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On compensation for infringement of the rights of an author and related rights

Case No. 13/2008

THE CONSTITUTIONAL COURT OF THE REPUBLIC OF LITHUANIA

RULING

ON THE COMPLIANCE OF PARAGRAPH 3 OF ARTICLE 67 OF THE REPUBLIC OF LITHUANIA LAW ON THE RIGHTS OF AUTHORS AND RELATED RIGHTS (WORDING OF 18 MAY 1999) WITH THE CONSTITUTION OF THE REPUBLIC OF LITHUANIA

6 January 2011
Vilnius

 

The Constitutional Court of the Republic of Lithuania, composed of the Justices of the Constitutional Court Armanas Abramavičius, Toma Birmontienė, Pranas Kuconis, Kęstutis Lapinskas, Zenonas Namavičius, Egidijus Šileikis, Algirdas Taminskas, and Romualdas Kęstutis Urbaitis,

with the secretary—Daiva Pitrėnaitė,

in the presence of the representative of the Seimas of the Republic of Lithuania, the party concerned, who was Vidmondas Vėgelis, Advisor at the Civil Law Unit of the Legal Department of the Office of the Seimas,

pursuant to Articles 102 and 105 of the Constitution of the Republic of Lithuania and Article 1 of the Law on the Constitutional Court of the Republic of Lithuania, in its public hearing, on 4 January 2011, heard constitutional justice case No. 13/2008 subsequent to the petition (No. 1B-14/2008) of the Court of Appeal of Lithuania, the petitioner, requesting to investigate whether Paragraph 3 of Article 67 of the Republic of Lithuania Law on the Rights of Authors and Related Rights (wording of 18 May 1999) was not in conflict with Paragraphs 1 and 3 of Article 46 of the Constitution of the Republic of Lithuania and with the constitutional principles of justice and a state under the rule of law.

The Constitutional Court

has established:

I

The Court of Appeal of Lithuania, the petitioner, was investigating a civil case. By its ruling, the court suspended the consideration of the case and applied to the Constitutional Court with a petition requesting to investigate whether Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999) is not in conflict with Paragraphs 1 and 3 of Article 46 of the Constitution and with the constitutional principles of justice and a state under the rule of law.

II

The petition of the Court of Appeal of Lithuania, the petitioner, is substantiated by the following arguments.

1. The main function of damage reimbursement is to compensate for a violation of property interests or other interests of the victim. However, the petitioner believes that, by applying this specific means of civil liability (compensation) and seeking both the balance of public and private interests and that of private interests, as well as while ensuring the said balance, one should not violate the general principles of law, such as those of proportionality, inadmissibility to abuse law, justice and reasonableness (Paragraph 1 of Article 1.2 and Article 1.5 of the Civil Code of the Republic of Lithuania) and that ways and means of implementing civil law should not be in conflict with the purpose of the civil law under implementation.

2. The constitutional principles of justice and a state under the rule of law imply that the measures established by the state for violations of law must be proportionate (adequate) to the violation of law, they must be in line with the legitimate and generally important objectives sought, they may not restrict the person clearly more than it is necessary in order to reach these objectives. There must be a fair balance (proportionality) between the objective sought to punish the violators of law and to ensure prevention of violations of law and the measures chosen for reaching this objective. Punishment, as a sanction for a committed violation of law, is characteristic of legal relations regulated by administrative and criminal law, rather than of civil ones.

3. Complying with the mechanism of compensation established by laws, compensation adjudged from the violator, which is calculated on the basis of the price of legal sale, may considerably exceed the income lost or other losses incurred by the owner of related rights as a result of an infringement of related rights, since owners of related rights do not incur any expenses to get the sale price. One is to presume that, under the said regulation of the defence of the infringed rights, by providing for compensation and the possibility of increasing it, one creates preconditions for victims to abuse law.

4. Article 79 of the Law on the Rights of Authors and Related Rights (wording of 5 March 2003), which regulates reimbursement for property damage and compensations, does not provide at all for the price of legal sale as a criterion for calculation of the amount of compensation. According to the petitioner, this circumstance allows to make an assumption that the legislator, when changing the methodology for calculating compensation, held the compensation calculated according to that methodology to be not in line with the requirements of reasonableness and justice, nor with the principle of proportionality.

III

In the course of the preparation of the case for the Constitutional Court hearing, written explanations were received from the representatives of the Seimas, the party concerned, who were Dalia Teišerskytė, a Member of the Seimas, and V. Vėgelis, Advisor at the Civil Law Unit of the Legal Department of the Office of the Seimas, wherein it is maintained that the disputed legal regulation was not in conflict with the Constitution. The position of the representatives of the Seimas, the party concerned, is substantiated by the following arguments.

1. By means of compensation one seeks to defend the infringed rights of authors and related rights more efficiently, as in cases of this type the victim is exempt from a complicated procedure, i.e. substantiation of the actually inflicted damage as a result of an infringement of the right, which is more often than not objectively complicated or impossible, also thereby one seeks to facilitate and accelerate the court process, and to defend the infringed rights in a more expeditious manner.

2. According to the representatives of the party concerned, the institute of compensation is in line with the objectives and provisions of Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the Enforcement of Intellectual Property Rights. Paragraph 1 of Article 2 of Directive 2004/48/EC stipulates that in their national legislation Member States may have entrenched other measures or remedies, insofar as those measures or remedies may be more favourable for rightholders, however, it is important that mandatory provisions of Directive 2004/48/EC would be followed (Article 16). In addition, it is significant to note that Article 3 of Directive 2004/48/EC indicates that the remedies necessary to ensure the enforcement of the intellectual property rights must be dissuasive, i.e. not only a compensatory role of the defence of civil rights is emphasised, but also a preventive role, the one which carries a deterrent effect.

3. It needs to be noted that in applying the said sanction the courts had a possibility rather than an obligation to increase compensation by heeding the provisions of Articles 1.2 and 1.5 of the Civil Code, and in the court practice one managed to ensure proportionate application thereof by taking into consideration the interests of the rightholder and those of the infringer, which was also in conformity with the requirements of the principle of justice.

4. In 2003, Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999) was amended not due to its unconstitutionality, but virtually only due to the inaccuracy of the criterion for calculating compensation, since the previous criterion of the price of legal sale had been defective and, both in the legal doctrine and in practice, it had been criticised basically due to the following two facts. First, according to the previous compensation procedure, compensation could be calculated only in cases of such infringements of the rights of authors and related rights where an object under protection would be distributed on the market, whereas in cases where it would not be released into the market, the compensation mechanism could not be applied. Second, under Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999), compensation was calculated for every copy of a work or object of related rights put into illegal circulation, however, courts of Lithuania, while applying this norm of the law, would most frequently calculate compensation for each infringement separately according to the price of legal sale of each copy of the work. Therefore, the said amendment of the norm of the law may be assessed not as a removal of the provisions of a law that are in conflict with the Constitution, but more as an evaluation of the legal doctrine and the positions of the court practice within the positive law.

5. The representatives of the party concerned do not agree with the statement of the petitioner that a too strict means of the defence of the rights of authors and related rights provided for in Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999) entrenched a disproportionate advantage of some economic subjects over the others, and that, therefore, it does not serve the welfare of the Nation and is in conflict with Paragraphs 1 and 3 of Article 46 of the Constitution, as the freedom of individual economic activity does not mean the freedom to violate laws and the rights of other persons.

IV

In the course of the preparation of the case for the Constitutional Court hearing written explanations were received from Remigijus Vilkaitis, Minister of Culture of the Republic of Lithuania.

V

In the course of the preparation of the case for the Constitutional Court hearing the specialist—Agnė Masalskytė, Director of the Lithuanian Neighbouring Rights Association—was questioned.

VI

At the Constitutional Court hearing, the representative of the Seimas, the party concerned—Vidmondas Vėgelis, Advisor at the Civil Law Unit of the Legal Department of the Office of the Seimas—virtually reiterated the arguments set forth in his written explanations and in those of the Member of the Seimas D. Teišerskytė and answered to the questions of the Justices of the Constitutional Court.

