In Brazil, civil liability is advancing, but not as much as is necessary. We persist in the misconception of the purely compensatory paradigm, under which the only factor assessed when a tort is committed is the pecuniary and moral damages suffered by the victim. This is the lesson of Article 944 of the Civil Code: “Compensation is measured by the extent of the damage.” However, beyond the compensation for damages, a tort gives rise to other effects: the prevention of unlawful conduct, punishment for reprehensible behavior, and the forfeiture of unlawfully obtained profits. In pluralistic societies, civil law must act more effectively in response to the proliferation of unlawful acts. This will only be possible when civil liability is reexamined from a multifunctional perspective, in which the legal system is not restricted to the objective of restoring victims to the status quo (which is a fiction!), but rather begins to assess aspects related to the activities carried out by the parties, defining each function of civil liability based on objective and reasonable criteria.
Some would argue that it is possible for the Brazilian judiciary to impose penalties that deprive the offender of illicit gains, even contrary to the provisions of Article 944 of the Civil Code. This would be done through the application of so-called “functional equivalents”: moral damage, unjust enrichment, class actions, administrative sanctions, or—in the context that concerns us here—multiple compensatory awards.
With regard to multiple compensatory damages, the recent Law 14.470/22 amends Law 12.529/11, stipulating that victims of violations of the economic order shall be compensated in double the amount. This so-called “double damages” serves as a strong deterrent against unlawful conduct. As Bruno Maggi explains in the Migalhas de Responsabilidade Civil column of November 24, 2022, private enforcement of competition-related damages is essential to complement the government’s efforts to punish violators, making the unlawful act financially unviable, insofar as the violator must return the profits obtained from the unlawful act, plus a government fine. There are potential gains stemming from the fact that the government’s detection rate for violations is less than 100% and that few victims seek compensation for their damages. Thus, the implementation of double damages levels the playing field.
Taking advantage of this new Brazilian legislation, brief consideration should be given to the sui generis model of enhanced damages. Are extra-compensatory damages a variation of punitive damages? There are no established standards explaining the rationale and purpose underlying this remedy, but only the fact that their quantification is tied to compensatory damages—which, at first glance, seems unusual, since the combination of compensation and punishment appears contradictory in light of the evolution of civil liability toward the separation of its functions.1
The need to clarify this apparent paradox also poses a challenge for Brazilian legal doctrine. For example, Articles 9392 and 9403 of the Civil Code address sanctions against creditors who file lawsuits against their debtors before the debt is due or after it has already been paid. Among these sanctions, the debtor’s right to claim double the amount demanded stands out. If there was justifiable mistake on the part of the plaintiff, the penalty is waived, insofar as the penalty of double the amount is justified only if the plaintiff’s malicious conduct is proven, lest this discourage the filing of lawsuits. Article 941 refers to the aforementioned sanctions as “penalties.” For this very reason, Pontes de Miranda4 argues that the possibility for a party harmed by an improper collection to seek supplementary damages reveals “a private penalty, with a presumption of fault”5. Would it be possible to combine the sanction under Articles 939 and 940 with a claim for damages for the losses the defendant demonstrates having suffered? Cláudio Godoy answers in the affirmative, emphasizing that the amounts provided for in those provisions constitute a true private penalty, and therefore, as a consequence, damages—which serve a different purpose—could always be combined, just as, incidentally, occurs in cases of litigation in bad faith under civil procedure law, where a fine and damages are awarded in favor of the innocent plaintiff.6
Furthermore, the sole paragraph of Article 42 of the Consumer Protection Code provides: “A consumer charged an undue amount is entitled to a refund of the overpayment, in an amount equal to twice the excess paid, plus monetary adjustment and statutory interest, except in cases of justifiable error.” By requiring the supplier to pay double the amounts collected out of court, the provision serves an essentially educational purpose, aimed at deterring the economic agent from repeating such an unlawful act. In the case illustrated, because the award objectively exceeds the limits strictly necessary to restore economic balance (“double the amount”), the punitive sanction is incidentally measured in a comparative quantitative analysis relative to the amount of restitution.7 However, it is essentially qualitatively indifferent with respect to this aspect—given its unique nature in terms of structure and purpose, as it constitutes retribution against the perpetrator of the violation, without taking into account the separate issue of undue payment.8
In the examples mentioned here, we have not addressed disgorgement. These scattered provisions can be grouped under “statutory private penalties,” just as a penalty clause is sometimes a “contractual penalty,” when agreed upon in such a way as to exceed the value of any potential losses and damages—and regardless of whether such losses and damages actually occur—thereby becoming a punitive sanction.
