February 24, 2014
Corporate Counsel
Authored by Ming-Tao Yang and Masayuki Yamanouchi
The patent-damages landscape in Japan went through several important changes last year. Patentees now have additional bases to seek lost-profit damages and need not prove exploitation of patented inventions in Japan. Separately, a US$3 million-plus damages award to an individual inventor suggests not only increased damages prospects, but also liberal application of the entire-market-value rule, making the market demand for a patented feature, an established requirement in the United States for applying this rule, less relevant. Due to these developments, companies holding Japanese patent rights can now leverage these changes to strengthen their bargaining and litigation positions.
In seeking damages in Japan for patent infringement, patentees must prove (after proving patent infringement): (1) the defendant's intent or negligence; (2) the causal relationship between the infringing act and damages; and (3) the amount of damages. The required intent or negligence, however, is presumed under Article 103 of Japan's Patent Act, and the causation requirement is similarly nominal after a patentee has proved infringement. As to proving the amount of damages, Article 102 of Japan's Patent Act enables patentees to pursue (a) lost profits based on patentees' profit margin; (b) lost profits based on the accused infringers' profits; or (c) reasonable royalty if actual damages are not established.
A foreign patentee-company that sells no patent-practicing product in Japan, but nevertheless has a customer-distributor that does sell such a product, can still seek lost profits based on the infringer's profits. Because the holding came from the Grand Panel of the Intellectual Property High Court, it is virtually binding on district courts as a decision from the patent appeals court. Removing the requirement of practicing the patented invention in Japan, as illustrated in the decision, can mean increasing the damages by over seven times.
Sangenic International Ltd., a U.K. company that sold its patent-practicing products to its distributor in Japan, sued Aprica Children's Products Inc. for infringing Sangenic's Japanese patent. (Intellectual Property High Court Case No. 2012 (Ne) 10015; decision rendered February 1, 2013). Aprica is a Japanese company that allegedly imported infringing products and sold them in Japan. The Tokyo District Court found infringement, but limited its damages award to about US$180,000 in reasonable royalties, reasoning that Sangenic is not entitled to lost profits because it did not practice the patented invention in Japan.
On appeal, however, the Intellectual Property High Court concluded that Article 102(2) does not require a patentee to practice the patented invention in Japan. Instead, because Aprica was a competitor of Sangenic's distributor, Aprica's infringing act decreased Sangenic's sales to its Japanese distributor, causing Sangenic to lose its sales and profits. The Intellectual Property High Court, therefore, increased the damages award by more than seven times to over US$1.3 million, which is computed based on the profits Aprica made in Japan.
Patentees that do not manufacture or market patented products in Japan can still increase their damages prospects under the lost-profit provision (and presumption) of Article 102(2). The burden to rebut the presumption, therefore, rests on the accused infringer, who may submit evidence such as the existence of noninfringing substitutes or the lack of patentees' manufacturing or marketing capability.
The presumption and burden shifting differ significantly from the norm in the United States. A patentee seeking lost-profit damages in the United States must establish causation under Panduit by showing (1) a demand for the patented product; (2) an absence of acceptable noninfringing substitutes; (3) the manufacturing and marketing capability to exploit the demand; and (4) the amount of profit he would have made. (Panduit Corp. v. Stalin Bros. Fibre Works, Inc., 575 F.2d 1152, 1156 [6th Cir. 1978]). In contrast, a patentee seeking lost-profit damages in Japan has fewer hurdles under Article 102(2), because (i) the patentee can rely on the presumed causation and need not prove any of the Panduit factors; and (ii) after the Intellectual Property High Court judgment, practicing the patent at issue in Japan is no longer required.
The Tokyo District Court recently awarded an individual inventor over US$3 million damages for patent infringement by Apple Japan. (Tokyo District Court Case Nos. 2007(Wa) 2525 and 6312, decision rendered September 26, 2013). The Court's reasoning suggests the ease in computing reasonable-royalty damages based on the sales price of the end products, despite that the patent-in-suit relates only to a click-wheel component. In the United States, a patentee must prove that the patented feature drives the consumer demand for accused products before computing damages based on the entire market value of the end product (rather than the market value of a smaller, much less expensive component incorporating the patented feature). (Lucent Techs, Inc. v. Gateway, Inc., 580 F.3d 1301 (Fed Cir. 2009); Laser Dynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51 [Fed. Cir. 2012]). In Japan, however, a patentee can seek reasonable-royalty damages based on the entire market value of infringing products, whether the patented feature drives customer demand or not.
In this recent decision, the Tokyo District Court proceeded to determine damages based on reasonable royalty damages after finding the asserted patent valid and infringed. In doing so, the Court rejected Apple Japan's argument that the reasonable royalty should be calculated based on the price of click wheels, in part because of insufficient evidence regarding the price of click wheels. The Court also required no evidence of consumer demand before determining reasonable royalty using the overall sales (i.e., the entire market value) of the accused iPod products. The Court, however, did consider the degree in which the patented invention contributed to the sales of the accused products. The Court found that the degree was not high, because technologies other than the patented feature, rather than the patented feature itself, contributed to the technological advancements in the accused products. (Exact royalty rate and total sales are not available due to the Court's protective order.)
The Tokyo District Court's decision suggests that the entire-market-value rule applies whether the patented feature drives the consumer demand for the end product or not. Rather than fighting against the entire-market-value rule, an accused infringer should consider relying more on Japanese courts' broad discretion in discounting reasonable royalty rates by submitting additional evidence. The burden, however, is on the accused infringers to submit evidence regarding the prices of the components incorporating the patented feature and the lack of contribution from the patented feature in driving the sales of infringing products.
Recent developments in Japan have eased the requirements for seeking lost-profit damages and demonstrated liberal application of the entire-market-value rule in awarding damages-based reasonable royalties. Foreign patentees can also seek lost profit damages without having to prove that they practice their patents in Japan. Companies involved in patent litigation in Japan, therefore, should coordinate their global IP enforcement and defensive strategies with the understanding that stricter rules, such as those from the like of the Panduit, Lucent and Laser Dynamic cases in the United States, don't apply. While the burden of proving damages still falls on patentees, accused infringers do shoulder the burden of submitting sufficient rebuttal evidence, such as evidence to establish the lack of contribution from patented features, the lower and relevant prices of smaller sellable components incorporating the patented features, and the lack of causal relationship between the infringing act and damages.
Reprinted with permission from the February 24, 2014 edition of the Corporate Counsel © 2014 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, reprints@alm.com or visit www.almreprints.com. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
June 10-12, 2024
San Francisco
Lecture
Patent Protection for Software-Related Inventions in Europe and the USA Training Course
June 5, 2024
Hybrid
Workshop
Life Sciences Workshop: Updates and Key Trends in Pharmaceutical and Biotechnology IP Law
May 2, 2024
Cambridge
Due to international data regulations, we’ve updated our privacy policy. Click here to read our privacy policy in full.
We use cookies on this website to provide you with the best user experience. By accepting cookies, you agree to our use of cookies. Please note that if you opt not to accept or if you disable cookies, the “Your Finnegan” feature on this website will be disabled as well. For more information on how we use cookies, please see our Privacy Policy.
Finnegan is thrilled to announce the launch of our new blog, Ad Law Buzz, devoted solely to breaking news, developments, trends, and analysis in advertising law.