The Constitutional Court

holds that:

I

1. The relations related with the protection of the rights of authors were already regulated in the inter-war independent Lithuania. It needs to be noted that at that time, due to the historical and political circumstances that had developed, there was a distinct particularism of private law. Various territories of the restored independent Lithuania (Lithuania Major, Užnemunė region, Palanga Valsčius (a rural administrative self-governing district) and a small part of the Zarasai County), as well as the autonomous Klaipėda region, adopted and applied the law of other states, inter alia civil laws. It needs to be mentioned that Articles 69521, 69522 and 69523 of Part 1 (“Civil Laws”) of Volume X of the most widely adopted and applied in Lithuania Set of Laws of the Russian Empire (with amendments and supplements, it was valid in the inter-war independent Lithuania), which regulated the liability for infringements of the rights of authors, prescribed:

69521. A man who has intentionally or through negligence breached the rights of the author or the rights of inheritors of the rights thereof must reimburse the victim for the entire damage inflicted upon him.

69522. A man who has acted honestly and has breached a right of an author by a pardonable mistake shall be liable to the author or inheritors of the rights thereof for the loss inflicted in the amount of not more than the received profit.

69523. The amount of the reimbursement passing to the author or inheritors of the rights thereof under Articles 69521 and 69522 shall be determined by the court at the court’s fair discretion by putting together all the circumstances of the matter.”

In the context of the constitutional justice case at issue it needs to be noted that, under the cited legal regulation, the author or inheritor of the rights thereof could claim reimbursement for the damage (losses) inflicted on them as a result of infringement of the rights of the author; a possibility of claiming compensation was not provided for.

Paragraph 1 of Volume X of the Set of Laws of the Russian Empire did not regulate the legal position of owners of related rights, nor the protection of the rights thereof.

2. On 11 March 1990, the Supreme Council-Reconstituent Seimas of the Republic of Lithuania announced the Act of Restoration of the Independent State of Lithuania. On 15 November 1990, the Supreme Council of the Republic of Lithuania adopted Resolution No. I-791 “On the Property of the Agency of the Rights of Authors of Lithuania”, by which it inter alia resolved to propose the Government of the Republic of Lithuania, along with creative unions of the Republic of Lithuania, to prepare, until 15 January 1991, proposals relating to the Procedure for the Defence of the Rights of Authors in the Republic of Lithuania and Abroad (Item 3).

Executing the said resolution, on 20 March 1991, the Government adopted ordinance No.152p, whereby it inter alia commissioned the Agency of the Lithuanian Association for the Protection of the Rights of Authors to perform the functions of the defence of the rights of authors according to existing laws until the Lithuanian Law on the Rights of Authors is adopted (second paragraph of Item 1).

After the Constitution of the Republic of Lithuania was adopted by the 25 October 1992 referendum, Article 2 of the Republic of Lithuania Law “On the Procedure for Entry into Force of the Constitution of the Republic of Lithuania”—a constituent part of the Constitution—established that laws, other legal acts or parts thereof, which had been in force on the territory of the Republic of Lithuania prior to the adoption of the Constitution, shall be effective inasmuch as they are not in conflict with the Constitution and this law, and shall remain in force until they are either declared null and void or brought in line with the provisions of the Constitution.

3. The defence of the property rights of authors was regulated in Article 540 “The Defence of the Property Rights of Authors” (wording of 29 October 1974) of the Civil Code (wording of 7 July 1964 with subsequent amendments and supplements), wherein it was prescribed: “In cases where an infringement of the rights of the author has caused the author or successors of the rights thereof to incur losses (Article 227), independently of the requirements indicated in Article 539 of this code, the author or successors of the rights thereof shall have the right to claim for reimbursement of the losses.”

On 17 May 1994, the Seimas adopted the Republic of Lithuania Law “On Amending and Supplementing the Civil Code of the Republic of Lithuania”, by means of which it inter alia set forth the Forth and Fifth Chapters of the Civil Code (save Articles 535, 541 and 542 which were recognised as no longer valid) in a new wording. Article 540 “The Defence of the Property Rights of the Author” of the Fourth Chapter “Copyright” (wording of 17 May 1994) of the Civil Code was set forth as follows:

In cases where an infringement of the rights of the author has caused the author or successor of the rights thereof to incur losses (Article 227), irrespective of the requirements indicated in Article 539 of this Code, the author or successor of the rights thereof shall have the right to claim for reimbursement of the losses. In all cases all the profits that the infringer has received or may have received through unlawful use of a work shall be exacted for the benefit of the author or successor of the rights thereof. The copies of an illegally reproduced work may be transferred to the author or successor of the rights thereof as an indemnity for the inflicted damage.”

In the context of the constitutional justice case at issue it needs to be noted that, under the said legal regulation, compensation as a means of the defence of property rights of the author was not provided for.

It needs to be noted that the relations connected with the protection of the related rights were regulated in the forty-seventh section “The Rights of Play Directors, Artistes, and Producers of Audio and Video Recordings (Rights Related to Copyrights)” of the Fifth Chapter (wording of 17 May 1994) of the Civil Code. Article 558 “Subjects under Protection” (wording of 17 May 1994) of the said chapter of the Civil Code prescribed: “The rights of play directors, artistes, and producers of audio and video recordings which are indicated in this chapter shall be subject to protection unless this infringes the rights of authors of works performed.”

Article 565 “Defence of the Rights” (wording of 17 May 1994) of the Civil Code prescribed: “Infringement of the rights of play directors, artistes, and producers of audio and video recordings shall incur application of the measures for the defence of rights that are provided for in Articles 539 and 540 of this Code.”

Thus, under the cited legal regulation, related rights and the rights of the author alike were defended by means of the same measures (reimbursement of losses; exaction of the income that the infringer has received or may have received through unlawful use of a work; transfer of copies of an unlawfully reproduced work to the play director, artiste, or producer of audio and video recordings as an indemnity for the inflicted damage, etc.).

4. On 18 May 1999, the Seimas adopted the Law on the Rights of Authors and Related Rights, which, save Paragraph 3 of Article 16 and Paragraph 4 of Article 23 thereof, came into force on 9 June 1999.

Under Item 1 of Paragraph 2 of Article 73 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999), after the entry into force of this law, the Forth Chapter “Copyright” (wording of 17 May 1994) and the Fifth Chapter (wording of 17 May 1994) of the Civil Code became no longer valid.

5. Article 65 “Remedies for Infringement” of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999) prescribed:

1. With the aim of protecting their rights, owners of the rights of authors and related rights shall be entitled, in accordance with the procedure prescribed by laws, to appeal to court which may make a decision relating to:

1) recognition of rights;

2) an injunction to terminate unlawful actions;

3) redress of the infringed personal non-property rights (an injunction to make appropriate amendments, to announce the infringement in the press, or any other way);

4) exaction of unpaid royalties;

5) reimbursement of losses or damage (material and/or moral), including the lost income and other expenses sustained;

6) payment of compensation;

7) seizure or destruction of illegal copies of works, computer software, fixations of audiovisual works (films), phonograms and the devices or equipment used for their manufacture, as well as other devices and equipment used in connection with the infringement of rights under this law;

8) other legislative measures for the protection of violated rights.

2. County courts, as courts of the first instance, shall hear the civil cases related to the protection of the rights of authors and related rights.”

Article 67 “Reimbursement of Losses and Material Damage. Compensation” of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999) prescribed:

1. The procedure for reimbursement of losses and material damage shall be regulated by the Civil Code and the provisions of this Law.

2. When assessing the amount of losses, the court shall take account of the substance of violation, the amount of the inflicted damage, the income lost and other expenses incurred by the owner of the rights of the author or related rights. Illegal copies of works or objects of related rights may be handed over to the respective owners of the rights of authors or related rights upon their request.

3. Instead of reimbursement of losses, the owner of the rights of the author or related rights may claim for compensation, the amount of which shall be calculated according to the price of legal sale of a corresponding work or object of related rights by increasing it up to 200 percent, or up to 300 percent if the infringer has committed the infringement deliberately.”

In the context of the constitutional justice case at issue it needs to be noted that Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999), besides the institute of reimbursement of damage (losses), also provides for the institute of compensation as a means of the defence of the infringed rights of owners of the rights of authors and related rights.

6. By means of the legal regulation established in Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999), which is disputed in the constitutional justice case at issue, one has provided for:

1) the right of the owner of the rights of the author and related rights to claim for compensation instead of reimbursement of losses;

2) the means of calculating the amount of compensation:

the amount of compensation is calculated according to the price of legal sale of a corresponding work or object of related rights by increasing it up to 200 percent;

if the infringer has committed the infringement deliberately, the amount of compensation is calculated according to the price of legal sale of a corresponding work or object of related rights by increasing it up to 300 percent.

