Answer to Shareholder’s question raised outside the General Meeting

Thursday, 19 September, 2019
29/2019

The Management Board of KGHM Polska Miedź S.A. hereby provides an answer to the question raised outside the General Meeting by the Shareholder Gmina Miejska Lubin, represented by the President of the City of Lubin in a letter dated 17 July 2019, supplemented in a letter dated 21 August 2019. The answer was provided on the basis of art. 428 § 6 of the Commercial Partnerships and Companies Code. 

Question:

Is it true that KGHM Polska Miedź S.A. or another entity of the KGHM group is obliged, as a result of court judgments, to pay outstanding royalties in the amount of around PLN 55 million to current or former employees for the use by the Company of invention projects or so-called “innovation concepts”?

Answer:

KGHM Polska Miedź S.A. executed the binding judgment of the Court of Appeal in Wrocław dated 12 June 2019 (Signature I ACa 205/19) on 18-19 June 2019 and paid the amount of approx. PLN 55 million, including due to a partially maintained claim of approx. PLN 24 million, which represents 56% of the claim pursued by the plaintiffs and due to interest in the amount of approx. PLN 31 million.

Following the analysis, the Company decided to file a cassation appeal and paid the appropriate court fee.

The Company presents the following information on the course of the disputed issue, as published in previous reports:

On 26 September 2007, Plaintiffs (14 natural persons) filed a claim against KGHM Polska Miedź S.A. (the Company) with the Regional Court in Legnica for the payment of royalties for the use by the Company of invention project no. 1/97/KGHM called „Sposób zwiększenia zdolności produkcyjnej wydziałów elektrorafinacji Huty Miedzi” (Method for increasing the production capacity of the electrorefining sections of the Metallurgical Plants) for the 8th period of the application, together with interest due. The amount of the claim (principal amount) was set by the Plaintiffs in the claim in the amount of around PLN 42 million (principal amount without interest and court costs). Interest as at 31 March 2019 amounted to around PLN 55 million. In the response to the claim, KGHM Polska Miedź S.A. requested the dismissal of the claim in its entirety and filed a counterclaim for the return of undue royalties paid for the 6th and 7th periods of application of invention project no. 1/97/KGHM, together with interest due, also invoking the right of mutual set-off of claims. The amount of the claim (principal amount) in the counterclaim was set by the Company in the amount of approx. PLN 25 million.

In accordance with the Company’s position, the counterclaim is justified. The Company in this regard paid the authors of the project royalties for a longer period of application of the project than anticipated in the initial contract entered into by the parties on advancing the invention project, based on an annex to the contract, extending the period of payment of royalties, whose validity is questioned by the Company. Moreover, the Company is questioning the “rationalisation” nature of the solutions, as well as whether they were in fact used in their entirety, and also their completeness and suitability for use in the form supplied by the Plaintiffs as well as the means of calculating the economic effects of this solution, which were the basis for paying the royalties.

In a judgment dated 25 September 2018, the court dismissed the counterclaim and partially upheld the principal claim to the total amount of approx. PLN 24 million, and at the same time ordered the payment of interest in the amount of approx. PLN 30 million, for the total amount of PLN 54 million. Both sides of the proceedings filed appeals to the judgment.

In a judgment dated 12 June 2019, the Court of Appeal in Wrocław (Signature I ACa 205/19) dismissed the appeals of both sides, altering the judgment of the court of first instance solely in the matter of the resolution of court costs from the hearings at the court of first instance and charging them to KGHM Polska Miedź S.A. The judgment is binding and was executed by KGHM on 18-19 June 2019.

Legal basis: § 19 sec. 1 point 12 of the Decree of the Minister of Finance dated 29 March 2018 on current and periodic information published by issuers of securities and conditions for recognising as equivalent information required by the laws of a non-member state (Journal of Laws of 2018, item 757)

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