Significant decision on lost profits issued

The Madrid Provincial Court has awarded €1,829,969 to adidas for infringement of its well-known ‘three-stripe’ trademark (September 26 2008).

The plaintiffs in this case were adidas Salomon AG, adidas Marketing BV and adidas España SA (collectively adidas). The defendants were an individual, D Matteo Jin, and Sun Flowers Shoes SL, Tajima Shoes Trading SL and Grupo El 78 Calzado SL.

The dispute arose out of the sale on the Spanish market of training shoes bearing four parallel stripes that were similar to adidas’s ‘three-stripe’ mark.

adidas filed an action for the cancellation of a trademark owned by one of the defendants that was similar to its device mark. It also filed an action for infringement based on Articles 34(2)(b) (risk of confusion) and (c) (risk of association and dilution) of the Trademark Act. The First Commercial Court of Madrid found in favour of adidas. The defendants appealed.

The Madrid Provincial Court held that there was a risk of confusion among the public. In addition, the court recognized that the ‘three-stripe’ mark was well known and that there was a risk of association and dilution. Consequently, the court ordered that the defendants pay damages in an amount of €1,829,969 for direct damages, loss of profit and injury to adidas’s reputation.

One of the interests of this decision lies in the way in which the court calculated the amount of damages to be awarded. In this action adidas sought:

consequential damages (ie, the expenses incurred in investigating the infringement);
loss of profit (ie, the price that the infringer would have paid in order to obtain a licence); and
damages for injury to the reputation of its mark as a result of the infringement.

With regard to the loss of profits, the expert witness calculated the hypothetical royalty that the defendants would have had to pay to adidas based on:

a variable royalty (an average based on the total sales of infringing products); and
a minimum guaranteed royalty (to be paid regardless of the total sales of infringing products).

The court accepted adidas’s argument that a minimum guaranteed royalty should be granted to the trademark holder regardless of the total sales of infringing goods.

The court considered that the factors used by the expert witness to calculate the minimum guaranteed royalty were reasonable and technically well founded. Therefore, the court granted an annual minimum guaranteed royalty of €855,568 (ie, €1,711,136 for two years of infringement). The court did not address the issue of the variable royalty as the amount of sales of the defendants was unknown.

The court concluded that the amount of compensation awarded to adidas was justified due to the damage caused to the reputation of its mark. It also acknowledged the fact that such compensation, as set out in Articles 43(1) and (3) of the act, was separate, cumulative and compatible with other types of compensation set forth by the law.

With regard to the damages to the reputation of the mark, the court acknowledged the fact that such compensation, as set out in Articles 43(1) and (3) of the act, was separate, cumulative and compatible with other types of compensation set forth by the law. It ordered the defendants to pay €112,398 to adidas for the damage caused to the reputation of its ‘three-stripe’ mark.

It is the first time that a court has analyzed the issue of compensation with such attention to detail and rigour. The decision should thus be welcomed by IP rights holders.

Leticia Lloret, Grau & Angulo, Madrid

Significant decision on lost profits issued

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