7. The Law on the Rights of Authors and Related Rights (wording of 18 May 1999) has been amended and supplemented more than once.

7.1. The provision of Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999), which is disputed by the Court of Appeal of Lithuania, the petitioner, was amended by the Republic of Lithuania Law on Amending the Law on the Rights of Authors and Related Rights (adopted by the Seimas on 5 March 2003), which, save the exception provided for in Article 3 thereof, came into force on 21 March 2003. By means of this law the Law on the Rights of Authors and Related Rights (wording of 18 May 1999 with a subsequent amendment) was amended and set forth in a new wording, and the disputed norm was set forth in Paragraph 6 of Article 79 “Reimbursement of Property Damage. Compensations” of this law in the following way:

Instead of reimbursement of losses the owner of the rights of the author and related rights may bring a claim for compensation. The amount of compensation, from 10 to 1000 minimum subsistence levels (MSL), shall be set by the court by taking account of the guilt of the infringer, his property status, the reasons for the unlawful actions, also any other circumstances of importance to the case, as well as the criteria of good faith, justice and reasonableness.”

In the constitutional justice case at issue, while comparing, in the disputed aspect, the legal regulation established in Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999 with a subsequent amendment) with the one established in Paragraph 6 of Article 79 of the Law on the Rights of Authors and Related Rights (wording of 5 March 2003), it needs to be noted that by means of the legal regulation established in Paragraph 6 of Article 79 of the Law on the Rights of Authors and Related Rights (wording of 5 March 2003) one changed the procedure for determining the amount of compensation: the minimum and maximum limit to the amount of compensation was established, the amount of compensation was linked to the minimum subsistence level (hereinafter referred to as the MSL) (from 10 to 1000 MSL), the price of legal sale of a corresponding work or object of related rights, as a criterion for determining the amount of compensation, was rejected, and the non-finite list of the criteria, which must be heeded by the court when assessing the concrete amount of compensation, was indicated.

Thus, the legal regulation established in Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999) was changed in essence.

7.2. Under Paragraph 4 of Article 69 of the Law on the Constitutional Court, the annulment of the disputed legal act shall be grounds to adopt a decision to dismiss the instituted legal proceedings. The Constitutional Court has held that the same can also be said as regards the cases when the disputed legal act (part thereof) was not repealed, however, the legal regulation established therein was changed (Constitutional Court ruling of 4 March 2003, decision of 14 March 2006, rulings of 30 March 2006, 14 April 2006, and 21 September 2006, decision of 28 May 2007, rulings of 22 June 2009 and 31 March 2010). However, as it has been held by the Constitutional Court more than once, when a court investigating a case applies to the Constitutional Court after it has doubts concerning the compliance of a law or other legal act applicable in the case with the Constitution (other legal act of higher power), the Constitutional Court has a duty to investigate the request of the court regardless of the fact whether the disputed law or other legal act is valid or not.

7.3. It needs to be mentioned that by means of the Republic of Lithuania Law on Amending and Supplementing Articles 2, 4, 11, 12, 14, 15, 16, 17, 22, 38, 40, 42, 43, 44, 45, 46, 47, 51, 53, 54, 56, 57, 61, 65, and 72, Chapter VI and the Annex of the Law on the Rights of Authors and Related Rights, which was adopted by the Seimas on 12 October 2006 and came into force on 31 October 2006, Chapter VI “Enforcement of the Rights of Authors, Related Rights and Sui Generis Rights” of the Law on the Rights of Authors and Related Rights was amended and set forth in a new wording, while the norm thereof regulating compensation was set forth in Paragraph 4 of Article 83 as follows:

Instead of requesting reimbursement of the actual damage (losses) caused by the infringement of the rights protected under this law, the persons specified in Paragraph 1 of Article 77 of this law may claim for:

1) compensation, the amount of which, up to 1 000 minimum subsistence levels (MSL), shall be set by the court by taking account of the guilt of the infringer, his property status, the reasons for the unlawful actions, other circumstances of significance to the case, as well as the criteria of good faith, justice and reasonableness; or

2) the fees that would have been due if the infringer had lawfully used the works or other objects of the rights protected under this law (i.e. upon receiving authorisation), and where the infringer has acted intentionally or with gross negligence—up to twice the amount of such fees.”

Having compared the legal regulation established in Paragraph 4 (wording of 12 October 2006) of Article 83 of the Law on the Rights of Authors and Related Rights with the one established in Paragraph 6 of Article 79 of the Law on the Rights of Authors and Related Rights (wording of 5 March 2003), it is clear that it has changed so that Paragraph 4 (wording of 12 October 2006) of Article 83 of the Law on the Rights of Authors and Related Rights does not provide for the minimum limit (10 MSL) to the amount of compensation, also it has established an alternative means of determining the amount of compensation, which may be claimed instead of reimbursement of damage (losses): one may claim for “the fees that would have been due if the infringer had lawfully used the works or other objects of the rights protected under this law (i.e. upon receiving authorisation), and where the infringer has acted intentionally or with gross negligence—up to twice the amount of such fees”.

It has been mentioned that, by the Republic of Lithuania Law on Amending the Law on the Rights of Authors and Related Rights adopted on 5 March 2003, the legal regulation established in Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999), which is disputed in the constitutional justice case at issue, was changed in essence. Thus, the legal regulation established in Paragraph 6 of Article 79 of the Law on the Rights of Authors and Related Rights (wording of 5 March 2003) and the legal regulation established in Paragraph 4 (wording of 12 October 2006) of Article 83 of the Law on the Rights of Authors and Related Rights are not a matter of investigation in the constitutional justice case at issue.

8. Legal liability for infringement of the rights of authors and related rights is established not only in the Law on the Rights of Authors and Related Rights, but in other laws as well.

For instance, Article 1421 (wording of 20 April 2000) of the Criminal Code of the Republic of Lithuania, which was valid until 1 May 2003, provided for criminal liability for unlawful reproduction of a work of literature, science or art (including computer software and databases), or an audiovisual work or phonogram, also for importation of illegal copies and exportation, distribution, transportation or storage thereof for commercial purposes where the total value of the reproduced, imported, exported, distributed, transported or stored illegal copies (calculated according to the retail prices of legal copies) exceeded the sum of 100 MSL, or for the same deed committed by a group of persons who had a prior arrangement.

Article 192 of the Criminal Code of the Republic of Lithuania, which was approved by Article 1 of the Republic of Lithuania Law on the Approval and Entry into Force of the Criminal Code (adopted by the Seimas on 26 September 2000) and which came into force on 1 May 2003, provided that punishment is administered to those who have illegally reproduced a work of literature, science or art or other work, or part thereof, also who have imported, exported, distributed, transported or stored illegal copies thereof for commercial purposes where the total value of these copies, according to the retail prices of legal copies thereof, exceeded the sum of 100 MSL.

On 9 July 2009, the Seimas adopted the Republic of Lithuania Law on Amending and Supplementing Articles 170, 191 and 192 of the Criminal Code and Supplementing the Code with Article 1701 (it came into force on 23 July 2009), by means of which it inter alia amended and supplemented Article 192 (wording of 26 September 2000) of the Criminal Code. Under Article 192 (wording of 9 July 2009) of the Criminal Code, punishment is administered to those who have illegally reproduced a work of literature, science or art (including computer software and databases) or an object of related rights, or part thereof for commercial purposes, or who have distributed, transported or stored illegal copies thereof for commercial purposes where the total value of these copies, according to the prices of legal copies (in the absence of the latter—according to the prices of originals of the reproduced works) exceeded the sum of 100 MSL (Paragraph 1), also to those who have committed the deed provided for in Paragraph 1 of this article where the total value of illegal copies, according to the prices of legal copies thereof (in the absence of the latter—according to the prices of originals of the reproduced works) exceeded the sum of 250 MSL (Paragraph 2).

In the context of the constitutional justice case at issue, while comparing the legal regulation established in Article 1421 (wording of 20 April 2000) of the Criminal Code, Article 192 (wording of 26 September 2000) of the Criminal Code and Article 192 (wording of 9 July 2009) of the Criminal Code, it needs to be noted that, in Article 192 (wording of 9 July 2009) of the Criminal Code, instead of the provision of the previous wordings that the total value of illegal copies is calculated according to the retail prices of legal copies thereof, one has entrenched the provision that the total value of illegal copies is determined according to the prices of legal copies thereof, and in the absence of the latter—according to the prices of originals of the reproduced works.

