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AdministrativeGabriele GirardelloIntellectual propertyEst “modus” in rebus. The Italian Supreme Court says: no automatic award of a reasonable royalty following trademark infringement

18 November 2021by Gabriele Girardello

The Italian Supreme Court has issued several decisions concerning damages assessment in case of IPRs infringement and in particular the ‘reasonable royalty criterion’ in 2021.

The last decision in a raw is the Supreme Court decision n. 24635 of 13 September 2021.

In the case at stake a company operating in the manufacturing and sales of shirts sued a competitor for trademark infringement.

The trademarks owner carries out its business through direct channels (e-commerce and single-brand shops) and its activity is characterized by the use of a rather well-known brand: “CAMICISSIMA” (literally meaning a superlative of ‘shirt’ in Italian which could be translated as “supershirt”, therefore having arguably been the object of a secondary meaning phenomenon). However, the trademark of concern in this case was not CAMICISSIMA, but another trademark, i.e. “MODO” (which literally can be translated into English as ‘mean’ or ‘way’..and in Latin as mŏdus), that the plaintiff had been owning since over 20 years but that it had used very little, in a way sufficient to avoid a revocation for non-use but with very small commercial volumes.

The infringement of the MODO trademark by the competitor was perfectly literal, as the infringer had been using the same sign to identify its shirts. In such a context the Court of first instance (obviously) ascertained the infringement and, in the absence of significant elements to calculate the damages, affirmed that they could be awarded by applying the ‘reasonable royalty’ criterion, as requested by the trademark owner. In particular the Court set the royalty rate at a minimum of 2.5% (compared to a possible maximum of 10.5%) of the turnover of the infringer. That was done in consideration of the limited diffusion of the trade mark in question (as inferred from the evidence offered by the plaintiff).

The infringer appealed against the first instance judgment, only with reference to the award of damages and the Appeal Court actually reversed the first instance decision, stating that even if the reasonable royalty criterion is a suitable way to assess damages it cannot be used as an ‘automatic’ consequence of infringement.

The trademark owner therefore brought the case in front of the Supreme Court. It affirmed that the Appeal Court had erred since the reasonable royalty criterion is a ‘residual’ criterion and that the loss of profit can always be determined according to the criterion known as the ‘fair price of consent’, by awarding an amount not lower than the royalty that the infringer would have had to pay to obtain a regular licence from the owner of the right infringed. And this regardless of the degree of reputation and diffusion of the trade mark, representing a minimum standard criterion for the award of damages.

In this regard the trademark owner recalled in particular the second paragraph of Article 125 of the Industrial Property Code, which reads as follows:

The judgment that rules on the compensation of damages may establish payment of an overall sum set based on the proceedings in the case and the presumptions that result from them. In this case the loss of profits shall however be determined as an amount not less than the royalties that the author of the infringement would have had to pay, had he obtained a license from the owner of the infringed right.

The Supreme Court has refused the request of the trademark owner confirming instead the appeal decision by stating that a loss of profit for a trademark owner “cannot be automatically assumed and in particular it cannot be assumed that every sale made by the infringer is a sale not made by the right holder”. Subsequently the Supreme Court affirmed that the Appeal Court had been right in not awarding any damages, since the owner of the MODO trade mark had not “proved the dilution of the trade mark” and had not attached “any specific fact giving rise to damage by reason of the infringement of the trade mark”.

This decision has been seen with some concern by Italian legal operators as a decision that renders more difficult to obtain an award for damages based on the reasonably royalty criterion. Usually, in fact, the latter is invoked when the rightowner is in fact not able to prove a reduction in its sales. The decision clarifies however that the criterion indicated by article 125, paragraph 2, responds to the purpose of facilitating the burden of proof on the holder of the injured right, which may amount to an attenuation of the same burden but cannot result in an absolute exemption from compliance with the same.

We may at this point observe that this ruling is very much tailored to the case and justified by factual circumstances where the trademark invoked was almost not ever used by the owner. The Supreme Court has sets out a number of elements in support of this position:

  • The trade mark, although registered for 38 years, was almost unknown on the market (it had been used very little, highly likely just in order not to revocation for non-use);
  • It had not been proved that any product bearing the infringed trademark were marketed in the shops indicated by the plaintiff;
  • The turnover of the products bearing the infringed trademark had always been negligible (highly likely the sales were only made to avoid the decadence, see above);
  • No evidence had been provided that the trade mark had ever been advertised and on the basis of “some checks on the search engine ‘Google’” – says the Supreme Court –-was almost unknown to the public.
  • Above all, there was no proof “of the actual marketing of the product, such as to demonstrate the knowledge of that mark among the relevant public“.

It is worth noticing that another decision of the Supreme Court issued this year, n. 5666 of 2 March 2021 had been far more favorable to the applicability of the reasonable royalty criterion. That decision in fact recalled that the damage can also be proved on the basis of simple “circumstantial elements offered by the injured party” and it also specified that the owner will not even have the burden of proving “what would have been the certain royalty in case of hypothetical request“, representing the criterion of reasonable royalty only a “mandatory minimum“.

But this latter case was indeed referring to patents, where probably the lack of a regular use of the right on the market by the rightowner may be seen with less severity (patents being sometimes also used only for defensive purposes or to keep competitors out of a certain market).

So the impression is actually that the recourse to the reasonable royalty criterion will be now a bit less easy in trademark cases in Italy, especially when enforcing kind of ‘dormant’ trademarks.

Needless to say that all rightowners always have another remedy against infringement, which is the request for the recovery of profits of the infringer (retroversione degli utili). The latter, also according to the most recent decisions of the Supreme Court (n. 21832/2021), does not require any prove of a suffered damage by the rightowner but it is an automatic consequence of the ascertainment of the infringement.


*Article first published on the IPKAT blog on 18 November 2021

Photo: Luigi Russolo, Convivio (vecchi castagni), 1945