Adequate Patent Infringement Damages in Japanese Courts: Comparative Analysis

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

2. Outline • 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

3. National 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

4. IP 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

5. IP 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

6. Tort Damage Theory Similar Theoretical Framework • Japan • Cause-in-fact • Legal/adequate cause (foreseeability) • U.S. • Cause-in-fact • Proximate cause (foreseeability)

7. Tort Damage Policy Japan – Civil Law System • Restitution: Returning to the situation but for infringement U.S. – Common Law System • Role of individuals to participate in enforcement of rights • Deterrence of tortuous acts

8. Damage Measurements U.S. • Lost Profits • Reasonable Royalty • (Defendant’s Profit) • Abolished • Japan • Lost Profits • Civil Code • Reasonable Royalty • Defendant’s Profit

9. Patent Law Policy U.S. • Emphasis on Adequate Compensation • No ceiling but guaranteeing bottom line • Preference for lost profits Japan • Sympathy for Innocent Infringers • Ceiling for innocent infringers • Preference for reasonable royalty

10. U.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)

11. U.S.: Panduit TestInference of Causation Causation Inferred by Showing: • Market demand • Capability to meet such market demand • Absence of non-infringing acceptable substitute in the market • Profits the patent would have received but for infringement

12. U.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.）

13. U.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

14. U.S.: Selection of Two Measurements • 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

15. U.S.: Selection of Two Measurements

16. Japan: 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 Proof • Apportionment • Lack of Evidence Taking Procedures

17. Japan: 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

18. Japan: 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

19. Japan: Infringer’s Profits Rebuttal by Infringer • Proof of actual damages • Factors which negate causation for the full amount of profits • Presence of non-infringing acceptable substitute in the market • D’s marketing efforts • Apportionment

20. Huge 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

21. 1998 Patent Revision • Art. 102, Para 1 • Presumption of causation for lost profits • Art. 102, Para 4 • Removal of “ordinarily”

22. 1998 RevisionCodification of Panduit Test Causation Inferred by showing: • # of infringing products sold by infringer • Net profit-per-product that patentee would have sold but for infringement • Deduction of variable costs only • Capacity to make and sell the # of products sold by infringer

23. 1998 RevisionCodification of Panduit Test Rebuttal by Infringer # of products P could not have sold • Difference in infringing product and patentee’s product • Competing products • Presence of non-infringing acceptable substitute in the market • Apportionment • Entire market value rule

24. 1998 RevisionReasonable 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?

25. Impact of Revision Patent-Utility Model Infringement 1989-1994Average Damages Awarded • $0.18 M (Median: $0.04M) 35.73% 1999-2004Average Damages Awarded • $1.11M (Median: 0.22M) 43.19% Patent 1996-2005Average Damages Awarded • $1.71M

26. Impact 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

27. Impact of Revision

28. Japan: Damage Awards Average

29. U.S.: Big Damages 2005-07

30. U.S.: Damages Awarded Median

31. Thank You Very Much! If you have a question, please contact, Toshiko Takenaka, at toshiko@u.washington.edu