2020 <Special News Flash>｜News Letter

Grand Panel specifically rules how to calculate damage according to Patent Law, Article 102(1) where the damage is calculated by multiplying profit per unit of patentee’s articles by the number of articles sold by infringer.

MTG Co., Ltd. v. Five Stars, Inc., Case No. 2019 (Ne) 10003 (Decision rendered on February 28, 2020)

In the previous Grand Panel judgment, the IP High Court (the IPHC) delivered rulings on Patent Law, Article 102(2) where the amount of damage sustained by the patentee is presumed to be the amount of profits earned by the infringer, and on Patent Law, Article 102(3) where the amount of damage sustained by the patentee is presumed to be the amount of reasonable royalty (i.e., license fee) for working the patented invention. In the current Grand Panel judgment, the IPHC (Chief Judge, Makiko TAKABE) ruled on Patent Law, Article 102(1) where the amount of damage is presumed to be the amount of profit per unit of articles of the patentee, multiplied by the number of articles sold by the infringer.

Please refer to the link below for our newsletter regarding the previous Grand Panel judgment.
https://www.kawaguti.gr.jp/newsletter/2018/12.html

Among others, the court of the first instance (Osaka District Court) found the amount of damage sustained by the patentee (MTG) to be about 100 million JPY (about 1 million USD), whereas the amount was found to be about 400 million JPY (about 4 million USD) in this judgment. The difference stems from the fact that the court of the first instance found that the contribution of the patent to the sales of the infringer’s (Five Stars’) articles was 10 percent, whereas the IPHC denied this framework and found that the contribution of the patent to the profits of the patentee’s (MTG’s) articles was 40 percent.

Please refer to the link below for a brief description of the MTG’s articles.
http://www.refa.net/en/item/refa_carat/

The MTG’s articles have been priced at 23,800 JPY and sold close to that price level in the market, whereas the Five Stars’ articles had been sold at around 3,000 to 5,000 JPY. This may be the reason why MTG claimed for damage based on Article 102(1), rather than on Article 102(2) or (3).

Patent Law, Article 102(1) provides as follows:
Article 102 (1) If a patentee or an exclusive licensee claims compensation for damages that the patentee or licensee personally incurs due to infringement, against a person that, intentionally or due to negligence, infringes the patent right or violates the exclusive license, and the infringer has transferred infringing articles, the amount calculated by multiplying the number of articles so transferred (hereinafter referred to in this paragraph as the "number transferred") by amount of profit per unit from the products that the patentee or exclusive licensee could have sold if there had been no infringement, may be fixed as the value of the damage that the patentee or exclusive licensee has incurred, within the limits of an amount proportionate to the ability of the patentee or exclusive licensee to work the patented invention; provided, however, that if there are circumstances due to which the patentee or the exclusive licensee would have been unable to sell a number of products equivalent to all or part of number transferred, an amount proportionate to the number of products that could not have been sold due to such circumstances are to be deducted from the value of damage thus calculated.

Summary of Facts
This is a case where MTG entitled to Patent 1 (Registration No.: Patent No. 5356625) and Patent 2 (Registration No.: Patent No. 5847904) each with a title of invention of “Beauty Instrument” asserts against Five Stars that sales and the like of the Five Stars’ articles (nine types of beauty instruments titled “Germa Mirrorball Beauty roller: Shine”) infringe each of the patents mentioned above, and requests an injunction against sales and the like of the Five Stars’ articles mentioned above, destruction of the articles and payment of damages in an amount of 500 million JPY (partial claim) pursuant to Patent Law, Article 102(1).
The court of the first instance found that sales and the like of the Five Stars’ articles infringe Patent 2, and upheld the request for the injunction against the sales and the like of the Five Stars’ articles and destruction thereof, and together partially upheld the claim for payment of damages (107,350,651 JPY).
In calculating the amount of damages pursuant to Patent Law, Article 102(1), the court of the first instance deducted 50% of the amount obtained from multiplying the amount of profit per unit of the MTG’s articles by the number transferred of the Five Stars’ articles from the amount as circumstances provided for in the proviso to the Article, and further reduced the resulting amount by 90 percent in consideration of the contribution.
The IPHC found that the Five Stars’ articles infringed Patent 2, and upheld the request for the injunction against the sales and the like of the Five Stars’ articles and destruction thereof, and in addition found that the amount of damage pursuant to Patent Law, Article 102(1) from the infringement of Patent 2 was 440,060,000 JPY and modified the judgment on the amount of damage of the court of the first instance.

The reason for this modification in the amount of damage stems primarily from the fact that the court of the first instance made the 90% reduction in consideration of the contribution that the patent made to the sales of the Five Stars’ articles, whereas the IPHC did not allow the reduction by such contribution and deducted 60% from the marginal profit of the MTG’s articles.

In this respect, the court of the first instance rendered the following:
Invention 2 of the present case relates to a roller bearing for a beauty instrument, and the contribution rate considers the contribution of a patent to the sales of articles, and therefore it is not mechanically determined by the ratio of cost of the bearing part to that of the entire article, or the price itself of the bearing part. It should be mentioned that the fact that the bearing holds the roller so as to be able to rotate smoothly has a certain significance in the entire article. However, the bearing is a part of the beauty instrument and is not visible to the consumer. Further, as the defendant changed the design after the lawsuit of the present case was filed, it is considered that there is an alternative technique of a bearing supporting a roller so as to be able to rotate smoothly, and therefore the extent of the contribution by the application of the technique of Patent 2 to the sales of the defendant’s articles is not high. Comprehensively considering the circumstances mentioned above, it is reasonable to recognize that the contribution rate is 10%.

