On a doctrinal level, a first attempt to overcome the legislative impasse in our legal system has been to recognize “the effectiveness … of a principle under which to require the restitution of profits obtained ‘by means of an unjust action’, independently both of the impoverishment inflicted and of the subjective state of the perpetrator of the act at the time of the injurious action”.⁴ Ultimately, a tangible response to the need to avoid such a (serious) grey zone in our remedial mechanisms should come from a systematic analysis of the discipline provided for in Art. 2032 civil code (hereinafter c.c.) in relation to the negotiorum gestio (management of the affairs of another). On closer inspection: (a) it is assumed that the ratification of the interested party may produce, in relation to such management, the effects that would have resulted from an actual mandate, even if the management was carried out by someone who believed himself to be acting in his own interests; (b) the above represents “the manifestation of a more general principle, according to which the owner of assets may always claim from another who takes or uses such assets, the profit which thereby accrues”.⁵ It follows that whoever enriches himself by means of actions injurious to the rights of another shall be required to transfer to the victim of the injury the entire profit realized therefrom, independently of the impoverishment caused (and therefore independently of the possibility that absolutely no impoverishment was caused). This unwritten principle – beyond the consideration of the subjective nature of intentionality – has its roots in the objective element of the infringement (or injury) committed by the perpetrator of the illicit conduct to the detriment of the victim of the injury.⁶ Using such a framework, the rules concerning disposal, damage or destruction of the assets of others, as well as those relating to the enjoyment of the proceeds of such actions, and to their rehabilitation, addition and reparation, “would be reduced … to a mere extension and/or elaboration of that principle”.⁷ This would possibly have a double effect: removal of the profit realized by the perpetrator of the illicit act and pursuit of the objective of prevention/deterrence.⁸

A further cause for reflection comes from that aspect of legal doctrine according to which the essential assumption underlying provisions for the restitution of profits illegitimately achieved can be found in the principle of unjustified enrichment.⁹ In short, starting from the concept that the net profit of an economic activity should accrue to the person who in good faith was the author of the initiative, that authoritative doctrinal position recognized the obligation, for the individual who had acted in bad faith, to restore the unjustified profit to the victim of the injury, even beyond the limits of the harm suffered.¹⁰

Finally, to conclude this brief exploration of theoretical/doctrinal developments aimed at overcoming the inadequacies of civil responsibility which result from the possibility that the benefits accruing to the tortfeasor are much greater than the losses suffered by the injured party, mention should be made of the position of those who – basing their reasoning on the discipline of revenues deriving from goods¹¹ and on the means of acquiring property on the basis of an original endowment¹² – felt that a more efficacious solution was available, which would not only guarantee to the victim compensation for the injury suffered due to the illicit conduct, but also function as a real deterrent for the ‘violator’ or ‘usurper’, preventing him from retaining the profits realized by means of injury to the rights of others.

Shifting our attention to the jurisprudential aspects of the matter, the outcome does not change: given the necessity of overcoming the often cited legislative impasse, the Italian courts have seen fit to devise a number of different (and complicated) solutions, amongst which stands out, without a shadow of a doubt, the attempt to perform an extensive exegesis of Art. 158 of the Act of 22 April 1941 no. 633 (otherwise: legge sul diritto d’autore – copyright law, hereinafter l.a.),¹³ by means of which the expression “damages award” could be interpreted as being in conformity with Art. 45 TRIPS.¹⁴

More prosaically, the question has been raised as to whether compensatory techniques could be actually directed to the recovery of the earnings/profits illegitimately realized by the ‘usurper’. The affirmative position rested on two arguments. The first was based on the conviction that disgorgement damages constitutes a minimal, indeclinable rule [to be inferred from, amongst other factors, an interpretation of the fact that in the preparatory proceedings of copyright law it was decided to omit, as superfluous, Art. 161 of the bill in Parliament according to which “the owner of a right of use (copyright) can request the restitution into his assets of the pecuniary benefits obtained by its improper use, by means of a sentence, against the violator of the right, to payment of a sum equivalent to those benefits, as well as interest at the legal rate from the date of the judgment”].¹⁵

The second argument rested on the particular interpretation of Art. 158 l.a. formulated by the Tribunal of Modena in relation to a charge of unintentional falsification of copyright.¹⁶ In short, the expression “damages award” can refer either to the action of compensation (ex Art. 2043 c.c.), or to enrichment without just cause (ex Art. 2041 c.c.), which – without the need to establish extreme malice or negligence –gives rise to the transfer to the copyright owner of the economic benefits obtained by the illegitimate user.¹⁷ This interpretation was confirmed on appeal on the assumption that, in case of unintentional infringement of copyright, the only possible solution available to the victim of the injury was to seek compensation equal to the enrichment obtained by the perpetrator from the illegitimate use of the work of another.¹⁸ Restitution of profits thus came to be defined as “a rule not infrequently applied in cases of compensation for damage due to infringement of copyright”: a possible alternative remedial resource in relation to the criterion, widely applied in jurisprudence, of the so-called ‘just price for consent’, i.e. consideration for allowing use.¹⁹

