Two Cases in the Field of Industrial Property

2. Two Cases in the Field of Industrial Property The first case: a fair decision The YKK trademark case in Brazil (TA CrimSP - HC 114.846-SP - 5a Câm. J. on 29.06.1982 - Rel. Adauto Suannes)

3. Two Cases in the Field of Industrial Property YKK Corporation, a Japanese company specialized in manufacturing fastening products. The accronym YKK comes from Yoshida Kogyo Kabushiki Kaisha. The Trademark YKK was first registered in Japan in 1946. In 1982 it was registered in 116 countries worlwide. In Brazil, YKK opened its first plant in 1975, but exports of zippers to Brazil and other South American countries started in 1936.

4. Two Cases in the Field of Industrial Property

5. Two Cases in the Field of Industrial Property The facts: (i) – on December 29, 1967, the company Yoshida Kogyo Kabushiki Kaisha applied for the registration of its trademark YKK for designating zippers (under the Brazilian national classification of goods and services for the purposes of trademark registration, zippers and other accessories corresponded to class 26) [As of 2001, Brazil adopted the Nice Classification]

6. Two Cases in the Field of Industrial Property (N.B. the purpose of trademark classification is to facilitate the examination of registrability only; that is, the classification may not be used as a relevant factor for solving conflicts between trademarks; actually, there may be conflicting trademarks even where registered for similar goods or services in different classes; besides, trademarks may co-exist even when they are registered for different goods or services in the same class; the only relevant point for comparing trademarks is the possibility of creating confusion to consumers)

7. Two Cases in the Field of Industrial Property (ii) – Due to a mistaken translation, the term “slide fasteners” was translated by the Brazilian trademark attorney as “slides fotográficos” (“photo slides”) and registered by the Trademark Office on November 19, 1974 under class 8, instead of class 26. (iii) – Having noticed the mistake, the company requested the Brazilian Trademark Office to correct it.

8. Two Cases in the Field of Industrial Property (iv) – However, in 1969, a Brazilian firm (Metalúrgica Brasileira Ultra S/A), which manufactured fasteners as well (thus competing with YKK), somehow informed of the administrative mistake of the Japanese company, applied for the registration of the accronym YKK under the correct class, and obtained it on May 16, 1969.

9. Two Cases in the Field of Industrial Property (v) – The Brazilian firm put the Japanese company under notice in 1977, and requested it to cease the use of the trademark YKK. (vi) – Because the Japanese firm did not comply with the notice, the Brazilian company sued the three representatives of YKK in Brazil (Messrs. Iwao Kamiichi, Yukata Ikegami and Norio Miyaguchi) in a criminal court, alleging violation of paragraphs I, II and IV(a) of Article 175 of the Brazilian Criminal Code (the remedies for voluntary counterfeit consist of fines and emprisonment, up to five years).

10. Two Cases in the Field of Industrial Property (vii) – YKK’s lawyer filed a request in the Court of Criminal Appeals of São Paulo for an habeas corpus (a measure that seeks to obtain the immediate release of an emprisoned person or the ceasing of any harassment by criminal prosecution, based on a clear violation or abuse of the law). The lawyer alleged that the lawsuit should be dismissed because it was groundless, for the true owner of the trademark was the defendant, not the plaintiff.

11. Two Cases in the Field of Industrial Property (viii) – The prosecutor was of the opinion that the lawsuit should not be dismissed because it was based on a civil property right: under civil law, the plaintiff was the actual owner of the registered trademark. In his view, the defendants should first invalidate the plaintiff’s registration before being allowed to use such a defense. (The problem is that argument is that the defendants were under the risk of spending sometime in jail until they were able to amend the wrongful registration of the trademark — amendment which could take several months, if not years).

12. Two Cases in the Field of Industrial Property – The Court opinion (issued on June 29, 1982) a) The Court agreed with the defendants and dismissed the criminal action. b) The Court said that this case involved two fundamental principles of Law: the Law does not exist to reward malice mistakes do not give rise to rights

13. Two Cases in the Field of Industrial Property The Court’s opinion (cont.) c) the Brazilian company had the sole intent of benefitting from the worldwide prestige of YKK, which it could not ignore, because it also manufactured zippers; besides the accronym YKK has two letters that do not exist in the Portuguese alphabet d) therefore, its registration was immoral.

14. Two Cases in the Field of Industrial Property The Court opinion (cont.) e) However, to the surprise of honest people, the defendants in this case were not those who inscrupulously, and benefitting from an administrative mistake, tried to obtain an advantage from a long-established and well-known trademark, but the legitimate representatives of YKK in Brazil. f) The defendants committed no crime. The criminals are the plaintiffs, who are cheating consumers “with the customary approval of our impotent authorities,” by using a name that have done nothing to build so as to be able to use.

15. Two Cases in the Field of Industrial Property The Court opinion (cont.) g) “That the plaintiff would not respect his competitor, we can understand. That he would not respect consumers, it is reprehensible. But that he does not respect the Judicial authorities, and attempts to use them as an instrument of piracy, is simply appalling.”

