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On the Law on Trade Marks

Case No. 33/06

THE CONSTITUTIONAL COURT OF THE REPUBLIC OF LITHUANIA

RULING

ON THE COMPLIANCE OF PARAGRAPH 3 OF ARTICLE 51 (WORDING OF 10 OCTOBER 2000) OF THE REPUBLIC OF LITHUANIA’S LAW ON TRADEMARKS WITH THE CONSTITUTION OF THE REPUBLIC OF LITHUANIA

27 March 2009
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, Ramutė Ruškytė, Egidijus Šileikis, Algirdas Taminskas, and Romualdas Kęstutis Urbaitis

The court reporter—Daiva Pitrėnaitė

Seimas member Jurgis Razma, acting as the representative of the Seimas of the Republic of Lithuania, the party concerned

The Constitutional Court of the Republic of Lithuania, 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 March 2009, considered constitutional justice case No. 33/06 subsequent to the petition (No. 1B-34/2006) of the Vilnius Regional Court, the petitioner, requesting an investigation into whether Paragraph 3 of Article 51 (wording of 10 October 2000) of the Republic of Lithuania’s Law on Trademarks was not in conflict with Paragraphs 1 and 2 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 Vilnius Regional Court, the petitioner, considered a civil case. By its ruling, the said court suspended the consideration of the case and applied to the Constitutional Court with the petition requesting an investigation into whether Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trademarks was not in conflict with Paragraphs 1 and 2 of Article 43 of the Constitution and with the constitutional principles of justice and a state under the rule of law.

II

The petition (No. 1B-8/2006) of the Vilnius Regional Court, the petitioner, is based on the following arguments.

1. Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trademarks prescribes that while defending his violated rights, instead of the reimbursement of losses, the proprietor or the trademark may claim compensation the amount of which shall be determined according to the price of legal sale of relevant goods or a service: it may be increased up to 200%, or up to 300% if the infringer has committed the infringement deliberately. Referring to the provisions of the official constitutional doctrine set forth in the Constitutional Court’s ruling of 13 December 2004, the petitioner believes that the legal regulation which is consolidated in Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trademarks violates such elements of the principle of a state under the rule of law as the protection of legitimate expectations, as well as legal certainty and legal security.

2. The legal measures established in the legal acts should not restrict the rights of the person more than it is necessary in order to achieve the legitimate and universally important objectives sought by the legal act. If these legal measures are related to the sanctions for the violation of law, in such case the sanctions must be proportionate to the committed violation of law. Taking account of that, in the opinion of the petitioner, the institute of compensation which is provided for in the Law on Trademarks does not meet the universally recognised principles of civil law and at the same time violates the constitutional expectations of a person regarding the adequacy of law and the proportionality of reimbursement of losses for the committed violation.

3. The Vilnius Regional Court, the petitioner, notes that, in its opinion, in Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights, the institute of compensation is not mentioned.

III

1. In the course of the preparation of the case for the Constitutional Court’s hearing, written explanations from the former representative of the Seimas, the party concerned, who was G. Sagatys, a senior advisor of the Law Department of the Office of the Seimas, were received, in which it was stated that the impugned legal regulation was not in conflict with the Constitution. The position of G. Sagatys, the representative of the Seimas, the party concerned, is based on the following arguments.

1.1. The institute of compensation for the infringement of rights of the proprietor of the trademark which is consolidated in Item 4 of Paragraph 1 of Article 50 (wording of 10 October 2000) and Paragraph 3 of Article 51 of the Law on Trademarks should be considered to be one of the possible ways to defend the infringed rights of the proprietor of the trademark. This institute ensures not only the protection of the values consolidated in Article 46 of the Constitution, but also of the values consolidated in Article 23 thereof.

1.2. When intellectual property rights are defended, the concept of damage is not identical to the traditional concept of damage known in civil law. Differently than in civil relations, in the relations which stem from the infringement of intellectual rights the compensational function of law is implemented not only by way of reimbursement of damage, but also in other ways which permit removing more efficiently the negative property consequences from which the victim has suffered. Taking account of the specificity of the relations of intellectual property, it is obvious that in these relations the protective function of law may not be reduced to the ways and principles of defence of the infringed civil rights which are provided for in the Civil Code of the Republic of Lithuania. In addition, it is universally recognised that only by reimbursement of the factual damage it is impossible to properly defend the rights of intellectual property, since the traditional mechanism of compensation for damage is not capable of ensuring the proper restoration of property rights and compensation for the experienced negative consequences which have stemmed from the infringement of the rights of the proprietor of the trademark. Therefore, the institute of compensation is designed not only to ensure the reimbursement of losses experienced by the proprietor of the trademark—by this institute, one sought to achieve broader objectives.

1.3. On the grounds of some scientific articles and the provisions of Annex 1 C “Agreement on Trade-Related Aspects of Intellectual Property Rights” of the Agreement Establishing the World Trade Organisation, it needs to be stated that by consolidating the compensation as one of the ways to defend the rights of the proprietor of the trademark in the Law on Trademarks, one seeks to facilitate and accelerate the court process.

