From Injunction to Damages: Strategic Insights from the UPC’s First Substantive Damages Decision

From Injunction to Damages: Strategic Insights from the UPC’s First Substantive Damages Decision

— Case Note on UPC_CFI_274/2023 (Fives ECL v. REEL GmbH)

As the Unified Patent Court (UPC) gradually moves into the phase of adjudicating damages on the merits, its judicial practice is shifting from an early focus on injunctive relief towards the far more complex questions of damages calculation. On 11 February 2026, the Hamburg Local Division of the UPC issued its decision in UPC_CFI_274/2023 (Fives ECL v. REEL GmbH), widely regarded as one of the first landmark substantive damages decisions of the UPC.

The case not only concerns the evidentiary standard for lost profits but also addresses several precedent-setting issues, including UPC jurisdiction, applicable law, and the methodology for calculating damages. It therefore provides important guidance for future UPC damages litigation.

1. Why Did the UPC Have Jurisdiction?

Before addressing damages on the merits, the case first involved an important dispute regarding UPC jurisdiction.

The proceedings originated in an infringement action before the Düsseldorf Regional Court, which had already found that REEL infringed Fives ECL’s European patent and confirmed that REEL was, in principle, liable for damages. However, the specific amount of damages had not yet been determined.

Following the entry into operation of the UPC, Fives chose to bring the damages quantification proceedings before the Hamburg Local Division of the UPC.

REEL raised a procedural objection, arguing that since a national court had already adjudicated the infringement case, the UPC lacked jurisdiction to take over the subsequent damages proceedings. The Hamburg Local Division initially upheld this objection and found that it lacked jurisdiction.

However, on 16 January 2025, the UPC Court of Appeal overturned that decision.

The Court of Appeal held that Article 32 of the UPCA confers jurisdiction on the UPC over claims for damages resulting from patent infringement, and that the determination of the amount of damages is itself an integral part of such a claim. Accordingly, even where liability has already been established by a national court, the UPC retains jurisdiction as long as the amount of damages has not yet been finally determined.

The Court of Appeal emphasized in particular that:

• National courts resolve the issue of “liability” (whether damages must be paid);
• The UPC addresses the issue of “quantum” (the amount of damages to be paid).

Although these issues are related, they do not constitute the same claim. This decision effectively confirms the UPC’s role as a “one-stop shop” for patent litigation and provides important guidance for the interaction between national courts and the UPC.

2. Applicable Law: UPCA or German Law?

After confirming jurisdiction, the Court faced the first substantive question: should Article 68 UPCA apply, or German domestic damages law?

Fives argued for the application of the broader and more flexible damages regime under the UPCA, whereas REEL contended that German law should apply. The Hamburg Local Division ultimately sided with REEL.

The Court reasoned that:

• The alleged infringing acts occurred between 2016 and 2017;
• All relevant conduct was completed before 1 June 2023, the date on which the UPCA entered into force;
• The principle of non-retroactivity therefore applies.

The Court held that when parties engaged in the relevant commercial conduct, their risk assessment was based on the legal framework applicable at that time. It would therefore be inappropriate to impose additional legal consequences that were not foreseeable at the time due to the subsequent entry into force of the UPCA.

At the same time, the Court noted that both German damages law and Article 68 UPCA are based on the Enforcement Directive (Directive 2004/48/EC, IPRED). As such, even if the UPCA had been applied, the outcome might not have differed substantially. This observation leaves room for future development of UPC damages law.

3. Causation Obstacles in Lost Profits Claims

The central issue in the case was whether the €6.5 million loss of profits claimed by Fives had a sufficiently strong causal link to the alleged infringement.

Fives’ argument was straightforward: REEL submitted an infringing bid in the Alba project tender in Bahrain; this forced Fives to lower its own bid; and the resulting price reduction caused a loss of €6.5 million.

The Court did not accept this reasoning.

1. The Customer Would Have Sought Competing Bids in Any Event

The Court found that, given the tender process and project background, the customer would have requested multiple competing bids even in the absence of any infringing offer. In other words, competitive pressure objectively existed. It could not simply be assumed that, without the infringing bid, Fives would have secured the contract at its original price.

2. Existence of Realistic Non-Infringing Alternatives

REEL further demonstrated that it could have employed a so-called “Pavlodar model” as a non-infringing alternative. Although this solution was more costly than the infringing one, it was still cheaper than Fives’ initial offer. The Court found that this significantly weakened Fives’ argument that the infringement directly caused its price reduction. Even in the absence of infringing products, Fives might not have maintained its original profit level.

3. Lack of Justification for the €6.5 Million Price Reduction

The Court specifically criticized Fives for failing to adequately explain:

• How the price reduction was calculated;
• Why a reduction of €6.5 million was necessary;
• What objective connection existed between this figure and actual market conditions.