In Article 21410 (wording of 24 February 1998) of the Code of Administrative Violations of Law of the Republic of Lithuania, administrative liability was established for illegal reproduction, distribution, public performance or other use, in any ways and by any means for commercial purposes, of works of literature, science or art (including computer software and databases) and audio and/or video recordings (i.e. without authorisation of the author or producer of audio and/or video recordings, or that of the successor of their rights), as well as for storage thereof for the said purposes, and in Article 21410 (wording of 10 December 2002) of the same lawfor illegal public performance, reproduction, publishing or other use, in any ways and by any means by seeking to gain property benefit, of works of literature, science or art (including computer software and databases) and audio-visual works or phonograms, as well as for distribution, storage, importation, exportation or transportation of illegal copies thereof by seeking to gain property benefit. In Article 21410 (wording of 9 July 2009) of the Code of Administrative Violations of Law, liability is established for illegal public performance, reproduction, publishing or other use, in any ways and by any means for non-commercial purposes, of works of literature, science or art (including computer software and databases) or objects of related rights, or parts thereof, as well as for distribution, transportation and storage of illegal copies thereof for commercial purposes.

9. In the context of the constitutional justice case at issue it needs to be mentioned that the relations related with the protection of the rights of authors and related rights are also regulated by certain international legal acts.

9.1. The 9 September 1886 Berne Convention for the Protection of Literary and Artistic Works (as revised at Paris on 24 July 1971 and amended on 28 September 1979), which was joined upon adopting, on 29 July 1994, Government Resolution No. 677 “On Joining the 1886 Berne Convention for the Protection of Literary and Artistic Works” (Item 1).

Article 6bis of the Berne Convention for the Protection of Literary and Artistic Works stipulates that, independently of the author’s economic rights, and even after the transfer of the said rights, the author shall have the right to claim authorship of the work and to object to any distortion, mutilation or other modification of, or other derogatory action in relation to, the said work, which would be prejudicial to his honour or reputation (Paragraph 1); the rights granted to the author in accordance with Paragraph 1 of this article shall, after his death, be maintained, at least until the expiry of the economic rights, and shall be exercisable by the persons or institutions authorised by the legislation of the country where such protection is claimed. However, those countries whose legislation, at the moment of their ratification of or accession to this Act, does not provide for the protection after the death of the author of all the rights set out in Paragraph 1 of this article may provide that some of these rights may, after his death, cease to be maintained (Paragraph 2); the means of redress for safeguarding the rights granted by this article shall be governed by the legislation of the country where protection is claimed (Paragraph 3).

9.2. The 26 October 1961 International Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations, which was ratified by the Seimas on 22 December 1998 upon the adoption of the Republic of Lithuania Law on the Ratification of the International Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations. The International Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations inter alia provides that each Contracting State shall grant national treatment to producers of phonograms if any of the following conditions is met: a) the producer of the phonogram is a national of another Contracting State (criterion of nationality); b) the first fixation of the sound was made in another Contracting State (criterion of fixation); c) the phonogram was first published in another Contracting State (criterion of publication) (Paragraph 1 of Article 5); in addition, producers of phonograms shall enjoy the right to authorise or prohibit the direct or indirect reproduction of their phonograms (Article 10); if a phonogram published for commercial purposes, or a reproduction of such phonogram, is used directly for broadcasting or for any communication to the public, a single equitable remuneration shall be paid by the user to the performers, or to the producers of the phonograms, or to both; domestic law may, in the absence of agreement between these parties, lay down the conditions as to the sharing of this remuneration (Article 12).

9.3. The 29 October 1971 Convention for the Protection of Producers of Phonograms Against Unauthorised Duplication of Their Phonograms, which was ratified by the Seimas on 13 April 1999 upon the adoption of the Republic of Lithuania Law on the Ratification of the Convention for the Protection of Producers of Phonograms Against Unauthorised Duplication of Their Phonograms. From the Preamble of this convention it is clear that unauthorised duplication of phonograms inflicts damage not only on producers of phonograms, but also on the interests of authors and performers. Article 2 of this convention stipulates that “each Contracting State shall protect producers of phonograms who are nationals of other Contracting States against the making of duplicates without the consent of the producer and against the importation of such duplicates, provided that any such making or importation is for the purpose of distribution to the public, and against the distribution of such duplicates to the public”, while Article 3 provides that “the means by which this Convention is implemented shall be a matter for the domestic law of each Contracting State and shall include one or more of the following: protection by means of the grant of a copyright or other specific right; protection by means of the law relating to unfair competition; protection by means of penal sanctions”.

9.4. The Agreement Establishing the World Trade Organisation, Article 41 of Section 1 “General Obligations” of Part III “Enforcement of Intellectual Property Rights” of Annex 1C whereof provides:

1. Members shall ensure that enforcement procedures as specified in this Part are available under their law so as to permit effective action against any act of infringement of intellectual property rights covered by this Agreement, including expeditious remedies to prevent infringements and remedies which constitute a deterrent to further infringements. These procedures shall be applied in such a manner as to avoid the creation of barriers to legitimate trade and to provide for safeguards against their abuse.

2. Procedures concerning the enforcement of intellectual property rights shall be fair and equitable. They shall not be unnecessarily complicated or costly, or entail unreasonable time-limits or unwarranted delays. <...>”

Article 45 “Damages” of Section 2 “Civil and Administrative Procedures and Remedies” of Part III “Enforcement of Intellectual Property Rights” of Annex 1C of the Agreement Establishing the World Trade Organisation provides:

1. The judicial authorities shall have the authority to order the infringer to pay the right holder damages adequate to compensate for the injury the right holder has suffered because of an infringement of that person’s intellectual property right by an infringer who knowingly, or with reasonable grounds to know, engaged in infringing activity.

2. The judicial authorities shall also have the authority to order the infringer to pay the right holder expenses, which may include appropriate attorney’s fees. In appropriate cases, Members may authorise the judicial authorities to order recovery of profits and/or payment of pre-established damages even where the infringer did not knowingly, or with reasonable grounds to know, engage in infringing activity.”

On 24 April 2001, the Seimas adopted the Republic of Lithuania Law on the Ratification of the General Agreement on Tariffs and Trade (GATT 1947), the Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, the Agreement on Trade in Civil Aircraft, the Protocol of Accession of Lithuania to the Marrakesh Agreement Establishing the World Trade Organization, the Memorandum of Understanding Between the Republic of Lithuania and the United Mexican States on the Protection of Geographical Indications, and the Report of the Working Party on the Accession of Lithuania to the World Trade Organization, by means of which it inter alia ratified the Protocol of Accession of Lithuania to the Marrakesh Agreement Establishing the World Trade Organization signed on 8 December 2000. In Lithuania, the Agreement Establishing the World Trade Organisation came into force on 31 May 2001.

10. In the context of the constitutional justice case at issue it needs to be mentioned that the relations related with the protection of the rights of authors and related rights are also regulated by European Union law.

The objective of Directive 2004/48/EC is to approximate legislative systems so as to ensure a high, equivalent and homogeneous level of protection in the field of intellectual property rights in the Internal Market. Under Paragraph 1 of Article 2 of Directive 2004/48/EC, in their national legislation Member States may have entrenched other measures and remedies, insofar as those measures and remedies may be more favourable for rightholders.

Paragraph 2 of Article 3 of Directive 2004/48/EC provides:

1. Member States shall provide for the measures, procedures and remedies necessary to ensure the enforcement of the intellectual property rights covered by this Directive. Those measures, procedures and remedies shall be fair and equitable and shall not be unnecessarily complicated or costly, or entail unreasonable time-limits or unwarranted delays.

2. Those measures, procedures and remedies shall also be effective, proportionate and dissuasive and shall be applied in such a manner as to avoid the creation of barriers to legitimate trade and to provide for safeguards against their abuse.”

Thus, in Directive 2004/48/EC, emphasis is placed not only on a compensatory purpose of the defence of civil rights, but also on a preventive one carrying a deterrent effect; however, one must not abuse the latter.

It needs to be noted that Article 13 of Directive 2004/48/EC prescribes:

When the judicial authorities set the damages:

a) they shall take into account all appropriate aspects, such as the negative economic consequences, including lost profits, which the injured party has suffered, any unfair profits made by the infringer and, in appropriate cases, elements other than economic factors, such as the moral prejudice caused to the rightholder by the infringement;

or

b) as an alternative to (a), they may, in appropriate cases, set the damages as a lump sum on the basis of elements such as at least the amount of royalties or fees which would have been due if the infringer had requested authorisation to use the intellectual property right in question.”