However, to better align with situations more common in comparative law, it is worth noting a compensatory multiplier based on case law, which involves a penalty for unauthorized use of software set at “ten times the market value of each program used unlawfully,” based on the premise that “The monetary penalty imposed on the offender is not limited to the market value of the seized programs” and that “civil liability, as a complex system involving a range of social purposes—which are not limited to a mere compensatory function—requires a punitive application that inherently incorporates not only a compensatory element but also a deterrent against the commission of the offense.”9 The STJ based its ruling on Article 102 of Law 9.610/1998: “The copyright owner whose work is fraudulently reproduced, distributed, or otherwise used may request the seizure of the reproduced copies or the suspension of distribution, without prejudice to the applicable damages.”
It can be said that the STJ applied to the field of intellectual property infringement what is known in the United States as “enhancing damages” or “supra-compensatory damages.” The Copyright Act provides in §504—Remedies for Infringement: Damages and Profits—the following options: a) the actual damages suffered by the plaintiff, plus any additional profits obtained by the infringer that were not taken into account in determining the damages; b) statutory damages, which may reach a maximum of $150,000 if the infringer’s willful misconduct is proven; c) if the defendant is the owner of a commercial establishment, without prejudice to the preceding alternatives, the plaintiff may obtain an additional award equal to twice the amount of the license fee that the owner of the establishment should have paid to the plaintiff for the use of the copyright during the preceding period of up to 3 years. In short, there is a combination of compensatory, restitutionary, and punitive damages.
Another persuasive U.S. example comes from § 284 of the Patent Act (35 U.S.C., 2007),10 which establishes a damages multiplier of triple the damages resulting from the wrongful act (treble damages). Calibrating the damages according to the defendant’s degree of disregard for the plaintiff’s rights aims to fulfill the purpose of the patent system: optimizing incentives for innovation. Furthermore, this approach is based on economic rationale, guided by a rebalancing of the market, given that most infringements will go undetected.11
Nevertheless, by creating a multiplicative remedy without a legislative basis that “appears” to be for losses and damages, the Superior Court of Justice implicitly applied punitive damages, thereby disregarding the fundamental requirement of statutory authorization. Exemplary damages are “private judicial penalties”; they stem from civil judgments and, in the civil law system, require legislative support, as they are sanctions that are formally private but materially criminal.12
Ultimately, the protection of intangible property would be more effective if the law itself already provided for a multiple of compensation (e.g., 3x, 5x, or 10x the value of the damage)—as did the recent Law 14.470/22 —as a form of punitive damages, preferably accompanied by objective criteria that would define the minimum and maximum limits of the award. As an alternative to the punitive sanction model, an interesting shift would be to replace the formula adopted by the Copyright Law13 with the model from the Industrial Property Code (Law 9.279/1996)14 —applicable to patents and trademarks—to establish that, in any form of infringement of intellectual property, greater autonomy would be granted to the plaintiff, in that the plaintiff may choose between classic damages, the stipulation of a fee for the unauthorized use of the asset (reasonable fee), or the disgorgement of illicit profits.15 This is the path to combining private enforcement with multifunctional civil liability.
