Troublesome multiple royalties


The award of multiple hypothetical royalties provided for in Poland’s Copyright Act is the subject of numerous debates and various rulings by the Constitutional Tribunal and the Court of Justice of the European Union.

The Polish and EU courts both ruled on Art. 79(1)(3)(b) of the Act on Copyright and Related Rights. Under that provision, the rightholder whose economic copyright has been infringed may seek twice, or in the case of a culpable infringement three times, the appropriate fee that at the time the claim is asserted would have been payable to the rightholder for granting a licence to use the work. The Constitutional Tribunal rejected the constitutionality of the treble award of such hypothetical royalties, while the Court of Justice held that the award of double royalties for non-culpable infringement is consistent with Directive 2004/48/EC on the enforcement of intellectual property rights.

Although the ruling by the Polish tribunal is well-known to copyright practitioners, it is worth reviewing that case in comparison with the more recent ruling by the Court of Justice.

Constitutional Tribunal judgment of 23 June 2015 (Case SK 32/14)

In considering the constitutionality of this provision, the tribunal stressed that the fundamental function of damages under Polish law is compensatory, which means that the plaintiff must not be enriched at the expense of the defendant. Damages cannot exceed the actual detriment or serve a penal function. But the possibility of demanding treble royalties, regardless of the actual loss, seems to impose a sort of penalty. It appears from the wording of this provision that the actual loss is not examined, nor the causal connection between the copyright infringement and the loss. Consequently, the amount awarded under this provision may significantly exceed the actual detriment to the plaintiff, or conversely may not suffice to cover all of the plaintiff’s losses.

Permitting a rightholder to seek treble royalties could violate principles of social justice, including the principle of the balance between the parties to civil-law relationships. The protection afforded by Art. 79(1)(3)(b) of the Copyright Act disproportionately favours the rightholder. The tribunal regarded the creators of works protected by copyright as having adequate financial means and capable of hiring professional counsel. For these reasons, the entitlement provided by this provision is inconsistent with the constitutional principle of equality. Thus the Constitutional Tribunal held that the possibility of seeking treble royalties for culpable infringement of economic copyright is unconstitutional.

Court of Justice judgment of 25 January 2017 (Oławska Telewizja Kablowa, C-367/15)

Art. 79(1)(3)(b) was added to the Copyright Act to implement Art. 13 of the Enforcement Directive (2004/48/EC). On a request for a preliminary ruling by the Supreme Court of Poland, the Court of Justice was considering whether this provision was consistent with the directive. Because the award of treble royalties had already been rejected by the Constitutional Tribunal, the issue here was narrowed to the award of double royalties.

Under Art. 13 of the directive, in determining the amount of damages, the national court has two options:

  1. Take into account all appropriate aspects of the case, such as the negative economic consequences, including lost profits the injured party has suffered and unfair profits made by the infringer; or
  2. Set the damages as a lump sum on the basis of elements such as at least the amount of royalties or fees which would have been due if the infringer had obtained authorisation to use the work.

The Court of Justice found that the lump-sum damages under point (ii), one form of which is the award of double royalties, typically will not make up for the entire loss. The aim of this provision is to make it easier for the rightholder to enforce its rights, as calculating actual damages under point (i) often presents many evidentiary difficulties.

The Court of Justice held that the Polish act enabling double royalties does not make the damages penal in nature. Polish law provides institutions for dealing with situations where payment of double royalties would be grossly disproportionate. Moreover, the Polish court is not bound by the demand asserted by the claimant. Thus the Court of Justice held that Art. 79(1)(3)(b) of the Polish Copyright Act was properly implemented and is consistent with EU law.

Summary

These rulings look at the issue of lump-sum damages from two different perspectives. What was most important for the Constitutional Tribunal was to assess this provision in terms of the principles of equality and social justice. The Court of Justice focused on evidentiary issues and facilitation of enforcement of holders’ rights.

The award of multiple hypothetical royalties remains a widely debated topic. In August 2016 the Ombudsman wrote to the Minister of Culture and National Heritage arguing for the need for legislative changes and supporting the Constitutional Tribunal’s finding on treble royalties. The Ombudsman pointed out that copyright holders have been vested with a range of different legal means for enforcing their rights. The Ombudsman took the view that the continuing possibility of enforcing double royalties poses a threat to consumers who may commit innocent copyright infringement. The Ombudsman called for legislation in this respect to further the principle of equality guaranteed by the Constitution.

It is apparent that this controversial provision of the Copyright Act will continue to be the subject of debate, and legislative changes cannot be ruled out. It is an issue worth following.

Aleksandra Burda, Intellectual Property practice, Wardyński & Partners