A conclusion is to be drawn that Directive 2004/48/EC enables to establish alternative ways of reimbursement for the damage suffered by the owner of intellectual property rights, inter alia the owner of related rights.

II

1. The Court of Appeal of Lithuania, the petitioner, requests investigation into whether Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999) is not in conflict with Paragraphs 1 and 3 of Article 46 of the Constitution and with the constitutional principles of justice and a state under the rule of law.

2. It has been mentioned that Article 67 “Reimbursement of Losses and Material Damage. Compensation” of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999) prescribed:

1. The procedure for reimbursement of losses and material damage shall be regulated by the Civil Code and the provisions of this Law.

2. When assessing the amount of losses, the court shall take account of the substance of violation, the amount of the inflicted damage, the income lost and other expenses incurred by the owner of the rights of the author or related rights. Illegal copies of works or objects of related rights may be handed over to the respective owners of the rights of authors or related rights upon their request.

3. Instead of reimbursement of losses, the owner of the rights of the author or related rights may claim for compensation, the amount of which shall be calculated according to the price of legal sale of a corresponding work or object of related rights by increasing it up to 200 percent, or up to 300 percent if the infringer has committed the infringement deliberately.”

It has also been mentioned that the legal regulation established in Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999), which is disputed in the constitutional justice case at issue, provides for:

1) the right of the owner of the rights of the author and related rights to claim for compensation instead of reimbursement of losses;

2) the means of calculating the amount of compensation:

the amount of compensation is calculated according to the price of legal sale of a corresponding work or object of related rights by increasing it up to 200 percent;

if the infringer has committed the infringement deliberately, the amount of compensation is calculated according to the price of legal sale of a corresponding work or object of related rights by increasing it up to 300 percent.

3. It needs to be mentioned that Article 2 “Main Definitions of This Law” of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999) set the following definitions:

– “The owner of the rights of the author means an author, another natural or legal person, or an enterprise which does not have the rights of a legal person, possessing the author’s exclusive property rights in cases provided for in this law, as well as a natural or legal person, or an enterprise which does not have the rights of a legal person, to whom the author’s exclusive property rights have been transferred (successor of the rights of the author)” (Paragraph 2);

– “The object of related rights means the performance of a work, including direct (live) performance and its sound or visual fixation, a phonogram, the first fixation of an audio-visual work (film), a radio and television broadcast or programme of a broadcasting organisation” (Paragraph 10);

– “The owner of related rights means a performer, producer of a phonogram, broadcasting organisation, producer of the first fixation of an audio-visual work (film), another natural or legal person, or an enterprise which does not have the rights of a legal person, possessing exclusive related rights in cases provided for in this law, as well as a natural or legal person, or an enterprise which does not have the rights of a legal person, to whom the exclusive related rights have been transferred (successor of related rights)” (Paragraph 11);

– “The work means any original result of intellectual creation activity in the field of literature, science or art, whatever may be its artistic value, or the mode or form of its expression” (Paragraph 17).

4. The legal regulation laid down in Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999) is to be construed by taking account of Article 65 “Remedies for Infringement” of this law (wording of 18 May 1999), which entrenched the ways of the defence of the infringed rights of owners of the rights of authors and related rights in court, as well as of other paragraphs of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999).

4.1. Under Paragraph 1 of Article 65 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999), owners of the rights of authors and related rights had the right to apply to court regarding the defence of their infringed rights under the procedure established in laws, requesting to adopt a decision inter alia as to: 1) reimbursement of losses or damage (material and/or moral), including the income lost and other expenses sustained (Item 5); 2) payment of compensation (Item 6).

4.2. Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999) regulated the relations related to reimbursement of losses and damage, as well as payment of compensation to the owner of the rights of the author and related rights. Under the legal regulation established in Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999), the owner of the rights of the author and related rights had the right to choose one of the aforesaid ways of the defence of his infringed rights.

4.3. Under the legal regulation laid down in Paragraph 1 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999), the procedure for reimbursement of the losses and damage suffered by the owner of the rights of the author and related rights is established by the Civil Code and the Law on the Rights of Authors and Related Rights.

The Civil Code inter alia establishes a duty to fully reimburse for the damage caused to a person and to property and, in cases provided for by laws—also for non-property damage (Paragraph 1 of Article 6.245 and Paragraph 2 of Article 6.263 of the Civil Code); under Paragraph 1 of Article 6.251 of the Civil Code, the damages caused must be reimbursed in full, except in cases where limited liability is established by laws or a contract; according to the provision of Paragraph 2 of Article 6.251 of the Civil Code, “the court, having considered the nature of liability, the property status of the parties and their interrelation, may reduce the amount of repairable damages if awarding full compensation would lead to unacceptable and grave consequences”.

Paragraph 2 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999) provides that the court, when determining the amount of the losses incurred by the owner of the rights of the author and related rights, takes account of the substance of violation, the amount of the inflicted damage, as well as the income lost and other expenses incurred by the owner of the rights of the author and related rights. Upon the request of the owner of the rights of the author and related rights, illegal copies of works or objects of related rights could be, by a court’s decision, also handed over to the respective owners of the rights of authors or related rights.

4.4. Under Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999), instead of reimbursement of losses, the owner of the rights of the author or related rights could claim for compensation. The notion “compensation” employed therein was disclosed expressis verbis neither in the said article, nor in other articles of this law.

4.4.1. It needs to be noted that, as mentioned, under Article 65 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999), payment of compensation constitutes one of ways of the defence of the infringed rights of owners of the rights of authors and related rights in court. Thus, one is to draw a conclusion that the purpose of the institute of compensation is to defend the infringed rights of owners of the rights of authors and related rights by reimbursing them, in a fair manner, for the incurred losses of both material and non-material nature.

4.4.2. In the sense of the legal regulation established in Article 67 “Reimbursement of Losses and Material Damage. Compensation” of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999), beside reimbursement for losses and material damage, compensation is an alternative means of the defence of the infringed rights of owners of the rights of authors and related rights. Neither Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999), nor other articles of this law provide for any grounds (criteria) on the basis of which the owner of the rights of the author and related rights, whose rights have been infringed, could and ought to decide which means of the defence of the infringed rights—reimbursement for losses and material damage or compensation—to choose. Consequently, under the legal regulation established in Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999), the owner of the rights of the author and related rights, whose rights have been infringed, is to choose by himself which means of the defence of his rights to use in a concrete case of infringement.

The nature of the relations regulated by the Law on the Rights of Authors and Related Rights (wording of 18 May 1999) and particularity of the rights of owners of the rights of authors and related rights as well as of infringements thereof determine that, in the event of infringement of the rights of authors and related rights, assessment of the precise amount of the damage (losses) is difficult or even impossible. The purpose of the legal regulation established in Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999) is to compensate owners of the rights of authors and related rights for the losses of both material and non-material nature that they have suffered and thereby to ensure equitable defence of the infringed rights of owners of the rights of authors and related rights in cases where assessment of the amount of the damage caused as a result of an infringement of the rights of authors and related rights is impossible.

5. The institute of compensation is not a novel of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999). It was and it is enshrined also in other laws regulating the relations of intellectual property, for example, in the Republic of Lithuania Law on Trade Marks, which regulates inter alia the implementation and defence of the rights of proprietors of trade marks.

In this context it needs to be mentioned that, by its Ruling “On the compliance of Paragraph 3 of Article 51 (wording of 10 October 2000) of the Republic of Lithuania Law on Trade Marks with the Constitution of the Republic of Lithuania” of 27 March 2009, the Constitutional Court recognised that the provision of Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trade Marks that the price of legal sale of relevant goods or a service “may be increased up to 200%, or up to 300% if the infringer has committed the infringement deliberately”, to the extent that it had established only one criterion—the form of guilt—of such increase and had not established any other criteria which must be heeded by the court, was in conflict with Paragraph 1 of Article 109 of the Constitution and with the constitutional principles of justice and a state under the rule of law. Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trade Marks used to prescribe:

Instead of the reimbursement of losses, the proprietor of a trade mark may claim compensation. The amount of the compensation shall be determined according to the price of legal sale of relevant goods or a service by increasing it up to 200%, or up to 300% if the infringer has committed the infringement deliberately.”

6. Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999) provides that the amount of compensation is calculated according to the price of legal sale of a corresponding work or object of related rights. Neither Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999), nor other articles of this law expressis verbis disclosed what is meant by the formulation “the price of legal sale of a corresponding work or object of related rights”.

It needs to be noted that the notion “the price of legal sale of a corresponding work or object of related rights” can be understood and construed in different ways.

The price of legal sale of a corresponding work or object of related rights” may be construed as meaning the retail price of a work or object of related rights, i.e. the final price of an item which includes all the taxes.

Another interpretation of the “the price of legal sale of a work or object of related rights” indicated in Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999) is also possible: it can also be understood as a different price, not as the retail price of a work or object of related rights, for example, as the price that is received by the author or owner of related rights in the event of legal selling of a work or object of related rights.

Thus, the legal regulation laid down in Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999), under which the price of legal sale of a work or object of related rights was considered to be a criterion for calculating compensation, was not a clear one, it allowed of various interpretations of the price of a work or object of related rights. The said regulation was also not clear because of the fact that it did not establish the quantity of works or objects of related rights, inter alia illegal copies, that must be taken into account when calculating the amount of compensation, i.e. whether only that of realised (sold) works or objects of related rights or the one also including those not realised ones.

In the context of the constitutional justice case at issue it needs to be noted that, in its decisions (inter alia the 29 January 2003 decision of the College of Judges of the Civil Cases Division of the Supreme Court of Lithuania in civil case No. 3K-3-132/2003, the 8 September 2003 decision and the 3 May 2006 decision thereof in civil cases No. 3K-3-774/2003 and No. 3K-3-311/2006 respectively), the Supreme Court of Lithuania, which forms the practice of courts of general jurisdiction, has construed more than once that the price of legal sale of a work or object of related rights, which is indicated in Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999), is the retail price of a work or object of related rights, i.e. the final price of an item which includes all the taxes, or the price paid by the consumer who is legally purchasing an item.

7. The provision of Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999) that compensation “may be increased up to 200%, or up to 300% if the infringer has committed the infringement deliberately” means that in every particular case the court had discretion to decide whether to increase compensation, and if to increase it, then by what percentage.

While establishing the discretion of the court to increase, when deciding on the amount of compensation for owners of the rights of authors and related rights, the price of legal sale of a work or object of related rights up to 200%, or up to 300% if the infringer has committed the infringement deliberately, in the Law on the Rights of Authors and Related Rights (wording of 18 May 1999), the legislator explicitly entrenched the sole criterion that must be heeded by the court when it decides the question of increasing the price of legal sale of a work or object of related rights—the criterion of the form of guilt of the infringer.

8. While summing it up, it needs to be held that by means of the legal regulation entrenched in Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999), under which owners of the rights of authors and related rights may be compensated for the losses that appear as a pecuniary expression of the damage, as well as by the legal regulation under which the said owners may be awarded compensation, one pursues the same objective, i.e. to defend the infringed rights of owners of the rights of authors and related rights.

9. Summing up the legal regulation established in Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999) in the aspect indicated by the Court of Appeal of Lithuania, the petitioner, it needs to be held that the Law on the Rights of Authors and Related Rights (wording of 18 May 1999):

did not expressis verbis disclose what is meant by the formulation “the price of legal sale of a work or object of related rights”; according to the established court practice, the price of legal sale of a work or object of related rights, on the basis of which the amount of compensation is calculated, was understood as the retail price thereof;

explicitly entrenched the sole criterion that must be heeded by the court when it decides the question of increasing the price of legal sale of a work or object of related rights—the criterion of the form of guilt of the infringer.

III

1. It has been mentioned that the Court of Appeal of Lithuania, the petitioner, requests investigation into whether Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999) is not in conflict with Paragraphs 1 and 3 of Article 46 of the Constitution and with the constitutional principles of justice and a state under the rule of law.

2. In its rulings the Constitutional Court has held more than once that the notion of freedom of individual economic activity and initiative, which is entrenched in Paragraph 1 of Article 46 of the Constitution, is a broad one: it is based on innate freedom of the person of a human being, as well as on the innate right to have ownership. It includes the right to freely choose business, the right to freely conclude contracts, the freedom of fair competition, the equality of rights of economic entities, etc. The freedom of individual economic activity and initiative is the whole complex of legal opportunities which creates preconditions for an individual to independently adopt decisions necessary for his economic activity.

The freedom of economic activity is not absolute, the person enjoys it only by following certain obligatory requirements and limitations (Constitutional Court rulings of 13 May 2005, 31 May 2006 and 5 March 2008).

While construing the legal regulation entrenched in Paragraph 2 of Article 46 of the Constitution, the Constitutional Court has held that the provision “the State shall support economic efforts and initiatives that are useful to the society” of this paragraph means that the Constitution provides for an opportunity of state institutions to assess areas of economic activity according to their use to society, that it is permitted to support certain areas of economic activity or certain economic efforts only upon such assessment, also that such assessment of economic activity creates necessary preconditions for the state to regulate economic activity so that is serves the general welfare of the Nation (Constitutional Court rulings of 13 February 1997, 13 May 2005 and 30 June 2008).

Paragraph 3 of Article 46 of the Constitution provides that the state shall regulate economic activity so that it serves the general welfare of the Nation. The Constitutional Court has held more than once that the formula “the State shall regulate economic activity” of Paragraph 3 of Article 46 of the Constitution means not the right of the state to administer all or certain economic activity at its discretion, but its right to establish legal regulation of economic activity, inter alia to establish conditions and limitations (prohibitions) of economic activity, to regulate procedures by legal acts. As a rule, regulation of economic activity is linked with establishment of conditions for economic activity, regulation of certain procedures, control of economic activity, as well as with certain limitations and prohibitions of this activity (Constitutional Court rulings of 13 May 2005, 5 March 2008, 30 June 2008, 29 April 2009, 8 October 2009 and 26 February 2010).

The provision of Paragraph 3 of Article 46 of the Constitution that the state shall regulate economic activity so that it serves the general welfare of the Nation implies the duty of the state as well as state institutions which implement the state power and other state institutions, while heeding the norms and principles of the Constitution and taking account of the situation of the national economy, the variety and changes in the economy and social life, to establish such legal regulation of the economic activity which would serve the general welfare of the Nation (Constitutional Court ruling of 30 June 2008). The Constitutional Court has held in its acts more than once that Paragraph 3 of Article 46 of the Constitution enshrines the constitutional principle which outlines the objectives, directions, ways and boundaries of the regulation of economic activity. While regulating economic activity, the state has to follow the principle of coordination of interests of the person and society and has to guarantee the interests of both the private person (a subject of economic activity) and society. In the jurisprudence of the Constitutional Court it has been held that the implementation of the public interest, as an interest of society which is recognised by the state and is protected by law, is one of the most important conditions of the existence and evolution of society itself (Constitutional Court rulings of 6 May 1997, 13 May 2005 and 21 September 2006). The public interest is dynamic and subject to change (Constitutional Court rulings of 8 July 2005, 21 September 2006 and 15 May 2007); therefore, the state may and, in certain cases, must change (expand, abridge or correct otherwise) the regulation of economic activity (Constitutional Court ruling of 30 June 2008).

The Constitutional Court has held more than once that the principles enshrined in Article 46 of the Constitution constitute a whole, which is the constitutional basis of the economy of this country. These principles are interrelated and this presupposes their balance; therefore, each of them must be construed without denying other constitutional principles. If a legal norm which is in a certain paragraph of Article 46 of the Constitution is violated, the legal norms laid down in the other paragraphs of this article are violated as well, or preconditions are created for their violation.

In the context of the constitutional justice case at issue it needs to be noted that, from Article 46 of the Constitution, inter alia the imperative of the protection of fair competition entrenched in this article, a duty arises for the legislator also to establish such legal regulation which would ensure efficient protection of the rights of owners of the rights of authors and related rights.

3. The imperatives stemming from Article 46 of the Constitution are also inseparable from Article 23 thereof.

While construing Article 23 of the Constitution, the Constitutional Court has held more than once that the inviolability and protection of property, which are entrenched in this article, also mean that the owner has the right to require that other persons not violate his rights of ownership, as well as that the state has the duty to defend and safeguard ownership from unlawful encroachment upon it.

The requirements to guarantee the inviolability and protection of property, which arise from Article 23 of the Constitution, are also applicable to the full extent when defending intellectual property rights and ensuring the inviolability and protection of property of owners of the rights of authors and related rights.