1.4. On the grounds of the explanatory note of the Law on Trademarks, it needs to be noted that the Law on Trademarks (wording of 10 October 2000) consolidated the institute of compensation which created a possibility of reimbursing for pecuniary and non-pecuniary damage of the proprietor of the trademark, without distinguishing or specifying them: the compensation involves both said kinds of damage. In case of infringement of the rights of the proprietor of the trademark, it is rather difficult to calculate the non-pecuniary damage, therefore, the application of the compensation mechanism should be considered to be a more efficient and simpler way to ensure the implementation of complete reimbursement of losses while defending the rights of the victim.

1.5. The amount of compensation established in Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trademarks is clear, it is proportionate to the violation of law and fair with regard to restoration of the infringed rights. In addition, the institute of compensation creates all preconditions for the implementation of the provision of Paragraph 1 of Article 109 of the Constitution, under which “in the Republic of Lithuania, justice shall be administered only by courts.” The impugned legal regulation complies with the constitutional principle of justice, under which it is required to differentiate the sanctions established for the violations of law so that while applying them, one could take account of the nature of the violation of law, as well as circumstances mitigating the liability and other circumstances. The amount of compensation applied for the infringements of rights of the proprietor of the trademark which is consolidated in Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trademarks may be up to 300% of the price of legal sale of relevant goods or a service—it depends on the degree of guilt of the infringer. Such legal regulation establishing broad discretion of the court was not in conflict with the constitutional principle of justice.

1.6. Articles 2 and 13 of Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 clearly show that the institute of compensation which was present in the Law on Trademarks did not violate this directive, because this directive does not prohibit taking measures which would be more favourable for holders of the rights; in addition, compensation is applied by courts, it is established as an alternative for reimbursement for damage, while the main factor which determines the amount of compensation is the price of legal sale of relevant goods or a service.

2. By the Ordinance of the Speaker of the Seimas (No. 165) “On Empowering for Representation of the Seimas at the Constitutional Court” of 7 April 2008, the representative of the Seimas, the party concerned, was replaced: instead of G. Sagatys, Seimas member J. Razma was empowered to represent the Seimas. In his letter of 19 February 2009 submitted to the Constitutional Court, J. Razma informed that he consented to the arguments presented in the written explanations of G. Sagatys.

IV

In the course of the preparation of the case for the Constitutional Court’s hearing, written explanations from E. Raduškytė, Vice-Minister of Justice of the Republic of Lithuania, R. Stanikūnas, Chairperson of the Competition Council of the Republic of Lithuania and R. Naujokas, Director of the State Patent Bureau of the Republic of Lithuania, were received.

V

At the Constitutional Court’s hearing, Seimas member J. Razma, the representative of the Seimas, the party concerned, consented to the written explanations of G. Sagatys, the former representative of the Seimas, the party concerned, and answered the questions of the Justices of the Constitutional Court.

The Constitutional Court

holds that:

I

1. The relations connected with the protection of trademarks also used to be regulated in the inter-war independent Lithuania. It needs to be noted that on 27 January 1925, the Seimas adopted the Law on the Protection of Trademarks. Paragraph 1 of this law prescribed: “The following shall be considered to be trademarks: brands, stamps, seals, woven or sewn imprints, labels, colophon devices, badges, covers, drawings of original images, packages and separate words, by means of which merchants, manufacturers, craftsmen and all producers mark their goods, their packages or ware.” Paragraph 19 of the law established liability for unlawful use of a trademark: “Whoever breaches the exceptional right to use the trademark, must reimburse the losses for the victim and, in addition, is punished by criminal laws and according to agreements with other states.”

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. By its Resolution (No. 233) “On Approving the Provisional Rules of the State Patent Bureau and Organisational Questions” of 17 June 1991, the Government of the Republic of Lithuania approved the Provisional Rules of the State Patent Bureau which, among the established most important tasks, included the following tasks: inter alia, to implement the legal protection of trademarks and service marks (Item 5.1), to defend the interests of the Republic of Lithuania connected with, inter alia, trademarks and service marks, in the Republic of Lithuania and in foreign states (Item 5.2).

Upon the adoption of the Constitution of the Republic of Lithuania in the referendum of 25 October 1992, Article 2 of the Republic of Lithuania’s Law “On the Procedure for Entry into Force of the Constitution of the Republic of Lithuania” which is a constituent part of the Constitution, prescribed that laws, other legal acts or parts thereof, which were in force on the territory of the Republic of Lithuania prior to the adoption of the Constitution of the Republic of Lithuania, 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. On 3 June 1993, the Seimas adopted the Republic of Lithuania’s Law on Trademarks and Service Marks which, under Article 36 of this law, came into force on 1 October 1993. The law was designed to regulate the relations connected with the registration of trademarks and service marks, their legal protection and use (Paragraph 1 of Article 1). Under Paragraph 1 of Article 2 of this law, any sign which distinguishes the goods of one person from those of another person or the services rendered by one person from the services rendered by another person and which can be represented graphically shall be considered to be a sign capable of constituting a mark. Article 28 titled “Defence of Rights” of this law prescribed:

According to the claim of the proprietor of a mark, the Court may adopt a decision to terminate any acts the performance or the likely performance of which may infringe the rights conferred by Paragraphs (1) to (5) of Article 20.