A case in the same vein is a recent decision of the Court of Appeal of Rome, relating to compensation for damage for copyright infringement: the case concerned the infringement – claimed by the company possessing the license – of the contractual obligation to reproduce and distribute the works of the singer-songwriter Renato Zero, based on curatorial sub-division of the published collections of his work in accordance with its artistic evolution and maturation.²⁰ Also in this case, the appellate court (confirming in its entirety the decision of the lower judge) established that the appellant company had, by means of the illicit production of a ‘new’ collection, “obtained a profit it was not entitled to”, at the same time inflicting on the author “damages corresponding to the profit he could have obtained if he himself had produced the composition, as was his right”. The argument on which this decision stands (confirming the decision of the trial court) is based on the principle that “the damage can be compensated, at a minimum, and in the absence of proof of greater damage, with a sum equal to the net profit obtained by the illicit use of the copyright, for the reason that this profit could have been gained by the owner of the copyright if he/she had directly used the composition”.²¹

Along the same lines there is the case concerning a company which – offering services in the electronic collection of authoritative news dailies and journals – was sued by these latter “because it reproduced on-line in electronic form whole articles from their newspapers, put systematically at the disposition of its clientèle from 6 o’clock in the very morning of publication, providing the entire text in the same format as the printed hard-copy journal”.²² The Court of Appeal of Milan, recognizing the illegality of the activity undertaken by the company being sued, sentenced it to pay damages corresponding to the financial advantage derived from the illegal act. In particular the appeal emphasized the fact that, in the specific case of extra-contractual responsibility for the illicit economic use of a literary or other creative work, or the illegal reproduction of the qualities of the competitive product, the profit thereby lost must be compensated for taking into account the element of greatest significance for determining the severity of the offense and the loss sustained by the business affected, that is, the profit obtained by the perpetrator of the illegal act.²³

Of course the proposition of developing an equitable determination of damages, given that the underlying assumption is strained at the very least, has entailed a trade-off in terms of certainty of outcome. It is not in fact uncommon for Italian courts to opt for diametrically opposed solutions.²⁴ In one relevant decision concerning the unauthorized commercialization of the texts of lectures given by a university professor, the court, far from using definite and available information which would have allowed for easy recourse to the criterion of the profit gained by the perpetrator of the illicit act (in other words, the price at which the notes were available in a bookshop),²⁵ preferred to opt for the evaluation of the damages in terms of the profit lost to the injured party.²⁶

The opportunity for the much-invoked change in direction (mainly but not solely at the legislative level) materialized when – by virtue of the mandate provided by Art. 15 of the Act of 12 December 2002 no. 273 – the Government entrusted to a dedicated inter-ministerial commission the task of drawing up a new legal code on industrial property rights, the C.P.I.. The avowed objective was to simplify and reorganize the multiple laws currently in force (of national, international and European community origin) which had become ever more complex in interpretation, not only due to the diversity of languages used, but chiefly because of the unraveling of systematic linkages and of the necessary coherence of the individual legal systems.²⁷ One of the most interesting (but arduous) dispositions in this new codification is the section of Art. 125 which addresses the delicate problem of compensation for damages in relation to hypothetical enrichment from an illicit act (see paragraph “The Tormented Adventure of Art. 125 C.P.I.”. on the genesis of this regulation).²⁸ In fact, with this rule the ministerial Commission – responding to the common charge that the remedial system in Italian law was insufficient, or rather inadequate in addressing hypothetical enrichment from illicit acts – introduced a new remedial solution, which equates the amount of compensation due to the profits obtained by the counterfeiter in violation of the copyright.²⁹

In this survey of the statutory provisions, it is worth mentioning Art. 158 of the law on copyright (as updated by Art. 5 of the decree on enforcement). In the article in question the legislator, having conveniently cited the need to calculate damages in accordance with the dispositions of clauses 1223, 1226 and 1227 c.c., states that the judge – in calculating the value of lost profits – must also take into account the “profits gained by means of the copyright infringement”.³⁰

At first blush, given the ‘counter-intuitive’ choice not to include copyright law within the ambit of the legislation on industrial intellectual property,³¹ it is not surprising that there is a substantial similarity between the article under discussion and Art. 125 C.P.I. (and, in particular, one of its last versions; that is, the draft formulated in the bill dated February 10 2005, no. 30).³² Art. 158 l.a. also expresses the clear intention, on the one hand, of guaranteeing continuity with our system of legal remedies (by means of the reference to the principles of loss of profit, of actual loss, of fair assessment of damage, as well as the contributory negligence of the creditor), and on the other hand, actually overcoming the reluctance to innovate in proposing recourse to a remedial solution capable of satisfying simultaneously the multiple functional requirements arising from violation of copyright. Not by chance, Art. 158 l.a. would also appear to have been intended to fulfill the double function (prevention/deterrence and punishment/sanction) to be found in Art. 125 C.P.I.

