April 15, 1994 [hereinafter WTO Agreement]; Annex IC, Agreement on Trade-Related Aspects of Intellectual Property Rights [hereinafter TRIP’s Agreement or TRIP’s]. 7 Uruguay Round. TRIP’s was heavily sponsored by developed nations in particular the United States: indeed it has been heavily critiqued for having preferred rules that protect IP over the interests of a commons that contributes to diffuse social progress and innovation 8 The growth in IP as a proportion of international trade is best illustrated by growth in IP applications relative to growth in international trade. 9 For an excellent expose’ of the effects of commoditization from competition, see Prof. M Porter’s article in the Harvard Business Review Nov – Dec 1998, Clusters and the economics of competition. IP is seen as a way to maintain competitive advantage and protect against profit erosion. 10 See OECD/G20 paper 2014, Base erosion and profit shifting, guidance on transfer pricing aspects of intangibles. IPR have some negative effects as they create monopolies and wealth concentration. 11 The Minimum protection in TRIP’s is 50 years for Copyright and 10 years for Trademarks. © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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GROWTH IN IP APPLICATIONS WORLDWIDE:

The growth in global exports/imports over the same period was less that 4% Source: WIPO 2016

While there has been great progress in protecting IPR, the problem faced by many, [especially small and medium sized companies] is that winning an award for damages against infringement of IPR rights may end up being a pyrrhic victory. Too often an award fails to cover legal costs, except for in a few high profile EU/US cases. The question is thus: do IPR holders face a creeping expropriation of their rights from the failure of national courts harmonization of damages awards? We will now investigate whether current national regimes consistently apply basic IPR and damages principles across different jurisdictions in the EU, and US12. 12 The US is one of the few countries in the world that has express IP protections named in its constitution [Section 8]. IPR are an essential part of US legal tradition.


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3. HARMONIZATION IP Harmonization is the process of creating similar international IP rules and law. Given the growth of importance of IP, this effort to align enforcement rights/awards needs to be viewed within the wider context of national legal cultures and the process of global change. This paper will address IP Copyright and Trademark harmonization efforts for IP damages awards at an EU level, as well as a comparison with US awards. If enforcement is by definition a matter for national courts, there is evidence that while meeting minimum TRIP’s requirements, certain judgments from local courts may not be entirely consistent across awards in different jurisdictions. This is a result of both the different application of rights generated from IP law, and the application of rules on monetary damages awards. Where enforcement is weak, legal rights in practice fail13. Within the 27 separate EU judicial systems, consistent IP awards can be a mirage. Perhaps this is to be expected, even within the Brussels 1 Rome1 & 2 frameworks14. The cost and complexity of IP civil damages litigation 13 See Lord Neuberger’s comments on enforcement at the 2013 Tom Sargent Memorial Lecture: “At

its most basic, the expression connotes a system under which the relationship between the government and citizens, and between citizen and citizen, is governed by laws which are followed and applied. That is rule by law, but the rule of law requires more than that. First, the laws must be freely accessible: that means as available and as understandable as possible. Secondly, the laws must satisfy certain requirements; they must enforce law and order in an effective way while ensuring due process, they must accord citizens their fundamental rights against the state, and they must regulate relationships between citizens in a just way. Thirdly, the laws must be enforceable: unless a right to due process in criminal proceedings, a right to protection against abuses or excesses of the state, or a right against another citizen, is enforceable, it might as well not exist …” 14Brussels 1 is a set of rules regulating which courts have jurisdiction in legal disputes of a civil or commercial nature between individuals resident in different member states of the EU. Recognition and enforcement of judgments in civil and commercial cases was originally accomplished within the European Communities by the 1968 Brussels convention: a treaty signed by the then six members of the Communities. This treaty was amended on several occasions and has now been © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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together with the limited universe of actual IP damages awards cases15, means that harmonization may be a utopia. Just the cost of maintaining a well-stocked library necessary for access to IP legal resources can run into the $10,000’s not taking account of digital library access to online law resources which can run into $100,000’s placing these resources out of reach for all but best capitalized. This makes it unlikely for an LDC16 medium sized business to be able to afford. IP litigation runs into millions of US $17, which may ration access to the courts and damages to all but the super-wealthy corporations who are able to afford the economically punitive cost of failure. The brief history of International IPR established the principle that claims of foreign nationals should be judged on the same basis of a nation’s nationals: TRIP’s makes compliance with IP laws a condition of membership in the WTO, requiring harmonization of enforcement minimum standards. Whether this approach is almost completely superseded by a regulation adopted in 2001, the Brussels I regulation. The Rome I Regulation can be distinguished from the Brussels Regime which determines which court can hear a given dispute, as opposed to which law it should apply. Rome 1 deals with contractual matters while Rome 2 deal with torts. 15 A study of actual damages awards by WIPO in the publication ”Private International Law Issues in on-line IP Infringement disputes with cross border elements” examined responses to questionnaire’s submitted to experts in 25 countries between 2013-2014. The experts were asked to provide leading court judgments (between 3-5 cases) involving IP infringement disputes with cross border elements. 26 cases involved Registered Trademark rights and 21 involved Copyright and related rights. This study will be commented on later in the paper. 16 LDC, Less Developed Country. 17 In 2011 the Hargreaves Digital opportunity: review of intellectual property and growth report estimated that the cost of litigation including awards in the UK alone was between £150,000 for basic Trademark/Copyright , to estimates of over $20 billion in Samsung-Apple litigation over smart phones, in the last two years according to a Stanford University based analysis. This is 8 times the amount spent on the Mars rover missions. See PATENTS AND SMALL PARTICIPANTS IN THE SMARTPHONE INDUSTRY Joel R. Reidenberg, N. Cameron Russell, Maxim Price & Anand Mohan Fordham University, in the Stanford Law Review September 2015]. © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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sufficient to create commercial consistency, and whether there is a constituency within WTO/WIPO which are concerned enforcement harmonization is the subject of this paper. 4. ENFORCEMENT UNDER TRIP’s IPR enforcement was one of the critical negotiating hurdles to be overcome during the GATT Uruguay rounds: a matter of great concern to the US18 and EU19. Surprisingly, notwithstanding their importance and far reaching legal implications, the enforcement and maintenance provisions within TRIP’s proved far less controversial than the substantive rules contained in the rest of the agreement20. The uncontroversial nature of negotiations as regards to enforcement stand in stark contrast to the significant differences that exist in enforcement rules amongst legal systems and national laws. This is especially significant for most LDC’s since they lack the infrastructure and resources to apply for the enforcement of IPR. The US and EU’s insistence on results oriented rules21 of infringement prevention, can superficially be deemed a victory for the EU-US approach. The leading constituencies within EU/US pushing for consistency in infringement prevention were, of course, the well capitalized large multinationals in packaged/luxury goods,

18 See MTN .GNG/NG11/W/70 of May 11 1990 part 3 and 19 See MTN.GNG/NG11/W/16 of November 20 1987: MTN.GNG/NG11/W/31 of May 30 1989. 20 The differences between the current text of TRIP’s Agreement and the EU US proposals as well as the Anell Draft (document MTN.GNG?NG11/W76 of July 23rd, 1990) do not appear to be substantial. 21 Results based versus formalistic rules. Formalistic rules which tend to emphasize process solutions over the value of monetary damages to the party injured. © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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pharmaceuticals, the software and hardware industry, database development, search engines and cellular hand-phones. Although many IPR provisions were weakened during the TRIP’s negotiations22, the final prevention of infringement regulation was largely a result and conception of the EU/US. The lone revolt in the area of IPR enforcement was the Indian23 proposal that allowed LDC’s to avoid any obligation to establish a special judicial system to enforce IPR, including dedicated resources24. Several nations25 established specialized IPR courts, designed to significantly strengthen IPR protections,26 even though this was not required to do so under minimum TRIP’s requirements. As with any Convention, TRIP’s has loopholes that can be exploited, particularly in the exhaustion of IPR area. The well documented problem of Parallel imports27 allows parallel importers to compete with IPR owners by buying products in low-

22 See the discussion of the drafts of TRIP’s – Reichman JH “Intellectual Property in International Trade, Opportunities and Risks of a GATT Connection” [1989] pp. 335-356; The TRIP’s Component of the GATT Uruguay Round: Competitive Prospects for Intellectual Property Owners in an integrated World Market, Fordham Intell [1993] pp 171-178. 23 See TRIP’s Art 41.5, MTN.GNG/NG11/W/40, at 3 no 4(e). 24 TRIP’s Art. 41.5 ensures Members are not obliged to establish a special court to deal with intellectual property issues, nor allocate special funds for this area. 25 China and the United States are examples of countries establishing specialized IP courts since 1980’s . 26 See John Barton, Adapting the IP system to new technologies, International Journal of Technology Management, 1995 vol 10 No. 2/3 p. 163 27 Many countries consider the parallel importation of goods made by the right owner or with his consent abroad as an infringement of domestic IP rights. Particularly in the EU countries, parallel importation of trademarked goods from outside the Community is considered infringing: CJEU, 16 July 1998, Case C-355/96 Silhouette International Schmied v Hartlauer Handelsgesellschaft. European countries right owners would be allowed to invoke border measures against such goods, however: For Germany, Bundesfinanzgericht (Federal Tax Court), 5 October 1999, case VII R88/98. The basis of action is domestic customs law rather than European law. © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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price areas and sell them in higher-price countries.28 Most IPR owners consider this behavior as infringement29 not covered by exhaustion of rights30 Eliminating these loopholes [see also goods in transit31] through harmonization measures, allows the playing field to be leveled for smaller/LDC innovators. 28 Goods produced with the authorization of the IP right holder may in certain jurisdictions will not be deemed as contra-band, if imported through parallel channels. 29 In order to verify an infringement claim, Article 57 confers upon the right owner a right of

inspection and subsequent release of the name and address of the importer. [See CJEU , 14 October 1999 , Case C-223/98 Adidas AG where the court ruled on an instructive case where the Swedish authorities refused to provide such details. Per Article 58, countries also may require customs officials to act ex officio, subject to the above procedural protections, where they have acquired prima facie evidence that a right is being infringer. Article 59 requires counties to authorise the destruction or disposal of infringing goods as per Article 46. Of course, instead of defending an infringement action, it is quite common for importers to ‘ abandon ’ their shipments once detention has been ordered. Countries may enact legislation to provide for simplified destruction procedures in these cases, although TRIPS is silent on this matter. 30 Exhaustion of rights [Exhaustion] refers to one of the limits of intellectual property rights. “Once a product protected by an IP right has been marketed either by your Small and medium sized enterprise, [SME] or by others with your consent, the IP rights of commercial exploitation over this given product can no longer be exercised, as they are exhausted. Unless otherwise specified by law, subsequent acts of resale, rental, lending or other forms of commercial use by third parties can no longer be controlled or opposed. There is a fairly broad consensus that this applies at least within the context of the domestic market. There is less consensus as to the extent the sale of an IP protected product abroad can exhaust the IP product rights in the context of domestic law. The issue becomes relevant in cases of “parallel importation”. Parallel importation refers to the import of goods outside the distribution channels contractually negotiated by the manufacturer. Because the manufacturer/IP owner has no contractual connection with a parallel importer, the imported goods are sometimes referred to as “grey market goods”, which in fact is somewhat misleading, as the goods as such are original, only the distribution channels are not controlled by the manufacturer/IP owner. Based upon the right of importation that an IP right confers upon the IP owner, the latter may try to oppose such importation in order to separate markets”. Source WIPO, http://www.wipo.int/sme/en/ip_business/export/international_exhaustion.htm, accessed 29th, Aug 2017. 31 The provisions of the TRIPS Agreement leave open what shall be defined as an ‘act of importation’