The Court, according to the claim of the proprietor of a mark, may adopt a decision on the reparation of damages to the proprietor of the mark caused by performance of any acts that infringe the rights conferred by paragraphs of Article 20.

In addition to the measures specified in paragraphs (1) and (2) of this Article, the Court may re-establish the situation that existed before the infringement and may stop infringing actions, proceed with a seizure of the goods and, when necessary, destroy illegally used marks, tools and equipment that could be used to manufacture the goods and the goods themselves in absence of the possibility of removing an illegal mark from such goods.”

Paragraphs 1–5 of Article 20 of the Law on Trademarks and Service Marks consolidated the rights of the proprietor of trademark and service mark, the fact that nobody shall have the right to use the sign in his activity without the authorisation of the registered proprietor of the mark (Paragraph 1); described what was regarded as the use of a sign (Paragraph 2); established the right of the proprietor of the registered mark to prevent other persons from using, without his authorisation, any sign which is identical or similar to his mark and may infringe the distinctive feature of this mark (Paragraph 3), and described what was regarded as infringement of a distinctive features of this mark (Paragraph 4). It also consolidated the right of the proprietor of a mark which is considered to be well known in the Republic of Lithuania, even if it is not registered under this law, to prevent other persons from using in commerce, without his authorisation, any sign which constitutes a reproduction, an imitation or a translation of the well-known mark (Paragraph 5).

The Law on Trademarks and Service Marks has been amended and/or supplemented more than once, however, the legal regulation which was established in Articles 20 and 28 did not change until 1 January 2001.

4. On 10 October 2000, the Seimas adopted the Republic of Lithuania’s Law on Trademarks, under Paragraph 2 of Article 56 whereof, the Law on Trademarks and Service Marks (wording of 1 October 1993) (with subsequent amendments and supplements) which had been effective until then was recognised as no longer valid. Under Paragraph 1 of Article 56 (wording of 10 October 2000) of the Law on Trademarks, this law, save Article 55 thereof, came into force on 1 January 2001.

In Article 1 (wording of 10 October 2000) of the Law on Trademarks, it is noted that this law establishes “legal protection of trademarks, their registration and use in the Republic of Lithuania, also the administration of the Register of Trademarks of the Republic of Lithuania.”

In Paragraph 1 of Article 2 (wording of 10 October 2000) of the Law on Trademarks, the trademark is defined as “any sign capable of distinguishing the goods or services of one person from those of other persons and capable of being represented graphically”, and under Article 5 of this law, marks, with respect to which the legal protection under this law is applicable, may consist of signs, in particular: (1) words, personal surnames, names, artistic pseudonyms, names of firms, slogans; (2) letters, numerals; (3) drawings, emblems; (4) three-dimensional form (the shape of goods, their packaging or containers); (5) colours or combinations of colours, their compositions; (6) any combination of signs specified in Items 1–5 of this article.

Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trademarks, which is impugned by the Vilnius Regional Court, the petitioner, prescribed:

Instead of the reimbursement of losses, the proprietor 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.”

5. The Law on Trademarks (wording of 10 October 2000) has been amended and supplemented:

by the Republic of Lithuania’s Law on Amending and Supplementing Articles 1, 18, 26, 32, 34, 38, 43, 44 and 46 of the Law on Trademarks and on Supplementing the Law by an Annex which was adopted by the Seimas on 22 October 2002 and which came into force on 8 November 2002;

by the Republic of Lithuania’s Law on Amending and Supplementing Articles 2, 5, 7, 8, 11, 12, 30, 38, 40, 43, 45, 46, 49 and 50 and the Annex of the Law on Trademarks and on Supplementing the Law with Article 551, which was adopted by the Seimas on 19 February 2004, and under Article 17 of which, Paragraphs 3 and 4 of Article 1, Paragraphs 2 and 3 of Article 3, Articles 5, 9, 12 and 13, Paragraph 4 of Article 14 and Articles 15 and 16 of this law came into force on the day when the Republic of Lithuania became a Member of the European Union, while Paragraphs 1 and 2 of Article 1, Article 2, Paragraph 1 of Article 3, Articles 4, 6–8, 10 and 11, and Paragraphs 1–3 of Article 14 of this law came into force on 13 March 2004.

By these amendments and supplements, Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trademarks, regarding the compliance of which with the Constitution, the Vilnius Regional Court, the petitioner, has doubts, has not been amended and/or supplemented.