Returning to the perspective of competition-related damages with the enactment of Law 14.470/22, which stipulates that victims of violations of the economic order shall be compensated in double, we recall the long history of U.S. sanctions against cartels. The United States imposes a diverse arsenal of sanctions against collusion:16 disgorgement for the companies involved, imprisonment, and fines for the corporate officers involved. Direct and indirect victims may sue for treble damages and attorneys’ fees. This multiplicity of sanctions has given rise to a strongly held—yet never seriously examined—conventional wisdom in the antitrust field that these sanctions are not only adequate to deter collusion but also excessive.
However, important empirical research17 shows that the combined level of current sanctions is only 9% to 21% higher than what is necessary to optimally protect potential victims of cartelization. Consequently, the average level of antitrust sanctions in the United States should be increased approximately fivefold. Corporations and individuals who engage in illegal collusion will be deterred only if the expected rewards are less than the expected costs, adjusted for the probability that the illegal activity will be detected and sanctioned. This means that, despite existing sanctions, collusion remains a rational business strategy. Cartel activity in the U.S. is a crime that still pays—and, in fact, pays very well. Imagine that in Brazil...
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- Rosenvald, Nelson. A responsabilidade civil pelo ilícito lucrativo. 2. Ed. Juspodivm, Salvador, 2020.
- “A creditor who sues the debtor before the debt is due—except in cases where the law permits it—shall be required to wait the remaining time until the due date, to deduct the corresponding interest, even if stipulated, and to pay double the court costs.”
- "Anyone who files a lawsuit for a debt that has already been paid, in whole or in part, without setting aside the amounts received or demanding more than is due, shall be required to pay the debtor, in the first case, double the amount collected, and, in the second, the equivalent of the amount demanded, unless the claim is barred by the statute of limitations.”
- PONTES DE MIRANDA, Francisco Cavalcanti. Tratado de direito privado, t. LIV, p. 47.
- STJ Bulletin No. 576. Period: February 5–19, 2016: “The application of the civil penalty of double payment for judicial collection of a debt already paid (a penalty set forth in Art. 1.531 of the Civil Code of 1916, reproduced in Article 940 of the Civil Code of 2002) may be invoked by the defendant in his or her own defense, regardless of whether a separate action is filed or a counterclaim is raised; however, it is essential to demonstrate the creditor’s bad faith. The penalty in question is a sanction that the law requires the court to impose; therefore, its application is not at the mercy of the litigants’ intentions nor the judge’s discretion, as it stems from the law. Furthermore, given the complementary nature of the civil sanction at issue and the procedural penalty for litigation in bad faith—even though they have distinct legal natures—it is evident that both are aimed at punishing plaintiffs who use the judicial process to achieve an illegal objective, making it consistent to interpret the rule set forth in the main provision of Article 18 of the CPC (“The judge or court, either on its own motion or upon request, shall order the litigant acting in bad faith to pay a fine not exceeding one percent of the value of the case and to compensate the opposing party for the damages it has suffered, plus attorneys’ fees and all expenses incurred”). In this vein, to safeguard good faith in legal relations and the public interest in ensuring the dignity of justice, it shall be incumbent upon the judge, including on his or her own motion, to order the plaintiff (acting in bad faith) to pay double the amount or the higher equivalent demanded as a result of the unlawful conduct described in Article 940 of the Civil Code of 2002" (REsp 1.111.270-PR, Reporting Justice Marco Buzzi, 2nd Section, DJe February 16, 2016).
- GODOY, Cláudio. Código civil comentado, São Paulo, Manole, p. 786.
- Rodrigo da Guia Silva considers that “the most appropriate legal treatment of the so-called ‘double restitution’ appears to be to divide this scenario into two distinct claims, according to their respective functions, such that the first part of the restitution follows the general regime for restitution of unjust enrichment (since it is a consequence traditionally attributed to undue payment), while the second part (‘double restitution’) is classified as an effective civil penalty.” In: Enriquecimento sem causa, p. 116.
