Author: Castrillo, Carlos V.
Published in: DJ16/01/2013, 1
Online: AR/DOC/4881/2012


 

Punitive damages or damages and losses in Trademark Infringements?

In the next lines we will review the doctrine of damages for trade infringement in our legislation and in some Court decisions.

We will criticize the arguments given by courts and some authors to support damages in trademark infringement when damages cannot be proven.

Although, and given the support our Courts have given to these particular solution we will try to find a better or legally friendlier solution, by means of the application of punitive damages.

We will discuss about the nature of this legal institute and show it can be applied to trademark infringement cases with the same or better result than the standard and incorrect application of damages and losses theory.

Damages in our Civil Code prior to the recent reform.

Any Court decision regarding the application of damages and losses in general terms would require the verification of the existence of certain circumstances in order to be viable.

First of all, it is necessary the existence of an illegal act.

It means that a legal act can never be the cause for a sentence for damages.

In this regard, Article 1071 of the Civil Code establishes that:

“The exercise of a vested right, or the performance of a legal obligation, cannot operate to make any act unlawful.”

Second, it is necessary that the actor could be objectively attributed to fraud or negligence based on any of the assumptions for the risks he had created.

Article 1.067. For the purpose of this Code, there is no punishable unlawful act when no damage has been caused, of any other external act which could cause it, unless the parties thereto can be charged with dolus, fault or negligence.

Article 1.113 The obligation of a person who has caused damage, extends to the damages caused by the persons dependent upon him, or by the things of which he makes use, or which he has under his care.

In respect of damages caused to things, the owner or guardian in order to be exempted from liability, must prove that there was no guilt, but if damage has been caused by the risk or defect of the thing, he could be totally or partially exempted from liability proving the guilt of the victim or of a third party for whom he must not be liable. (Paragraph incorporated by art 1 of Law No. 17,711 BO 4/26/1968. In force: As from July 1st, 1968.)

If the thing had been used against the express or presumed will of the owner or guardian, he shall not be liable. (Paragraph incorporated by art 1 of Law No. 17,711 BO 4/26/1968. In force: As from July 1st, 1968.)

 

Third, and as it has been mentioned above, the article 1067 already described, establishes that it is necessary the existence of damage.

It does not mean that in an unlawful act, an action does not exist. Therefore, an action will exist to prevent the continuity of the illegal act (as in the event of the cessation of the use of a trademark in infraction) but there will be no cause for a compensation for damages.

In this sense, the damage is in turn defined by Article 1068 which establishes that:

“There is damage whenever another person has caused an injury susceptible of pecuniary appraisal, either directly to the things belonging to him or in his possession, or indirectly on account of the damage done to his person, or to his rights or powers”

In this regard, it means that if there is no damage there is no possibility to order the payment of damages. This problem has been an obstacle for a long time in apparent trademark infringements. The existence of an illegal act could be proved (trademark infringement) but normally it was a diabolical result to make evident the existence of damage in a trademark or its lost profits.

  1. Court decisions prior to 2014 and a change in tendency.

For a long time, our courts considered requests for cessation of use due to trademark infringement, but at the time of deciding on monetary claims they rejected such arguments for lack of evidence of damages, in full accordance with Article 1068 of our Civil Code.

At that time, the only courtroom of the Federal Court had decided in this regard and it was considered that in order to recognize damages it must be proved “a decline in sales or, at least, in the progression of them. [1]

In the 70s, the courtroom 2 of the same Federal Court did not admit the existence of damages when considering that the active party had continued with the right to his trademark allowing him to make use of it without any restriction.[2]

In the 80s, the same court denied the compensation for damages due to a decline in earnings could not be proved. The trademark had not been used and it was merely impossible to prove it.[3] Court 3, at the time, denied a request for compensation which intended to prove a surplus of earnings of the defendant arguing that the impairment cannot be based on the profits of the infringer since there was no necessary relationship between the income and the apparent losses between them. [4]

The truth is that this attitude adopted by the courts encouraged the infringement of well-known trademarks since they obtained considerably benefits compared to any possible damage.