6. On 8 June 2006, the Seimas adopted the Republic of Lithuania’s Law on Amending and Supplementing Chapter X and Article 56 and on Supplementing the Annex of the Law on Trademarks, which came into force on 28 June 2006. Article 1 of this law amended and supplemented Chapter X “Dispute Settlement. Defence of Rights” of the Law on Trademarks (wording of 10 October 2000) which contained Paragraph 3 of Article 51 that is impugned in this constitutional justice case.

Article 51 titled “Reimbursement of damage of property nature” (wording of 8 June 2006) of Chapter X “Dispute Settlement. Defence of Rights” of the Law on Trademarks established the following:

1. The procedure for the reimbursement of pecuniary damage shall be established by the Civil Code and this law.

2. While establishing the amount of damage (losses) which actually emerged due to the infringement of rights established by this law, the court shall take account of the essence of the infringement, the amount of the committed damage, the lost income, the expenses and other important circumstances. Upon the requirement of the persons specified in Paragraph 1 of Article 50 of this law, the benefit received by the infringer may be regarded as losses. The goods which infringe the rights established by this law may be handed over to the holders of these rights upon their request.

3. The amount of the lost income by the persons specified in Paragraph 1 of Article 50 of this law shall be established taking account of the fact, what income would be received by lawfully using the trademark protected by this law (i.e. from the fee which is usually paid for the lawful use of the trademark), as well as of the concrete circumstances which could create the conditions for receiving the income (the works done by the proprietors of the rights, the measures used, negotiations on conclusion of agreements regarding the use of the mark, etc.).

4. Instead of reimbursement for damage (losses) which actually occurred due to the infringement of the rights established by this law, the persons specified in Paragraph 1 of Article 50 of this law may request for the fee which had to be paid if the infringer would have lawfully used the trademark (i.e. upon receiving the permission/license), and when the infringer did that deliberately or due to a big negligence—up to twice as much as is this fee.

5. When the infringer performs some actions unaware or without having to be aware of the fact that he infringes the rights established by this law (i.e. his actions do not include guilt), the court may, upon the requirement of the persons specified in Paragraph 1 of Article 50 of this law, demand and obtain the received benefit from the infringer. The benefit received by the infringer shall be everything that the infringer saved and/or received while infringing the rights established by this law. The benefit received by the infringer shall be established and demanded and obtained without taking account of the fact whether the holder of the rights himself would have received such benefit that has been received by the infringer, or not. When the benefit received by the infringer is being established, the holder of the rights must present only the evidence which would confirm the general income received by the infringer; what is the net benefit (benefit after expenditure) must be proved by the infringer himself.”

7. When comparing, in this constitutional justice case, the legal regulation (wording of 10 October 2000) established in Article 51 of the Law on Trademarks with the legal regulation established in Article 51 (wording of 8 June 2006) of this law in the impugned aspect, it needs to be held that, under the legal regulation established in Article 51 (wording of 8 June 2006), instead of compensation for the infringement of the rights of the proprietor of the trademark, another way of defence of such rights is provided for—the right to require the fee which should have been paid if the infringer had lawfully used the trademark (i.e. upon the receipt of the permission), and when the infringer did that deliberately or due to a big negligence—up to twice as much as this fee.

8. Thus, the impugned legal regulation established in Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trademarks was amended in essence.

Under Paragraph 4 of Article 69 of the Law on the Constitutional Court, the annulment of an impugned legal act shall be grounds to adopt a decision to dismiss the instituted legal proceedings. It needs to be noted that the Constitutional Court has held more than once that in such cases, when a court considering a case applies to the Constitutional Court after it has had doubts concerning the compliance of a law or other legal act applicable in the case with the Constitution (another legal act of higher legal force), the Constitutional Court has the duty to investigate the request of the court regardless of the fact whether or not the impugned law or other legal is valid.

9. Legal liability for the infringement of rights of proprietors of trademarks is established not only in the Law on Trademarks, but also in other laws. For example, Article 308 (wording of 20 April 2000) of the Criminal Code of the Republic of Lithuania established criminal liability for production of goods which are marked by a trademark or service mark, which is identical or misleadingly similar to the trademark or service mark which is protected under the procedure established by law, the storing of such goods, their transportation and distribution for commercial purposes, as well as for reproduction of the trademark or service mark (copies thereof) which is protected under the procedure established by law, its use, storing or distribution for commercial purposes without the authorisation of the proprietor of the trademark or service mark. Criminal liability was also consolidated in Article 204 (wording of 5 July 2004) of the Criminal Code, whereby everyone who, without a permission, marked goods with a borrowed trademark or provided them for realisation, or used the borrowed service mark and thus inflicted damage, shall be punished.

Article 21427 (wording of 3 July 2007) of the Republic of Lithuania’s Code of Administrative Violations of Law establishes administrative liability for storing and transportation of goods marked with the borrowed trademark by seeking to gain property benefit.