- In commenting on the recovery of double the amount of the undue payment in cases of improper collection of a debt arising from a consumer relationship, Luiz Cláudio Carvalho de Almeida relates Article 42 of the Consumer Protection Code to the system of punitive damages —not because there is “damage” per se, but because the compensation is intended to sanction the offender. Civil damages may be used as a form of penalty provided there is a legal provision to that effect; “otherwise, one would be violating the fundamental principle of legality (nulla poena sine lege).” The consumer’s lost profit would be irrelevant in light of the social benefit brought about by the application of the law; after all, “to deny compensation in such cases, would be to impose on the consumer the burden of bearing the damages resulting from the error, which is inconsistent with the guiding principles of the Consumer Protection Code, among which the principles of vulnerability and trust stand out.” A repetição do indébito em dobro no caso de cobrança indevida de dívida oriunda de relação de consumo como hipótese de aplicação dos punitive damages no direito brasileiro, Revista de Direito do Consumidor, v. 54, p. 161-172, 2005.
- In the Superior Court of Justice, decisions were rendered along the same lines by the 3rd and 4th Panels. Bulletin No. 0463 Period: February 14–18, 2011. FOURTH PANEL COMPENSATION. INFRINGEMENT. SOFTWARE. COMPUTER. This is an action for damages combined with an injunction in which the plaintiff alleges that, in a preliminary injunction proceeding to secure evidence, it was demonstrated that the defendant was using, without a license, computer software owned by the plaintiff. The Panel, reiterating the case law of this Superior Court, held that the amount of damages must be ten times the market value of each of the programs that were improperly used. Mere payment by the infringer of the market value of each seized copy would not constitute adequate compensation for the damages resulting from the unauthorized use. If that were the case, the infringer would have to pay only the amount he would have spent had he used the software legally. Cited precedents: REsp 1.136.676-RS, DJe 6/29/2010; REsp 1.016.087-RS, DJe April 14, 2010, and REsp 1.122.687-RS, DJe September 14, 2010. REsp 1.185.943-RS, Reporting Justice Luis Felipe Salomão, decided on February 15, 2011.
- §284. “Damages Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court. When the damages are not found by a jury, the court shall assess them. In either event the court may increase the damages up to three times the amount found or assessed”.
- The Trademark Act follows a similar approach; its §35(b) allows for the imposition on a trademark infringer of a penalty equivalent to three times the amount of damages suffered by the owner of the infringed right.
- In a work we authored, we had the opportunity to write that “a civil penalty is a sanction of a criminal nature and function—despite being formally civil—that pursues objectives of general and special prevention. As an attribute of the principle of legality, the notion of typicality plays a systematic role, in the sense that a private sanction with preventive and repressive purposes—which entails general duties directed at the community—must be provided for by a rule, a norm that is as specific as possible. The formal classification of the civil penalty within private law is merely a starting point that cannot negate the criminal origin of the offense. Certainly, because it is a civil penalty, it will conform to the specific form and effects of private law, in accordance with the classification established by the legislature. For example, it is inconceivable that failure to comply with a civil monetary penalty could be converted into a custodial sentence.” (ROSENVALD, Nelson. As funções da responsabilidade civil, p. 190).
- Intellectual property refers to the set of exclusive rights granted to intellectual creations. It is divided into two branches: intellectual property, which includes inventions (patents), trademarks, industrial designs, and geographical indications; and copyright, which covers literary and artistic works.
- Art. 210. “Loss of profits shall be determined by the criterion most favorable to the aggrieved party, from among the following: I—the profits that the aggrieved party would have earned had the infringement not occurred; or II—the profits that were earned by the infringer; or III—the remuneration that the infringer would have paid to the holder of the infringed right for the grant of a license allowing the infringer to legally exploit the work.”
- This formula is also adopted by European Directive 2004/48.
- It represents a combination of provisions from three federal laws: the Sherman Antitrust Act, the Clayton Act, and the Federal Trade Commission Act. Furthermore, the Antitrust Division also relies on other laws to combat illegal activities arising from conduct that accompanies antitrust violations or that otherwise affects the competitive process,
- Connor, John M. and Connor, John M. and Lande, Robert H., Cartels as Rational Business Strategy: Crime Pays (November 1, 2012). 34 Cardozo Law Review 427 (2012), Available at SSRN.