, in particular if the transit of goods would qualify as such. The CJEU so ruled in a 2000 judgment, [6 April 2000 , Case C-383/98 The Polo/Lauren Company LP v PT Dwidua Langgeng Pratama International Freight Forwarders]. More recently it held that the mere transit of allegedly infringing goods from one non-Member State to another non-Member State does not violate EU law, absent evidence that the goods are intended to be diverted to EU consumers. © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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5. NATURE OF DAMAGES IN COPYRIGHT & TRADEMARK Arts. 41-61 of TRIP’s form the main international framework for enforcement of IPR, with Art 45 specifically dealing with damage awards. Art 45 imposes damages as mandatory, requiring judicial authorities to order the infringer to pay the IPR holder “adequate32” monetary damages for the injury suffered. Members may define what constitutes “adequate”: leaving a great deal of latitude for a given national view of harmonization of IPR monetary damages. There are of course ways to avoid damages, the most egregious is where an infringer claims he was not aware33, or had reasonable grounds not to know he/she was engaging in infringing activity. In this case the infringer is not required to pay damages, whatever the nature of his/her offence. We will now investigate the basic legal basis for calculating damages for copyright and trademark. 6. COPYRIGHT, © A copyright protects the owner of the work. It is defined as the “legal right to prevent others from copying an original expression embodied in any original work of

32 Definition of what is adequate is left to jurisdictions determination. 33 There is only one provision in TRIP’s that specifically mandates compensation payment by a bona fide acquirer: this is the case of infringements in integrated circuits, [“IC”] where the bona fide acquirer is obliged to pay the title holder a sum equivalent to a reasonable royalty such as would be payable under a freely negotiated license for the IC lay-out design. © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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authorship, fixed in a tangible medium”.34 Copyright cannot protect ideas, and is limited to expressions emanating from the mind of an individual author. Shakespeare my have borrowed from Plutarch’s version of Cleopatra’s description of the barge on the Nile, but it was his expression of the dramatic representation of Anthony & Cleopatra that was “copyrightable”35. In order to protect an author’s investment in the labour of their works, copyright gives both economic and moral right protections, which makes it a very subtle form of IP. EU directives and the CJEU36 have filled the partial gaps in copyright law in the EU remained un harmonized until CJEU intervention, [see Infopaq37 ruling on the essential concept of Copyright originality38, the notion of the work39, authorship40, the public41, as well as copyright/design interface]. Copyright belongs to an author except where it is a result of work for hire, such as: a. When an employee created the work in the scope of his/her employment; 34

Bagley C Managers and the Legal Environment: Strategies for the 21st Century 8th Ed 2016 , pp 290291 Cengage learning 2016 35 Sir Thomas North published his English translation of the first-century historian Plutarch's The Lives of the Noble Grecians and Romans in 1579. Shakespeare found a mass of fascinating material in Plutarch's Life of Mark Antony and gave it form and focus in his play by concentrating on Antony's relationship with Cleopatra 36 Court of Justice of the European Union, [CJEU] Cour de justice de l'Union européenne is the institution of the European Union (EU) that encompasses the whole judiciary. Seated in Luxembourg, it consists of two separate courts: the Court of Justice and the General Court. From 2005 to 2016 it also consisted of the Civil Service Tribunal. It has a sui generis court system, and a the supranational institution which reviews EU member law for compliance with EU legislation. 37 Infopaq Int v Danske Dagblades Forening Case C-5/08 [2009] ECR I -6569 (CJEU 4th Chamber). 38 See E. Judge & D. Gervais “Of silos & constellations: comparing notions of “Originality” in Copyright Law” [2009] 27 Cardozo AELR 375: personal intellectual creation” associated with EU civil law: “minimal creativity” associated with the US after Feist Publications v Rural Telephone Service Co. 499 US 340 [1991]: labour skill and judgement, the traditional English law test. 39 Bezpecnostni softwarova asociace, Case C-393/09 [2010] ECR 1-13972 CJEU 3rd Chamber, graphic user interface treated as work. 40 Martin Luksan v Petrus van der Let Case C-277/10 9 Feb 2012 [CJEU]. 41 Sociedad General de Autores y Editores de Espagna (SGAE) v Rafael Hotels SL Case C-306/05 [2006] ECR I-11519. © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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b. The work is one of nine listed categories and is specially commissioned through a signed written agreement stating it is work for hire. The copyright owner has exclusive rights to reproduce, distribute, display, publicly perform the work, as well as the right to create derivative works based on the copyrighted work. The minimum duration under Art TRIP’s is 50 years or the lifespan of the author/artist42. Broadcast rights are limited to 20 years, [Art 14.5]. Databases can also be copyright protected under TRIP’s, Art. 10.2 for a minimum of 15 years, but this is essentially a rolling right and renews every-time a database is updated43. Where Copyright and Trademark do overlap, the CJEU determined in the

42 TRIP’s incorporates Art 7(1) of the Berne Convention term of protection shall be the life of the author and 50 years after his death. The obligation to protect computer programs as literary works means e.g. that only those limitations that are applicable to literary works may be applied to computer programs. It also confirms that the general term of protection of 50 years applies to computer programs. Possible shorter terms applicable to photographic works and works of applied art may not be applied. The term of protection is at least 50 years for performers and producers of phonograms, and 20 years for broadcasting organizations (Article 14.5). Article 10.2 clarifies that databases and other compilations of data or other material shall be protected as such under copyright even where the databases include data that as such are not protected under copyright. Databases are eligible for copyright protection provided that they by reason of the selection or arrangement of their contents constitute intellectual creations. The provision also confirms that databases have to be protected regardless of which form they are in, whether machine readable or other form. Furthermore, the provision clarifies that such protection shall not extend to the data or material itself, and that it shall be without prejudice to any copyright subsisting in the data or material itself. 43 CJEU demonstrated a genuine activism when it was called to enlighten the obscure concepts of the Database Directive. In this context, it seriously restricted the scope of the sui generis protection in 2004 when admitting that the investments in the creation of the database’s contents cannot count as investment for the obtaining of the contents for the purposes of the award of database sui generis right in a series of sport’s database cases (Judgments of the Court in Cases C-46/02, C-203/02, C338/02 and C-444/02, The British Horseracing Board Ltd and Others v William Hill Organisation Ltd, Fixtures Marketing Ltd v Oy Veikkaus Ab, Fixtures Marketing Ltd v Svenska Spel AB, Fixtures Marketing Ltd v Organismos prognostikon agonon podosfairou (OPAP)). © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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Lego44 case, that trademark cannot be relied upon to create a mutant copyright that never expires45. 7. COPYRIGHT REQUIREMENTS i.

Only artistic/entrepreneurial expressions of an idea can be copyrighted. The work must be recorded in material form, [applies to literary, dramatic and musical works only];

ii.

The copyright work must be original [applies to literary dramatic and artistic works]. There is no need for entrepreneurial works, [music events, broadcasts, films] to be original;

iii.

Must be connected with the jurisdiction claimed;

iv.

Must not be excluded from protection on public policy grounds;

v.

In order to have the Copyright, the author must publish a “public domain” literary, dramatic, artistic, film or work for the first time. Publication rights vest in the “publisher” only after expiration of copyright protection.

44 14 September 2010, C48/09 P Lego Juris v OHIM or Lego Juris A/S v Office for Harmonisation in the Internal Market (Trade Marks and Designs) (OHIM). 45 Both EU and US public policy law restrict any actions that would diminish the public domain. In the US the role of Copyright as an incentive to authors to create new works, takes precedence over Trademarks once copyright has expired. © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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8. TRADEMARK [TM] Trademarks are words46 or symbols, including brand names that identify the source of goods or services, which can be legally protected. National laws determine what constitutes a protectable trademark, [TM]. The minimum duration of trademarks is 10 years and can be renewed indefinitely if the TM mark is actually used and not left to lapse leading to revocation47. Trademark law emphasizes the origin of goods used in trade. For damages to be awarded, the likelihood of confusion in a consumers mind must be demonstrated before redress may be granted48. 46 Landes and Posner “The Economic Structure of Intellectual Property Law “ – 2003 Harvard University Press, explore the economics of languages and of linguistic identifiers to indicate that the invention of new words for new products provides a recognizable social benefit. Id. at 272-73. Thus, words such as aspirin, cellophane, thermos, kleenex, and xerox (all words invented to designate new products) provide useful methods to refer briefly to the articles that they identify, without having to describe their physical or chemical characteristics, products, or uses. Id. at 273. Landes and Posner conclude, however, that "[t]hese benefits.., are small," and alone would probably not explain the existence of trademark law. 47 The European Union trade mark Regulation (EUTMR) provides for two types of procedure that come under the generic term of ‘cancellation proceedings'. The rights of the proprietor of an EU trade mark can be revoked and an EU trade mark can be declared invalid. The difference is that revocation applies as from the date of the request, whereas a declaration of invalidity removes the registration from the EU trade mark Register with retroactive effect. The rights of the proprietor of an EU trade mark can be revoked in the following cases. In the absence of genuine use. The law establishes that an EU trade mark must be put to genuine use in the European Union in the five years following its registration. Moreover, use must not be interrupted for over five years. If, in consequence of the acts of the proprietor, the trade mark has become the common name for a product or service for which it is registered and the proprietor has not taken sufficient measures to prevent this. If, in consequence of the use made of it by the proprietor, a trade mark has become misleading as to the nature, quality or geographical origin of the goods and services for which it is registered. 48 See the L’Oreal SA v Bellure NV Case 04/18300 [2006] ECDR 16. Keene J & Jacob LJJ & Blackburne J. At issue was whether the use of L’Oreal’s word marks in the comparison tables amounted to an infringement under Art 5(1)(a) and if it did whether such use was permitted by Art 6(1)(b); whether the packaging infringed; whether there was passing off and whether passing off should be extended into a general law of unfair competition. Held: The use of the comparison lists enabled the defendants to sell their products as smell-alikes but neither the image or the essential function of the trade marks for the originals was affected by the lists. Nobody was deceived and nobody thought any less of L’Oreal’s brands. CA referred to ECJ whether (1) use of the lists and (2) similarities in © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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9. HARMONIZATION EFFORTS IN THE EU Evaluating the harmonization of damages awards across jurisdictions, requires a distinction between the law as it applies to IP rights and to different types of heads of damages awards for Copyright and Trademark. This is a complex task, given the variability of the legal treatment of what constitute heads of damages for copyright & trademark in the 27 EU jurisdictions, as well as the US. We then need to examine what criteria are applied to the calculation of damages, a matter yet to be standardized in the EU. The “Interpretation of Treaties49” rules dealing with how international treaties are interpreted by the WTO Appellate Body and the CJEU allow some flexibility in the Interpretation of TRIP’s. Without guidance from a supra-national court [CJEU] any predictability in the interpretation and application of the TRIP’s agreement, is likely to remain unfulfilled. The EU Harmonization Directive50 attempted to harmonize Trademark law across the EU avoiding the potential uncertainty in awards caused by a non-uniform system: yet it has failed to indicate how damages are calculated51. The Enforcement packaging took unfair advantage of and were in accordance with honest practices. No passing off. Even if open to the court to invent a tort of unfair competition it would not do so.