10. In the context of the constitutional justice case at issue, it needs to be noted that also the following international legal acts regulate the relations connected with the legal protection of trademarks:

The Paris Convention for the Protection of Industrial Property of 20 March 1883 as revised at Brussels on December 14, 1900, at Washington on June 2, 1911, at The Hague on November 6, 1925, at London on June 2, 1934, at Lisbon on October 31, 1958, and at Stockholm on July 14, 1967 and as amended on September 28, 1979. On 28 May 1996, the Seimas adopted the Republic of Lithuania’s Law “On the Ratification of the Paris Convention for the Protection of Industrial Property”. Paragraph 2 of Article 1 of this convention provides that “the protection of industrial property has as its object patents, utility models, industrial designs, trademarks, service marks, trade names, indications of source or appellations of origin, and the repression of unfair competition”, while Item 1 of Paragraph 3 of Article 10bis provides that “all acts of such a nature as to create confusion by any means whatever with the establishment, the goods, or the industrial or commercial activities, of a competitor shall be prohibited”;

Article 45 titled “Damages” of Section 2 “Civil and Administrative Procedures and Remedies” of Annex 1C of the Agreement Establishing 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.”

In Lithuania, the Agreement Establishing World Trade Organisation came into force on 31 May 2001.

11. The Constitutional Court has more than once held that the jurisprudence of the Court of Justice of European Communities (hereinafter referred to as the ECJ) as a source of construction of law is also important to construction and application of Lithuanian law (the Constitutional Court’s rulings of 21 December 2006, 15 May 2007, and 4 December 2008).

The ECJ recognises that the essential function of a trademark is to guarantee the identity of the origin of the marked product to the consumer by enabling him to distinguish the product or service from others which have another origin (Decision of the ECJ of 18 June 2002 in case No. C-299/99 Koninklijke Philips Electronics NV Koninklijke Philips Electronics NV v. Remington Consumer Products Ltd and Decision of 12 November 2002 in Case No. C-206/01 Arsenal Football Club plc v. Matthew Reed). The limits of legal protection of trademarks must be such that are necessary and at the same time sufficient for the protection of the economic functions of a trademark. According to the Decision of the ECJ of 20 March 2003 in Case No. C-291/00 LTJ Diffusion SA v. Sadas Vertbaudet SA, in such a case, when the infringement of the rights of the proprietor of the trademark is manifested in the use of identical tags for identical goods, the possibility of misleading consumers is presumed and should not be proved.

II

1. The Vilnius Regional Court, the petitioner, requests an investigation into whether Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trademarks was not in conflict with Paragraphs 1 and 2 of Article 46 of the Constitution and with the constitutional principles of justice and a state under the rule of law.

Article 51 titled “Reimbursement of Losses and Damage. Compensation” (wording of 10 October 2000) of the Law on Trademarks established the following:

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

2. When assessing the amount of losses, the court shall take into account the substance of violation, the amount of the inflicted damage and the lost income, as well as other expenses incurred by the proprietor of the mark. The unlawfully marked goods may be handed over by a court decision to the proprietor of the mark, if requested.

3. Instead of the reimbursement of losses, the proprietor 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.”

3. The impugned legal regulation established in Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trademarks should be construed by taking account of other paragraphs of this article, as well as of Article 50 titled “Defence of Rights” (wording of 10 October 2000) of this law, which consolidated the ways of defence of the infringed rights of the proprietor of the trademark in court.

Under Paragraph 1 of Article 50 (wording of 10 October 2000) of the Law on Trademarks, some of such ways are the following: (1) reimbursement of losses or damage (including moral damage), caused to the proprietor of the mark by actions which infringed the rights specified in Article 38, including lost income and other expenses (Item 3); (2) payment of compensation (Item 4). Under Paragraph 1 of Article 50 (wording of 10 October 2000) of the Law on Trademarks, with the aim of protecting his infringed rights, the proprietor of the trademark had the right to apply to court in accordance with the procedure prescribed by law.

3.1. Article 51 (wording of 10 October 2000) of the Law on Trademarks regulates the relations connected with the reimbursement of losses and damage, as well as to the paying of compensation for the proprietor of the trademark. Under the legal regulation established in Article 51 (wording of 10 October 2000) of the Law on Trademarks, the proprietor of the trademark had the right to choose one of the two mentioned ways of protection of his infringed rights.

3.2. Under the legal regulation established in Paragraph 1 of Article 51 (wording of 10 October 2000) of the Law on Trademarks, the procedure for the reimbursement of losses and damage is regulated by the Civil Code and the provisions of this law.

3.3. Under Paragraph 1 of Article 6.249 of the Civil Code, damages expressed in monetary terms shall constitute losses.

The Civil Code establishes the duty to fully compensate for the damage inflicted upon a person and property, and in cases established by law—also to compensate for non-pecuniary damage (Paragraph 1 of Article 6.245 and Paragraph 2 of Article 2.263 of the Civil Code). Under Paragraph 1 of Article 6.251 of the Civil Code, the damages incurred must be compensated in full, except in cases when limited liability is established by means of laws or contracts. Under the provision of Paragraph 2 of Article 6.251 of the Civil Code, “the court, having considered the nature of liability, the financial 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.”

