Adequate Patent Infringement Damages in Japanese Courts: Comparative Analysis Toshiko Takenaka, Ph.D. Professor of Law; Director, CASRIP University of.

Adequate Patent Infringement Adequate Patent Infringement Damages in Japanese Courts:Damages in Japanese Courts:

Comparative Analysis Comparative Analysis

Toshiko Takenaka, Ph.D.Professor of Law; Director, CASRIP

University of Washington School of Law

OutlineOutline

Background– Japan’s National IP Strategy

• Comparison with EU Developments

IP Enforcement Revisions– Improvements in Evidence Taking

• Document Production Orders• In-Camera Procedure

– Adequate Damages• Comparison with German damage awards

National IP StrategyNational IP Strategy

METI-JPO “Pro-Patent Policy” Initiative– Key-person: Mr. Hisamitsu Arai– Report Published by Commission on IP

Rights in the 21st Century (1977)• Intellectual Creation Cycle

– Adoption of National Strategy to Become IP based Nation

• Enactment of Basic IP Law (2002)• Creation of IP headquarters within Cabinet

IP National StrategyIP National Strategy

IP Enforcement Restructuring– 1998: Adequate damages to compensate

infringement• Adoption of US Case Law Doctrine

– 1999: Improvement in evidence taking procedures

• Expansion of scope in document production orders

• Introduction of in-camera procedures – 2004 civil procedure revisions

IP National StrategyIP National Strategy

Patent-Technology Specialized Courts– 2003 Civil Proc. Revision

• Exclusive jurisdiction: First instance-Tokyo & Osaka Dist. Ct.; Appeals-Tokyo High Ct.

– April 2005: IP High Court• Semi-independent from Tokyo High Court• Patent-Technology expertise in all levels

Tort Damage TheoryTort Damage Theory

Similar Theoretical FrameworkJapan

– Cause-in-fact– Legal/adequate cause (foreseeability)

U.S.– Cause-in-fact – Proximate cause (foreseeability)

Tort Damage PolicyTort Damage Policy

Japan – Civil Law SystemRestitution: Returning to the situation

but for infringement

U.S. – Common Law SystemRole of individuals to participate in

enforcement of rightsDeterrence of tortuous acts

Damage MeasurementsDamage Measurements

U.S. Lost Profits Reasonable Royalty (Defendant’s Profit)

– Abolished

Japan Lost Profits

– Civil Code

Reasonable Royalty Defendant’s Profit

Patent Law PolicyPatent Law Policy

U.S.Emphasis on Adequate Compensation

– No ceiling but guaranteeing bottom line– Preference for lost profits

JapanSympathy for Innocent Infringers

– Ceiling for innocent infringers– Preference for reasonable royalty

U.S.: Lost ProfitsU.S.: Lost Profits

Patentee: Burden of Proof Causation between Infringement and

Damages– Courts favor inventors– Showing the causation with a

reasonable probability (need not negate every possibility that a customer would have bought a different product)

U.S.: U.S.: Panduit Panduit TestTestInference of CausationInference of Causation

Causation Inferred by Showing:① Market demand② Capability to meet such market

demand③ Absence of non-infringing acceptable

substitute in the market④ Profits the patent would have received

but for infringement

U.S.: Lost ProfitsU.S.: Lost Profits

Entire Market Value Rule

– Patentee may recover lost profits for an entire patented product even if the patent covers only a portion of such product• Functionality requirement• Demand for the entire product

requirement

– Convoyed Sale (spare parts, etc. ）

U.S.: Reasonable RoyaltyU.S.: Reasonable Royalty

Guaranteeing Reasonable Royalty as Bottom Line Compensation– No reduction for innocent infringers– Only enhancement for willful infringers

Case-by-Case Analysis– Georgia Pacific factors– Prior license – Minimum compensation– No prior license – High royalty rate

U.S.: Selection of Two U.S.: Selection of Two MeasurementsMeasurements

Patentee can select either lost profits or reasonable royalty depending on the conditions in the market

More than one measure of damages may be applied– Lost profits as to some sale by the

infringer and a reasonable royalty as to other sales

U.S.: Selection of Two U.S.: Selection of Two MeasurementsMeasurements

Japan: Lost ProfitsJapan: Lost Profits

Multiple Tests to Negate Causation– Patentee must exploit the patented

invention– Identity between the patentee’s product and

infringing product– Presence of acceptable substitutes

High Burden of ProofApportionmentLack of Evidence Taking Procedures

Japan: Reasonable RoyaltyJapan: Reasonable Royalty

No Guarantee to Compensate Actual damages– Courts may reduce the amount exceeding

a reasonable royalty if infringement is not willful or the defendant engaged in infringing act without gross negligence

Reliance on industry standard– Prior license - Maximum compensation– No prior license – Low royalty rate

Japan: Infringer’s ProfitsJapan: Infringer’s Profits

No Revision

Causation inferred by showing:Profits resulting from Infringement

– P’s exploitation of the invention (competing products?)

– What is profit? – Allocation of burden of proof

Japan: Infringer’s ProfitsJapan: Infringer’s Profits

Rebuttal by InfringerProof of actual damagesFactors which negate causation for the

full amount of profits– Presence of non-infringing acceptable

substitute in the market– D’s marketing efforts– Apportionment

Huge Difference in DamagesHuge Difference in Damages

Average Damages Awarded U.S.(1990-92): USD 92 M Japan(1990-94): JPY 4.6 M (USD 0.46M)

– Infrequent lost profit awards• Exploitation requirement• Difficulty in obtaining evidence• Apportionment

– Reasonable royalty • Legally negotiated royalty: maximum recovery

1998 Patent Revision1998 Patent Revision

Art. 102, Para 1– Presumption of causation for lost profits

Art. 102, Para 4– Removal of “ordinarily”

1998 Revision1998 RevisionCodification ofCodification of Panduit Panduit TestTest

Causation Inferred by showing:① # of infringing products sold by

infringer② Net profit-per-product that patentee

would have sold but for infringement– Deduction of variable costs only

③ Capacity to make and sell the # of products sold by infringer

1998 Revision1998 RevisionCodification of Codification of Panduit Panduit TestTest

Rebuttal by Infringer# of products P could not have sold① Difference in infringing product and

patentee’s product– Competing products

② Presence of non-infringing acceptable substitute in the market

③ Apportionment– Entire market value rule

1998 Revision1998 RevisionReasonable RoyaltyReasonable Royalty

Case-by-Case Analysis– Higher than a legally negotiated royalty– A variety of factors

Guarantee of Minimum Compensation?– Courts’ discretion to reduce surplus from

a reasonable royalty - Reserved– Split awards of lost profits and reasonable

royalty – possible?

Impact of RevisionImpact of Revision

Patent-Utility Model Infringement

1989-1994 Average Damages Awarded$0.18 M (Median: $0.04M) 35.73%

1999-2004 Average Damages Awarded$1.11 M (Median: 0.22M) 43.19%

Patent

1996-2005 Average Damages Awarded$1.71 M

Impact of RevisionImpact of Revision

Not as significant as expected– High awards in early cases– Decrease in the average amount of damages in

recent cases– Small number of cases going to damage

calculation

Possible Reasons– Infrequent request of lost profits– Multiple factors to reduce the presumed lost

profits

Impact of RevisionImpact of Revision

Japan: Damage Awards AverageJapan: Damage Awards Average

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

U.S.: Big Damages 2005-07

U.S.: Damages Awarded Median

Thank You Very Much!

If you have a question, please contact, Toshiko Takenaka, at

[email protected]