LawFlash

Recent Japanese IP High Court Ruling May Increase Future Patent Damages Awards

August 20, 2019

A grand panel of the Japanese Intellectual Property High Court recently clarified the criteria for calculating damages awards in Japanese patent infringement cases in a manner that is favorable to plaintiff patentees. This ruling indicates that the court may be moving in a direction that is consistent with the recent revisions to the Japanese Patent Act, which intends to increase potential damages awards and thus strengthen the patent litigation system in Japan.

As we reported in our previous LawFlash, the May 2019 revisions to the Japanese Patent Act (JPA) aim to make the Japanese system more patentee friendly. Shortly after the revisions were approved by the Japanese Diet, a grand panel of the Japanese Intellectual Property High Court issued an important decision with respect to methodologies for damages calculations under the JPA on June 7. This ruling is generally favorable to plaintiff patentees and is expected to have an impact on further increasing damages awards in future patent infringement litigation cases in Japan.

Damages Calculation Methodologies Under Japanese Patent Act

In order to seek damages in patent infringement litigation in Japan, the plaintiff patentee must show the amount of damages caused by the infringing activities of the defendant infringer. However, in general, proving such amount is not easy. Thus, Article 102 of the JPA provides several tools to mitigate such burden of proof. The decision clarified the criteria to be applied in calculating damages awards under Articles 102(2) and 102(3). These clarifications are favorable to plaintiff patentees.

Court Ruling on Damages Calculation Under Article 102(2)

The first ruling in the decision relates to the damages calculation (infringer’s profit) under Article 102(2) of the JPA. Article 102(2) provides that where a patentee or an exclusive licensee makes a claim against an infringer for compensation for damages sustained as a result of the intentional or negligent infringement of the patent right or exclusive license, and the infringer profited from such infringement, the amount of profits earned by the infringer is presumed to be the amount of damages sustained by the patentee or exclusive licensee.

The decision first concluded that, in principle, the damages amount under Article 102(2) is the full amount of profits earned by the infringer from its infringing activities. However, if the infringer can show that all or part of its profits do not causally arise out of the damages the patentee suffered, then the presumption under Article 102(2) can be rebutted to the extent of such showing. In the decision, the court gave several examples of factors that might be used to rebut the presumption:

  • A difference in the business (market) between the patentee and the infringer
  • The existence of competing products in the market
  • The infringer’s sales efforts (brand strength and advertisements)
  • The performance of the infringing products

Importantly, the court stated that, although the fact that the patented invention is used only in part of the infringing product may be taken into consideration, such fact by itself does not necessarily result in rebutting the presumption. Rather, the court stated that all relevant factors, including what portion of the patented invention is used in the infringing product and the role of the patented invention in making the infringing product attractive to customers, must be considered to conclude whether the presumption is rebutted.

In the case under consideration, the court found that by applying the rule, the infringer failed to rebut the Article 102(2) presumption and thus awarded the plaintiff patentee a damages amount calculated as the full amount of profits the infringer earned from its infringing activities.

The decision shows that the “full amount of profits” can be awarded under Article 102(2) unless the infringer successfully rebuts the presumption—a judicial position that is generally favorable to plaintiff patentees.

Court Ruling on Damages Calculation Under Article 102(3)

The second ruling in the decision relates to the damages calculation (reasonable royalty) under Article 102(3) of the JPA. Article 102(3) provides that a patentee or an exclusive licensee may make a claim against an infringer for compensation for damages sustained as a result of the intentional or negligent infringement of the patent right or exclusive license, by treating the amount the patentee or exclusive licensee would have been entitled to receive for the working of the patented invention as the amount of damages sustained (reasonable royalty).

The decision first noted that the damages amount under Article 102(3) is not necessarily required to be determined based on the agreed royalty rate in the licensing agreement for the asserted patent and that the royalty rate to be used in calculating damages in a litigation setting should be higher than a royalty rate agreed in a commercial setting. Then, the court listed factors to be considered in determining the appropriate royalty rate to be used in calculating the damages amount under Article 102(3):

  • The actual agreed royalty rate in the licensing agreement for the asserted patent, or the then-prevailing market trends for such royalty rate in the relevant technical field
  • The technical value of the patented invention
  • How the patented invention contributes to the sales of the infringing product and the resulting profits, and how the asserted patent or patents were infringed
  • The competitive relationship between the patentee and the infringer, and the business strategies of the patentee

In the case under consideration, the court found that by applying the rule, the royalty rate to be used in calculating the damages amount under Article 102(3) was no less than 10%, which was higher than the average royalty rate (5.3%) calculated based on the results of questionnaires obtained from participants in the relevant technical field.

The decision clarifies that the royalty rate used to calculate damages amounts in a litigation setting should be higher than the rate agreed as a result of a licensing negotiation in a commercial setting—another judicial position that is generally favorable to plaintiff patentees.

The Intellectual Property High Court’s decision, combined with the 2019 revisions to the JPA, will likely further promote Japan as a more patentee-friendly jurisdiction.

Contacts

If you would like more information on our Japan intellectual property practice, please contact any of the following Morgan Lewis lawyers:

Tokyo
Moto Araki
Jitsuro Morishita 

Philadelphia
Eric Kraeutler

Silicon Valley
Jason E. Gettleman
Michael J. Lyons

Washington, DC
Robert J. Gaybrick
Janice H. Logan, Ph.D.
Robert Smyth, Ph.D.