【Regarding Summary of the Judgment Rendered by the IP High Court Grand Panel in the “Beauty Instrument” Case <Article 102, Paragraph 1 of the Patent Act>】
<Provisions of Article 102, Paragraph 1 of the Patent Act>
“If a patentee or an exclusive licensee claims compensation for damages that the patentee or licensee personally incurs due to infringement, against a person that, intentionally or due to negligence, infringes the patent right or violates the exclusive license, and the infringer has transferred infringing articles, the amount calculated by multiplying the number of articles so transferred (hereinafter referred to in this paragraph as the “number transferred”) by the amount of profit per unit from the products that the patentee or exclusive licensee could have sold if there had been no infringement, may be fixed as the value of the damage that the patentee or exclusive licensee has incurred, within the limits of an amount proportionate to the ability of the patentee or exclusive licensee to work the patented invention; provided, however, that if there are circumstances due to which the patentee or the exclusive licensee would have been unable to sell the number of products equivalent to all or part of the number transferred, an amount proportionate to the number of products that could not have been sold due to such circumstances are to be deducted from the value of damages thus calculated.”
<Summary of the Judgment>
(1) The “products that the patentee could have sold if there had been no infringement” only needs to be a product of the patentee whose sales quantity is affected by the infringement, that is, a product of the patentee having a competitive relationship with the infringing product in the market.
(2) The “amount of profit per unit” is an amount of marginal profit obtained by deducting the cost additionally required in direct relation with the manufacture and sales of the aforementioned product for the patentee from the sales of the product of the patentee, and the burden of allegation and proof resides on the side of the patentee.
(3) Even if a characteristic part of the patented invention is only a part of the patentee’s product which worked the patented invention, it is factually presumed that the total amount of the marginal profit obtained by the sales of the patentee’s product is the lost profit of the patentee. However, under the circumstances where a portion having a great attraction for customers in the product is the structure of the rotating parts, and the characteristic part of the patented invention cannot be considered to contribute to all the profit earned by sales of the product by the patentee, and comprehensively taking into account the circumstances such as the importance of said characteristic part of the patentee’s product, any other characteristics of the patentee’s product, and their power to attract customers, the factual presumption is to be overturned by approximately 60%, and the amount of which should be deducted from the marginal profit.
(4) The “ability (of the patentee) to work (the invention)” only needs to be a potential ability. If the patentee is able to supply the quantity of the patentee’s product corresponding to the sales quantity of the infringing product by such means as outsourcing its production, it is reasonable to construe that the patentee has the capability to work the invention, and the burden of allegation and proof resides on the patentee’s side.
(5) The “circumstances due which the patentee would have been unable to sell” prescribed in the proviso to Article 102, Paragraph 1 of the Patent Act refers to circumstances that disprove a reasonable causal relationship between the infringement and the sales decrease of the patentee’s product, and circumstances such as (i) presence of a difference in the business forms, prices, and the like between the patentee and the infringer (difference of the subject market); (ii) presence of competitive products in the market; (iii) marketing efforts of the infringer (brand power and promotion activities); and (iv) presence of differences in performances of the infringing product and the patentee’s product (functions, design, and other features different from those of the patented invention) should fall under them, and the burden of allegation and proof of the aforementioned circumstances and the quantity corresponding to the circumstances resides on the infringer’s side.
【Review of the Judgment Rendered by the IP High Court Grand Panel in the “Carbon Dioxide-Containing Viscous Composition” Case (Case No. 2018 [Ne] 10063) <Article 102, Paragraphs 2 and 3 of the Patent Act>】
(1) Regarding Article 102, Paragraph 2 of the Patent Act
<Provisions of Article 102, Paragraph 2 of the Patent Act>
“If a patentee or an exclusive licensee claims compensation for damages that the patentee or licensee personally incurs due to infringement, against a person that, intentionally or due to negligence, infringes the patent or violates the exclusive license, and the infringer has made a profit from the infringement, the amount of that profit is presumed to be the value of damages incurred by the patentee or exclusive licensee.”
<Summary of the Judgment>
The Court found that “expenses which may be deducted from the sales of infringing products in order to calculate marginal profit is only an additional cost that was necessitated in direct relation to manufacture and sales of infringing products by an infringer”, and that “there should be a presumption under the paragraph for a total amount of profit (made by the infringer)”. Further, as the “circumstances which could disprove a reasonable causal relationship between profit gained by the infringer and damage caused to the patentee” or grounds for overturning presumption, the Court indicated the following circumstances: “(i) presence of a difference in the business forms between the patentee and the infringer (difference of the subject market); (ii) presence of competitive products in the market; (iii) marketing efforts of the infringer (brand power and promotion activities); and (iv) performance of infringing products (functions, design, and other features different from those of the patented invention)”; and a case in which “a patented invention is implemented for only a part of the infringing products”.
(2) Regarding Article 102, Paragraph 3 of the Patent Act
<Provisions of Article 102, Paragraph 3 of the Patent Act>
“A patentee or exclusive licensee may fix the value of the damages that the patentee or exclusive licensee has personally incurred as being equivalent to the amount of money the patentee or exclusive licensee would have been entitled to receive for the working of the patented invention, and may claim compensation for this against a person that, intentionally or due to negligence, infringes the patent or violates the exclusive license”.