49 Vienna Convention on the law of Treaties 1969, entered into force Jan. 27th 1980, [Art 84(1) UN

Treaty Series Vol 1155 p. 331, “Vienna Convention” hereinafter. 50 2008/95 51 By EU Council Regulation on Trademark 207/2009: still no provisions dealing with trade mark sanctions; the Regulation dealt only with what courts had competency, appeal rules to the now Court of Justice and provisions for injunctions © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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Directive52 was introduced to harmonize the means of and remedies in trade mark infringement actions, while a recent December 2010 report53 recognized that damages awarded in IP cases were and are still comparatively low and that rightsowners have felt that the low level of damages have not had the desired deterrent effect. In order to judge whether IPR in the UK/EU provide for “adequate” and “consistent” infringement damages awards we will also compare high level concepts of the EU54 approach to that of the United States. This includes an analysis of how damages are influenced by economic and non-economic [or moral factors] as well as the reasons behind such influences. In examining the EU, it is overly simplistic to consider continental Europe as one when it comprises many different jurisdictions. While continental European countries share a similar Civil Law tradition, the relative infrequency of IPR damages litigation and the limited ability to seek discovery of the other party’s relevant information and documentation makes a systematic analysis of the variability in the treatment of IPR damages awards, complex.

52 2004/48, DIRECTIVE 2004/48/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

of 29 April 2004 on the enforcement of intellectual property rights. 53

Application of Directive 2004/48/EC of the European Parliament and the Council of 29 April 2004 on the enforcement of intellectual property rights, 22nd Dec 2010: From Executive Summary: “…despite an overall improvement of enforcement procedures, the sheer volume and financial value of intellectual property rights infringements are alarming. One reason is the unprecedented increase in opportunities to infringe intellectual property rights offered by the Internet. The Directive was not designed with this challenge in mind. Other issues that could need special attention are the use of provisional and precautionary measures such as injunctions, procedures to gather and preserve evidence (including the relationship between the right of information and protection of privacy), clarification of the meaning of various corrective measures, including the costs of destruction, and calculation of damages”. 54 Unfortunately damages awards in the EU are less frequent than in the US, but have occasionally

been of considerable value. See the EU Observatory on Counterfeiting and Piracy report of IP damages and screening the EU Directive 2004/48/EC dated 22 Oct 2009. © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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The basic principles of UK55 and US copyright law will be assessed, as well as their scope in terms of infringement, damages and defences. How copyright is defined under the UK Trademark Act 1994 will be compared to the definition provided by the US under the Trademark Act 1946. Recent reforms in UK law such as the Digital Economy Act 2010 will be assessed in order to evaluate whether the UK can be said to seek the harmonization of its laws. 10. COHERENCE BETWEEN THE JURISPRUDENCE OF THE CJEU & THE WTO APPELLATE BODY TRIP’s56 enforcement efforts operate under national legal systems: by establishing a global network of national courts it may be possible to enforce and amend local law to comply with the substantive copyright & trademark provisions of the Agreement57. Notwithstanding this multi-jurisdictional effort [in the trademark infringement area] it can be argued that implementation of the TRIP’s Agreement has neither improved the certainty of the law, nor has the outcome of litigation become

55 The concepts applicable to the UK can be considered as a fair guide for other jurisdictions with a Commonwealth law base. 56 Without replacing the national, territorially-based copyright/trademarks of Member States, TRIP’s principles of territoriality require an independent trademark applications and actions for the enforcement of rights in each Member State of the World Trade Organization (WTO). Part II, Sect. 2 of the TRIP’s Agreement. Article 41 mandates WTO Members ensure that “effective” procedures are available under national law. 57 For the 159 member states of the WTO, as of July 2017. © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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significantly more predictable due to the complexities of legal interpretation within individual jurisdictions [see Budĕjovický Budvar case below]. 11. THE TM CASE OF ANHEUSER-BUSCH & CZECH RIVAL BUDĔJOVICKÝ BUDVAR In 2006, Budvar’s the Czech beer manufacturer engaged in 86 suits and administrative proceedings against its namesake US rival Budweiser for the use of the name “Bud” and “Budweiser”. Although Budvar laid claim to victory in 69 countries58, the international awards did not result in a clearly defined division of the market between the two rivals. In the case of Finland, The Supreme Court of Finland59, ultimately upheld Budvar’s right to use its trade name “Budweiser Budvar, N.C.” when “expressing” the brewer on beer labels. However, the court denied Budvar the use of the words “Bud” and “Budweiser” as trademarks on beer labels, marketing materials and invoices. Anheuser-Busch on the other hand was forced to accept that neither the plaintiff nor defendant Budĕjovický Budvar was disentitled to use the name Budweiser, since both brewers enjoyed a dual reputation in the territory and neither had achieved their reputation improperly and nor by misrepresentation60. Without some judicial 58 These included the UK, Japan, South Korea, Greece, Portugal and Finland. 59 Supreme Court of Finland delivered its ruling on 29 December 2005 (KKO 2005/143) in the prolonged trademark dispute between two breweries, Anheuser-Busch, Incorporated and Budéjovický Budvar, národni podnik, over the words “Budweiser” and “Budvar”: http://www.castren.fi/IPT_Newsletter06.pdf at pp 1-2 60 Anheuser Busch [AB] Inc. v Budejovicky Budvar [BB] N.P. [2000] EWCA Civ 30 (7 February 2000), where the U.K. the Court of Appeal, held dismissing the appeals, that there had been honest © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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intervention by a supranational court like the CJEU, the trademark law provisions of the TRIP’s Agreement did not contribute to a measurable improvement in the predictability of decision-making by national courts. In the face of uncertainty regarding the Trademark Directive61, national courts of Member States may request a preliminary ruling from the CJEU. The system of preliminary reference from national courts has allowed the CJEU to construct a formidable body of trademark jurisprudence since the introduction of the Trademark Directive in 1988. By using the EC’s membership of the supranational court [CJEU] the EU was able to interpret TRIP’s in a manner which will promote the substantive harmonization of trademark law throughout the EU62: in particular in areas of the law of [unfair] competition where the Directive does not require an concurrent use of the name, as neither party had achieved its reputation improperly. Despite BB having used the name largely as part of the composite "Budweiser Budvar", it was known in the trade as "Budweiser" in common with AB's beer and there was no practical solution to stemming public confusion without putting one or other of the parties at an unfair commercial disadvantage. The circumstances in which the use of the name had arisen were special within the meaning of s.12(2) and notwithstanding the danger of confusion, those circumstances were capable of overriding AB's s.11 objection. Further see Anheuser-Busch Inc v Budejovicky Budvar NP [2006] Hogsta Domstolen (Sweden) E.T.M.R. 77. Anheuser Busch Inc v Budejovicky Budvar Narodni Podnik [2001] Bundesgericht (Switzerland) E.T.M.R. 7 (Upheld Budejovicky Budvar’s use of ‘‘Budweiser’’ in Switzerland. 61 Trademark Directive, [see First Directive 89/109/EEC of the Council of December 21, 1988, Approximate the laws of the Member States Relating to Trademarks, [OJ EC No L 40 11.2.1989, p 1]; Article 249 EC ¶ 3; Case C-218/01 Henkel [2004] ECR I-0000, ¶ 60 [hereinafter Trademark Directive] available at: http://curia.europa.eu 62 Member state infringement of TRIPs obligations would trigger the responsibility of the Union under international law. See the case of Daiichi Sankyo Company Limited and Sanofi-Aventis Deutschland GmbH and Greece (intervening) v DEMO Anonymos Viomichaniki kai Emporiki Etairia Farmakon and Germany (intervening), Case C-414/11, ILEC 038 (CJEU 2013), 18th July 2013. The issue was “Whether Article 27 of Annex 1C Agreement on Trade-Related Aspects of Intellectual Property Rights (‘TRIPs’) of the Agreement Establishing the World Trade Organization (‘WTO Agreement’) fell within the exclusive competence of the European Union (‘EU’) or the EU’s member states remained principally competent; the latter would allow their courts to accord that provision with direct effect subject to the conditions laid down by national law”. The case dealt with patent, but almost no IP provisions are left to the Member states. © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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approximation of national laws. The co-ordination role of the CJEU is consistent both with the CJEU’s supreme court legal activism in the area of regional trade policy within the EU63, but also in the CJEU’s role as the EU’s member of the WTO, for the promotion of trade name protection within the Dispute Settlement Understanding [DSU] of the WTO64. 12. CJEU RULES OF INTERPRETATION The ambivalence between TRIP’s and the European Trademark Directive as mandated by CJEU can be explained as follows: i.

On the one hand, TRIP’s does not have direct effect within the Community legal system;

ii.