3.4. The legal regulation established in Paragraph 2 of Article 51 (wording of 10 October 2000) of the Law on Trademarks should be construed as meaning that while establishing the amount of losses experienced by the proprietor of the trademark, the court had to take account of the essence of violation, the size of the inflicted damage, the lost income and other expenses of the proprietor of the trademark. Upon the request of the proprietor of the trademark, by a court decision, the goods which were unlawfully marked with his trademark could be transferred to him as well.

3.5. Under Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trademarks, instead of the reimbursement of losses, the proprietor could claim compensation. Here one uses the notion “compensation” which was not expressis verbis revealed either in this article, or in other articles of this law. Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trademarks prescribed that the amount of compensation shall be determined according to the price of legal sale of relevant goods or a service.

Neither Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trademarks, nor other articles of this law expressis verbis revealed what the formulation “the price of legal sale of relevant goods or a service” means. While applying the linguistic, logical and systemic methods of construction, the price of legal sale of goods or a service shall be the price for which goods or services marked by a lawfully used trademark are sold.

The institute of compensation is not a novel of this law. It was and it is consolidated also in other laws which regulate the relations of intellectual property, for example, in the Republic of Lithuania’s Law on the Rights of Authors and Related Rights which regulates, inter alia, the implementation and defence of the rights of authors and related rights. Alongside, it needs to be noted that the legal regulation of the protection of the rights of authors and related rights is not identical to the legal regulation of the protection of the relations of trademarks

The essence and purpose of the institute of compensation consolidated in the Law on Trademarks (wording of 10 October 2000) is to defend the infringed rights of the proprietor of the trademark by justly reimbursing his losses which can manifest themselves by various losses of both material and non-material nature.

3.6. The formula that compensation “may be increased up to 200%, or up to 300% if the infringer has committed the infringement deliberately” used in Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trademarks 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 calculating the amount of compensation for the proprietor of the trademark, the price of legal sale of relevant goods or a service up to 200%, or up to 300% if the infringer has committed the infringement deliberately, the legislature assessed only one criterion explicitly which must be taken into account by the court, when it decides the question of increase of the price of legal sale of relevant goods or a service—the criterion of the form of guilt.

4. To sum up, it needs to be held that the legal regulation consolidated in Article 51 (wording of 10 October 2000) of the Law on Trademarks, under which the proprietor of the trademark may be reimbursed for the losses which are damages in monetary terms, and the legal regulation under which a compensation may be awarded to him by a court, seek to achieve the same objective—to defend the infringed rights of the proprietor of the trademark.

III

1. It has been mentioned that the Vilnius Regional Court, the petitioner, requests an investigation into whether Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trademarks was not in conflict with Paragraphs 1 and 2 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 is a broad one: it is based on the inborn right of an individual to personal freedom, as well as on the inborn right to ownership. It includes the freedom to freely choose business, freedom to freely conclude contracts, freedom of fair competition, the equality of rights of subjects of economic activity etc. The freedom of individual economic activity and initiative is the whole complex of legal opportunities which creates preconditions for an individual independently to 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 (the Constitutional Court’s 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 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 (the Constitutional Court’s rulings of 13 February 1997, 13 May 2005, and 30 June 2008).

The Constitutional Court has more than once held that the principles set down in Article 46 of the Constitution constitute a whole, which is the constitutional basis of the economy of this country. These principles are in harmony with each other, and this pre-supposes their balance, therefore, each of them must be interpreted without denying another constitutional principle. When 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 pre-conditions are created for their violation.

In the constitutional justice case at issue it needs to be noted that from Article 46 of the Constitution, inter alia, the imperatives of protection of fair competition and defence of the rights of consumers which are consolidated in this article, the duty arises for the legislature to establish such legal regulation which would ensure efficient protection of rights of the proprietor of the trademark and the consumers.

3. The imperatives which stem from Article 46 of the Constitution are also inseparable from Article 23 of the Constitution.

While construing Article 23 of the Constitution, the Constitutional Court has more than once held that the inviolability of property and protection of ownership which are consolidated in this article also mean that the owner has the right to demand that other persons not violate these his rights of ownership, while the state has a duty to protect and defend ownership against unlawful encroachment upon it.

The requirements to guarantee the inviolability of property and the protection thereof which arise from Article 23 of the Constitution should be applied to the full extent also while defending the intellectual property rights and ensuring the inviolability of property and its protection.

4. The specificity of defence of the rights of ownership is also determined by the object of property. While taking account of the specificity of the objects of property, the legislature may consolidate various ways of defence of the infringed rights of the owners of these objects, inter alia, where such ways are connected with the reimbursement (compensation) for the inflicted damage and other losses.

5. In the context of the constitutional justice case at issue, it needs to be noted that the proprietor of the trademark may experience various losses—both of material and moral nature (for example, decrease of value of the trademark, decrease of reputation of the enterprise of the proprietor of the trademark, etc.) which occurred 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, the duty arises for the legislature to establish such legal regulation which would permit reimbursing (compensating) for the losses experienced by the proprietor of both material and moral nature. Such legal regulation should create preconditions, by taking account of the particularity of intellectual property, to calculate the losses of the proprietor of a trademark which were incurred due to unlawful actions of other persons; in the cases where sometimes it is even impossible to calculate the amount of material damage inflicted upon the proprietor of the trademark, it is necessary to establish also such ways of compensation for losses that occurred for those owners which would not be related only to the material damage inflicted upon him.