More in detail. The use of the expression “also taking into account the profits obtained”, thus overcoming the extreme limitation expressed in Art. 45 of the Agreement with the phrase “in appropriate cases” (limiting the cases in which it would appear possible to take advantage of the remedy offered by disgorgement damages), would seem to offer a wider range of remedial solutions or, better still, greater room to maneuver in the Italian remedial system. In other words, within the ‘normal’ dynamics of the assessment of actual loss and loss of profit, in the same manner as the general rule, in relation to the second item, a really innovative dimension has been inserted, which is quite revolutionary in relation to the reference model. This no longer covers only the profits lost due to the illegal activities of others, but also a modified computation of the proceeds that such illicit activities have provided to the counterfeiter.

Secondly, as an alternative to the “ordinary criterion”, Art. 158 l.a. provides that lost profits can be quantified by means of a fixed rate settlement based at a minimum on the rights that would have been recognized if the perpetrator of the copyright infringement had asked the copyright owner for authorization for the use of the right.³³ Therefore compensation for the damage is to be determined “by quantifying the fee usually sought in the market for that specific type of use of the work” (that is, measuring it against the objective or market value of the work”).³⁴

In the light of these premises, let us attempt to outline succinctly the principal differences between Articles 158 l.a. and 125 C.P.I.³⁵

To this end, it is important to start by considering the absence of a consistent literature on copyright law. In other words, in the absence of such a body of preventive information, there is ample space for hypotheses of unintentional infringement such as to justify the burden on the injured party to prove not only that the tortfeasor had benefited from the action, but also that the infringement was negligent or malicious.³⁶ Furthermore, “while for patents, brands etc. the monopoly arises out of legally enacted regulations and there is a system of legal publicity (…), this does not apply to copyright. In the case of the former, therefore, the perpetrator of the infringement would be hard pressed to declare himself totally free of guilt, given that in any case there exists the duty to inform; thus, even if there is no concrete proof of his malice or negligence, it is not unfair that he be required to pay a compensation restitution commensurate with the economic benefit he has obtained. In the second case, on the other hand, a completely unintentional infringement is possible (…), and in the absence of a system of publicity the alleged perpetrator could not even be required to inform himself in advance of the existence of pre-existing rights which his activities may infringe”. Therefore, the same careful analysis points out – combining the absence of constitutive proceedings and of publicity with the substantial difference in treatment between original and derivative creation that characterizes copyright generally, and patents in particular – that “in the province of copyright not only does unintentional infringement exist, but (i) it is far from improbable, (ii) it can involve an autonomous ‘investment’ both in terms of creativity and in terms of the ‘dissemination’ of the work; (iii) it can even take on the guise of a worthy act, by bringing to the market a product which may not be absolutely new, but which nevertheless makes a contribution to cultural progress, to the sum of available information, or of available entertainment etc. The absence of an obligation for compensation (or restitution) to be borne by the innocent person thus appears efficient from the point of view of the public interest in the diffusion of creative works”.³⁷

A further element of differentiation between the two dispositions under discussion can be seen in the determination of loss of profit. On closer inspection, in fact, Art. 125 C.P.I. – following the indications provided by 45 TRIPS and Art. 13 of Directive 2004/48/EC³⁸ – recalls the wider concept (in the case of negligent infringement) of “profits obtained by the perpetrator of the violation” as an autonomous element in the evaluation process highlighted by its similarity to lost earnings.³⁹ In Art. 158, in the other hand, without having recourse to the optional provisions of Directive 2004/48/EC concerning disgorgement damages, reference is made to the more restricted concept of “profits obtained by means of copyright infringement” as the criterion for equitable restitution (which, as previously pointed out, the judge on the bench is required to take into account in the evaluation of lost profits) to be employed in relation to a negligent infringer of copyright.