As a result of that, our courts began to consider the Article 165 of the Code of Civil and Commercial Procedure (CCCP) to fix the amount of damage. It establishes that:

The sentence shall fix the amount for the credit or the damages claimed, provided that its existence could be legally evidenced, even though its amount was not justified.

With the purpose of making it legally possible, they had to consider that the damage was evidenced in existence which could only be achieved by “iure et de jure” that is a conclusive presumption of law, by which it was presumed that the mere trademark infringement generated damage.

This posture was not adopted as a result of jurisprudence but it was claimed for the doctrine of the authors during a long time and it was applauded when finally the court assumed it.

In this sense, Silvia Faerman affirms that the mere fact that someone may use illegally a trademark that is identical or confusingly similar to the property of a third party, he is definitely causing damage, and she defends her position by adding that the damage is the undue exercise of a right which belongs exclusively to the owner who is interested in determining the opportunity, the manner and the products and services to be use for his trademark or the authorizations to be used by others. [5]. It is clear that the author equates an unlawful act with damage against the distinction established in the civil code. As a result of this understanding, she justifies the application of Article 165 of the CCCP considering that the damage would be accredited [6]. “Once the use has been proved”, she says, “the existence of damages must be recognized as a logical consequence of it” [7]

On the one hand, Oscar Etcheverry affirms that the return of profits as a compensation method results from the ethical substratum of not allowing the transgressor to benefit himself freely as a consequence of his transgression. [8]

Likewise, Jorge Otamendi, recognizes that the Argentine legal system provides that every damage should be proved but, if it was taken to the extreme, the compensation for damages in trademark matters would disappear.

Moreover, this author admits that the fact that judges have recognized the existence of damages and have stipulated compensation for them would not be a successful solution but, on the contrary, the one who violates the law would be benefited. Finally, he affirms that once it is proved that an unlawful act is in the orbit of the right of industrial property -particularly when malicious behaviors are perceived- both the doctrine and the courts have established that the most valuable solution is to start considering a presumption of damage so that the behavior could not be benefited from impunity. Finally, he concludes by saying that once it is accepted that transgression leads to compensation, the quantum should be established. [9]

On the other hand, Ernesto O’Farrell states that even the judicial decision reached by our judges had not considered that the mere appearance of a trademark infringement may cause considerable damage by exemplifying different assumptions and concluding that it is difficult to measure the value of these circumstances and even less trying to prove them in court. In other words, he makes a hypothesis whose consequence is not necessarily immediate but mediate to use terminology of the Civil Code (art. 902 et seq CC.) [10]

In the view of Gabriel Martinez and Gabriela Medrano Soucasse, the existence of damage is a direct consequence of the violation of the trademark without determining the quantum [11].

In this line, as mentioned above (see footnote 2), it is not an isolated judicial decision. It reveals a tendency which began in doctrine and little by little was accepted by our courts.

 

  1. A formal review to the tendency that allows damages on the basis of an assumption

We believe that these assumptions are not correct in the light of our civil code, which requires the existence of damages as a circumstance that is different from the existence of an infringement even when there is infringement and not damage.

For instance, if I have an utility car that I drive while working during the week but I do not use it during the weekend and a third party steals it from me every weekend giving me money for the use of it but I did not share the profits, I cannot claim for damages achieved. It is true that someone has violated my right to property and this is a criminal offense but I will not have grounds to obtain a compensation for damages due to the main use of the car has been compensated and, as I said before, I was not using the car at weekends. There is an unlawful act which allows me to claim for precautionary measures to safeguard my right, but there is no damage. My attempts to prove that the user will make a profit for it will be in vain (for the division) he does not give to me. If we were not referring to an unlawful use of my car, that profit would be impossible.

With regards to the example mentioned above, it is really easy to prevent the use of a car and even much more difficult to do it with a trademark. It is only an example to illustrate the false idea of considering illegal acts and damage as if they were naturally bound to each other.

