Patent Litigation in Japan April 7, 2008

1. Patent Litigation in JapanApril 7, 2008 Presented by: David W. Hill Partner, Finnegan, Henderson, Farabow, Garrett & Dunner, LLP

2. Contents • Legal Professionals in Patent Litigation • Centralization of Patent Cases • Patent-Related Proceedings • Collection of Evidence • Invalidity of Patents • Computation of Damages • Conclusion

3. Bengoshi • About 20,000 Bengoshi. (About 1,000,000 lawyers in the U.S.) • Pass National bar examination (about 1,500 in 2006) • Law schools like those in the U.S. were established in 2004, and the number of people passing the bar examination is expected to increase to 3,000 annually by 2010 • Train at Legal Training and Research Institute of the Supreme Court of Japan (Shiho Kenshujo) • Choose to become a judge, a public prosecutor, or a lawyer. • No technical background required for a Bengoshi to practice in patent field (Bengoshi may register as a Benrishi without taking the national examination to become a Benrishi) • Most Bengoshi who practice patent law have no technical background • Only about 300 Bengoshi are registered as Benrishi

4. Benrishi • Benrishi is not required to be an attorney at law • Technical background is not necessary to become a Benrishi, but most do have technical training • Benrishi handles prosecution of patents, and also prosecution of trademarks • Benrishi may represent clients directly in actions of annulment of JPO decisions at the IP High Court • Benrishi may jointly represent clients with Bengoshi in patent litigation if the Benrishi passes a special additional examination • In patent litigation or actions to annul JPO decisions, Bengoshi and Benrishi typically work together

5. Foreign Lawyers in Japan • Small number of Foreign Lawyers admitted after World War II – (Junkai-in) • Allowed to practice Japanese law as any Bengoshi since 1955 (only 4 remain) • Law 66 passed in 1986 (effective April 1, 1987) allowed registration as Gaikokuho jimu bengoshi (licensed foreign lawyer) • Currently 252 licensed Foreign Lawyers in Japan (April 1, 2007)

6. Legal Professionals in Patent Litigation • Establishment of law schools • At the initiative of the Justice System Reform Council (established by the Cabinet), American-style graduate-level law schools that emphasize professional training have been established. • The number of successful candidates will be increased from 1,000 to 3,000 by 2010 • By about 2018, the number of legal professionals actively practicing is expected to increase from 20,000 to 50,000 • 70 to 80 % of law school graduates will pass the national bar exam (current pass rate is 3%) • It is expected that the number of lawyers who have technical backgrounds will increase

7. Centralization of Patent Cases The Osaka District Court The Tokyo District Court

8. Jurisdiction of IP Cases in Japan

9. Centralization of Patent Cases • All the patent infringement cases including the cases at the Osaka District Court are appealed to the IP High Court. • 140 technical experts (Senmon-iin) assist Judges in patent infringement cases.

10. Patent-Related Proceedings • Patent infringement action • Declaration of non-infringement • Invalidation of patents • Action for annulment of the trial decision

11. Patent-Related Proceedings • Court proceedings • Filing • Complaint • Evidence • Trial (Preliminary hearing/Hearing) • Brief • Evidence • Examination of witnesses • Judgment or Settlement

12. Patent-Related Proceedings • Why has the procedure become so fast? • Trial planning • Increase in the number of judges in IP divisions • Expansion of measures to collect evidence • Nonexistence of thorough discovery

13. Patent-Related Proceedings • Costs • Official filing fee • The plaintiff must pay a certain percentage of the economic value of the case with revenue stamps as an official filing fee to the court included with the complaint

14. Patent-Related Proceedings • Costs • Attorney’s fee • The economic value basis fee is more common than the time charge basis fee • Economic value basis fee • Initial retainer is calculated based on the economic value claimed in the complaint • Success fee (in the case of winning or favorable settlement) is calculated based on the economic value actually obtained

15. Collection of Evidence • Order to produce documents (Bunsho teisyutsu meirei) -§105 (1) of the 1999 Patent Law • On the request of a party, the court may order the other party to produce documents necessary to prove infringement or to assess damages caused by the infringement • If the other party has a legitimate reason for refusing to produce them, the request is denied

