I Introduction

Holders of copyright and related rights are entitled to compensation for damage, either material or intangible, if these rights are infringed upon. The matter of compensation for damages has proven controversial in intellectual property law. One consideration here is how to estimate the extent of damage caused, since the rights pertain to intangible intellectual property. This article will look at some of the issues inherent in ascertaining the amount of damages that may be awarded.

II Scope of copyright protection

Before looking in detail at the issue of compensation for infringement of exclusive intellectual property rights, this section will briefly touch on the scope of copyright protection and the entitlements that copyright holders derive from this right.

(1) Copyright is the exclusive intellectual property right that protects the personal and property interests of the originator of a work. Since creating a work is an intellectual process, this originator can only be a natural person, but, conversely, copyright can also be held by a legal person. The originator is by its very nature the original holder of subjective copyright, whilst the entitlements deriving from this subjective copyright are assignable, so that any person that is not the originator but does hold some entitlements derived from this right is a derivative copyright holder.

Entitlements stemming from subjective copyright can be divided into two primary groups:

A) Personal entitlements are connected with the person of the originator and therefore as a rule non-assignable.[1] In intellectual property law, these entitlements are also termed ‘moral rights’ or ‘moral entitlements’.

B) Property entitlements serve to protect the financial interests of the author in terms of being able to monetise their work. Unlike personal entitlements, these rights are assignable.[2] In the most basic of terms, these rights allow the originator to permit or prohibit other persons to use their work.

(2) Related rights are exclusive intellectual property rights that generally serve to protect the holders’ property interests. These are: (a) rights of performers; (b) rights of producers of sound recordings; (c) rights of producers of video recordings; (d) rights of broadcasting organisations; (e) rights of database producers; (f) rights of the first publisher of a copyright-free work; and (g) rights of publishers of print editions to specific compensation. Unlike with copyright, the holder of related rights in a work is the business, or natural or legal person, that facilitated and financed the creation of the copyrighted work. Therefore, related rights involve, as a rule, property entitlements.[3]

Understanding and distinguishing between the different scopes of entitlements contained in subjective copyright and related rights is important when claiming damages, since only natural persons are entitled to compensation for non-material damage. In other words, only originators and performers may claim compensation for non-material damage.

III Copyright infringements

Understanding and distinguishing between the different scopes of entitlements contained in subjective copyright and related rights is also important when assessing copyright infringements. These may take two forms:

(1) Direct infringement occurs where the infringing activity affects one or multiple exclusive copyright entitlements. In other words, infringement means the exercise of a copyright holder’s exclusive personal or property entitlements without permission to do so.

(2) Indirect infringement occurs where the infringing activity is in itself lawful but, in the actual case, affects exclusive copyright entitlements. Put differently, in this situation the infringing activity does not have an effect on personal or property entitlements but can facilitate, enable, or contribute to their direct infringement.

For instance, Article 204 of the Serbian Law on Copyright and Related Rights[4] provides a list of direct infringements, whilst Article 208 sets out indirect infringements, namely:

1) The exploitation of any of the subject-matters of protection involving the use of copies of such subject-matter of protection that were made without authorisation, and/or are based on the unauthorised broadcasting;

2) Holding copies of the work of authorship or subject-matter of related right for commercial purposes, if the holder knows or has reason to know that such copies are produced without authorisation;

3) Production, import, marketing, sale, rental, advertising for the purposes of sale or rental or holding for commercial purposes of the devices, products, composite parts, computer programs primarily constructed, produced or adjusted for enabling or facilitating the circumvention of any efficient technological measure, which do not have any other significant purpose than the said one;

4) Circumvention of any technological measure, or supply or advertising of services enabling or facilitating such circumvention;

5) Removal or alteration of the electronic information regarding rights, or marketing, import, broadcasting or public communication in any other manner of the work of authorship or the subject-matter of the related rights, from which the electronic information on rights is removed or altered without authorisation, where the perpetrator knows or has reason to know that by doing so he induces, enables, facilitates or conceals infringement of copyright or related right.

Serbian legislation recognises another form of indirect infringement. The rapid development of technology, especially computer hardware and software, has prompted the creation of electronic rights information, such as digital rights management (DRM) solutions and technological protection measures (TPMs).[5] These are digital safeguards that seek to prevent unauthorised duplication and use of copyrighted material online. Electronic rights information is essentially an identifier that allows copyright holders to recognise copyrighted works that have been illicitly duplicated or otherwise used without authorisation online. As suggested by the name, TPMs are hardware or software solutions that prevent or substantially hinder the unauthorised duplication and use of copyrighted works online.

IV Damages

As noted in the introductory section above, copyright holders are entitled to compensation for damage caused by the infringement of copyright and/or related rights. Copyright holders can suffer either material or non-material damage.

Compensation for material damage

Damage is a civil tort that entails an action or failure to act which causes damage to another person and requires the tortfeasor to compensate the injured party for that damage.[6] According to general principles of the law of obligations, anyone that causes damage to another person is liable to indemnify such damage if they fail to prove the damage was caused through no fault of their own.[7] Material damage is damage to property and can take the form of either actual damage or loss of profit.

Actual damage is the diminution of existing property, whilst loss of profit (consequential loss) is the prevention of a possible increase of existing property, or the unrealised material benefits that would have occurred in the regular course of events had the damage not occurred.
In copyright infringement, damage can be caused by the commission of a tort or arise from a contractual relationship (such as with the use of a copyrighted work under a work for hire agreement). Accordingly, liability for damage due to copyright infringement may be contractual and non-contractual.
Contractual liability for damage occurs where a derivative copyright holder fails to perform or, more commonly, where the copyright holder exceeds the scope of their contractual entitlements. Non-contractual liability, the more common of the two, exists where a person uses a copyrighted work without proper authorisation.