On the other hand the case study of trade name protection under Article 8 of the Paris Convention65 will show how the Court invokes the authority of the TRIP’s Agreement to pursue trademark law harmonization in areas where the Community has not yet legislated.

63 See “Communication from the Commission to the Council, the EU Parliament and the European

Economic and Social Committee and the Committee of the Regions, “Global Europe competing in the World: - A contribution to the EU’s Growth and Jobs Strategy”. 64 A dispute arises with the WTO when one member country adopts a trade policy measure or takes some action that one or more fellow members considers to a breach of WTO agreements or to be a failure to live up to obligations. By joining the WTO, member countries have agreed that if they believe fellow members are in violation of trade rules, they will use the multilateral system of settling disputes instead of taking action unilaterally — this entails abiding by agreed procedures (Dispute Settlement Understanding) and respecting judgments, primarily of the Dispute Settlement Body (DSB), the WTO organ responsible for adjudication of disputes. [See www.wto.org/english/thewto_e/whatis_e/tif_e/disp1_e.htm accessed 3rd July 2017]. 65 Art. 8 of Paris Convention for the Protection of Industrial Property 20 Mar. 1883, revised last Stockholm 14th July 1967, [UN Treaty Series Vol. 828 No. 11847 p. 108, hereinafter Paris Convention]. © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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The EC66 is under an obligation to implement the provisions of the TRIP’s Agreement within the Community “legal system and practice.”67 As the highest court in the Community legal order, the CJEU is in a unique position to interpret the trademark provisions of the Agreement in a manner which will promote their substantive harmonization throughout the courts of Member States. 13.

EXAMPLES OF CJEU RULINGS

Pursuant to the Dior68 case, the CJEU has jurisdiction to interpret the provisions of the TRIP’s Agreement when the courts of Member States are called upon to apply and interpret national law where the Community has legislated and the Agreement applies. With respect to the use of “trade names protection” in trademark law, the AnheuserBusch Inc. v Budĕjovický Budvar69, CJEU ruling affirmed that: “ the relevant provisions of the national trademark law must be applied and interpreted, as far as possible in the light of the wording and purpose of the relevant provisions of both Directive 89/104 and the TRIP’s agreement”. 66 EC is the European Community. 67 See Art 1 TRIP’s. The CJEU reference to the trademark jurisprudence of the Appellate Body is justified in accordance with the logic of Article 1 to the effect that the three levels of law, international, Community, and national law, should be implemented and interpreted with consistency. 68 Parfums Christian Dior v Tuk Consultancy [2000] EU Court Reports I-11307. 69 Anheuser-Busch Inc. v Budĕjovický Budvar, narodni podnik Judegment of the Court in Case C245/02 of Nov 16th, 2004 at 57 . http:/eur-lex.europa.eu/en/index.htm


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The question then arises as to how national courts are to approach the ordering of measures where no Community legislation is available70. Given the EU had not adopted legislation relating to trade names protection, [see Anheuser-Busch Inc. v Budĕjovický Budvar ] the TRIP’s trademark provisions of the TRIP’s Agreement applied71. Pursuant to TRIP’s Article 64, adjudicators must interpret the Agreement in accordance with the Vienna Convention, consistent with Article 3.2 of the WTO DSU,72 directing Panels to interpret the TRIP’s provisions “in accordance with customary rules of interpretation of public international law”. This approach involves two key assumptions that adjudicators rely upon to explain and justify their findings: I.

The assumption is that meaning inheres in the legislative test and that,

such meaning is plain, clear, or unambiguous. This is consistent with Article 31 of

70 Such as in the case of trade name protection. 71 The Supreme Court of Finland asked the CJEU whether third-party use of an identical or similar

trade name might be regarded as use of an unauthorized sign for the purposes of TRIP’s Article 16. The CJEU drew upon its membership of the WTO to affirm the Community’s obligation to interpret its trademark law, in the light of the wording and purpose of the TRIP’s Agreement. 72 WTO DSU is the Dispute Settlement Understanding regime. The centrality of the DSU regime for

the Multilateral Trading System [MTS] is explored in depth by Martin M in “Dispute Settlement Understanding and Development” see Chapter 6, 2013 KoninKlijke Brill NV Netherlands


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the Vienna Convention, which provides that a treaty must be interpreted in “good faith in light of: (i)

the ordinary meaning of its terms;

(ii)

the context: and

(iii)

its objects and purpose.”

II.

The assumption is that the interpretation of the terms of the treaty should seek to follow its object and purpose. This assumes that the negotiators have intentions when they draft treaties or directives and that these intentions are known by adjudicators when called on to interpret legislation.

Article 32 of the Vienna Convention, entitled “Supplementary Means of Interpretation,” defines what is meant by the “context of the treaty” and what other elements must be taken into account contextually, including the ‘travaux préparatoires’, any “subsequent practice in the application of the treaty establishing the understanding of the Parties as to its interpretation,” and any relevant rules of international law.73 The flexibility with which the rules of

73 With respect to preparatory work, both the ICJ and Payment Court of International Justice [PCIJ]

refuse to resort to preparatory work interpretation unless text is sufficiently clear. Brownlie I in “Principles of Public International Law”, 630 [1990] cautions that “preparatory work is an aid to be employed with discretion, since its use may detract from the textual approach: particularly in the case of multilateral agreements, the records of conference proceedings may confused or inconclusive” At times the Court has used preparatory work to confirm a conclusion reached by other means. [See dissenting opinion delivered by judge Schwebel in Case Concerning Maritime Delimitation & Territorial Questions between Qatar & Bahrain, [Qatar v Bahrain] ICJ. Judgement of 15 Feb 1995, jurisdiction and admissibility www.icj -cij.org. Much © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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interpretation allow the Appellate Body and the CJEU to declare IP rights law and attain supremacy in the EU legal hierarchy can now be analyzed from case law. 74 14. THE PROTECTION OF TRADE NAMES TRADEMARK & GOODWILL Considerable overlap exists between trademarks and trade names.75 Independently of trademark protection, however, a company/trade name may possess a goodwill which the courts may seek to protect by means of unfair competition law or passing off76. In the case of Anheuser-Busch Inc. v Budĕjovický Budvar the defendant Budvar counterclaimed that it was entitled to use its trade names, duly registered in Czechoslovakia on February 1, 1967. Budvar submitted that the signs used in Finland to market its beer could not be confused with Anheuser-Busch’s trademarks. Budvar also submitted that the registration of the sign “Budweiser Budvar,” in Czech, English, and French conferred on it, pursuant to Article 8 of the Paris Convention, a right in Finland earlier than that conferred by AnheuserBusch’s trademarks. An earlier right was therefore protected under that Article. If defendant 74 Alter KJ “Establishing the Supremacy of EU law: The Making of an International Rule of Law in Europe 2-3 [1990]. 75 The name under which a company trades will frequently qualify for trademark protection. See

Kely’s Law of Trademarks and Trade Names, [Blanco White TA, Jacobs R eds] 11th Ed 1983 p 360. 76 See the seminal English law case of J Bollinger v Costa Brava Wine Co. Ltd [1959] RPC 16 (Ch D) in which an obstacle existed to damages by way of lost sales, given none of the claimants owned the Goodwill in the first place. Danckwerts J was able to accept Lord Oliver’s passing off action for damages of goodwill by expanding the notion of Goodwill to a notion of collective goodwill. Passing off could protect a proprietary interest in a collective “Goodwill”, as in the case of the Champagne region producers, where Appellation Controllée did not have to be exclusively own by a single proprietor. © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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Budĕjovický Budvar was to rely on trade name protection, the question arose as to whether trade names were a distinct category of intellectual property, and protected as such for the purposes of the TRIP’s Agreement77. The bona fide use of a trade name in Finnish Law on trademarks, provided a defense to an action for trademark infringement78. Nonetheless, in courts throughout the EU, residual uncertainty remained as to whether the defense should apply not only in respect of the name of a natural person but also that of a company or business name.79 Consequently, when the defendant Budvar sought to rely on the use of its own name defence, the Supreme Court of Finland decided to refer the question to the CJEU80. 77 As incorporated within that Agreement, Article 8 of the Paris Convention provides: “A trade name shall be protected in all the countries of the Union without the obligation of filing or registration, whether or not it forms part of a trademark.” The implementation of Article 8 requires State A not only to protect trade names registered or established by use in that state but also foreign trade names which have been registered in State B of the Paris Union, provided they are sufficiently well known in the relevant trade circles of State A. 78 “Any person may use, in the course of his trade, his name, address, or trade name as a trade symbol for his product unless use of that symbol might give rise to confusion with the protected TM of a third party or with a name, address or trade name lawfully used by a third party in his trading activities”. [The Tavaramerkkilaki Law of Trademarks 7/1964 which provides for the right to use a sign for a product under paragraphs 1 -3 of this law means that no-one other than its proprietor may use commercially a sign likely to be confused therewith, on the product or its packaging, in advertising or business documents or otherwise, including use by word of mouth. 79 Scandecor Development AB v Scandecor Marketing, [2001] 2 CMLR 20 (See also Asprey & Garrard v WRA Guns [2002] FSR 310, 487 CA. The House of Lords observed that the inclusion of company names in the ambit of the defense represented the “better view,” nonetheless holding that the matter was not acte clair or free from doubt. 80 In the case of a company, the use of its own “name” will include its full corporate name and the name by which it is known to its customers. Reed Executive PLc Ors v Reed Business Info Ltd Ors, [2004] EWCA Civ 159. © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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15.

EXCLUSIVE RIGHTS PURSUANT TO TRIP’s: CJEU INTERPRETATION: THE HAVANA CLUB CASE

In Havana Club81, a claim by the EU concerning the protection of trade names presented the WTO Appellate Body with an opportunity to rule upon the identification of new categories of intellectual property subject to TRIP’s. The EU argued that trade names are a category of intellectual property that should be protected under the trademark provisions of TRIP’s. The WTO Panel however had declined to do so and interpreted the term “intellectual property” to refer to all categories of intellectual property that are the subject of Sections 1 through 7 of Part II, as if that phrase read “intellectual property means those categories of intellectual property appearing in the titles of Sections 1 through 7 of Part II.” In absence of a specific reference, interpretation would have excluded trade names from the TRIP’s Agreement and from the ambit of is enforcement provisions82.