Ricardo Papaño comments in a correct article on a judicial decision which denies the compensation claimed and he agrees with the judgment stating that the transgression of the law of trademarks does not necessarily mean that there has been damage in terms of the tort liability, without prejudice to special actions provided by law 22,362. Not to affirm this, would imply that in trademark matters there is an autonomous system of civil liability which does not need due justification of one of its assumptions, which is not true because such system has not been structured in specific legislation which means that it is necessary to refer to the general rules of the Civil Code. He concludes, quoting Bustamante Alsina, that in the case of a conduct that consists of an unauthorized use of a trademark or name belonging to a third party as in any other illegal act, the civil liability of the actor covers this fact that is contrary to the standard (illegality) that must be in causal connection with damage that occurs to a third party and the imputability to him through negligence or fraud or other legal attribution [12]

There is no need of referring to compensation – the actor says- if the existence of damage is not proved, which consists of a requirement connected with the obligation to repair the damage which should be concrete and not abstract. Article 165 of the Procedure Code – he adds – empowers judges to order some compensation on condition that the existence of damage is legally evidenced, not existing in trademark law a presumed damage by law.

It is clear that there are no reasons to grant presumed damages but it is also clear that by not doing so the trademark pricy is encouraged.

In other words, the aforementioned judgment is according to law but it fails in its concept.

 

  1. Search of formal solutions to support the decision on the merits

First of all, we ask whether this solution that is reached even not respecting the Civil Code is sufficient to prevent piracy.

We think not, and that is why we propose in this article another solution that will not only be possible formally but it will also allow to be more practical on the merits because it will be much more efficient in order to deter trademark piracy in full accordance with our legal system.

To this end, we need our judges to be sincere in interpreting the law so that they may dare to put the real name that corresponds to the fundamentals of their sentences.

We understand that when it is said that damage is presumed to allow the transgressor to be unpunished is not a consistent legal construct according to our right if the legal nature we aim to discover tends to compensate damages. However, it reaches a fair judgment compared to the mere denial of the claim for not being able to prove the damage.

From our position, according to the Civil Code and as far as repairs are concerned, it is clear and does not consent the presumption of damage. Consequently, art 165 of the Procedure Code does not apply and it cannot be based on presumptions regarding the existence of damage. Article 165 can only presume the quantum when damage really exists. The mere trademark infringement is not a damage, which is a different concept (unlawfulness) to damage and it can exist even if there is no damage.

For this reason, it is necessary for our judges to recognize the fact that while they are seeking to prevent the transgressor from being unpunished, they are merely imposing them civil penalties. Judges should stop trying to make legal arrangements on the basis of damages law, and as we have already mentioned, it would not be correct.

The application of punitive damages as a remedy against piracy would be perfectly possible for the implementation of analogy, authorized by our Civil Code, in its Article 16, when it says “If a civil matter cannot be resolved, neither by words, nor by the spirit of the law, the principles of similar laws shall be applied”

The analogy is defined as a method of integration to the legal system. It consists of applying a similar or analogous solution to the unregulated case.

In this sense, it is necessary, then, the absence of rules and the identity of legal reasons.

It is evident that, if the civil code is correctly applied to cases of trademark infringement (as Otamendi affirms) is impossible to impose a penalty for damages and there would be no other legal remedy to deter the transgressor not to commit an illegal act within the trademark law. As a consequence, we are in the absence of regulatory coverage and before an identity of reason regarding an existing institute: punitive damages or civil penalties and deterrence.

Therefore, we cannot ignore that for a long time judges refused to award punitive damages on the grounds that it was an institute not contemplated by our law. However, it changed since punitive damages were included by the consumer protection law. Furthermore, the study of this norm, in its nature, shows that civil penalties or punitive damages already existed in our law long before their incorporation in the consumer protection law. However, we need to review the general outlines of this norm as it was contemplated in our legal system.

  1. Punitive damages

This institute was born in England to compensate damages that were difficult to establish the quantum [13] in matters related to the honor. It was developed mainly in the USA where they were applied in emergency situations, being defined as private fines imposed exceptionally by civil jurors in order to punish and deter improper behaviors in the present and future [14].

