ACTA: A New Culture of Damages…

The Anti-Counterfeiting Trade Agreement (ACTA) has been discussed at length on SpicyIP, notably by Swaraj and Amlan. In particular, recent posts by Amlan on the official text of ACTA make for very matured reading.
ACTA has obviously generated a lot of interest, with its politico-economic implications forming the focal point of quite a few debates/discussions. In a few forthcoming posts, I would like to make sense of the provisions sought to be advanced by ACTA primarily from a legal standpoint.
This first post takes a look at the provisions for damages in ACTA.
Article 2.2 of Section 1 (Civil Enforcement) of Chapter II of ACTA deals with damages, which is preceded by an Article on injunctive reliefs, probably indicating the indispensability of injunctive relief as the primary tool of enforcement of IPR. This, in a way, helps one understand the role and place of damages in the “big picture” of enforcement.
As appears to be the case with most of the ACTA provisions, the provision on damages too indicates a divergence in the views of parties to ACTA negotiations on the scope of ACTA, and its applicability to forms of IPR other than copyrights and related rights, and trademarks.
Sub-article 1(a) requires (“shall”) parties to ACTA to vest judicial authorities with the power to order an infringer, who infringes either knowingly or has reasonable grounds to know,
1. to pay the right holder adequate damages to compensate for the injury sustained by the right holder or
2. the profits of the infringer attributable to the infringement (basically account of profits) which may be treated as the amount of damages the right holder is entitled to.
The EU seems to have proposed actual injury to the right holder to calculate “adequate damages”. As for account of profits, apparently a few parties have sought to exclude it from computation of adequate damages; the need for such a clause is not clear because damages based on injury to the right holder is usually not connected to or contingent on account of profits of the infringer, then why mention it specifically? 
It has been pointed out that this provision is similar to Article 45.1 of TRIPS for the most part but for the presence of accounts of profits as an alternative to damages.
Sub-article 1(b) sets out the possible metrics for calculation of damages, which could be any legitimate measure of value submitted by the right holder. Such metrics include:
1. lost profits
2. value of the infringed good measured by market price
3. retail price or
4. account of profits
What is interesting is that TRIPS does not specify any such metric, leave alone mandate one. However, ACTA uses the word “shall” in saying that Courts will have to consider any such measure of value submitted by the right-holder.
Sub-article 2 is an alternative to sub-article 1 which a right-holder may opt for. It deals with infringement of works, phonograms and performances protected by copyrights and related rights, and trademarks. The US seems to have asked for a mandatory provision of statutory damages in such instances, besides presumption for determining the amount of damages sufficient to compensate the right-holder for infringement. The EU, New Zealand and Canada seem to take a relatively flexible position on the above.
Sub-article 3 is similar to Article 45.2 of TRIPS which provides for recovery of profits or payment of statutory damages in cases of innocent infringement.
Sub-article 5 again mandates payment of courts fees, legal costs and attorney expenses, which is a default rule to be given a go by only in exceptional circumstances. The alternative phraseology is where the payment of legal costs and attorney fees shall be provided for in appropriate cases. (This is again provided for in Article 45.2 of TRIPS)
All in all, micromanagement of award of damages characterizes these provisions. It is clear that these are designed to serve the interests of the right-holder predominantly, however is there a way of striking a balance between public and private interests by modulating the use of injunctive relief and damages? The answer to this question is different for different nations.
This document on ACTA cites the decision of the US Supreme Court in eBay Inc v. Merc Exchange wherein the US Supreme Court has discussed the effect of grant of interim reliefs on public interest. The Court has observed that an interim relief is effectively used as a bargaining tool when the terms of a license are negotiated with the infringer and that the threat of an interim relief could help a right-holder in unduly gaining an upper hand in the negotiations.
Further, the US Supreme Court asks Courts to wake up to the possibility of interim reliefs granted to broadly-worded patents acting as stumbling blocks to advancement of public interest. Therefore, the Court has advocated grant of damages over interim injunctive relief, where appropriate.
In one’s opinion, there’s another way of looking at this. On one hand, while it is true that enforcement standards advanced by and through ACTA may not be in the best interests of all countries which are at various stages of development, it is also true that unless and until enforcement is given its due, the State is merely doling out paper tigers in the form of IP rights which at the end of the day add nothing to the balance sheet of a right-holder but costs.
Probably in regimes where the rate of disposal of disputes by Courts is higher in general, and also IP awareness levels are perceptibly higher, it makes sense for the Court to question the wisdom behind grant of interim reliefs and consider grant of damages as a viable alternative, so as to protect public interest from private mischief. More importantly, where IP awareness levels are so high that players have become adept at playing around with the system, it makes sense for the Courts to get “activisty”.
 But in fledgling IP regimes where market players in general have scant regard for rights which are alien to them, injunctive relief is an indispensable tool. This is because the order of a Court has a certain impact value on the streets which the right-holder can flag and flog before the infringer. Despite this, if Courts in such regimes show a marked reluctance even in granting interim injunctions, and force-fit arguments on merits of the case within a self-styled prism of public interest, it does raise valid questions in the mind of the right-holder which one may summarise as follows-
Why grant me a right in the first place and systematically rob me of every tool of enforcing it? I am granted a right, but there seems to be a disconnect between the arm of the State which grants it and the arm which enforces it. Also, my right has inbuilt limitations, why limit the right further through extra-statutory means? 