81 Complaint by EU. the European Union ('EU') filed a complaint against the United States alleging

that a law which prohibited the registration and enforcement in the United States of a Cuban trademark, 'Havana Club' rum, which was licensed to the French company, Pernod-Ricard, S.A. ('Pernod-Ricard'), was in violation of the WTO Agreement, which protected the intellectual property rights of WTO Members and their nationals. The case intertwined enforcement of the U.S. Cuban embargo; U.S. domestic politics, particularly in the state of Florida; U.S. national security concerns with U.S. trade obligations under the WTO; and U.S. relations with the EU. Essentially, the EU was asking the WTO to invalidate the U.S. law, which had been passed by the U.S. Congress to implement the Cuban embargo and to protect the national security of the United States. If the WTO rules that a country's law violates a WTO Agreement, then that country has to change the law, pay compensation, or suffer retaliation. An adverse ruling by the WTO could have had the effect of nullifying the U.S. law and overturning the Federal Court of Appeals decision upholding it. 82 As we have seen Art 41.1 of TRIP’s mandates that WTO Members make available the enforcement procedures listed in the agreement so as to permit effective action against any act of infringement of IPR covered by the Agreement. © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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The WTO Appellate body, however, took the view that intellectual property rights should not be limited in this way. It found the Panel's interpretation ignored the plain meaning of Article 1.2, insofar as it failed to take into account that the phrase “the subject of Sections 1 through 7 of Part II” of TRIP’s dealt not only with the categories of IP indicated in each section title, but also with other subjects as well. In drawing its justifications widely, it even sought evidence by reference to sui generis protection for plant inventions in Article 27(3)(b)83. The WTO Appellate Body rejected the reference to the negotiating history of TRIP’s Art 1.284 as lacking specific reference of inclusion of trade names in the TRIP’s Agreement. On this basis, the Appellate Body reversed the Panel's finding that trade names are not covered under the TRIP’s. It concluded that WTO Members have an obligation to provide protection to trade names. 16. CJEU: SCOPE OF EXCLUSIVE RIGHTS PURSUANT TO TRIP’s: AN APPLIED EXAMPLE OF HARMONIZATION The CJEU’s interpretation of TRIP’s Article 16, simultaneously invoked the trademark jurisprudence of both the EC and that of the WTO. By affirming the 83 Justification of the notion that included “other subjects of intellectual property”. The Appellate

Panel also invoked the Redundancy rule, to argue consequentially that to adopt the Panel's approach would be to deprive Article 8 of the Paris Convention (1967), as it is incorporated in TRIP’s Article 2.1, of meaning and effect. 84 By referring to Art. 32 of the Vienna Convention, Appellate Body found that the negotiating history of the Agreement did not confirm the Panel's interpretation of Articles 1.2 and 2.1 of the TRIP’s agreement. Article 41.1 of TRIP’s mandates that WTO Members make available the enforcement procedures listed in the Agreement “so as to permit effective action against any act of infringement of intellectual property rights” covered by the Agreement. © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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conditions under which the use of a trade name may be regarded as an infringing sign for the purposes of TRIP’s Article 16(1)85, the CJEU mirrored the approach taken traditionally by national courts, namely to: a. Inquire whether the trade name is being used as a trademark that is, to distinguish the goods or services of the defendant or simply as the business name of the firm; b. Interpret whether Art. 5(5) of the EU Directive reflects the absence of harmonization with respect to unfair competition law86. “Paragraphs 1 to 4 shall not affect provisions in any Member State relating to the protection against the use of a sign other than for the purposes of distinguishing goods or services, where use of that sign without due cause takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the trade mark”.87

85 Art 16(1) states: The owner of a registered trademark shall have the exclusive right to prevent all

third parties not having the owner’s consent from using in the course of trade identical or similar signs for goods or services which are identical or similar to those in respect of which the trademark is registered where such use would result in a likelihood of confusion. In case of the use of an identical sign for identical goods or services, a likelihood of confusion shall be presumed. The rights described above shall not prejudice any existing prior rights, nor shall they affect the possibility of Members making rights available on the basis of use. 86 Recital (6th) in the EU Harmonization Directive 89/104 does not exclude the application of the provisions of the law of the Member States other than Trademark law. See laws relating to unfair competition, civil liability or consumer protection. Oami.europa.eu/en/mark/aspects/direc/direc.htm 87 Directive (EC) No. 89/104


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Where a sign constitutes a trade name, not used for the purposes of distinguishing goods or services, the requirement is for reference to national law for the determination of the extent and nature, if any, of protection afforded to owners of trademarks who claim to be suffering damages from infringement/unfair use of a trade name. Any action under unfair competition law or for passing off will be available wherever the defendant company’s name is deliberately used to deceive and so to divert business from plaintiff to defendant or to create confusion between the two businesses. In Robelco NV and Robeco Groep NV 88 the CJEU held that Article 5(5) of the Directive must be interpreted to mean that a Member State may protect a trademark against use of a sign other than for the purposes of distinguishing goods or services, where use of that sign without due cause takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the trademark. The Anheuser-Busch case gave the CJEU the opportunity to advance the WTO’s Appellate Body’s analysis with respect to the scope of IP trademark rights and their inter-relationship with trade names. By asserting that the exercise of trademark rights is reserved to cases in which a third party’s use of the sign affects or is liable to affect the functions of the trademark, the CJEU invoked 88 Case C-23/01 Nov 2002 CJEU (6th Chamber) analyzing the interpretation of Art 5.(5) of First

Council Directive 89/104/EEC Dec 21st 1988 to approximate the laws of the Member States to TM (OJ 1989 L 40 p 1) curia.europa.eu. © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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Community jurisprudence concerning the mark’s “essential function.” The Court held in HAG II89, that in order to determine the effect of the trademark right, account must be taken90 of its essential function, which is “to give consumers91 a guarantee of the identity of origin of the marked products, thereby preventing confusion.” 17. EVALUATING CHARACTER & LEGITIMACY OF TRADEMARK LAW HARMONIZATION While the WTO Appellate Body and CJEU demonstrated a new coherence capable of realizing the substantive harmonization of trademark law, the extent to which this new coherence is actually capable of realizing the substantive harmonization of trademark law will depend upon the standing of their jurisprudence before the network of national courts. Article 19.2 of the DSU states that Panels and WTO Appellate Body “cannot add to or diminish the rights and obligations provided in the covered agreements.” This instruction as to the lack of law-making powers on the part of WTO adjudicators is consistent with the sources of international law as they are 89 Hag II, 1990 E.C.R. at 3751, 3 C.M.L.R. at 604 (discussing the protection of high quality goods as

the fundamental justification for trademark protection). 90 Interpretating of Article 5(5) of First Council EU Directive. 91 For an analysis of the average consumer, see Lloyd Schuhfabrik Meyer & Co. GmbH v Klijsen Handel BV. Judgment of the Court in Case C-342/97 of 22 June 1999 at ¶ 26. (“For the purposes of that global appreciation, the average consumer of the category of products concerned is deemed to be reasonably well informed and reasonably observant and circumspect.”) © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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enumerated in Article 38 of the Statute of the International Court of Justice [ICJ]92: namely a subsidiary judicial means for the determination of law. When a dispute arises between states with regard to a matter regulated by treaty, the parties’ adjudicators should apply, in the first instance, the provisions of the treaty in question. It follows from Article 59 of the Statute, that decisions of the ICJ have no binding force except between the parties to the case in question. While the international legal system is technically without the formal doctrine of binding precedent, practical legal reality is otherwise. Treaty-making power may reside with Members’ elected governments, but in practice “judicial activism” is as much a part of it and necessary for the interpretation both at an international and national tribunal level. Reflecting this apparent inconsistency, Sir William Blackstone’s famous declaratory theory of judging holds that judges “find” rather than “make” law. Concluding otherwise ignores the practical effect to which a WTO Panel or Appellate Body decision may have on the development of trademark law. This is

92 This article, describing the law to be applied by the ICJ when deciding cases within its jurisdiction, is generally considered to be the most authoritative enumeration of the sources of International Law. " The Court, whose function is to decide in accordance with international law such disputes as are submitted to it, shall apply: a. international conventions, whether general or particular, establishing rules expressly recognized by the contesting states; b. international custom, as evidence of a general practice accepted as law; c. the general principles of law recognized by civilized nations; d. subject to the provisions of Article 59, [.e. that only the parties bound by the decision in any particular case,] judicial decisions and the teachings of the most highly qualified publicists of the various nations, as subsidiary means for the determination of rules of law”.


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certainly borne out by the impact of Appellate Body jurisprudence in the Havana Club case on the protection of trade names in Europe. 18. EU & CJEU TRANSNATIONAL LAW AND IPR CJEU decisions regards the definitive interpretation of trademark must be followed throughout the EU93. Originally comprising six founding states in 1952, the EU has grown over the duration of six successive enlargements to its current size of 27 member states. The authority of the Court’s trademark jurisprudence now extends to the process of candidature and accession, which [as exemplified by Turkey] and brings with it an intensification of cooperation between the EU member states and a concomitant increase in authority of European legal institutions over those of the nation state94. European trademark jurisprudence influence extends to the continents of Africa, Asia, Eastern Europe, and the Americas by means of regional and bilateral agreements in the form of Partnership and Cooperation or Association

93 This authority has been expanded as the enlargement of the Community has seen the authority of

the Court’s trademark law extend to an increasing number of European countries. 94 The 2003 European Council summit in Thessaloniki set integration of the Western Balkans as a priority in the future expansion of the European Union. Between 2010 and 2015, the five Balkan states of Serbia, Montenegro, Bosnia-Herzegovina, Former Yugoslav Republic Of Macedonia, and Albania may likely join the European Union depending on their satisfying the criteria for adhesion. In addition, candidate countries include Croatia, Moldova, Ukraine, and Turkey. In order to join the European Union, a state needs to fulfill the economic and political conditions generally known as the Copenhagen criteria (after the Copenhagen summit in June 1993). © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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Agreements.95 The EU is seeking the global projection of its legal institutions by concluding regional trade agreements, negotiating new Economic Partnership Agreements (EPAs), for example, implementing the Cotonou Agreement96 with the African, Caribbean, and Pacific Group of States (ACP) and negotiating Economic Partnership Agreements (EPAs) with its ACP regional groups. The legal authority for the negotiation of external trade agreements, [Article 133 of the European Community Treaty] indicates the significance with which the enforcement of IPR is regarded, in so far as paragraph 5 refers specifically to the conclusion of agreements concerning “the commercial aspects of intellectual property.” 97 The States subscribing to the EPA’s are the most likely to experience the impact of the CJEU’s trademark jurisprudence pursuant to provisions concerning the resolution of dispute between the parties. Most EC trade agreements employ a form of arbitration in which the EC law enjoys the

