Remedies in Japanese Patent Litigation
A patentee, depending on the circumstances, may seek a variety of remedies in Japanese courts against an accused infringer. This page discusses the following, significant remedies available in Japanese courts:
1. Patentee’s Lost Profits
2. Disgorgement of Infringer’s Profits
3. License Royalty
4. Enhanced Damages
5. Reasonable Damages Award
6. Damages for Infringement of Pending Patent Application
1. Patentee’s Lost Profits. The statutory basis under Japanese law for recovering damages for patent infringement is found in tort law under Article 709 of the Civil Code, which provides, “A person who has intentionally or negligently infringed any right of others, or legally protected interest of others, shall be liable to compensate any damages resulting in consequence.” Article 103 of the Patent Act eliminates the burden of proving the mens rea elements of Civil Code Article 709 by providing that “[a]n infringer of a patent right or exclusive license of another person is presumed negligent in the commission of the said act of infringement.” Thus, the presumption of negligence in the infringement of a patent forms the basis for recovery.
There are several alternative means for measuring the damages awarded to a successful patentee in litigation. One such method is based on measuring the amount of profits lost by the patentee as a result of the infringer’s sale of the patented product. Article 102(1) of the Patent Act governs the award of the patentee’s lost profits:
(1) Where a patentee or an exclusive licensee claims against an infringer compensation for damage sustained as a result of the intentional or negligent infringement of the patent right or exclusive license, and the infringer assigned articles that composed the act of infringement, the amount of damage sustained by the patentee or the exclusive licensee may be presumed to be the amount of profit per unit of articles which would have been sold by the patentee or the exclusive licensee if there had been no such act of infringement, multiplied by the quantity (hereinafter referred to in this paragraph as the "assigned quantity") of articles assigned by the infringer, the maximum of which shall be the amount attainable by the patentee or the exclusive licensee in light of the capability of the patentee or the exclusive licensee to work such articles; provided, however, that if any circumstances exist under which the patentee or the exclusive licensee would have been unable to sell the assigned quantity in whole or in part, the amount calculated as the number of articles not able to be sold due to such circumstances shall be deducted.
Accordingly, Article 102(1) of the Patent Act significantly reduces the burden on patentees in proving that the infringer’s sales caused the loss of sales by the patentee. Under the Act, the patentee is entitled to a presumption of lost sales to the extent that it is shown that the patentee had the capacity to make and sell the number of units sold by the infringer. Where that capacity is shown, the lost profits are determined by multiplying the number of units by the patentee’s own marginal, per-unit profit margin, which itself is an amount at issue during the litigation and decided by the court based on the submitted evidence. To the extent that the patentee did not have the capability of making the sales, the patentee is entitled to a reasonable license royalty on the non-capacity units.
2. Disgorgement of Infringer’s Profits. Unlike U.S. law, Japanese patent law permits the patentee to elect recovery of the infringer’s profits as an alternative award of damages. This is accomplished by operation of Article 102(2) of the Patent Act, which provides:
(2) Where a patentee or an exclusive licensee claims against an infringer compensation for damage sustained as a result of the intentional or negligent infringement of the patent right or exclusive license, and the infringer earned profits from the act of infringement, the amount of profits earned by the infringer shall be presumed to be the amount of damage sustained by the patentee or exclusive licensee.
Although it is not clear from the text of the statute itself, the courts have ruled that in order to recover the infringer’s profits from the sale of the infringing product, the patentee must demonstrate that it works the patented invention and competes with the accused infringer. See Judgment rendered on Feb. 9, 1990, Tokyo District Court, Sho 56 (wa) 3939, Hanta No. 725, page 213. Thus, the disgorgement of the infringer’s profit may be thought of as an alternative measure of the patentee’s lost profits.
3. License Royalty. In situations where the patentee does not work the patented invention or compete with the accused infringer, the patentee is not entitled to recover its lost profits or the infringer’s profits. Instead, the patentee is entitled to a license royalty under Article 102(3) of the Patent Act, which provides:
(3) A patentee or an exclusive licensee may claim against an infringer compensation for damage sustained as a result of the intentional or negligent infringement of the patent right or exclusive license, by regarding the amount the patentee or exclusive licensee would have been entitled to receive for the working of the patented invention as the amount of damage sustained.
In awarding a license royalty, the parties litigate and the court decides the appropriate royalty amount based on evidence concerning such things as the patentee’s prior experience in licensing the technology and comparable licenses in the industry. Usually, the royalty is applied as a percentage of net sales or a per-unit price multiplied by the number of infringing units sold.
