Damages from import
THE SUPREME COURT OF CASSATION FINALLY RULES THAT IMPORT OF COUNTERFEITS LEADS TO DAMAGES FOR THE RIGHTHOLDER
The question whether a trademark owner suffers damages when counterfeit goods are imported in the country (or the EU) and seized on the border by the customs authorities has been quite controversial in the Bulgarian legal practice for the last 7 years. Finally, the Supreme Court of Cassation has laid out its position and this will undoubtedly put an end to a long-lasting debate.
The case was started by apparel giant LACOSTE, represented by Vasil Pavlov and Momchil Lazarov, who filed trademark infringement claims against a company that has imported leather wallets, branded with LACOSTE-owned trademarks. The goods were seized on the border by the customs authorities. LACOSTE claimed that the import constituted and infringement of the rights over the trademarks owned by the company and that infringement lead to damages for the company in the amount of the royalty that it would have obtained (based on the prices of the original goods), had there have been a contract concluded with the infringer for the use of these trademarks.
The first instance court (Sofia City Court) ruled that an infringement has indeed taken place. The Court ruled also that this infringement lead to damages for the plaintiff, regardless of the fact that the goods were detained by the customs, since import itself constitutes use of the trademark. The amount of damages was the royalty fee that the trademark holder would have obtained, should there have been a contract concluded, based on the price of the original goods. The Court also ordered the goods to be destroyed.
This decision was appealed by the defendant. The Sofia Court of Appeal overturned the decision of the Sofia City Court. It ruled that although an infringement has taken place (dismissing the appellant’s claim in that regard), the trademark holder has suffered no damages, since the goods were detained by the customs officials and never made it to the market. The ruling for destruction of the goods was upheld.
The positions of the two courts described above actually represent the two general opinions on the matter that have circulated in Bulgarian IP rights legal practice for almost 7 years. Until now, the Supreme Court of Cassation has not ruled on this dispute since almost all of the claims could not be brought before it, due to their small sums. With the introduction of the new Civil Procedural Code in 2007, however, the door was open for such a claim to be brought up for cassation appeal, since one of the prerequisites for allowing such an appeal was the existence of contradictive practice on the matter in subject.
Pavlov and Lazarov, therefore, took the opportunity and appealed the decision before the Supreme Court, citing numerous decisions of the Sofia City Court and the Sofia Court of Appeal that supported both theories. LACOSTE’s position was that import of goods constitutes use of a trademark and for it to be legal, the consent of the holder of that trademark is requested. That consent can be given by a license contract or at least by a contract containing license clauses. The Commercial Law specifically states that license deals are trade deals a priori, and therefore are by rule – pecuniary. Therefore, in a case where trademark infringement has taken place and no such contract was concluded, the rightholder would suffer damages at least in the amount of the license fee that it would have obtained, should this contract have been concluded, and based on the price of the original goods. This is, among others, also consistent with the provisions of the First Council Directive for approximation of the laws of Member States, relating to trademarks.
After some deliberation the Supreme Court of Cassation ruled in favor of LACOSTE, stating that every type of trademark infringement leads to damages for the trademark holder – both non-pecuniary and pecuniary damages. The non-pecuniary damages include the tarnishing of the reputation of the trademark and its devaluation, while the pecuniary damages can include the missed license fee. Therefore the appeal of LACOSTE was upheld and damages in the amount of the license fee, based on the price of the original goods have been awarded.
This decision is a very important step in the defense of IP rights against infringement through import, rendered all the more significant given the fact that Bulgaria is also an outside border of the European Union and can be used as a gateway for counterfeits to be imported into Europe. Rightholders now have a strong weapon against infringers and can protect their rights far more efficiently.