95 The European Union has a Common Commercial Policy whereby the Commission negotiates bilateral and regional trade agreement with countries outside the European Union on behalf of the Member States. 96 See Partnership Agreement between the Members of the African, Caribbean and Pacific Group of States, of the One Part, and the European Community and its Member States, of the Other Part, Signed June 23, 2000 in Cotonou, Benin. This entered into force on April 1,2003, The full text is available online. See Commission of the European Communities, available at http://europa.eu.int/comm/development/body/cotonou/agreement_en.htm 97 Chief among the trade policy initiatives of the European Union is the European Neighbourhood Policy (ENP). The ENP offers a deeper economic integration by means of bilateral Partnership Agreements and Action Plans. Originally, the ENP was intended to apply to Europe’s neighbors of Algeria, Belarus, Egypt, Israel, Jordan, Lebanon, Libya, Moldova, Morocco, the Palestinian Authority, Syria, Tunisia, and Ukraine. In 2004, it was extended to also include the countries of the Southern Caucasus with who, the present candidate countries Bulgaria, Romania, & Turkey share a land or maritime border: Armenia, Azerbaijan, & Georgia. The implementation of the EU Neighborhood policy and the benefit of EU law and legal institutions is promoted as part of outreach and technical support programmes. © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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distinct advantage, given the political and economic asymmetry of the parties and the lack of formal procedure. 19. WTO APPELLATE BODY ADJUDICATIONS: A LASTING LEGACY? Can the WTO Appellate Body in jurisprudence may be likened to a “constitutional”98 body for IP rights awards? To the extent that the TRIP’s enforcement regime created a supranational tribunal in the WTO Appellate Body, it also set the stage for the allocation of decision-making between international and national trademark tribunals. In the Havana Club99 case, the WTO Appellate Body ruled that questions pertaining to a mark’s capacity to distinguish the product or the rights conferred on the trademark owner are matters to be determined at the international level, whereas questions pertaining to the ownership of the trademark are threshold

98 See “Reflections on the Constitutionalisation of international economic law” : liber amicorum for

Ernst-Ulrich Petersmann, in particular section on “Filling in the Blanks: The WTO Appellate Body’s First Two Reports concerning the NME-Related Aspects of TDI against China”, Edwin Vermulst -- Nature and Status of WTO Accession Commitments: “WTO-Plus”Obligations and Their Relationship to Other Parts of the WTO Agreement, Lothar Ehring Editor(s): Cremona M; Hilpold P; Lavranos N; Schneider SS; Ziegler AR. Whether it is possible to have a less hierarchical court of last resort [CJEU] within Europe has been raised by Brexit. See Prof. Baudenbacher’s solution proposed for a Member state that wishes to exit a multilateral treaty, [see Brexit context of refusal to allow CJEU jurisdiction post Brexit]. Baudenbacher as President of the Court of the European Free Trade Association, [EFTA] has argued that the single market does not necessarily mean acceptance of CJEU jurisdiction. EEA/EFTA States are in single market, but not in customs union. The EFTA Court purportedly has less jurisdiction than CJEU. Examples are: No written obligation of courts of last resort to refer (“more partner-like relationship”). • Preliminary rulings not formally binding. • Duty of loyalty and principle of reciprocity. • Right to a fair trial (Article 6 ECHR) • No direct effect/ no primacy; only after implementation in domestic legal order. Under EU proposal to the Swiss Government in 2012/2013 existing sectoral agreements CH – EU dispute resolution lie in the hands of diplomatic bodies (joint committees). EU deems this to be not anymore sufficient, see Harmonised economic law; ‘passporting’ rights for financial operators (E- 15/15 and 16/15 Swiss Life and Vienna Life). Source: Prime Finance Presentation by Prof. Baudenbacher 24th Jan 2017, Den Hague. 99 Section 211 of Omnibus Appropriations Act of 1998 [“Havana Club”] © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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matters to be decided by national courts. In respect of the decision-making process, there can be little doubt that the adjudication of the WTO Appellate Body will leave the network of national courts with lasting influence in law. In keeping with its dual function, the CJEU engaged in a similar but more elaborate process with respect to the allocation of decision-making between the Community and national courts. In Anheuser-Busch Inc. v Budĕjovický Budvar, the CJEU issued the following directions: 1. With respect to trademark use, the CJEU ruled that the national court has to confirm whether the use made is one that is “in the course of trade” and “in relation to goods” within the meaning of Article 5(1) of the Directive.100 The national court has to establish whether that is the case in the light of the specific circumstances of the use of the sign allegedly made by the defendant; 2. In cases of possible consumer confusion, it is for the national court to carry out an overall assessment of all the relevant circumstances, in order to assess whether the producer of the product bearing the trade name can be regarded as unfairly competing with the owner of the trademark. 100 Directive 89/104 See Arsenal Football Club v. Matthew Reed, Judgment of the CJEU in Case 206/01 12 Nov. 2002 at 40 and 41.


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20. POTENTIAL DISADVANTAGES OF TRADEMARK LAW HARMONIZATION Are there potential disadvantages from the increasing influence of the trademark jurisprudence of the WTO Appellate Body and CJEU adjudicated through a network of national courts? The Paris Convention allowed national courts considerable autonomy in decision-making. It provided the framework for adjudication without what the CJEU calls “the elements of interpretation.” These “elements of interpretation” were drawn from national trademark jurisprudence: allowing flexibility in the interpretation of national law101. In the US, Article 6 quinquies102 A(1) allowed the U.S. Court of Appeals in re Rath103 the flexibility to affirm the USPTO’s refusal to register the surname “Dr. Rath” on the principal register, on the

101 Allowing for courts to interpret change in accordance with the nation’s economic, social, and cultural development. 102 Article 6 quinquies A provides that every trademark duly registered in the country of origin shall be accepted for filing and protected as it is in the other countries acceding to the Convention, subject to the reservations indicated in that Article. Article 6 quinqiues B states that trade marks shall be denied registration which are devoid of any distinctive character, or consist exclusively of signs or indications which may serve, in trade, to designate the kind, quality, quantity, intended purpose, value, place of origin of the goods, or the time of production, or have become customary in the current language or in bona fide and established trade practices of the country where protection is claimed. See CJEU Case C-104/01 Libertel Groep BV v Benelux-Merkenbureau 103 See in re Rath, 402 F.3d 1207, (Fed. Cir. 2005), in which the Federal Circuit affirmed a Trademark Trial and Appeal Board decision holding that “Dr. Rath” was primarily merely a surname. Relying on U.S. trademark law, the Court found that section 44 of the Lanham Act, which implements the Paris Convention, does not require registration of a mark that is primarily merely a surname. In re Establissements Darty et Fils, 759 F.2d 15, 225 USPQ 652 (Fed. Cir. 1985). The Lanham Act explicitly adopts the requirements of the Paris Convention, and the statutory bars to registration allowed by the Paris Convention are congruent with the bars to registration created by the Lanham Act. See also STEPHEN P. LADAS, 2 PATENTS, TRADEMARKS AND RELATED RIGHTS, NATIONAL AND INTERNATIONAL PROTECTION § 572 (1975) (“The reasons for which registration is denied on the principal register are those for which, under Article 6 quinquies of the Paris Convention, a contracting party may refuse a mark even though it is registered in the country of origin.”) Compare the CJEU approach in Nichols plc v. Registrar of Trade Marks, CJEU judgment of September 16, 2004, Case C- 404/02. © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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grounds that the mark was primarily merely a surname, absent proof of acquired distinctiveness104. Conversely, where the elements of the interpretation are supplied by a supranational tribunal, national courts have far less flexibility in the application of the law to the facts at hand, as in the case of trade names in Finland. The Supreme Court of Finland was bound to privilege the trade name of the defendant in relation to the plaintiff’s trademarks. Pursuant to the CJEU conclusion that neither trademark use nor consumer confusion constituted elements capable of precluding the operation of an exception, the national court had to decide, based on local evidence of use, the extent to which the defendant’s trade name enjoyed a reputation in Finland. Hence the application of the CJEU interpretive guidelines show that there is, in practice, a fine line between interpreting the law and applying the facts of the case. The CJEU’s decision in Arsenal v Reed,105 for example, contained a number of references to the facts of the case; the Court went as far as to disagree with Justice Laddie’s analysis of those facts. On return to the High Court of England, Justice Laddie again found in favor of the defendant, concluding that the CJEU’s

104 Following a ruling by the Finnish Supreme Court on December 29, 2005, Budejovicky Budvar cannot use the names Bud or Budweiser as trademarks in Finland. However, it will still be able to refer to its company as Budweiser Budvar, NC in small print on its beer labels, as well as on invoices and in marketing. 105 Arsenal Football Club plc v Matthew Reed Judgement of the Court, Nov. 12 2002, Case C-206/01. © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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interpretation of the law did not change his original decision.106 He maintained that as there was neither trademark use nor evidence of consumer confusion, there was no case for trademark infringement. However, the Court of Appeals reversed, taking the view that the High Court should have followed the view of the European Court to the effect that the sale of unofficial merchandise was likely to damage the trademark or “jeopardize the guarantee of origin which constitutes the essential function of the mark.”107 Clearly therefore, the substantive harmonization of trademark law involves national courts’ having less flexibility to decide with reference to local socioeconomic conditions108. 21. OTHER DISADVANTAGES OF THE CURRENT CJEU & WTO SYSTEM a. Most LDC’s, do not have access to compensatory levels of financial support and technical assistance available to EC Members. Any additional loss of sovereignty over their trademark law would constitute a decided competitive disadvantage.109

106 Arsenal Football Club Plc v Reed [2002] EWHC 2695 (Ch) (December 12, 2002) at ¶ 27. 107 Arsenal Football Club plc v Reed [2003] EWCA Civ 696, Court of Appeal, per Aldous LJ at ¶ 27. 108 ”It is in no one's interest, even Mr. Reed's, for there to be such a difference between the views expressed by the High Court and the CJEU. The courts of this country cannot challenge rulings of the CJEU within its areas of competence. There is no advantage to be gained by appearing to do so.” Arsenal Football Club Plc v Reed [2002] EWHC 2695 (Ch) (December 12, 2002) per Laddie J. at ¶ 28. 109 John H. Jackson, Sovereignty, the WTO, and Changing. Fundamentals of. International Law, CUP, 76-78 (2006) © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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b. Small and medium sized business which play such a critical role in economic development are likely bear the cost of operating within an IPR public domain that is increasingly eroded by new emerging categories of IPR110; c. Consumer protection law is likely to face a greater likelihood of confusion between similar trademarks and identical or similar products. This may increase the search costs for consumers who must either possess a more specialized knowledge or spend proportionately more time in searching for the desired trademarked product quality111. 22. RAMIFICATIONS OF TRADE NAMES INCORPORATION INTO TRIP’s It is arguable that a new-found coherence or shared understanding between the Appellate Body and CJEU as international trademark tribunals now exists. The EC’s heightened protection accorded trade names suggests that the trademark jurisprudence of the Appellate Body permits the CJEU to pursue harmonization in those areas of law where the Community has not yet legislated. Given the capacity of the WTO Appellate Body to allocate decision-making between international and national trademark tribunals, and in view of the authority of the CJEU as regarded both within the EC and beyond its borders112 in matters of IPR and 110 See EC study on “The Feasibility of Possible Insurance Schemes against Patent Litigation Risks,