From this it follows that the tool of disgorgement damages represents the “optimal method, but the legal procedure which results from it appears milder, and lacks the gradation of ‘sanctions’ between someone who has violated private rights with negligence or malice, as opposed to someone who has done so without such negligence or malice. The first will be required to pay compensation for the lost profits only; the second appears to bear no duty to compensate”.⁴⁰

In 2007, the Supreme Court, in a decision strongly criticized by scholars,⁴² denied legal recognition to a sentence passed by the Jefferson County District Court which called for punitive damages of one million dollars against the Italian manufacturer of a protective helmet which at the moment of collision, due to a defect in the design and construction of the buckle, came off the victim’s head. This decision was based on the assumption that objectives in terms of punishment and sanction of such compensation were in clear conflict with public policy, given that the regulatory principles of our civil law system regarding civil responsibility in relation to illegal extra-contractual actions set the payment by the perpetrator as equivalent to reparation for the damage suffered by the injured party.⁴³ In particular, besides the way in which the judges of the Supreme Court had rejected the rationale for the appeal, many questions were raised by the opinion, which not only ignored the provisions pointing in the opposite direction,⁴⁴ but excluded the possibility of taking advantage of the opening in the Italian remedial system (in relation to punishment and sanctions) offered by legal literature and jurisprudential practice acting jointly.⁴⁵

Nevertheless, and although everything seemed to confirm the trend towards the ‘crystallization’ of our civil responsibility in relation exclusively to compensation, the Supreme Court, with two almost contemporaneous decisions (the first relating to illicit use of image copyright⁴⁶ and the second concerning infringement of author’s copyright),⁴⁷ became the protagonist of an unexpected change in direction.

With the first decision, the Court established that, in the case of compensation for the illicit use of the image of a young and unknown dancer (made for profit by the dancing school where he had been a pupil for a number of years), the settlement could have been determined “by reference to the profit presumably made by the perpetrator of the illegal act”.⁴⁸ On this basis the Court opted for the application of the instrument of disgorgement damages in a way which resembles the ‘almost punitive’ steps of disgorgement damages. Thus, taking to heart the modifications introduced by Art. 5 of the enforcement decree to Art. 158 l.a.,⁴⁹ the Cassazione has established that the victim of the illicit conduct, above and beyond the traditional techniques of quantification (such as the price of consent, the dilution of the image, and moral damage), could be offered the opportunity to obtain compensation adequate, on one hand, to simplify the critical issues related to the determination of the amount of restitution and, on the other hand, to overcome the risks implicit in the traditional concept that the perpetrator of the illegal act is required to compensate the victim only for the damage caused to him.

This position was confirmed a few months later when the Supreme Court – addressing a controversy about the quantification of damages for infringement of copyright⁵⁰ – returned to pronounce in favor of the employment of disgorgement damages (to address the critical issues implicit in the so-called hypothesis of enrichment by illicit means).⁵¹ Pursuing the objective of “preventing the illegal user from obtaining advantage from his illicit conduct, withholding the profits in the place of the holder of the legitimate right of appropriation”, the Court seems to have marked a decisive rehabilitation in a multi-functional sense of the remedial system (a perspective too often sacrificed on the altar of the systematic guaranteed coherence of the most moderate function of compensation) “bending the institution of compensation for damages to perform a partly sanctioning function, (…), rather than compensation for the loss of assets”.⁵²

In this context, the novelty is not of slight moment: the idea, first simply foreshadowed in theory (and, successively, validated, if only tangentially, by the legislature), that the range of relevant remedies available could extend, on the basis of suggestions arising from the experience of the common law, as far as to include restitution of the illicit profits, would appear to have been validated by the Supreme Court.⁵³ This implies that compensation with a nuance of punishment and sanction no longer constitutes a chimera.⁵⁴ Naturally, taking a critical stance, one can reply that the reference to the profits of the perpetrator of the illicit action represents a mere proxy in support of an attitude which is problematic to define. The fact is that, faced with an injury which is impalpable or of limited dimensions, one can proceed to measure the more evident advantage accruing to the infringer of the right: going beyond interpretative contortions, this is in fact the logic of private punishment, or, if you will, of punitive damages and ‘disgorgement damages’.

Nevertheless, the need/demand to assure systematic coherence requires a drastic change in approach to the matter of reparation for damages, rediscovering (and fortifying) its multi-functional character, permanently rooted in its DNA but, in the last half-century, overshadowed by the predominance of compensation.

It therefore appears evident that the cases just examined constitute a first important step in the direction of legitimizing an approach different from the merely compensatory; nevertheless, only future developments will permit to ascertain whether the Italian juridical landscape is really mature enough to develop a coherent theory of disgorgement damages capable of envisaging remedial instruments (encompassing punishment and sanction) capable of assuming the legal response roles which in the common law are occupied by disgorgement damages.