It needs to be noted that, under the Constitution, the laws must provide for liability for the infringement of rights of proprietors of trademark, inter alia, the duty to reimburse the proprietor of the trademark for the inflicted material and moral damage (losses).

In this context it also needs to be noted that the necessity to reimburse a person of the inflicted material and moral damage inflicted upon him is a constitutional principle which stems from the Constitution, inter alia, Paragraph 2 of Article 30 of the Constitution, in which it is established that compensation for material and moral damage inflicted upon a person shall be established by law.

6. 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 (the Constitutional Court’s ruling of 19 August 2006).

7. The constitutional imperative of reimbursement of material and moral damage inflicted upon a person is inseparable from the principle of justice which is consolidated in the Constitution: all the necessary legal preconditions must be created by law in order to justly reimburse for the inflicted damage. Thus, the Constitution requires to establish by law such legal regulation that a person, who was inflicted damage by unlawful actions, would be able in all cases to claim for just reimbursement for that damage and to receive that reimbursement (the Constitutional Court’s ruling of 19 August 2006).

The constitutional imperative whereby damage must be justly reimbursed is connected 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 for abusing law.

In the context of the constitutional justice case at issue, it needs to be noted that the legislature must also heed this constitutional imperative when it consolidates in a law such ways of reimbursement of damage inflicted upon the proprietor of the trademark, when the amount of reimbursement (compensation) which should be paid for the losses which the proprietor incurred due to unlawful actions of other persons is not explicitly linked only to the incurred material damage.

The Constitution does not tolerate any such legal regulation when the court, which, under the Constitution (inter alia, Article 109 thereof) must administer justice, may not, while taking account of all the significant circumstances of the case, establish the size of the material and/or moral damage inflicted upon the person by the said unlawful actions, and, by following law, inter alia, not violating the imperatives of justice, reasonableness and proportionality, adjudicate just reimbursement for the material and/or moral damage sustained by the person (the Constitutional Court’s ruling of 19 August 2006).

8. While regulating the relations of reimbursement of damage, inter alia, the damage which was inflicted upon the interests of the proprietor of the trademark, the legislature must heed also the constitutional principle of a state under the rule of law. As the Constitutional Court has held in its acts more than once, legal clarity and legal certainty are inseparable elements of the constitutional principle of a state under the rule of law.

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

IV

On the compliance of Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trademarks with Paragraphs 1 and 2 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 Vilnius Regional Court, the petitioner, requests an investigation into whether Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trademarks was not in conflict with Paragraphs 1 and 2 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 from Article 46 of the Constitution, inter alia, the imperatives of protection of fair competition and defence of the rights of consumers which are consolidated in this article, the duty arises for the legislature to establish such legal regulation which would ensure efficient protection of rights of the proprietor of the trademark and the consumers.

It has also been mentioned that the requirements to guarantee the inviolability of property and the protection thereof which arise from Article 23 of the Constitution should be applied to the full extent also while defending the intellectual property rights and ensuring the inviolability of property and its protection; the specificity of defence of the rights of ownership is also determined by the object of property. While taking account of the specificity of the objects of property, the legislature may consolidate various ways of defence of the infringed rights of the owners of these objects, inter alia, where such ways are connected with the reimbursement (compensation) for the inflicted damage and other losses; the proprietor of the trademark may experience various losses—both of material and moral nature (for example, decrease of value of the trademark, decrease of reputation of the enterprise of the proprietor of the trademark, etc.) which were incurred due to unlawful actions of other persons. The duty arises for the legislature from the Constitution, inter alia, from Paragraphs 1 and 2 of Article 23 thereof, and from the constitutional principle of a state under the rule of law, to establish such legal regulation which would permit reimbursing (compensating) for the losses experienced by the legislature of both material and moral nature. Such regulation should create preconditions, when account is taken of the specificity of intellectual property, to calculate the losses incurred by the proprietor of the trademark due to unlawful actions of another person; in the cases where sometimes it is even impossible to calculate the amount of material damage inflicted upon the proprietor of the trademark, it is necessary to establish also such ways of reimbursement of losses that occurred for those owners which would not be related only to the material damage inflicted upon him.

It has also been mentioned that the Constitution requires to establish by law such legal regulation whereby a person, upon whom damage was inflicted by unlawful actions, would be able in all cases to claim just reimbursement of that damage and to receive that reimbursement; the constitutional imperative that damage must be justly reimbursed is connected 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, and constitutionally grounded objective and not create preconditions for abusing law; the legislature must heed this constitutional imperative also when it consolidates in a law such ways of reimbursement of damage inflicted upon the proprietor of the trademark, when the amount of reimbursement (compensation) which should be paid for the losses incurred by the proprietor due to unlawful actions of other persons is not explicitly linked only to the incurred material damage.