4. Enhanced Damages. Similar to U.S. law that permits the courts to award up to three times the compensatory damages amount for willful patent infringement, Article 102(4) permits the Japanese Courts to enhance damages awards beyond the compensatory amounts provided in the act. Article 102(4) of the Patent Act provides:
(4) The preceding paragraphs shall not prevent any relevant party from claiming compensation for damage in an amount exceeding the amount provided for therein. In such a case, where the infringer committed the infringement of the patent right or exclusive license without intent or gross negligence, the court may take these circumstances into consideration in determining the amount of damages.
The policy objective of this provision is the encouragement of voluntary licensing of patents and discouragement of “wait and see if we are sued” strategies by infringers. In other words, if a potential infringer bears little risk of paying anything more for a judgment of infringement based on, for example, a license royalty, than would have been paid for a voluntary license, then the potential infringer is better off, or at least no worse off, taking the risk of manufacturing and selling without taking a license. Article 102(4) of the Patent Act alters the strategic balance by introducing the risk of enhanced damages.
5. Reasonable Damages Award. Similar in spirit to Article 102(4) of the Patent Act, which authorizes the court to enhance damages, Article 105-3 of the Patent Act authorizes the court to award “reasonable” damages in certain circumstances where the plaintiff fails to prove an actual amount of damages. Article 105-3 of the Patent Act provides:
In litigation concerning the infringement of a patent right or exclusive license, where the court has determined that damage actually arose and where it is extremely difficult for the court, due to the nature of the facts, to prove the facts necessary to determine the amount of damage, the court may determine a reasonable amount of damage based on the entire import of oral argument and the result of the examination of evidence.
This provision comes into play where the evidence shows that patentee suffered damage but that the evidence fails to demonstrate the amount of the damages. In such cases, the court looks to the entirety of the record and makes a determination of reasonable damages.
6. Damages for Infringement of Pending Patent Application. Although Japanese law encourages patentees and their licensees to mark products with notices of patent protection and imposes penalties for falsely marking products (see Articles 187 & 188 of the Patent Act), constructive notice by marking or actual notice of infringement by demand letter is not a prerequisite to an award of damages, except in one narrow circumstance. Unlike U.S. law that imposes liability only for granted patent rights, it is possible to recover damages for infringement of pending patent applications and claims, provided that actual notice of the pending application is given to potential infringers.
Article 65 of the Patent Act provides:
(1) After the laying open of a patent application, where the applicant for the patent has given warning with documents stating the contents of the invention claimed in the patent application, the applicant may claim compensation against a person who has worked the invention as a business after the warning and prior to the registration establishing a patent right, and the amount of compensation shall be equivalent to the amount the applicant would be entitled to receive for the working of the invention if the invention were patented. Even where the said warning has not been given, the same shall apply to a person who knowingly commercially worked an invention claimed in a laid open patent application, prior to the registration establishing a patent right.
(2) The right to claim compensation under the preceding paragraph may not be exercised until the registration establishing a patent right has been effected.
(3) The exercise of the right to claim compensation under paragraph (1) shall not preclude the exercise of the patent right.
Thus, the patentee’s ability to give notice of the infringement arises after the application is “laid open,” but the patentee’s ability to enforce the rights provided under Article 65 does not arise until after the claims are granted and the patent is registered. Under Japanese law, patent applications are “laid open” or published 18 months after filing.
Significantly, Article 65 only applies to commercial implementations of the invention. Moreover, knowledge of the laid open patent application is a prerequisite to establishing liability under Article 65. The patentee, therefore, must either provide actual notice of the application or prove actual notice.
7. Injunctions. Article 100 of the Patent Act empowers the Japanese courts to award equitable relief including injunctions and other orders to ensure compliance with injunctions.
Article 100 of the Patent Act provides:
(1) A patentee or exclusive licensee may demand a person who infringes or is likely to infringe the patent right or exclusive license to stop or prevent such infringement.
(2) In making a demand under the preceding paragraph, the patentee or exclusive licensee may demand measures necessary for the prevention of such infringement including the disposal of products constituting such act of infringement (including, in the case of a patented invention of a process of producing products, products produced by the act of infringement; the same shall apply in Article 102(1)) and the removal of facilities used for the act of infringement.
In addition to damages, patentees routinely seek an injunction against competitors. As shown by the text of Article 100 of the Patent Act, the court has broad powers in fashioning injunctive relief, including orders compelling the disposal of infringing products and removal of facilities involved in infringement.
It is also possible to seek a preliminary injunction. However, in practice, the preliminary injunction proceedings consume several months and often conclude shortly before trial in the main infringement case is completed. There is still merit in pursuing a preliminary injunction. Although the accused infringer can avoid imposition of a permanent injunction during appeal by posting a bond, the district court’s entry of a preliminary injunction is effective when made and remains in effect until the proceedings on appeal are completed.