Final report prepared by CJA Consultants for the EC June 2006: ec.europa.eu/Internal_market/indprop/doc/patent/studies/pli_report_en.pdf 111 William M. Landes & Richard A. Posner, The Economic Structure of Intellectual Property Law, 172-75 (2003). 112 See Verimark (Pty) Ltd v BMW AG [2007] SCA 53 (RSA) where the Supreme Court of Appeal of South Africa defines the scope of the exclusive rights of the trademark owner in terms of Community © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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specifically in trademark law, the opening skepticism of harmonization seems less improbable following the preceding analysis, even though this may come at a very high economic cost to the IPR owners. We now examine the economic impact of IPR harmonization efforts on damages awards.

jurisprudence concerning the mark’s “essential function”: at 5 – 6, available at: http://www.supremecourtofappeal.gov.za/


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PART 2. IPR damages awards in any jurisdiction are inevitably complex to evaluate, not least because of their intangible and economic nature. It follows that an evaluation across jurisdictions is even more complex, as with any damages, causation has to be established and rules on causation may have subtle cross-jurisdictional differences.

The World’s Most Valuable Brands, 2017 - Source Forbes 2017 Figures in US $ billion Brand Brand Brand Name Value Change 1 yr Revenue Apple $170 10% $214 Google $101 23% $81 Microsoft $87 16% $85 Facebook $74 40% $26 Coca Cola $56 -4% $23 Amazon $54 54% $133 Disney $44 11% $31 Toyota $41 -2% $169 McDonalds $40 3% $85 Samsung $38 6% $167 Mercedes Benz $29 12% $109 Louis Vuitton $29 6% $10 L'Oreal $15.6 6% $10

Brand Value to Advertising Ad Spend $1.8 94.4 $3.9 25.9 $1.6 54.4 $0.3 237.1 $4.0 14.1 $5.0 10.8 $2.9 15.1 $4.3 9.6 $0.6 62.4 $3.7 10.3

$4.7 $8.0

6.1 2.0

It is interesting to note the enormous value that brands have added to intellectual property giants like Apple/Facebook/Google, but also to Disney and traditional manufacturers such as Toyota and Mercedes Benz.


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23. BASICS FOR CALCULATING DAMAGES AWARDS Essentially there are 4 main methods for valuing IP infringement damages: a. LOSS OF PROFITS: Typically marginal or incremental profits, not average profits are utilized in court awards. Incremental profits do not include any fixed overheads. Incremental profits are usually valued as an annuity113 over the life of copyright, discounted at appropriate discount rate. b. PRICE EROSION: Typically occurs when sales of an infringing product impinges on the monopoly supply of the Copyrighted product. Now instead of sole supply, there is another source of supply which will consequently cause the price of the original copyrighted product to fall. This is a complicated economic concept, and one which has been particularly difficult to prove in continental EU courts. Establishing price erosion in the UK and US only requires a reasonable approximation of what the claimant’s position would have been, but for the infringement. c. MARKET SHARE: Market share114 deals with the economic issues involving pricing effects of an infringers entrance into a market. In the US case of Data General [DG] Corp v 113 An annuity is a financial formula used to value certain cash flows over a determine life, [say 50 or

70 years for Copyright]. It is usually expressed as Payment = [r PV]/[1 –{1+r}-n], where r = appropriate discount rate for risk involved, PV= present value, n = number of years involved. The Present value of an annuity is therefore PV = [PMT[1-(1+r)-n/r], where PV = present value, PMT = periodic payment of royalties, r= applicable annual discount rate and n = number of (annual) periods of royalty payments made. 114 Market share is closely related to concentration, see Herfindhal-Hirschman index (HHI) . This is a commonly accepted measure of market concentration. It is calculated by squaring the market share of each firm competing in a market, and then summing the resulting numbers, and can range from close to zero to 10,000. © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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Grumman Systems Support115 , DG’s claim included an explicit recognition that in “but-for world”116, legitimate competitors would remain even after the defendants exit. Grumman argued that using DG’s historical prices overstated DG’s claim for lost profits, but the court sided with DG, stating: “Historical data showed DG secured > 90% of the available service business (95% if the market share of the infringers were removed) in spite of higher prices and allegedly lower customer satisfaction”. 117 d. ROYALTIES: Hypothetical royalty are royalties that would have been negotiated by the IP owner and the infringer had they been willing parties to a licence agreement in advance of any infringing acts.118 It is a concept that is common to both the UK and continental Europe. However UK or continental European courts have yet to establish a clear set of relevant criteria for determining a reasonable royalty in a similar manner to the US courts in Georgia-Pacific Corp v United States Plywood Corp119. Nevertheless many of the same considerations apply – in particular, the focus on comparable licences and royalties, features of the invention itself and the profitability associated with its use. Companies and the courts in the UK are not particularly comfortable with intangible IP valuation concepts and, as a result, tend to rely heavily on comparable licences whenever possible. Much of the debate is therefore concerned 115 Data General Corp v Grumman System Support Corp. 36 F 3d 1147, 1772 32 USPQ 2d 1385, 1994-2 Trade Cas 9CCH) 70716 (1st Cir. 1994). 116 In many antitrust class action cases, the plaintiff alleges that anticompetitive conduct caused prices to increase above competitive levels, and the task for economic experts is to analyze how actual prices compare to prices in a “but for world” in which the alleged anticompetitive conduct did not occur. 117 Data General Corp v Grumman System Support Corp. 825 F Supp 340, 350 28 USPQ 2d 1481, 26 Fed R Serv 3d 1221 (D Mass. 1993) 118 This is a concept that is common both to the UK and Continental Europe. 119 Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970).


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with whether a licence is genuinely comparable and the extent to which it should be taken into account. In general the valuation methods for damages estimates depend upon jurisdiction: in the US they extend to the following: i.

Value of an entire business from a royalty revenue stream120;

ii.

Reasonable royalties based on fair market value121;

iii.

Reasonable royalty as measure of damages122;

iv. Foregone licenses, franchise fees and royalties123; 120 See Alcatel USA Inc. v Cisco Systems Inc. 239 F Supp 2d 645 665 (ED Tex 2002). Alcatel charged

mis-appriation by Monterrey a similar smaller computing computer company. Monterrey had hired away several of Alcatel’s senior technical staff who allegedly brought trade secrets with them, arging also that Monterrey promises of business from several large customers. With these promises in hand Cusco, the industry leader, agreed to acquire Monterrey for more than $500 million. Alcatel sued Cisco for Monterrey’s mis-appropriation, claiming damages equivalent to the amount Cisco paid for Monterrey. However the court ruled that the value of the alleged trade secrets cannot be reasonably extrapolated from the purchase price. The court rejected the expert witness’s testimony for Alcatel who had stated that “had Monterrey not misappropriated Alcatel’s valuable IP, it would have not been able to develop its single valuable property in such an abbreviated manner that it permitted it to be displayed at a trade show”. The court also noted that any break in the chain of causation would eviscerate Alcatel’s damage theory. It noted that the value of IP is subject to wide swings in short periods of time and this violated the principle that the value of the trade secrets be measured at the time of the misappropriation. The royalty computation was not properly directed to the time the infringement began. Finally the court criticized the economic basis for the claim: clearly it stated, Monterrey was made up of other intangible and IP assets at the time of the alleged misappropriation. 121 American Saled Corp v Adventure Travel 862 F Supp 1476 1478 (ED Va 1994) on reconsideration in part 867 F sup 378 (ED Va 1994). Plaintiff sought >$200,000 equal to the advertising and promotion cost for the two years affected by the defendant’s use of the information. The court accepted that the “market value” of the trade secrets should be the basis for an award, noting that there were few cases in Virginia, or 4th Circuit to provide guidance. This it relied on the 5th Circuit decision in University Computing Co. v Lykes-Youngstown Corp 504 F 2nd 518, 183 USPQ 705 (5th Cir). The proper measure of a reasonable royalty would be the actual market value of the right to use the information that had been misappropriated. 122 Reasonable royalty analysis is based upon a hypothetical negotiation between a willing licensor and licensee attempting to negotiate the use of an IP asset. Citing the decision in Georgia Pacific v US Plywood Champion Pampers, 446 F 2d 295 (2nd Cir) 1971, “a reasonable royalty award attempts to measure a hypothetically agreed value of what the defendant wrongfully obtained from the plaintiffs. By means of a ‘suppositious meeting’ between the parties, the court calculates what the parties would have agreed as a fair licensing price at the time the misappropriation occurred”: from Vermont Microsystems Inc. v Autodesk Inc 88 F3rd 142, 151 39 USPQ 2d 1421 (2d Cir. 1996). See the Georgia Pacific approach. © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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v.

Lost profits from price erosion124 ;

vi.

Market share and price effects on sales125;

vii.

Computing incremental lost revenues from diverted sales126.

