Reasonable Royalties: over 350,000 EUR awarded by Court of Milan in trade mark infringement case

12th October 2023

By judgment of April 17, 2023, the Court of Milan, holding on a case of trade mark infringement in the apparel sector, condemned the defendant to pay to the trade mark owner the amount of 355,777.62 EUR by way of compensation for pecuniary loss suffered as a result of the infringement.

The criterion used by the Court and the Court Technical Expertise during the Accounting Court Technical Expert Phase was that of the so called ‘reasonable royalty’.

A summary of the case

In 2018, Basic Trademark S.A. (hereinafter “Basic”) sued the Italian company Karin S.r.l. (hereinafter “Karin”) claiming, among other things, that the production and marketing of safety shoes under K-WORK trade mark, infringed its earlier “family” of  well-known KAPPA trade marks (among the many: EU registration KAPPA no. 3137395, Italian registration K4WORK no. 1565243, Italian registration K4W no. 1565244, Italian registration KAPPA WORK no. 1483317, Italian registration KAPPA4WORK no. 1483316 – hereinafter jointly “Kappa Trade Marks”).

During the course of the proceedings, Karin attempted in vain to argue in reply that the infringement should be denied since Kappa Trade Marks would enjoy low distinctiveness, due to the inherent weakness of trade marks consisting of letters of the alphabet, and the absence of particular graphic characterization of the sign ‘K’ in Kappa Trade Marks.

Therefore, the fact that K-WORK does not include the full word KAPPA but the letter K only would be enough to exclude any likelihood of confusion between the marks.

Moreover, Karin tried to argue that the reputation claimed by Basic in relation to its Kappa Trade Marks would not be enforceable in the present case since it would be related to lifestyle apparels and not safety shoes.

The above arguments were rejected in full by the Court of Milan who, while ascertaining the likelihood of confusion between the trade marks at stake, provided interesting insights into how compensation for damages could be calculated in trade mark infringement cases, with specific respect to the apparel sector.

Guidance provided by the Court of Milan in the Kappa Trade Marks case

As mentioned above, the Court of Milan had to verify, first, if Kappa Trade Marks were infringed by the trade mark .

The Court found that there was a likelihood of confusion between marks considering that the signs were very similar (all the signs shared the letter “K” which is pronounced as “KAPPA” in Italian) and the distinguished goods were identical.

Therefore, the Court decided to calculate the pecuniary damages suffered by the trade mark owner.

This damage was calculated based on the reasonable royalty criterion in the absence of specific proof, the burden of which is on the trade mark owner, of greater pecuniary damage.

In this regard, it is worth recalling that the reasonable royalty is the royalty the infringer would have paid to the trade mark owner for a licence.

The analysis conducted through the Accounting Court Technical Expertise phase had made it possible to verify that in the apparel sector, which includes footwear, the royalty was “equal to 5.70% of sales revenue in Europe for exclusive use licences, a value which, moreover, does not differ much from that resulting worldwide”.

In the words of the Court “considering that the reasonable royalty must be found to be higher than that which would have applied in the case of a contractual relationship between the parties, it appears fair to be determined in the amount of 6%” – this percentage was applied to the infringer’s annual revenues related to the marketing of Karin safety shoes bearing K-WORK trade mark, for a total amount of EUR 355,777.62.

Comment

This is a very interesting Italian case law precedent on damages calculation in trade mark infringement matters.

The recent decision is significant since the Court had to set a considerable amount of damages and gave well-balanced insights for protecting trade mark rights not only from an injunction perspective in the apparel industry. However, this may not be the final victory for the trade mark owner, since the decision could now be appealed before the Court of Appeal of Milan.