How to determine monetary compensation in a patent infringement proceeding

In the case, the patentee’s claims covered a cutting mechanism for agricultural use in Hungary. The patentee had sold a substantial number of devices incorporating the patented cutting mechanism; later, a slavish imitation of the patented device appeared in the market. The imitated devices were manufactured and distributed by a local company without permission of the patentee as a built-in part of a complex agricultural machine.

The manufacturer admitted patent infringement in the first trial. The proceeding was then directed to compensation. The number of the devices sold and the enrichment obtained from them had to be determined.

In calculating the enrichment, the basic problem was that the manufacturing company always sold the device as an integral part of a complex machine and never alone, so its net selling price was unknown. The defendant alleged an unreasonably low price for the device, just above its manufacturing costs, and this price was strongly disputed by the plaintiff. However, the total selling price of the complex machines equipped with one or two of the infringing devices was also known.

In the local case law two calculation methods are used for determining the amount of monetary compensation. These are (i) to calculate the profit gained on the infringing products; and (ii) to use the principle of the lost licence fee.

Even if a product was only sold as a part of a more complex product, a reasonable market price can be established.

Since the manufacturing costs of the infringing device were available, the patentee suggested a special calculation method using the assumption that the price of one piece of the infringing device should be the difference between the price of a complex machine equipped with one infringing device and the price of a complex machine without the infringing device. The plaintiff provided these figures by taking foreign advertisement prices included in the defendant’s own Internet publications of various machine configurations. In its calculation, the plaintiff set up price proportions to arrive at a theoretical but realistic unit price for an infringing built-in device.

The Metropolitan Court accepted this calculation and obliged the defendant to pay a high amount to the plaintiff as restitution.

The defendant appealed against this amount as unduly high, but the decision on establishment of the patent infringement was not appealed and has thus become final. In the meantime, the defendant has filed a nullity action against the patent before the Hungarian IP Office, probably in order to defer payment, and requested full revocation.

The defendant has also requested a retrial of the first instance proceeding and requested the Metropolitan Appeal Court to stay the second instance proceeding as long as the issue of validity of the patent is open, since validity constitutes a preliminary question with respect to the patent infringement, and as such also a preliminary question of the monetary compensation. The defendant substantiated this request by referring to the rules of civil procedure according to which a court proceeding shall be suspended until a final decision is made in a pertinent preliminary question dealt with by another court.

The Metropolitan Appeal Court established that the nullity action was not a preliminary question for the monetary compensation, which was the subject of the second instance proceeding. Furthermore, the Metropolitan Appeal Court found that since the decision of the first instance court concerning the establishment of the patent infringement had become final and binding, and the retrial proceeding was still pending, the conditions of staying the second instance proceeding were not met. Therefore the Metropolitan Appeal Court rejected the staying request, and after hearing the parties on the merits, upheld the first instance decision.

This decision of the Metropolitan Appeal Court also strengthens the court practice concerning patent infringement lawsuits, according to which if the infringer has caused damage (in a broad sense) to the patentee, this should directly lead to the obligation of refunding the associated damages or the undue enrichment. In the present case, the binding establishment of the patent infringement provided a sufficient legal basis for rejecting the suspension of the proceeding.

Furthermore, the appeal court’s upholding the first instance decision on the calculation of the enrichment also made it clear that even if a product was only sold as a part of a more complex product, a reasonable market price can be established, which can serve as a basis for calculating the enrichment gained on the built-in product.

Gábor Harangozó is deputy managing partner at Danubia Patent & Law Office LLC. He can be contacted at: gabor.harangozo@danubia.hu