16. Collection of Evidence • Order to produce documents (Bunsho teisyutsu meirei) • The court may assume that the plaintiff’s assertions are true, if • this order is ignored, and • it is especially difficult for the other party to allege concrete facts relating to the contents of the document and to prove the facts in the document by other evidence

17. Collection of Evidence • Expert opinion • Examination of an expert in the courtroom is rarely conducted • A written expert opinion is usually produced • If the court orders an expert opinion on the issue of damages, the other party must explain the matters necessary for the expert opinion to be given - §105-2 of the 1999 Patent Law

18. Collection of Evidence • Inspection (Kensho) • If a process patent is at issue and the other party is unlikely to agree on the accused process, the court may conduct an inspection at the defendant’s factory • If the other party has a legitimate reason for refusing the inspection, the inspection is not ordered -§105 (3) of the 1999 Patent Law

19. Collection of Evidence • In camera procedure • Decide whether the other party has a legitimate reason for the refusal of production of documents or the inspection of the factory • The court weighs 1) the disadvantages the owner of the documents would suffer from the disclosure and 2) the disadvantages the parties in the case would suffer from the nondisclosure

20. Collection of Evidence • In camera procedure • If the court finds that the accused device is different from the patent, • Deny the order • Order the party to produce only a part that is different from an element of the claim • Permit limited persons such as plaintiff’s attorneys or assistants to have access to the information on the condition that they promise to keep it secret.

21. Collection of Evidence • In camera procedure • If the court finds that the accused device is within the scope of the claim, • the court will order the defendant to produce the document • the defendant does not have a legitimate reason to refuse to submit such information related to the infringing device

22. Invalidity of Patents • Fujitsu v. TI decision(Sup. Ct. 2000) • The courts that decide infringement of patents may decide whether it is clear that the patent is invalid • If it is clear the patent is invalid, to seek the injunction and damages based on the patent is considered as an abuse of right unless there are special circumstances • Effects ofFujitsu decision • After this decision, validity of patents has become one of the major defenses in patent litigation

23. Computation of Damages • Computation of damages • Lost profits based on the number of infringing products - §102(1) of the 1998 Patent Law • Multiplying the number of infringing products sold by the infringer by the profit per unit the plaintiff would have earned in the absence of infringing activities up to a limit not exceeding the ability of the patentee to supply the products • If, however, there are any circumstances that would have prevented the patentee from selling all or part of the infringing products, those sales will be deducted.

24. Computation of Damages • Computation of damages • Pachinko (Slot machine) patent case(Tokyo Dis. Ct. 2002) – $60mil • The purpose of section 102 (1) is to recover the patentee’s lost opportunities in the market • “exercising ability” only refers to potential capabilities • “profit the plaintiff would have earned without the infringing activities” means not accurately calculated profit but approximate average profit through the period during which the sale of the patentee’s products would be affected by the infringing activities • “any circumstance that prevents the patentee from selling part or whole of the sold products” does not include the infringer’s commercial efforts or the existence of noninfringing substitutes

25. Computation of Damages • Lost profit presumed by infringer’s profits • License royalty - §102(3) of the 1998 Patent Law • “A patentee may claim an amount of money which he would normally be entitled to receive for the working of the patented invention, as the amount of damage suffered by a patentee” • The word “normally” was deleted • Under the new provision, courts can consider such actual situations of the case as concrete technical value of the patented invention, business relationship between the parties, or the profit gained by the infringer

26. Computation of Damages • Expert opinion -§105-2 of the 1999 Patent Law • If the court appoints an expert for the calculation of the amount of damages, the both parties must provide the expert with the necessary information for the expert opinion to be given • Award of reasonable damages -§105-3 of the 1999 Patent Law • The court may determine the reasonable amount of damages at its discretion based on the entire tenor of the oral proceedings and the examination of evidence if the patentee shows the presence of damages but cannot prove the amount of the damages because of the nature of the relevant facts in the case

27. Conclusion • Filing a patent infringement suit in Japan has become a more attractive choice • Cost effectivenessin patent litigation in Japan is fairly high • Predictabilityor uniformityhas been heightened (recent statistics favor accused infringer) • But, if you file a patent-infringement suit in Japan,thorough preparation before filing is criticalbecause you do not have enough time to collect evidence or change your strategy once you file a suit