The Supreme Court clarifies the construction of the presumption of a minimum damage in trademark violations

Monday, 18 of November of 2019

In its recent Judgment nº 516/2019, of 3 October 2019, the Civil Chamber of the Supreme Court (“SC”) has held that when the trademark violation does not produce a damage to its right holder or an economic benefit to the infringer, there is no grounds to grant the minimum compensation of 1% of the revenue obtained by the infringer with unlawfully identified goods and services, as provided for in Article 43.5 of the Trademark Act - Law 17/2001, of 7 December (“TMA”).

With this decision the SC has clarified that this article does not imply an absolute presumption (iuris et de iure) of the existence of damages in the violation of trademarks, nor does it impose a punitive compensation automatically applicable once the violation has been declared. Its objective is rather to ease the quantification of damages, as long as damages exist, in order to avoid that the lack of evidence prevents the trademark proprietor from obtaining an economic compensation. That is to say, the existence of the damage is a necessary requirement for the grant of the compensation of article 43.5 TMA.

Therefore, the (absolute) presumption of article 43.5 TMA does not mean that there is damages in all cases of trademark infringement, but rather that, when the trademark proprietor has suffered losses, the infringer shall compensate him for a minimum amount (1% of the revenue) regardless of any evidence; unless a higher compensation is claimed, in which case the trademark proprietor will have to prove the amount of damages exceeding such minimum amount.

Indeed, the fact that said article establishes a minimum compensation amount cannot be confused with the presumption of existence of damages. The damages must exist for a compensation to be granted, but this is no objection for such existence to be presumed in certain cases. This is often the case in trademarks (as well as other intellectual property rights) violations, in which damages do not need to be proven, as they can be inferred as a necessary, logical and unfailing consequence of the infringement, what is known as the doctrine ex re ipsa loquitur.

Nevertheless, this presumption of existence of damages is not absolute, but relative (iuris tantum), admitting evidence to the contrary. Therefore, when it has been established that no damages can be found, that the trademark infringement did not bring any losses to the trademark proprietor and any profits to the infringer, the rule of article 43.5 TMA cannot be applied to grant a compensation.

Finally, we must mention that this explanation from the SC is surprising because it contradicts its prior interpretation of article 43.5 TMA. In fact, in the SECOND legal ground of its Judgment 777/2010, of 9 december 2010, the same Chamber of the SC had stated that this article implied a presumption, in all cases, of the existence of damages and that all trademark violations would always entail some damage. Particularly, in said judgment the SC had stated that:

"The legislator of 2001 comes to substantially capture the position of the case-law with the nuance consisting of presuming “in any case” the existence of a damage, albeit limited to a percentage that is set in relation to the revenue made by the offender with unlawfully marked products (art. 43.5 TMA). This is a minimum applicable “ope legis”, and is imposed on the infringer "in any case and without the need for any evidence." The inclusion in the new regulations of 2001 consolidates the idea that the violation of the trademark always entails some damage, obviating the difficulty that comes with the requirement of proof and the uncertainty that supposes totally subjecting the compensation to the application of the doctrine “in re ipsa”.

As a result of the doubts that said contradiction may generate, it should not be surprising that lower instance Courts start issuing judgments interpreting the presumption of Article 43.5 LM in opposite terms. However, we consider that the practical application of this new interpretation of the aforementioned article will be very limited because, as we have said, usually the damages do not need to be proven in cases of intellectual property rights violations, since they are deducted ex re ipsa from the facts themselves, as a necessary consequence of the violation. Therefore, there will be very few cases in which (i) the infringer can prove that the infringement has not generated any economic benefit or caused any damage to the trademark proprietor; or (ii) that the facts reveal for themselves that the violation of the trademark has not caused any damage to its holder.