In our country, the punitive damage was considered accepted for the first time in the reform of the Civil Code in its Article 1587 which recognized the jurisdiction of the court to apply it. It was defined as a “civil penalty for those who act with serious disregard for the rights of others or the interests of collective incidence. Its amount was fixed considering the circumstances of the case, in particular the benefits that were obtained or could have been obtained for that behavior and their destiny was assigned by resolution of the court.” The subjective character this institute had and the resulting double character (punitive and deterrent) was evident, even with the evidence of negligence or intent, which must not be presumed.

In this line and as it can be easily seen, the institute in question focused its attention on the behavior of the individual, imposing a punishment that was beyond any deterrent technique.

For this reason, it is reasonable that the definitions of many authors who analyzed the punitive damage before and even after its passage by the consumer protection law have directed their attention on the behavior of actors and not on the facts they sought to deter, such as punishment and not in the deterrence the institute promoted.

However, since the law allows repeating the amount paid by a joint obligor against the rest, we have to recognize that behavior cannot be unlawful because repetition would be prohibited by law. Apart from that, the law only refers to facts deterring unqualified behaviors as illegal ones.

In this regard, this quality of punitive damages covered by the consumer protection law is what allows us to say that this institution exists in our law even long before its incorporation by the consumer protection law. In fact, we can see its application in penalty payments imposed by judges, in the amounts paid for discharge, in double compensation that is set in times of crisis or in particular situations of workers (sickness, pregnancy, excesses, among others), as well as in customs tariffs seeking to establish trade policies. In all these cases, we are dealing with lawful acts which cannot be revoked against the will of its actor although it is clear that the legislation seeks to discourage its occurrence.

  1. Review of punitive damages

There are several reviews that have been made to the norm before its approval in the UCL, even though all of them start considering the institute with both criminal and compensable nature. In this regard, we all agree with this review with reference to punitive damages established in the consumer protection law, as well as the other assumptions already mentioned, were a purely deterrent technique of facts and not of behaviors.

In fact, it could not be judged in a civil court and without the guaranties of criminal procedure and criminal law a conduct to apply a punishment. The criminal justice progress has been achieved in the last nine years to impose private penalties to public penalties. It could not be destroyed by a mere utilitarian question [15].

Among the authors who regard punitive damages as unconstitutional we mention Bustamante Alsina, who started with art. 18, Argentine Constitution which states that “no inhabitant of the Nation may be punished without a previous trial based on a law prior to the process…”, agreeing with the doctrine by Nuñez regarding the fact that there is a reserve area that is exempt from punishment for those illegal or immoral or reprehensible acts that are not configured and punished by a previous law. [16] Likewise, he affirms that the individual is at risk of receiving a double punishment, violating the constitutional principle of “not twice in the same thing”, and finally, not being bound to punitive damages to any verifiable target, the due process would be violated [17].

Martinotti, also affirms it is unconstitutional and he considers true criminal punishments whose application violates the right to procedural due process [18].

As regards Picasso, the so called “punitive damages”, while do not tend to compensate damages but to cause harm to the liable one to the illegal act with purposes of punishment and general deterrence,  have a penalty nature [19].

However, if the punitive damage is analyzed from a compensation perspective, it would be a clear attack on the constitutional guaranties of property rights [20]. In the US, in the case “Honda Motors Corp. v. Karl Oberg” the court said the US Constitution prohibits unreasonable acts of government that violate property rights, even in the case of legal proceedings in which judges receive unlimited authority to redistribute large amounts of money of those who are condemned to claimants [21].

Moreover, as we have mentioned above, Articles 1067 and 1069 of the CC state that there are no punishable unlawful act for the purposes of this Code, if there is no damage, or other external act that may cause them, without its agents being accused of fraud, fault or negligence, not only the damage suffered, but also the profit that the victim was deprived by the wrongful act. And as we have explained, the presumption of damage does not imply it….