I am given the right on the premise that its proper exercise would contribute to furthering public good and my hands are tied when I try to enforce it, in the name of public interest. To add to that, I, as the right-holder, am always in the dock and my cause is politically incorrect for eternity. Am I being granted a right to further public good through my efforts or am I being saddled with a liability for a limited term and a placard which reads “take a shot at me, it’s the right thing to do and it’s free and profitable”!”
What one is trying to convey is that ACTA probably does represent an overkill in terms of enforcement even for developed IP regimes, naturally the adoption of these standards by developing IP regimes is beyond question. But the larger question is about the rate and quality of enforcement in developing IP regimes. This calls for a serious stock-taking exercise- How many cases do we have where a right-holder has been granted interim relief? How long does it take, on an average, for a right-holder to obtain an interim injunction? Has the analysis in such cases been strictly prima facie? Have extraneous considerations played an overt or covert role in such cases in denying grant of interim relief? How many IP cases have been finally disposed off and how many of them in favour of a right-holder? How many examples do we have where a right-holder has been awarded damages, 5? 6?
It is not one’s case that if a dispute is ruled against a right-holder, it hasn’t been dealt with fairly. But it should not be the case either that the number of instances where a right-holder’s claim is upheld are far and few in between. How does all this affect innovation, particularly in countries like India?
Innovation does need human capital, which India is reasonably well-placed to provide. But it also needs a business model where innovation is given its due, which means the will to invest significant resources consistently, the ability to extract optimum benefits out of such investments and the resilience to withstand shocks. This is possible only if the entity has the required experience to handle innovation and the attendant risks.
Entities which recognise the value of innovation naturally are bound to have concerns which other less-innovative environments may not completely relate to or share. However if such ID (innovation deficient) regimes wish to attract entities from IP (innovation proficient) regimes, the latter’s concerns need to be addressed to the extent possible and without sacrificing public interest.
I am sure a few immediate reactions could be that there are no statistics to prove the sub-textual proposition. I do not have statistics nor do I wish to quote them here even if I had, instead we could approach the issue in a different way- For those who believe that IP rights are important primers of innovation, there’s no excuse for not streamlining all aspects of the system. And for those who believe that IP rights have become important primers of innovation no thanks to collective and organized clamour, let the system play itself out and prove you right, but until then it deserves a fair chance.

Leave a Reply

Your email address will not be published.