In a patent infringement case in which a patent owner sought damages calculated under Article 102(2) of the Patent Act, the Tokyo District Court held that Article 102(2) applies to the current case, but also that the presumption under Article 102(2) shall be overturned by 90-95%. (Tokyo District Court Judgment dated September 25, 2020 (Case no. 2017(wa)24210)).
Summary of the Case
Paramount Bed Co., Ltd. (the "Plaintiff") owned three Japanese patents (patent nos. 3,024,698, 5,252,542 and 4,141,233), which all covered inventions related to beds. The Plaintiff filed a patent infringement action with the Tokyo District Court against Platz Corporation (the "Defendant"), asserting that the Defendant's act of manufacturing and selling nursing care beds (the "Defendant Products") infringed the patents owned by Plaintiff. Plaintiff sought injunction and damages.
The Tokyo District Court found certain patents valid and also infringed by the Defendant's act of manufacturing and selling certain Defendant Products, and went on to calculating the damages that the Plaintiff suffered.
As a method of damages calculation, the Plaintiff asserted Article 102(2) of the Patent Act.
Article 102(2) of the Patent Act provides that an amount of profit that a patent infringer earned as a result of an act of patent infringement is presumed to be equal to the amount of damages that the patent owner suffered due to the infringement.
Based on Article 102(2) of the Patent Act, the Plaintiff argued that it shall be awarded damages that are equal to the amount of profit that the Defendant earned by selling the Defendant Products. On the other hand, the Defendant argued that: (a) Article 102(2) does not apply to the current case in the first place; and (b) even if Article 102(2) does apply, the presumption under Article 102(2) shall be overturned.
First, the Tokyo District Court held that Article 102(2) of the Patent Act applies to the current case. The Court found that the Plaintiff sold beds that fall under the scope of the patented invention, and therefore, that there was a relationship that if the Defendant had not sold the Defendant Products, the Plaintiff would have been able to earn profit. Based on the existence of such relationship, the Court held that there was a basis for applying Article 102(2).
Second, the Tokyo District Court considered the issue of whether the presumption under Article 102(2) of the Patent Act should be overturned, either in whole or in part. Regarding this point, the Court found the following relevant facts specific to the current case:
(1) The patented invention has a function that enables a user of a bed to replace a frame of the bed with another frame that has different length, and thereby enables the user to adjust the bed to his or her body size.
(2) While the Defendant Products did have a function that enables users to replace frames, the catalogue of the Defendant Products either did not make any reference to such function, or referred to such function but only as one of many functions that the Defendant Products possessed.
(3) The effect of the patented invention is achieved when a user replaces the frame of the bed. However, number of sales of frames for replacing the frames of the Defendant Products was much less than number of sales of the Defendant Products themselves.
Based on the above findings, the Tokyo District Court found that a significant portion of Defendant Products was purchased by customers who were attracted by functions of the Defendant Products other than the patented invention. Also, the Court found that since the number of sales of the frames was much less than number of sales of the Defendant Products, only a very small portion of the Defendant Products sold were actually used in a manner that would achieve the effect of the patented invention.
The Tokyo District Court took these facts into account, and held that the presumption under Article 102(2) of the Patent Act shall be overturned by 90-95% (or, in other words, the damages award shall be 5-10% of the amount of profit that the Defendant earned by the sales of the Defendant Products).
As a conclusion, the Court awarded the Plaintiff the damages of around 381 million Japanese Yen.
Comments
The Patent Act provides three methods of calculation of damages that a patent owner may assert in patent infringement cases;
(1) Per unit amount of profit of products that the patent owner would have been able to earn if there were no infringement, multiplied by the number of infringing products that the infringer sold (Article 102(1) of the Patent Act);
(2) Amount of profit that the infringer earned by an act of infringement (Article 102(2) of the Patent Act); and
(3) Amount of reasonable royalty (Article 102(3) of the Patent Act)
Method (1) tends to render the highest amount, while method (3) tends to be the lowest. However, in order to calculate damages based on method (1), the plaintiff must disclose its profit rate to the court and the defendant, which the plaintiff often wishes to avoid. Therefore, method (2) is often asserted by a plaintiff in a patent infringement action.
In the meantime, method (2) only makes a rebuttable presumption that the amount of damages is equal to the amount of infringer's profit, which may be rebutted (overturned) by the defendant. According to the judgment of the Intellectual Property High Court (IP High Court Grand Panel Judgment dated June 7, 2019 (Case no. 2018(ne)10063)), when determining whether the presumption shall be overturned (either in whole or in part), courts should consider factors such as: (a) whether there is a difference in manners of businesses of the patent owner and the infringer (i.e., whether the parties are in different markets); (b) whether there are other competing goods in the market; (c) commercial effort of the infringer (brand power, advisements and promotions); and (d) performance of the infringing product (features other than the patented invention, such as functions and designs). The fact that the patented invention is used in only a part of the infringement product may also be taken into account when determining whether the presumption shall be overturned, but together with other factors such as the role of the said portion within the entire product and the power of the patented invention to attract customers.
In the current case, the Tokyo District Court found that a significant number of Defendant Products were purchased by customers who were attracted by functions of the Defendant Products other than the patented invention. Based on this finding, the Court held that the presumption under Article 102(2) of the Patent Act shall be overturned by 90-95%.
In recent years, Japanese courts tend to be reluctant to overturn the presumption under Article 102(2) of the Patent Act. In the judgment of the IP High Court mentioned above, the IP High Court did not overturn the presumption at all.
However, it is notable that the Tokyo District Court in the current case overturned the presumption by 90-95%, which is quite a significant rate compared to other recent cases. It would be interesting to see whether courts will follow the recent trend of not overturning the presumption (which will result in a higher amount of damages award) or will become more flexible in overturning the presumption.
Written by Mr. Yusuke Inui (Attorney at Law, Patent Attorney)