 

  1. The existence of deterrent and legal techniques that do not have a compensation nature

As we have already mentioned, there are legal and dissuasive techniques which are in practice among us for a long time that do not have a compensation nature and they would not be a punishment either, even though a very superficial analysis can lead us to that misunderstanding.

In this regard, penalty clauses and penalty payments are mentioned, as well as punitive interests, arbitrary dismissal, sanctions in labor law concerning dismissal of pregnant women, or compensations aggravated in times of crisis for arbitrary dismissals, sanctions in the corporate law for the unfair manager and in family law for a minor who gets married without parental consent, among others, without being aware that in all these cases the techniques that are applied seek to deter facts and not punish behaviors. In fact, none of these acts in question are considered illegal. They are deterred for various reasons by applying an economic cost.

These are facts that, once they are performed, they are regarded as lawful legal acts, unlike what happens with crime, notwithstanding those who commit them and before the application of deterrent techniques they may feel punished even if they are not in essence. The same applies in public law with certain taxes such as customs tariffs or certain services or use license (tariff parking). They seek to deter acts, not to punish and the acts they are seeking to deter not necessarily correspond with improper behaviors.

However, unlike criminal law, which intends to punish behaviors and even deterring them and the civil code that only seeks to repair aiming at the deterrence of the so called punitive damages, and from this perspective, it is a purely deterrent tool in respect of facts, that could hardly be regarded as punishment for a behavior or as a repair, being from this perspective constitutionally

valid and applicable by analogy to cases of trademark infringements.

  1. The punitive damage in the consumer protection law

In this sense, and analyzing the letter of art. 52 bis of the consumer protection law, we will describe that the punitive damage contemplated therein is a deterrent technique of facts and it has no penal nature for compensation of damages and therefore is constitutionally valid.

Therefore, punitive damages in accordance with Article 52 bis will punish facts, not behaviors, described by their seriousness, no matter the extent of damage they cause- aiming at the deterrence of the act in question and not merely the repair of consequential damages, which may be non-existent and it would also be subject to another norm; the compensation under civil law. It would not be subject to this rule, and even beyond this doctrine, the punishment for the possibly reprehensible behavior, which would be the subject of criminal law as applicable. It means that, the punitive damage as we will mention below, would not have the purpose of the punishment or repair, but the deterrence of the act.

Law 26.361, which includes law 24.240 (Adla, LXVIII-B, 1295; LIII-D, 4125) article 52 bis, defines punitive damages as follows:

“Art. 52 bis. Punitive damage. The judge may impose a civil fine to the provider who does not meet his legal or contractual obligations to the provider in favor of the consumer, at the request of the victim. This fine shall be graduated in accordance with the seriousness of the act and other circumstances, regardless of other indemnifications. When more than one supplier is responsible for the breach, each of them will respond jointly to all consumers. The civil fine imposed may not exceed the maximum penalty of fine that is provided for in art. 47 paragraph b of this law”.

Therefore, in accordance with this legal rule, we find the following assumptions and features for the implementation of punitive damages:

  1. Legal or contractual breach.
  2. The judge may impose a fine in accordance with the seriousness of the act and other circumstances in favor of the consumer.
  3. Regardless of other compensations.
  4. Finally, if there were several actors, they will be joint and severally liable.

These features and assumptions will be studied in accordance with our principles and rules which are established in our legal system.

  1. Legal or contractual breach.

This breach is absolutely objective and must not be linked to the behavior of the individual. To come to this conclusion, we not only considered the principle that requires the interpreter to not distinguish where the rule does not distinguish but also we consider that the judge in order to regulate the fine must take into account the seriousness of the act. The act, according to Article 896 of the Civil Code contemplates all the events that may produce any acquisition, modification, transfer or termination of rights or obligations. Again, the rule does not refer to human and voluntary events, being them lawful nor unlawful ones. Therefore, if it does not distinguish it, we must not distinguish either.

  1. The judge may impose a fine in accordance with the seriousness of the act and other circumstances in favor of the consumer.