In particular, following the restart of the tender, Fives was in a relatively strong competitive position. Against this background, such a substantial price reduction appeared commercially insufficiently justified.

Ultimately, the Court concluded that Fives had failed to establish its claimed loss of profits with sufficient probability. The damages claim was therefore rejected in its entirety.

4. Strategic Significance: The “High Evidentiary Threshold” Era of UPC Damages Litigation

Although at first glance the case appears to be merely a failed damages claim, the judicial signals it sends are of considerable strategic importance.

1. Lost Profits Remain the Most Difficult Route

German law traditionally recognizes three methods of calculating damages:

• Lost profits of the right holder;
• Profits of the infringer;
• Reasonable royalty.

This case shows that even where infringement has been established, claims for lost profits require strict proof, including:

• The customer’s decision-making process;
• The competitive market structure;
• The availability of alternative products;
• The pricing mechanism;
• The logic used to calculate the loss.

The evidentiary burden is extremely high.

2. The Growing Role of the “Non-Infringing Alternative” Defence

This case aligns closely with recent case law of the German Federal Court of Justice (BGH). In line with the Court’s reasoning in X ZR 104/22 (“Verdampfungstrockneranlage”), although an infringer cannot fully escape liability by arguing it could have acted lawfully, courts will carefully assess the availability of realistic non-infringing alternatives when evaluating the probability of lost profits. This suggests that in future UPC damages litigation, analysis of alternative solutions will become a key element in assessing causation.

3. Insufficient Use of Alternative Damages Theories

From a litigation strategy perspective, one of the main shortcomings of the case was that both parties largely confined the dispute to the single theory of “price erosion leading to lost profits.” They failed to fully leverage other damages tools available under Article 68 UPCA, such as:

• Infringer’s profits;
• Reasonable royalties;
• Loss of after-sales or maintenance revenues;
• Profits from consumables;
• Springboard profits.

This is why many commentators consider the case to have been argued on an overly narrow basis.

5. Future Development of Article 68 UPCA

Although the present case was decided under German law, Article 68 UPCA provides important guidance for the future development of damages litigation.

1. The Principle That the Infringer Must Not Benefit

Article 68(2) UPCA explicitly provides: “The infringer shall not benefit from the infringement.” This reflects a clear policy objective: damages should not only compensate losses but also ensure that infringement is not a profitable business strategy.

In the future, the UPC may rely on this principle to more actively support claims for:

• Disgorgement of unjust profits;
• Market entry benefits;
• Customer relationship advantages;
• Springboard profits.

2. Compensation for Non-Economic Harm

Article 68(3)(a) UPCA allows courts to consider non-economic harm. In patent cases, this remains a relatively new area but opens the door to claims where infringement has significantly damaged a brand’s reputation or its position as an innovator in niche markets.

3. The “At Least a Royalty” Concept

Article 68(3)(b) UPCA provides that damages may be calculated on the basis of a hypothetical royalty and that the amount shall be “at least” the royalty that would have been payable. This wording has sparked significant debate. Many commentators believe that the UPC may, in certain circumstances, apply an uplift to standard royalty rates to ensure that infringers do not bear the same costs as legitimate licensees.

6. Practical Guidance for Patentees

The Fives ECL case provides several important lessons for future UPC damages litigation and for rights holders in general:

1. Causation Remains Central

If choosing to claim lost profits, claimants must be able to accurately reconstruct the hypothetical commercial scenario “but for” the infringement. They must also anticipate and address arguments based on non-infringing alternatives.

2. Early Use of Disclosure Procedures (“Laying Open of Books”)

Claimants should make full use of UPC Rules of Procedure 141–144 by requesting disclosure of:

• Sales volumes;
• Profit margins;
• Cost structures;
• Service revenues.

This creates a solid evidentiary basis for damages calculations.

3. Prioritising the Infringer’s Profits Approach

In both German and UPC practice, recovery based on the infringer’s profits is often more practical than lost profits. Its key advantage is that it does not require proof that the right holder would certainly have obtained the relevant business.

4. Early Use of Information Rights

By relying on the information rights under Article 8 of the Enforcement Directive (IPRED), claimants can obtain key data—such as scope of infringement, customer information, and sales figures—even before liability has been finally determined. This can significantly facilitate subsequent damages calculations and interim awards.

Conclusion

Although Fives ECL v. REEL was decided under German law, its underlying reasoning is likely to influence the future direction of UPC damages litigation. The case demonstrates that, in the UPC era, relying solely on traditional arguments based on price erosion and lost profits will often fail to meet the Court’s high standards for proving causation and quantum.

Going forward, rights holders should make more proactive and strategic use of the diverse damages tools available under Article 68 UPCA—including infringer’s profits, reasonable royalties, ancillary revenue streams, and springboard profits—in order to build more comprehensive and resilient damages claims.