4. The specificity of the defence of rights of ownership is also determined by the object of property. The legislator may, while taking account of the specificity of the objects of property, enshrine various ways of the defence of the infringed rights of owners of these objects, inter alia ones related to reimbursement (compensation) for the inflicted damage and other losses.

5. The necessity to reimburse a person for the material and moral damage inflicted upon him is a constitutional principle stemming from the Constitution, inter alia Paragraph 2 of Article 30 thereof, which provides that reimbursement for the material and moral damage inflicted upon a person shall be established by law.

It needs to be noted that, under the Constitution, legislation must provide for liability for infringement of the rights of owners of the rights of authors and related rights, inter alia the obligation to reimburse the owner of the rights of the author and related rights for the inflicted material and moral damage (losses).

In its ruling of 27 March 2009, the Constitutional Court noted that the proprietor of the trade mark may experience various losses—both of material and moral nature (as, for instance: decrease in the value of the trade mark, decrease in the reputation of the enterprise of the proprietor of the trade mark, etc.), which were incurred due to unlawful actions of other persons. From the Constitution, inter alia Paragraphs 1 and 2 of Article 23 thereof, and the constitutional principle of a state under the rule of law, a duty arises for the legislator to establish such legal regulation which would permit to reimburse (compensate) the losses experienced by the proprietor of both material and moral nature. Such regulation should create preconditions, while taking account of the specificity of intellectual property, to calculate the losses incurred by the proprietor of the trade mark due to unlawful actions of another person; in the cases where sometimes it is even impossible to calculate the amount of the material damage inflicted upon the proprietor of the trade mark, it is necessary to establish also such ways of reimbursement of losses that appeared for those owners which would not be related solely to the material damage inflicted upon them. The provisions of this official constitutional doctrine are mutatis mutandis also applicable to the legal regulation that establishes ways of compensation for the losses incurred by owners of the rights of authors and related rights as a result of unlawful actions of other persons.

6. In this context it needs to be noted that in Constitutional Court acts it has been held more than once that the Constitutional Court is bound by the precedents that it itself has created (in previous constitutional justice cases) and by the official constitutional doctrine that it itself has formed, which substantiates those precedents; it may be possible to deviate from the Constitutional Court precedents created while adopting decisions in cases of constitutional justice and new precedents may be created only in the cases when it is unavoidably and objectively necessary, constitutionally grounded and reasoned; also the official constitutional doctrinal provisions on which the precedents of the Constitutional Court are based may not be reinterpreted so that the official constitutional doctrine would be corrected unless it is unavoidably and objectively necessary, constitutionally grounded and reasoned (Constitutional Court ruling of 28 March 2006, decisions of 8 August 2006 and 21 November 2006, rulings of 22 October 2007 and 24 October 2007, decisions of 13 November 2007, 6 December 2007 and 1 February 2008, ruling of 20 February 2008).

7. The Constitutional Court has held that the kinds of damage mentioned in Paragraph 2 of Article 30 of the Constitution may also be named in the laws by different terms only if these terms do not deny (distort) the constitutional concept of these kinds of damage (Constitutional Court ruling of 19 August 2006 and 27 March 2009).

8. The constitutional imperative to reimburse for material and moral damage is inseparable from the principle of justice entrenched in the Constitution: the laws must create all the necessary preconditions for fair reimbursement of the inflicted damage. Thus, the Constitution requires the establishment, by the law, of such legal regulation that a person to whom the damage has been caused by unlawful actions would be able, in all cases, to claim for fair reimbursement for that damage as well as to receive that reimbursement (Constitutional Court rulings of 19 August 2006 and 27 March 2009).

The constitutional imperative whereby damage must be justly reimbursed is related with the constitutional principles of proportionality and adequacy of reimbursement of damage, which require that the measures which are established in laws and which are applied be proportionate to the objective sought and not limit the rights of a person more than it is necessary for achieving the lawful and universally significant, constitutionally grounded objective and not create preconditions to abuse law.

In the context of the constitutional justice case at issue it needs to be noted that the legislator is also obliged to heed the said constitutional imperative when entrenching in a law such means of the defence of the infringed rights of owners of the rights of authors and related rights where the amount of payable reimbursement (compensation) for the losses caused to the owner of the rights of the author and related rights as a result of unlawful actions of other persons is not explicitly related solely to the incurred material damage.

The Constitution does not tolerate any such legal regulation where the court, which, under the Constitution (inter alia Article 109 thereof), must administer justice, cannot, while taking account of all the significant circumstances of the case, establish the amount of the material and/or moral damage inflicted upon the person, nor, by following law, inter alia not violating the imperatives of justice, reasonableness and proportionality, adjudicate fair reimbursement for the material and/or moral damage sustained by the person (Constitutional Court rulings of 19 August 2006 and 27 March 2009).

9. While regulating the relations of reimbursement of damage, inter alia the damage caused by unlawful actions (failure to act) to the interests of the owner of the rights of the author and related rights, the legislator is also obliged to heed the constitutional principle of a state under the rule of law. As the Constitutional Court has held more than once in its acts, inseparable elements of the principle of a state under the rule of law are legal clarity and legal certainty.

The legal regulation established in laws and other legal acts must be clear, and formulas in legal acts must be precise in order that subjects of legal relations could orient their behaviour according to the requirements of law (Constitutional Court rulings of 13 December 2004, 16 January 2006 and 27 March 2009).

IV

On the compliance of Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999) with Paragraphs 1 and 3 of Article 46 of the Constitution and with the constitutional principles of justice and a state under the rule of law.

1. It has been mentioned that the Court of Appeal of Lithuania, the petitioner, requests investigation into whether Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999) is not in conflict with Paragraphs 1 and 3 of Article 46 of the Constitution and with the constitutional principles of justice and a state under the rule of law.

2. The disputed Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999) prescribed: “Instead of reimbursement of losses, the owner of the rights of the author or related rights may claim for compensation, the amount of which shall be calculated according to the price of legal sale of a corresponding work or object of related rights by increasing it up to 200 percent, or up to 300 percent if the infringer has committed the infringement deliberately.”

3. From the arguments of the petition of the petitioner it is clear that the petitioner disputes not the entire legal regulation established in Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999), but only the provision of Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999) that the amount of the compensation claimed by owners of the rights of authors and related rights is calculated according to the price of legal sale of a corresponding work or object of related rights by increasing it up to 200 percent, or up to 300 percent if the infringer has committed the infringement deliberately, i.e. the mechanism for calculating the amount of compensation.

4. It has been mentioned that, from Article 46 of the Constitution, inter alia the imperatives of the protection of fair competition and the defence of the rights of consumers entrenched in this article, a duty arises for the legislator also to establish such legal regulation which would ensure efficient protection of the rights of owners of the rights of authors and related rights as well as of the rights of consumers.

It has also been mentioned that the requirements to guarantee the inviolability and protection of property, which arise from Article 23 of the Constitution, are also applicable to their full extent when defending intellectual property rights and ensuring the inviolability and protection of property of owners of the rights of authors and related rights; the specificity of the defence of rights of ownership is also determined by the object of property. The legislator may, while taking account of the specificity of the objects of property, enshrine various ways of the defence of the infringed rights of owners of these objects, inter alia those related with reimbursement (compensation) of the inflicted damage and other losses; owners of the rights of authors and related rights may sustain various losses—both of material and moral nature (as, for instance: decrease in the value of the work or object of related rights, decrease in the reputation of owners of the rights of authors and related rights, etc.), which were incurred as a result of unlawful actions of other persons. From the Constitution, inter alia Paragraphs 1 and 2 of Article 23 thereof, and the constitutional principle of a state under the rule of law, a duty arises for the legislator to establish such legal regulation which would permit to reimburse (compensate) for the losses of both material and moral nature sustained by the proprietor (owner of the rights of the author or related rights). Such legal regulation must, by taking account of the specificity of intellectual property, create preconditions for calculation of the losses sustained by owners of the rights of authors and related rights as a result of unlawful actions of other persons; in the cases where it is not possible even to calculate the amount of the material damage caused to owners of the rights of authors and related rights, it is necessary to provide also for such means of reimbursement for the losses sustained by the said owners that would not be related solely to the material damage caused to them.