The seriousness of the act is objective and independent of all qualification regarding the behavior. It does not mean that the judge can ignore the predictability of a matter already decided by the court because this is a deterrent institute. You can not deter what is impossible to predict. Other circumstances to consider would not refer to the behavior of the actor but the environment where the act occurs. As we have already mentioned, the purpose of this norm is to deter occurrence of events. The judge, at the moment of imposing a fine, must take into account the possibility that in the future the act, in given circumstances, may be avoided. The failure will be impossible with absolute unpredictability.

  1. Regardless of other compensations.

Therefore, the nature of this rule does not provide repairs or punishments, while it does not prevent the payment of compensations for any other nature including those contractually agreed. Otherwise, the fine already mentioned should be regarded as an expropriation for the same title would be generating more than one obligation.

  1. Finally, if there were several actors, they will be joint and severally liable without prejudice of repetitions.

In accordance with this interpretation, the liability should be that one that is considered in the word etymologically. It means to respond for an act and not a liability. The only one who can answer is the one who is in the chain of causality and beyond the consequences of his own behavior by way of fraud or negligence. We affirm this because otherwise the lines that follow regarding repeatability of the amount paid would be contrary to the provisions of the Civil Code, Articles 1081 and 1082 [22] considering that the fine for improper behavior (fraud or gross fault). This final paragraph is the clear proof that the rule does not intends to punish behaviors but only to deter acts.

In this sense, the punitive damage legislated in this rule would have nothing to do with the distant relatives of the common law we have already discussed and even nothing to do with the local history already mentioned that could be similar to criminal law in civil matters.

  1. Punitive damage in IP

In this regard, there are physical means to discourage certain behaviors (walls, wires, locks, etc.) and its cost must be amortized over the cost of the product to make the business profitable. The possibility that the law may impose a deterrent would not be denied, such as physical elements that will raise the cost of the products to all consumers (especially if insurance is allowed) but the marketing of pirated products and infringements of IP rights will be prevented or discouraged.

Its purpose is not to punish nor to compensate, so that its application does not require a reprehensible behavior, but a mere breach, as a wrongful act with consequences in IP rights.

Likewise, the tax which raises the cost of imports of a product is intended to discourage the import of it but its application does not allow the judgment of the conduct of the importer.

By accepting the legal nature of the legal technique applied regardless of the intent or negligence of the individual who violates the obligation when he sells, buys or uses falsified products. It is only considered the act and circumstances, the predictability of the occurrence will determine the application of the fine and the amount because predictability is the only factor that can be deterred.

From the perspective of tax law, there are the so called formal fines which applied by mere breaches such as the omission in the presentation of mandatory statements, regardless of the existence of fraud or negligence in the actions of the individual. It intends to discourage his behavior that the individual is the one who takes the precautions required to prevent this from happening again in the future.

With respect to infringements of intellectual property, before the mere infringement or collaboration in a breach, the fine would be applied regardless of whether the circumstantial user had infringed rights with fraud, negligence or even fortuitously, to the extent that the occurrence of the offense were predictable and preventable. If the act was not intentional or negligent, the fine may be repeated against the one who is liable, as authorized by the CC. As a consequence, the forger will be addressed, the real liable of the crime. Even if he could not be reached, consumers would take the precautions not to be liable for punitive damages that could destroy the industries that are around piracy and counterfeiting.

In this sense, there would be no problem and even it would be advisable that these fines which seek to dissuade could be insured through insurance companies, who would have the function not only to leave unharmed to its insured ones but also to enable them to reduce the risks of being participants in acts that are intended to deter either inadvertently or negligently.

In this way, authors of intellectual property rights could have an incentive to deter the occurrence of these acts, and there will be companies where these claims would be directed and they would be able to provide advice and training to their clients not to allow these acts to occur again. It would help them no to increase their costs.

Thanks to Article 52 bis of Law 24,240 and other cases of existing civil penalties in our legislation an alternative solution to the problem of piracy and infringements concerning IP would be achieved. It could be applied by analogy as mentioned above. As a consequence, new judgments could be reached to deal with this matter not only according to law but also to be applied as effective tools to deter the occurrence of trademark infringements.

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