<Summary of the Judgment>
The Court found, based on Article 102, Paragraph 4 of the Patent Act Amendment of 2019, that “a reasonable royalty rate for a patent infringement as determined post facto for a person who has committed the infringement should inevitably be a higher rate compared to a usual royalty rate”, and as a method to determine a reasonable royalty rate, specifically indicated that a reasonable royalty rate for the infringement should be determined by comprehensively taking into account various circumstances that appeared in a lawsuit such as: (i) a royalty rate set in an actual license agreement for the patented invention, or if it is indefinite, the average royalty rate in the industry; (ii) the value of the patent; i.e., the technical content or significance of the patent invention, and the substitutability with alternative technology; (iii) contributions to sales and profit when the patented invention is used for products, and the manner of the infringement; and (iv) the competitive relationship between a patentee and an infringer as well as the business policy of the patentee.
Since damages for the infringement to be paid by the appellants excluding the appellant Chiara Macchiato which was calculated based on Article 102, Paragraph 2 of the Patent Act exceeded the amount calculated based on Article 102, Paragraph 3 of the same Act, the Court awarded a higher amount of damages calculated based on Article 102, Paragraph 2 of the Patent Act. Regarding the appellant Chiara Macchiato, damages calculated based on Article 102, Paragraph 3 of the Patent Act exceeded the amount calculated based on Article 102, Paragraph 2 of the same Act, therefore the Court awarded a higher amount of damages calculated based on Article 102, Paragraph 3 of the Patent Act.
This is the IP High Court Grand Panel Decision which expressed the IP High Court’s opinion regarding Article 102, Paragraphs 2 and 3. Therefore, the decision is considered to be extremely significant in practice in the future.
【Similarity between Decisions of the IP High Court Grand Panel Cases, the “Beauty Instrument” Case, and the “Carbon Dioxide-containing Viscous Composition” Case 】
(1) The Court employed the theory of allocating the burden of proving a total amount of profit and non-contribution rate of the patented invention.
In both the Grand Panel Cases, the Court employed the so-called “theory of allocating the burden of proving a total amount of profit and non-contribution rate of the patented invention”. More specifically, in the “Carbon Dioxide-containing Viscous Composition” Case, the Court found with regard to Article 102, Paragraph 2 of the Patent Act that “there should be a presumption under the paragraph for a total amount of profit“, and in the “Beauty Instrument” Case, the Court found with regard to Article 102, Paragraph 1 of the Patent Act that “even if a characteristic part of the patented invention is only a part of the patentee’s product which worked the patented invention, it is factually presumed that the total amount of the marginal profit obtained by the sales of the patentee’s product is the lost profit of the patentee“, and placed on the alleged infringer the burden of proving circumstances which may overturn the factual presumption. In that sense, an element to be taken into account in deducting the amount from the total “amount of (marginal) profit” which is factually presumed under Article 102, Paragraphs 1 and 2 is not the “contribution degree” which is to be proved by the patentee, but the “non-contribution degree” which is to be proved by the alleged infringer.
(2) Reduction of the amount of damages which is made in two steps
In both the Grand Panel Cases, the Court used the framework which enables to reduce the amount of damages in two steps by taking into account the elements, Ⓐ the “non-contribution degree” and Ⓑ other circumstances.
More specifically, in the “Beauty Instrument” Case, under Article 102, Paragraph 1 of the Patent Act, the Court made Ⓐ a 60% deduction from the “marginal profit”, and further made Ⓑ a 50% deduction because of the existence of “circumstances due to which the patentee would have been unable to sell” set forth in the proviso to Article 102, Paragraph 1 of the same Act. Therefore, in the Beauty Instrument Case, the amount of damages is calculated by the following formula:
In the “Carbon Dioxide-containing Viscous Composition” Case, with respect to the circumstances that disprove a reasonable causal relationship between the infringement and the sales decrease of the patentee’s product, the Court indicated, as in the case of the Beauty Instrument Case, the following circumstances (Ⓑ): “(i) a difference between the patentee’s business and the infringer’s business (difference of the subject market); (ii) the presence of competing products in the market; (iii) marketing efforts of the infringer (brand power and promotion activities); or (iv) performance of infringing product (functions, design, and other features different from those of the patented invention)”, and circumstance (Ⓐ) in which “the patented invention is worked only in part of the infringing product”. Therefore, it is considered that the amount of damages to be calculated based on the formula mentioned above by taking into account the elements Ⓐ and Ⓑ is expected. (In conclusion, the Court did not accept the overturning of presumption under Paragraph 2.)
Further, the circumstances of (i), (ii), (iii), and (iv) indicated as the element Ⓑ in the Carbon Dioxide-containing Viscous Composition Case are almost the same as those indicated in the Beauty Instrument Case.
Writer: Hideki TAKAISHI
Supervising editor: Kazuhiko YOSHIDA
Contact information for inquiries: h_takaishi@nakapat.gr.jp
Hideki TAKAISHI (The person in charge of this article)
Attorney at Law & Patent Attorney
Nakamura & Partners
Room No. 616, Shin-Tokyo Building,
3-3-1 Marunouchi, Chiyoda-ku
Tokyo 100-8355, JAPAN