3. It has been mentioned that Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trademarks, which is impugned in this constitutional justice case, inter alia, established the right of the proprietor of the trademark to require, instead of the reimbursement of losses, the compensation the amount of which is determined according to the price of legal sale of relevant goods or a service; that the Law on Trademarks did not expressis verbis reveal what the formulation “the price of legal sale of relevant goods or a service” means; that while applying the linguistic, logical and systemic methods of construction, the price of legal sale of goods or a service is the price for which goods or services marked by a lawfully used trademark are sold.

In this ruling it has also been mentioned that, while calculating the amount of compensation to be paid for the proprietor of the trademark according to the legal regulation established in Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trademarks, 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.

4. While assessing the legal regulation established in Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trademarks to the extent that it prescribes that the amount of compensation for the proprietor of the trademark is calculated according to the price of legal sale of relevant goods or a service in the aspect of its compliance with the Constitution, it needs to be noted that the damage inflicted upon the proprietor of the trademark by selling (realisation) of unlawfully marked goods is linked with (considerably depends on) the price of legal sale of relevant goods. In this context it also needs to be noted that, while deciding disputes regarding reimbursement of damage inflicted upon the proprietor of the trademark by unlawful actions of other persons, inter alia, while calculating (establishing) the amount of compensation according to the price of legal sale of relevant goods or a service, 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.

4.1. It has been mentioned that the essence and purpose of the institute of compensation consolidated in the Law on Trademarks is to defend the infringed rights of the proprietor of the trademark by justly reimbursing his losses which can manifest themselves in various losses of both material and moral nature. Thus, while calculating (establishing) the amount of compensation, the court cannot distort the essence and purpose of compensation—to justly reimburse the incurred damage—as one of the ways of defence of the inflicted rights of the proprietor of the trademark.

4.2. Therefore, in itself, the legal regulation consolidated in Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trademarks, whereby the amount of compensation for the proprietor of the trademark is calculated according to the price of legal sale of relevant goods or a service, does not prevent the court, when the court follows the principles of justice, proportionality, reasonableness and other general principles of law and when it takes account of factual circumstances of the case, from adopting a fair decision regarding defence of the inflicted rights of the proprietor of the trademark. Such legal regulation does not deviate from the imperatives which stem from the Constitution, inter alia, from Paragraph 2 of Article 30 and Article 46 thereof, and from the principles of justice and a state under the rule of law.

5. The legal regulation consolidated in Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trademarks should be assessed differently in the aspect that the price of legal sale of relevant goods or a service, according to which the amount of compensation for the proprietor of the trademark is calculated, may be increased up to 200%, or up to 300% if the infringer has committed the infringement deliberately.

5.1. In this ruling, it has been held that legal clarity and legal certainty are inseparable elements of the constitutional principle of a state under the rule of law.

5.2. It has been mentioned that while establishing the discretion of the court to increase, in the course of calculation of the amount of compensation for the proprietor of the trademark, the price of legal sale of relevant goods or a service up to 200%, or up to 300% if the infringer has committed the infringement deliberately, the legislature entrenched only one criterion explicitly, which must be taken into account by the court when it decides the question of increase of the price of legal sale of relevant goods or a service—the criterion of the form of guilt. It needs to be held that due to such an imperative character of the said legal regulation, the possibility of the court, while deciding on increase the said price, to refer to the principles of justice, proportionality, reasonableness and other general principles of law and to take account of factual circumstances of the case, becomes a lot more difficult. It also needs to be noted that in the cases where the court follows the said principles, the legal regulation consolidated in Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trademarks whereby 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, remains very ambiguous, which leads to legal indetermination.

5.3. Such legal regulation creates preconditions also for the legal situations to emerge where the possibilities of the court to administer justice decrease (and sometimes it is in general impossible to administer justice), as the only criterion is consolidated explicitly which must be heeded by the court when it decides the question whether to increase or not to increase the price of legal sale of relevant goods or a service, and if to increase it, then to what extent. This does not comply with Paragraph 1 of Article 109 of the Constitution whereby justice is administered by courts.

5.4. Taking account of the arguments set forth, the conclusion should be drawn that the provision of Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trademarks 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 establishes only one criterion of such increase—the form of guilt—and it 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 and with the constitutional principles of justice and a state under the rule of law.

5.5. Having held so, the Constitutional Court will not investigate whether the provision of Paragraph 3 of Article 51 (wording of 10 October 2000) of the Law on Trademarks 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” was not in conflict with Paragraphs 1 and 2 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 gives the following

ruling:

To recognise that the provision of Paragraph 3 (Official Gazette Valstybės žinios, 2000, No. 92-2844) of Article 51 (wording of 10 October 2000) of the Republic of Lithuania’s Law on Trademarks 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 provides for only one criterion of such increase—the form of guilt—and it 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 and with the 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 pronounced in the name of the Republic of Lithuania.

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