In contrast, the Grand Panel of the IPHC rendered the following:
As in the present case, in an article of the patentee working a patented invention, even in the case where a characteristic portion of the patented invention is at most a portion thereof, it should be mentioned that the entire amount of a marginal profit obtained by sales of an article of the patentee is factually presumed to be a lost profit of the patentee.
Further, it is important for a plaintiff’s article to realize good rotation of the rolling part, and the shape of a characteristic part of the present case which is a member necessary for the purpose, that is a bearing member and a shape of an inner circumferential surface of a rotating body can be said to reasonably contribute to the profit by sales of the plaintiff’s article.
However, the plaintiff’s article is a beauty instrument imparting beauty action by picking up the skin by pushing a pair of rolling parts to the skin and rotating them. Therefore, it is recognized that the portion having a large customer attracting effect in the plaintiff’s article is a constitution of the rolling parts, and further the plaintiff’s article is equipped with a solar panel and generates faint electric current, and it is recognized that the customer attracting effect is enhanced thereby. According to these circumstances, it cannot be said that the characteristic portion of the present case contributes to the entire profit by sales of the plaintiff’s articles, and therefore it is not reasonable to recognize that the entire marginal profit obtained by sales of the plaintiff’s articles is lost profit of the plaintiff. Therefore, in the plaintiff’s articles, it should be said that the factual presumption mentioned above is partially overridden.
Further, comprehensively considering circumstances manifested in the present case such as the assessment of the characteristic portion of the present case mentioned above in the plaintiff’s articles, and those other than the characteristic portion of the present case that the plaintiff’s articles have and customer attracting effect thereof, it is reasonable to recognize that the extent of overriding the presumption is about 60% of the entirety.

That is, the court of the first instance considers the extent that the patent contributes to the sales of the defendant’s articles, whereas the IPHC comprehensively considers the assessment of the characteristic portion of the patent in the plaintiff’s articles, and those other than the characteristic portion of the patent that the plaintiff’s articles have and customer attracting effect thereof and the like.

Other matters decided in this judgement are as follows:
• The “articles which would have been sold … if there had been no such act of infringement” provided for in Patent Law, Article 102(1) suffice as long as they are articles of the patentee whose quantity of sales is affected by act of infringement, that is, articles of the patentee bearing a competitive relationship in the market with the infringing articles.
• The “amount of profit per unit of articles” provided for in Patent Law, Article 102(1) is the amount of a marginal profit obtained by deducting costs additionally necessitated in direct relation to the production and sales of the articles mentioned above by the patentee from the sales revenue of the articles of the patentee, and the burden of proof thereof rests on the side of the patentee.
• The “”capability … to implement” provided for in Patent Law, Article 102(1) suffices to be a potential capability, and it should be said that the capability of implementation is present when it is possible to supply articles in a quantity corresponding to the quantity of sales of the infringing articles by methods such as production outsourcing, and the burden of proof thereof rests on the side of the patentee.
• The “circumstances … under which the patentee … would have been unable to sell …” means circumstances inhibiting the reasonable and probable causality between an act of infringement and reduction of sales of articles of the patentee, and the circumstances include, for example, (1) presence of differences between the patentee and the infringer in business operation, pricing and the like (nonuniformity of markets), (2) presence of competitive articles in the market, (3) business efforts made by the infringer (brand strength and promotional advertising), (4) presence of differences in performances of infringing articles and articles of patentee (characteristics other than patent invention such as functions and design), and the burden of proof of the circumstances and the quantity corresponding to the circumstances rests on the side of the infringer.

K&P’s Comments Following the previous judgment of the Grand Panel, the present judgment of the Grand Panel explicitly specified a method of calculating the amount of damage provided for in Patent Law, Article 102(1), and according to these judgments of the Grand Panel, the method of calculating the amount of damage when each of paragraphs of the Article is applied is specified to the advantage of the patentee. Further, in conformity with such judgments of the Grand Panel, in the amendment of the Patent Law to be effectuated on April 1, 2020, the method of calculating the amount of damage provided for in Patent Law, Article 102 has been revised to the advantage of the patentee as follows:
(1) Of the profit that the infringer earned, the area where payment of compensation has been denied for exceeding the production capability and the like of the patentee was amended so that claim for damages is made possible by regarding the area to be licensed to the infringer. (New Article 102(1) (i)&(ii))
(2) In calculating the amount of damage by an amount equivalent to a license fee, an amount that is expected to be determined in a negotiation with a premise that a patent was infringed. (New Article 102(4))
These judgments of the Grand Panel of the IPHC and the amendment of the Patent Law to be effectuated this year are indications of a presence of a trend in favor of patent protection in the Japanese patent system both in the judiciary and the legislature.

(by Mitsumasa IHARA, Patent Attorney)

ⁱ Grand Panel: The Grand Panel is convened to hear cases where it is necessary to virtually unify court decisions, or cases involving important issues, which is somewhat similar to en banc in CAFC of the U.S.A. Since the founding of the IPHC in 2005, 14 cases including the above case have been heard by the Grand Panel.