16. Two Cases in the Field of Industrial Property The second case: an equitable decision The Georgia-Pacific case (United States) Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Suppl. 1116 (S.D.N.Y. 1970)

17. Two Cases in the Field of Industrial Property Donald Deskey, considered the founder of modern industrial design, in 1940 invented striated plywood. He filed for a patent and assigned the application to United States Plywood Corp. (USP). USP obtained the patent in 1942. Straited plywood was commercialized under the brand WELDTEX, registered by USP. USP commercialized Weldtex since 1946.

19. Glorious walls of wood... Pattern is “cut in” Does not paint out Impervious to water Safe outdoors

21. Two Cases in the Field of Industrial Property • Weldtex was enormously successful, due to two factors: • its technical features (it would not check, grain, swell, crack or separate) • b) its decorative aspect • During the patent term, USP enjoyed a virtual monopoly even though there were some competing (but not as much commercially successful) products

22. Two Cases in the Field of Industrial Property The Court of Appeals of the 2nd Circuit held that between February 1955 and 1958, Georgia-Pacific (GP) infringed USP’s patent Claim 1. The infringement was deliberate. GP believed it could challenge the validity of the patent if sued. The case was remanded to the Court of the Southern District of New York for determining the amount of damages (1970).

23. Two Cases in the Field of Industrial Property “35 USC 284. Damages. Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court. [...].”

24. Two Cases in the Field of Industrial Property According to the statute, the first criterion (“Damages adequate to compensate”) is the lost profits of the patent owner. If the claimant is unable to prove those profits, the Court must determine the reasonable royalty. In the case at bar, because Weldtex was so successful, USP’s sales were not diminished by GP’s competition (even though GP sold infringed Weldtex at the same prices!), and therefore it did not lose profits.

25. Two Cases in the Field of Industrial Property Therefore, and because USP was not able to prove lost profits, the Court scrutinized the amount of reasonable royalties. GP stated that a reasonable royalty would amount to between $1 ½ to 3 per 1,000 sq. f. USP submitted that a minimum reasonable royalty should be the rate of $50 per 1,000 sq. f. GP’s sales of Weldtex totalled 15,899,000 square feet and amounted to sales proceeds of $2,547,393.

26. Two Cases in the Field of Industrial Property Because there was no evidence of lost profits, the Court identified the reasonable royalty rate taking into account six factors. The essential inquiry is what the parties would have agreed upon if both were reasonably trying to reach an agreement. The Court said that it “must take into account the realities of the bargaining table and subject the (mosaic of) proofs to a dissective scrutiny.”

27. Two Cases in the Field of Industrial Property 1st factor: USP’s policy to maintain and its actual maintenance of a valuable monopoly. (The Court found that “Weldtex was relatively insulated from competition” and that any negotiation on licensing “would be strongly influenced by the then dominant market position of Weldtex;” moreover USP could have produced and sold additional quantities of Weldtex, which means that negotiations would not be affected by the eventual lack of USP’s capacity to manufacture and sell, which could have reduced the royalty rate)

28. Two Cases in the Field of Industrial Property 2nd factor: the profitability of Weldtex (The Court found that at the time of the infringement, the average rate of USP’s profit (calculated on an absorption cost basis) was approximately $48 per 1,000 sq. ft.; the yearly USP’s average sales of Weldtex amounted to approximately $6,000,000)

29. Two Cases in the Field of Industrial Property 3rd factor: the increased potential profitability via operations of other plants (additional production) (The Court found that this factor was rather speculative and not sufficiently reliable and persuasive)

30. Two Cases in the Field of Industrial Property 4th factor: USP’s profits via collateral or convoyed sales (The Court found that this factor would have tended to increase significantly the amount of the royalty; but USP was not able to prove the loss of collateral or convoyed sales and thus the factor was not sufficiently reliable and persuasive)

31. Two Cases in the Field of Industrial Property 5th factor: substantial profits GP would reasonably have expected to earn on its production and sale of the infringed product (The Court found that the infringer could indeed expect to have at the least the same profit as the patent owner, or even higher, because GP would produce Weldtex at its own mills.)

32. Two Cases in the Field of Industrial Property 6th factor: profits that GP would reasonably have expected to earn on collateral or convoyed sales (The Court found that at the time of the infringement GP could indeed expect to derive substantial profits from collateral or convoyed sales but there was no evidence permitting an inference as to the quantum.)

33. Two Cases in the Field of Industrial Property 7th factor: the amount of the reasonable royalty a) Was Weldtex success due to factors other than the patent (such as unpatented parts) Answer: no; the invention was a an entirety, an entity in itself b) Was Weldtex success due to its decorative appearance? Answer: the decorative effect was a consequence of the invention’s functionality; it was not an independent element c) Absence of a prevailing royalty in generally comparable circumstances In the absence of such a factor, the Court relied on testimony of experts

34. Two Cases in the Field of Industrial Property Conclusion: the Court concluded that $50 per 1,000 sq. f. of the patented product made and sold by GP represented a fair reasonable royalty, in a total of $800,000 (15,899 x $50 = $794,950), i.e. more than the average profit of USP and exactly the same amount asked by USP.

35. Two Cases in the Field of Industrial Property Thank you! If you have any questions as regards this presentation, please do not hesitate to contact nuno.carvalho@wipo.int