It has also been mentioned that the Constitution requires establishing, by the law, such legal regulation that the person, upon whom damage was inflicted by unlawful actions, could, in all cases, demand fair compensation for the damage and receive it; the constitutional imperative whereby damage must be justly reimbursed is related with the constitutional principles of proportionality and adequacy of reimbursement of damage, which require that the measures which are established in laws and which are applied be proportionate to the objective sought, not limit the rights of a person more than it is necessary for achieving the lawful and universally significant, constitutionally grounded objective, and not create preconditions to abuse law; the legislator is also obliged to heed the said constitutional imperative when entrenching in a law such means of the defence of the infringed rights of owners of the rights of authors and related rights where the amount of payable reimbursement (compensation) for the losses caused to the owner of the rights of the author and related rights as a result of unlawful actions of other persons is not explicitly related solely to the incurred material damage.

5. It has been mentioned that Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999), which is disputed in the constitutional justice case at issue, inter alia provided for the right of owners of the rights of authors and related rights to claim, instead of reimbursement of losses, for compensation, the amount of which is calculated according to the price of legal sale of a corresponding work or object of related rights. The Law on the Rights of Authors and Related Rights does not expressis verbis disclose what is meant by the formulation “the price of legal sale of a work or object of related rights”; the price of legal sale of a work or object of related rights, on the basis of which the amount of compensation is calculated, may also mean the retail price of a work or object of related rights.

6. While assessing, in the aspect of the compliance with the Constitution, the legal regulation established in Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999), to the extent that the amount of compensation for owners of the rights of authors and related rights is calculated according to the price of legal sale of a corresponding work or object of related rights, it needs to be noted that the damage caused to owners of the rights of authors and related rights by unlawful selling (realisation) of works or objects of related rights is related to the sale price of a corresponding work of object of related rights. In this context it also needs to be mentioned that, while deciding disputes regarding reimbursement of the damage inflicted upon owners of the rights of authors and related rights by unlawful actions of other persons, inter alia while deciding on the amount of compensation according to the price of legal sale of a corresponding work or object of related rights, the court must follow the principles of justice, proportionality, reasonableness and other general principles of law, and take account of factual circumstances of the case.

6.1. It has been mentioned that the purpose of the institute of compensation established in the Law on the Rights of Authors and Related Rights is to compensate owners of the rights of authors and related rights for the losses of both material and non-material nature that they have suffered and thereby to ensure equitable defence of the infringed rights of owners of the rights of authors and related rights in cases where assessment of the amount of the damage caused as a result of the infringement of the rights of authors and related rights is impossible. Consequently, while deciding on the amount of compensation, the court may not distort the essence and purpose of compensation—to justly reimburse the incurred damage—as one of the means of the defence of the infringed rights of authors and related rights.

6.2. Thus, the legal regulation entrenched in Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999), under which the amount of compensation for owners of the rights of authors and related rights is calculated according to the price of legal sale of a corresponding work or object of related rights, does not in itself prevent the court, while following the principles of justice, proportionality, reasonableness and other general principles of law and while taking account of factual circumstances of the case, from adopting a fair decision regarding the defence of the infringed rights of owners of the rights of authors and related rights, i.e. to justly reimburse the incurred damage.

7. While assessing the legal regulation entrenched in Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999) in the aspect that the price of legal sale of a work or object of related rights, on the basis of which the amount of compensation for owners of the rights of authors and related rights is calculated, may be increased up to 200%, or up to 300% if the infringer has committed the infringement deliberately, it needs to be noted that, as it has been held in this ruling, inseparable elements of the principle of a state under the rule of law are legal clarity and legal certainty.

7.1. It has been mentioned that, while establishing the court’s discretion to increase, when determining the amount of compensation for owners of the rights of authors and related rights, the price of legal sale of a work or object of related rights up to 200%, or up to 300% if the infringer has committed the infringement deliberately, the legislator explicitly entrenched the sole criterion—the form of guilt of the infringer—that must be heeded by the court when it decides the question of increasing the price of legal sale of a work or object of related rights. It needs to be held that such imperativeness of the legal regulation considerably encumbers the court’s opportunity, while deciding the question of increasing the aforesaid price, to follow the principles of reasonableness, proportionality, justice, and other general principles of law and to take account of other circumstances significant to the case. It also needs to be noted that in the cases where the court follows the aforesaid principles, the legal regulation entrenched in Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999), under which the price of legal sale of a work or object of related rights may be increased up to 200%, or up to 300% if the infringer has committed the infringement deliberately, remains very unclear and there appears legal indeterminacy.

7.2. Such legal regulation creates preconditions for the legal situations to appear when the court’s opportunities to administer justice decrease (or sometimes it is on the whole impossible to administer justice), as it explicitly enshrined the sole criterion that must be heeded by the court when it decides whether to increase or not to increase the price of legal sale of a work or object of related rights, and if to increase it, then to what extent. This is incompatible with Paragraph 1 of Article 109 of the Constitution whereby justice is administered by courts.

7.3. It needs to be noted that, as mentioned, the Constitutional Court is bound by the precedents that it itself has created (in previous constitutional justice cases) and by the official constitutional doctrine that it itself has formed, which substantiates those precedents.

It has been mentioned that, by its Ruling “On the compliance of Paragraph 3 of Article 51 (wording of 10 October 2000) of the Republic of Lithuania Law on Trade Marks with the Constitution of the Republic of Lithuania” of 27 March 2009, the Constitutional Court recognised that the provision of Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trade Marks that the price of legal sale of relevant goods or a service “may be increased up to 200%, or up to 300% if the infringer has committed the infringement deliberately”, to the extent that it had provided for only one criterion—the form of guilt—of such increase and had not established any other criteria which must be heeded by the court, was in conflict with Paragraph 1 of Article 109 of the Constitution and with the constitutional principles of justice and a state under the rule of law.

In the context of the constitutional justice case at issue, having compared the legal regulation established in Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999) with the legal regulation established in Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trade Marks, one is to draw a conclusion that both Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999) and Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trade Marks established the sole criterion—the form of guilt—that must be heeded by the court when determining the amount of compensation and did not establish any other criteria that must be considered by the court.

7.4. Taking account of the arguments set forth, one is to draw a conclusion that the provision of Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999) that “the owner of the rights of the author and related rights may claim for compensation the amount of which shall be calculated according to the price of legal sale of a corresponding work or object of related rights by increasing it up to 200%, or up to 300% if the infringer has committed the infringement deliberately”, to the extent that it provides for only one criterion—the form of guilt—for such increase and that it does not establish any other criteria which must be heeded by the court, was in conflict with Paragraph 1of Article 109 of the Constitution and with constitutional principles of justice and a state under the rule of law.

7.5. Having held this, the Constitutional Court will not investigate whether the provision of Paragraph 3 of Article 67 of the Law on the Rights of Authors and Related Rights (wording of 18 May 1999) that “the owner of the rights of the author and related rights may claim for compensation the amount of which shall be calculated according to the price of legal sale of a corresponding work or object of related rights by increasing it up to 200%, or up to 300% if the infringer has committed the infringement deliberately”, was not in conflict with Paragraphs 1 and 3 of Article 46 of the Constitution.

Conforming to Articles 102 and 105 of the Constitution of the Republic of Lithuania and Articles 1, 53, 54, 55, and 56 of the Law on the Constitutional Court of the Republic of Lithuania, the Constitutional Court of the Republic of Lithuania has passed the following

ruling:

To recognise that the provision of Paragraph 3 of Article 67 of the Republic of Lithuania Law on the Rights of Authors and Related Rights (wording of 18 May 1999; Official Gazette Valstybės žinios, 1999, No. 50-1598) that “the owner of the rights of the author and related rights may claim for compensation the amount of which shall be calculated according to the price of legal sale of a corresponding work or object of related rights by increasing it up to 200%, or up to 300% if the infringer has committed the infringement deliberately”, to the extent that it provides for the only one criterion—the form of guilt—for such increase and does not establish any other criteria which must be heeded by the court, was in conflict with Paragraph 1 of Article 109 of the Constitution of the Republic of Lithuania and with constitutional principles of justice and a state under the rule of law.

This ruling of the Constitutional Court is final and not subject to appeal.

The ruling is promulgated in the name of the Republic of Lithuania.

Justices of the Constitutional Court: Armanas Abramavičius
                                                                      Toma Birmontienė
                                                                      Pranas Kuconis
                                                                      Kęstutis Lapinskas
                                                                      Zenonas Namavičius
                                                                      Egidijus Šileikis
                                                                      Algirdas Taminskas
                                                                      Romualdas Kęstutis Urbaitis