The result will be: actual damages, lost profits, loss of enterprise value and price erosion. Actual damages can also be calculated from “reasonable royalties, as a remedy for infringement”. 123 See the Flying J. Inc v Central CA Kenworth, 45 Fed Appx 763 (9th Cir. 2002) in which the plaintiff’s claim for actual damages was based on the market value of the copyrighted plans. The jury agreed and awarded $3.7 m in damages. “The jury’s verdict reflects the conclusion that the lost franchise fees were an adequate valuation of the copyrighted plans”. In a similar case Taco Cabana Intern Inc. v Two Pesos Inc. 932 F.2d 1113, 1125 19 USPQ 2d 1252 (5th Cir. 1991), the district court doubled the award, finding intentional and deliberate infringement, and awarded $150,000 for trade secrets. 124 In most non-patent assets, misappropriation or infringement, essentially involves unfair competition. Economic theory predicts that this leads to prices erosion. Price erosion claims are quite rare because of the difficulty in proving causation. See Pioneer Hi-Bred Intern v Holden Foundation Seeds Inc. 35, F 3d 1226, 1244, USPQ 2d 1385, 39 Fed R Evid Serv 993 (8th Cir. 1994). Courts have ruled that price erosion, both past & future must be part of the plaintiff’s claim. This goes also to market entry decisions, which involve misappropriation of trade secrets, to force a defendant to cut prices. 125 In the Pioneer Hi-Bred Intern v Holden Foundation Seeds Inc. 35, F 3d 1226, 1244, USPQ 2d 1385, 39 Fed R Evid Serv 993 (8th Cir. 1994), plaintiff claimed loss of profits of $140 million on a portion of the defendant’s sales of specialty corn seed, allegedly bred using trade secrets maintained by the plaintiff. The plaintiff’s expert prepared a lost profits claim by estimating the quantity of the subject seed sold by the defendant during the period, referencing market share, including non-infringing competitors. By this analysis, the plaintiff should have been entitled to 36% [mechanical application of market share]. However on appeal the court took account of Pioneer’s inadequate seed supplies, and reduced the plaintiff’s but-for market share to 12% and awarded damages on the portion of infringing sales. 126 Shamrock Technologies Inc. v Medical Sterilization Inc. 6 F 3d 788, 28 USPQ 2d 1693 (Fed Cir 1993). The plaintiff claimed lost profits damages only on that portion of the defendant’s sales that were made to common customers: those who had previously purchased from the plaintiff. The court agreed that this claim met the but-for test…”we find that defendant sales made to Shamrock’s customers would have been made by Shamrock had the defendant not displaced Shamrock as the supplier”. © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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24. ACCOUNTING STANDARDS USED TO VALUE IPR The complexity of IP valuation extends also to the various standards that have been established to create some consistency in their valuation. The Financial Accounting profession has attempted to quantify various ways to value and define IP127 through various FASB128 and IAS129 standards, [see FRS 10 and IAS 38]. The problem is that Trademark IP involves the right owner’s continuing defence of his property: failure to do so, may result in revocation. Trademark is unlike land, it cannot be left fallow, and then recovered at a later date. Conceptually one can value the risk of a “lapse” in IPR as an abandonment option130 . Established methods for calculating the value of IPR [such as software royalties] have been based on the future income stream that is projected for the copyrighted product: it is based on economic incremental costs.131 These have been the generally accepted measure for determining the lost profits following an infringement. In many cases confusion arises between the definition of incremental costs which at times have been equated to variable costs. 127 See Intellectual Capital, current issues and policy implications, Brennan N & Connell B, Journal of Intellectual Capital, Vol. 1 No. 3, 2000, pp. 206-240. 128 FASB is the US Financial Accounting Standards Board, which issues rules on how to treat and value various assets and liabilities in financial statements. 129 IAS are the standards issues by the International Accounting Standards council for rules on how to treat and value various assets and liabilities in financial statements. 130 Option theory has primarily been used to value financial assets. However, conceptually, a “rational business “will face a “real” option when determining whether to continue to invest in its IP, [given certain cash flow projections] or abandon the IP. The critical inputs in the option value formula that was popularized Fisher Black and Myron Scholes in the “Journal of Political Economy” Vol 81 Issue 3 (may June 1973), are: Present value of Cash flows from continuing IP; annualized standard deviation of these cash flows; remaining life of IP, [Patent/Copyright can be fixed, but Trademark and Data Bases can renew; value received on abandonment; number of years in which have right to abandon, “riskless” rate of interest. For an explanation of Option Pricing Theory, see Brealey, Myers, and Allen on Real Options Journal of Applied Corporate Finance, Vol. 20, Issue 4, pp. 58-71, Fall 2008.

131 See article by Gio Wiederhold, “What is Your Software Worth? “© Stanford University 2008.


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In the US selection of the accounting method/standard is left to the discretion of the courts. In Monsanto 488 F 3rd at 981 [2007], the district court heard competing expert testimony and found that a profitability analysis based on incremental profits was appropriate132. Some costs such as materials and direct labor are expected to be directly related to variations in production. However, in these cases, some cost might not be deemed to be incremental133.

Legal Remedies, Summary from McCarter & English [US jurisdiction].

132 Mars, Inc v Coin Inc. 527 F3rd 1359 87 USPQ 2nd 1076 (Fed Cir 2008) cert. denied 129 S Ct. 653, 172 L Ed 2d 615 (2008). 133 Kalman v Berlyn Corp. 914 F 2nd 1473, 1485 16 USPQ 2d 1093 (Fed Cir. 1990) opinion clarified, 22 USPQ 2d 1303, 1991 WL 345039 (Fed Cir 1991). © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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25. MEASURING INCREMENTAL COSTS BY REGRESSION ANALYSIS Incremental revenues/costs are those relevant for IPR damages. Simple regression has been used in some jurisdictions [US] to identify a mathematical association between two variables, [direct labor for example and output] such that relationships between costs and unit sales can be easily understood. It is important to note that regression can and has been improperly used in litigation. As with any tool, proper care in use and interpretation must be applied, as regression does indicate causation.

In the figure above if Y = Sales, and X = Adverting $, then we can see visually the extent to which advertising increase with unit increases of revenue. A regression calculation might indicate for instance that these costs increase at 90% of the rate of growth of revenues and give a degree of statistical significance of this result within say 95% statistical confidence134. 134 Each point on the exhibit [scattergram] shows the level of material costs measured on the vertical axis and the level of sales measured on the horizontal axis. A simple regression takes the form y = βx + α, where β = the slope of the line and α = the intercept on the vertical axis. In this example y = level © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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The Polaroid135 case established regression as an acceptable way to measure incremental costs, for US courts. Notwithstanding, no matter what level of sophisticated statistical analysis is presented in court to support the basis of losses from infringement, the IPR holder must still prove causation. This is far easier to do in a two supplier market, than a multiple supplier case. An alternative approach is market share analysis: this allows for approximation of damages from price erosion due to infringement, especially where a number of competitors are suspected of being infringers. In the US case of Mahurkar136 the use of market share to award damages from price erosion, was based on pre-infringement market shares: “full compensation is possible only if each infringer pays damages computed by multiplying the total lost profit by each infringer’s share of infringing sales.”137 of material costs and x = sales revenues. Β is the regression coefficient measuring how much material costs change for an incremental change in revenue, and α captures the portion of material costs that is NOT explained by a change in revenue. It is important to note that the relationship may not be linear: it might for example be exponential. In this example y = 0.27 x - 3.20, with R2 = 0.31, t statistic =3.17 for a 955 confidence interval between 0.09 and 0.45. 135 Polaroid Corp v. Eastman Kodak Co., 16 USPQ 2d 1481, 1527 1990 WL 324105 (D. Mass 1990), opinion amended 17 USPQ 2d 1711 1911 WL 4087 (D. Mass, 1991). The Polaroid expert analysed the fixed and variable portions of Polariod’s payroll and overhead costs in a sample year, using an “account analysis” method. The Kodak expert analysed the variability of these costs by plotting historical costs vs sales volume, with a high/low estimate, as well as cost/volume relationship. Judge Mazzone preferred the Kodak’s expert’s results based on regression analysis. It is not clear whether he preferred the inherent appeal of the regression analysis or whether he rejected the Polaroid analysis as inadequate, {see Assets & Finances: Calculating Intellectual Property Damages 2009 Ed Trove RB & Kerr WO West Thompson Reuters, 3:49 -3:50). 136 Mahurkar Double Limen Hemodialysis Catheter Patent, 831 F Supp. 1354, 28 USPQ 2d 1801 (ND Ill 1993), judgment aff’d, 71 F 3d 1573, 37 USPQ 2d 1138 (Fed Cir. 1995). 137 Ibid. © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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26. HEADS OF DAMAGES - COPYRIGHT Copyright [authorship] has been subject to some degree of damages harmonization: this extends primarily to position of authors creating computer programs while employed138 but it does not extend for example to films, where the director is regarded as one of the authors of a cinematographic work regardless of whether employed or not. Within the various premises as to who actually is entitled to the IP, the basic rules on damages are listed below: 26.1 SUMMARY OF COPYRIGHT DAMAGES: a. Loss of Profits, including failure to pay royalties; b. Unjust Enrichment, including price erosion; c. Damage to Moral Rights. Depending upon the jurisdiction, an action for Copyright Infringement may be brought for: 26.2 PRIMARY INFRINGEMENT: The onus in English law is for the claimant, on the balance of probabilities, that: i.

Defendant violated one of the activities that fall within the scope of the Copyright owner’s control;

138 In the EU the Software directive Art 2(3) requires that the employer exclusively shall be entitled to exercise all economic rights in a program created. See also Council Directive 87/54 EEC 16th Dec 1986 on legal protection of topographies if semiconductor products, [1986] OJ L 24/36 Art 3(2)a. © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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ii.

Defendant’s work was derived from the copyrighted work, [causality]139;

iii.

The restricted act was carried in relation to the work or a substantial part thereof.

26.3 SECONDARY INFRINGEMENT: Secondary infringement principally deals with parties who infringe in commercial copying. These are: i.

Imports of an infringing copy into the UK, or EU or other jurisdiction, other than for private hire or domestic use;

ii.

Possession of an infringing copy in the course of business140;

iii.

Sells or lets for hire an infringing copy;

iv.

Exhibits in public or distributes the course of business an infringing copy;

v.

Distributes an infringing copy, otherwise than in the course of business, such that it affects copyright owner prejudicially.

27. CALCULATING EROSION FROM PRICE ELASTICITY OF DEMAND Elasticities can be divided into three broad categories: elastic, inelastic, and unitary. Elastic demand or elastic supply is one in which the elasticity is greater than one, indicating a high responsiveness to changes in price. Inelastic 139 In English and US law, causation chains must be established. See Autospin (Oil Seals) v Beehive Spinning [1995] RPC 683. The knowledge of a defendant is not fundamental to the determination of whether an act of primary infringement took place. 140 In the UK Business is defined by the CDPA 1988 s 178 as including a trade or profession. [See Pensher Security Doors v Sunderland City Council [2000] RPC 249, 280-2. © Philip A. Corsano-Leopizzi 2017: Swansea University Intellectual Property LLM Dissertation

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demand or inelastic supply is one in which elasticity is less than one, indicating low responsiveness to price changes. Unitary elasticities indicate proportional responsiveness of either demand or supply. [% change in Quantity/% change in Price] > 1

Elastic

[% change in Quantity/% change in Price]= 1

Unitary

[% change in quantity/% change in price]