Therefore, material damage due to copyright infringement consists in the loss of revenue to the copyright holder occasioned by the unauthorised use of the copyrighted material (where, for instance, someone uses a copyrighted work without paying royalties). Given that copyrighted works are intellectual, intangible property, compensation for such damage can almost never be made in kind, but is rather always awarded in cash. Since claims for damages brought before the courts must be clearly specified, with claimants having to indicate the amount of actual damage and lost profit suffered, estimating such material damage poses issues (because copyright holders are generally unable to say exactly how much damage they may have suffered due to the intangible nature of the rights in question).

Theory and practice have identified several methods that can be used to estimate material damage, namely:

1) Differential method;
2) Assessment of illicit gain of the tortfeasor;
3) Analogous use of copyright assignment/transfer fees.

The differential method seeks to determine the difference between the claimant’s assets as they would have been if the infringement and not occurred and as they are following the infringement. This difference is then used in the claim for damages. The main drawback of this approach is that it relies on the counterfactual case involving the absence of infringement.[8] Moreover, this method cannot be used where the claimant had not been monetising their copyrighted material. From a purely procedural perspective, the claimant would find it exceptionally difficult to prove the extent of damage in court using this method.

Assessment of illicit gain of the tortfeasor attempts to quantify the profit earned by the tortfeasor due to the copyright infringement, with the result then used in the claim for damages. Its main disadvantage lies in that the tortfeasor’s overall gain cannot be ascribed to the copyright infringement as profit may depend on a variety of factors and may not be all due to the infringement. As such, here the claimant would be entitled to a share of the tortfeasor’s profit. In this regard, the German Federal Court of Justice has ruled that only the portion of one’s profits that can be ascribed to the use of another person’s intellectual property should be considered, so that, when estimating that share of the profits, the court has to ascertain whether and to what extent the profits can be ascribed to the technical features of the copyrighted work (‘product’) and any other factors influencing a consumer’s decision to purchase the product..[9]

Analogous use of copyright assignment/transfer fees seeks to ascertain the usual consideration the tortfeasor would have to pay the claimant if they had used the copyrighted material under a copyright assignment/transfer agreement and use this figure in the claim for damages. The primary disadvantage of this method is that it equates illicit and legal use of copyrighted material and so may incentivise abuse if potential infringers are aware the consequences of infringement would at worst amount to paying a licensing fee.

The third method seems the simplest and most feasible and promotes consistency of case law in assessing damages. Its main drawback can be easily overcome by using the usual licensing fee as only the starting point for determining the amount of damage caused.

In the past, Serbian law had also stipulated ‘multiple compensation for damage’. In lieu of claiming simple compensation, an injured party was able to claim what essentially amounted to punitive damages in the event the alleged tortfeasor was deemed to have acted with intent or gross negligence. This claim would involve requiring the payment of an amount greater than the licensing fee that would have ordinarily been paid had the copyrighted material been used legally (with a ceiling of triple the figure in question).

Article 206 of the current iteration of the Law on Copyright and Related Rights prescribes the following approach to be used when determining damages:

‘[1] In assessing the extent of damage, where the infringer was aware or could have been aware he was committing an infringement, the court will take into consideration all the circumstances of the case in question, such as the adverse financial consequences to the injured party, including loss of profit, gained by the tortfeasor due to the infringement and, where relevant, non-financial considerations, such as non-material damage.

[2] In lieu of the compensation for damage referred to in Paragraph [1] of this Article, where so justified by the circumstances of the case, the court may award to the injured party a lump-sum indemnity that may not be lower than the usual fee the injured party would receive for the particular use of the copyrighted work had such use been legally sanctioned.’

Assessing liability for material damage requires ascertaining the existence of such damage, the liability of the tortfeasor, and the causal relationship between the tortfeasor’s action and the damage. The issue of the extent of liability is particularly important in determining the amount of compensation, since the same treatment cannot be extended to a person that acted with intent (seeking to cause damage), one that acted with gross negligence (knowing that damage may be caused), and one that acted negligently.

Compensation for non-material damage

Non-material damage is caused by the infringement of a personal non-property-related right and may include the loss of or injury to a personal right.[10] The Serbian Law of Contracts and Torts defines non-material damage as ‘inflicting on another physical or psychological pain or causing fear’. Both theory and practice agree that only natural persons are entitled to indemnification of non-material damage.

Here, originators and performers, who are both natural persons and the original copyright holders, have both property and personal entitlements, so any infringement of their personal rights allows them to claim non-material damages. Neither their heirs nor associations or cultural institutions that otherwise have standing to seek legal redress for infringement of personal rights are allowed to claim damages in this case. However, if a final court ruling has awarded pecuniary damages during the originator’s lifetime, the heirs are able to collect the damages from the tortfeasor. Legal persons that hold copyright entitlements cannot claim non-material damages.

Globally, jurisdictions have enacted different rules for non-material damages. In Greece, these damages may be awarded for infringement of all intellectual property rights and not just copyright and related rights; this is often the only form of damages that can be awarded for trademark infringement. French and Swiss law recognise torts that serve to protect the reputations of businesses. The Russian Civil Code envisages the same rights for legal and natural persons in the event of reputational injury, which also means they are able to claim non-material damages.[11]