Criteria for Determining an Amount of Damages: the “Carbon dioxide-containing viscous composition” Case
July 11, 2019
June 7, 2019
Case 2018 (ne) No. 10063: Lawsuit seeking an injunction et al. against patent infringement (IP High Court Grand Panel case)
The Patent Law of Japan stipulates that damages attributable to patent infringement may be presumed based on one of the following criteria.
Art. 102(1): (Number of products assigned) × (amount of profit per unit of product that would have been sold by the patentee if there had been no infringement), up to the maximum amount actually attainable by the patentee
Art. 102(2): Amount of profit earned by the infringer
Art. 102(3): Amount corresponding to license fees
In this Grand Panel case, the criteria for determining damages under Articles 102(2) and (3) of the Patent Law, which previously had been somewhat indeterminate, were clarified.
This case was an appeal case resulting from infringement litigation filed by the proprietor of two patents (Japanese Patent Nos. 4659980 and 4912492). In the first instance, the court ruled that there had been infringement and the defendants were held liable for the damages, against which ruling the defendants filed an appeal.
The patents owned by the appellee (plaintiff of the first instance) are directed to kits for a carbon dioxide-containing viscous composition which can generate carbon dioxide from a carbonate and an acid in a composition containing sodium alginate, and maintain the carbon dioxide in bubble form. By maintaining the carbon dioxide in bubble form for a certain period of time, the carbon dioxide can be efficiently absorbed into subcutaneous tissue and the like. In contrast, the appellants (defendants of the first instance) were manufacturing and selling carbon dioxide-containing gel as a cosmetic pack product.
The main issues deliberated at the appeal included the criteria for determining the damages under Article 102(2) of the Patent Law—as well as under Article 102(3) of the Patent Law, which was the basis for a secondary claim—in addition to the issue of infringement and the validity of the patents. In the Decision that was handed down, the Grand Panel ruled as outlined below.
Regarding the meaning of “profit” under Article 102(2), and regarding “expenses to be deducted”
It should be understood that the amount of profit earned by the infringer by way of infringement as set forth in Article 102(2) of the Patent Law is an amount of marginal profit obtained by deducting the expenses required directly in connection with the manufacture and sale of the infringing goods upon manufacturing or selling the infringing goods, from the sale of the infringing goods, the burden of assertion and proof thereof being on the patentee.
…The expenses to be deducted are those additionally required directly in connection with the manufacture and sale of the infringing goods, including, for example, costs for raw materials, purchasing expenses, and shipping expenses. However, labor costs for administrative staff, transportation/communication expenses, and the like are generally not considered to be expenses required directly in connection with the manufacture and sale of the infringing goods.
As outlined above, the court ruled that “profit” under Article 102(2) of the Patent Law refers to “marginal profit” and partially dismissed the appellants’ arguments regarding the expenses to be deducted, such as labor costs related to Research and Development, advertising expenses and transportation expenses, for not falling under expenses required directly in connection with manufacture and sale of the infringing goods.
Reversal of presumption under Article 102(2) of the Patent Law
Grounds for the reversal of presumption under Article 102(2) of the Patent Law include cases that negate causality between the profit earned by the infringer and the damages suffered by the patentee, and the burden of assertion and proof thereof is on the infringer, similarly to the circumstances set forth in the proviso to Article 102(1). For instance, it is understood that the following circumstances may be taken into account in the case of Article 102(2), similarly to the proviso to Article 102(1).
i) Differences in business configuration (disparity of market)
ii) Presence of competing goods in the market
iii) Sales efforts by the infringer (branding ability, advertisements)
iv) Qualities of the infringing goods (features such as functions, design or the like not seen in the patented invention)
The court ruled as outlined above, and concluded that the circumstances presented by the appellants (such as existence of numerous competing goods, their sales efforts and strategies, and the fact that the products of the appellants are embodiments of a patented invention owned by one of the appellants) are not proper grounds for the reversal of presumption.
Regarding Article 102(3) of the Patent Law
The stipulation in Article 102(3) of the Patent Law that "the amount that the patentee or exclusive licensee would have been entitled to receive for the working of the patented invention" was, prior to amendment by Act No. 51 of 1998, stipulated as "the amount that the patentee or exclusive licensee would generally have been entitled to receive for the working of the patented invention". The term "generally" was deleted by the amendment as it allowed for an interpretation whereby an infringer could benefit from infringement.
In the case of a licensing agreement for a patented invention, the license fee is normally determined in advance under circumstances subject to numerous restrictions; for example, the licensee pays a guaranteed minimum at a stage at which it is unknown whether or not the product or the like falls under the technical scope of the patent or whether or not the patent is susceptible to invalidation, and the licensee cannot request reimbursement of fees that have already been paid even if the patent is subsequently invalidated. However, in infringement cases in which it is ruled that the product falls under the technical scope of the patent, that the patent is not subject to invalidation and, therefore, that there has been infringement, there are no such contractual restrictions on an infringer. Further, in light of the above amendment of the Patent Law, determination of the amount of damages under Article 102(3) does not necessarily need to be based on the license fee that would be determined in the case of a licensing agreement for the patent. Rather, it should be noted that the rate that a patentee should receive for the working of a patented invention would naturally be higher than the general rate for a license fee.
Therefore, the fee to be received for the working of a patented invention should be reasonably and comprehensively determined, based on:
i) consideration of the license fee for an actual license agreement for the patented invention or, if this is indeterminate, the market rate thereof,
ii) the value of the patented invention; for example, the technique or importance of the patented invention, or replaceability with other goods,
iii) contribution to sales and profits if the patented invention is used for the product, and the manner of infringement, and
iv) other circumstances relevant to the suit such as rivalry between the patentee and the infringer, and sales policies.
The court ruled as outlined above, and concluded that, while the average rate of license fees is 5.3% according to a domestic questionnaire, and is 6.1% according to judicial decisions, the rate of the license fee does not fall below 10% in the instant case in view of circumstances such as the fact that in a different case of infringement of another patent in the same field owned by one of the appellants, the settlement fee was 10% of sales.
Summary prepared by Yuko Miyazawa, International Information Group
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