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13 November 2017
On July 27 2017 the Tokyo District Court rendered its judgment in a patent infringement case regarding fintech-related technologies. This case has been widely reported on in Japan because both parties are major venture businesses and leaders in the Japanese fintech market. This case is also notable as the defendant's cloud-based accounting system involved machine-learning technologies and disputes of this nature are expected to increase.
The court found no infringement by the defendant and dismissed the plaintiff's injunctive relief and other claims. The court also denied the plaintiff's request for the production of documents held by the defendant after reviewing them using the so-called 'in camera' procedure.
Under Articles 70(1) and (2) of the Patent Act (121/1959), as amended, a patented invention's technical scope must be determined based on the statements in the scope of claims attached to the patent application. Further, the meaning of each term used in the scope of claims must be interpreted in light of the statements in the description and the drawings attached to the application.
The Patent Act does not provide for the doctrine of equivalents, which has generally been understood to expand the scope of patent protection beyond the literal scope of a patent's claims. The doctrine is usually asserted by a patent owner when an alleged infringer appears to be avoiding literal infringement of the patent holder's patent by replacing an insubstantial part of the claimed invention.
However, the doctrine of equivalents was adopted in Japan following a Supreme Court judgment of February 24 1998 (Case 1994 (O) 1083, known as the 'Ball spline' case), which contained guidelines in favour of the doctrine. According to this judgment, the following requirements must be proven by a party that claims patent infringement based on the doctrine of equivalents:
Japan has no broad discovery system equivalent to that of the United States. The evidence collection methods available in Japan are limited and mostly designed for use after court proceedings have commenced. For example, Article 105 of the Patent Act provides that in litigation concerning the infringement of a patent right, the court may, on the motion of one party, order the other party to produce documents that are required to prove the alleged act of infringement or calculate the damage arising from the alleged act of infringement. However, this rule will not apply where there are reasonable grounds for the person possessing the documents to refuse production.
The plaintiff, a major venture business providing cloud-based accounting services to customers, filed a lawsuit against the defendant, a competing major venture business in the fintech field that also provides cloud-based accounting services.
The patented inventions claimed in the plaintiff's patent (Japanese Patent 5503795) were titled "Accounting apparatus, accounting method, and accounting program". The plaintiff alleged infringement by the defendant of Claims 1, 10, 13 and 14 of the patent. The patented inventions in the claims were substantially similar inventions that were claimed as inventions of apparatus (Claims 1 and 10), method (Claim 13) and program (Claim 14).
A summary of the accounting apparatus claimed in Claims 1 and 10 of the plaintiff's patent is as follows:
The accounting method (Claim 13) and accounting program (Claim 14) in the claims were the method and program for achieving the aforementioned data processing.
The plaintiff alleged that the classification method implemented by the defendant's cloud-based accounting services constituted:
The plaintiff sought injunctions against production and use and for the disposal of the defendant's cloud system, as well as an injunction against use of the defendant's method pursuant to the Patent Act. It did not seek monetary damages.
During the court proceedings, the plaintiff also filed a motion for a court order requiring the defendant to produce certain documents that would prove that the defendant was using the plaintiff's patented inventions.
The defendant denied any infringement of the plaintiff's patent, arguing that its cloud-based accounting system:
On July 27 2017 the Tokyo District Court dismissed the plaintiff's claims in their entirety, finding that the defendant's acts constituted neither literal infringement of the plaintiff's patent nor infringement based on the doctrine of equivalents.
In its reasoning, the court also dismissed the plaintiff's motion for the production of documents.
No patent infringement – literal infringement
The major issue adjudicated by the court in this case was whether:
Regarding this issue, the court first construed the claims of the plaintiff's patent and clarified the scope of the patented invention in the alleged claims. The court ruled that if there were multiple keywords in the transaction data:
Based on the above claim construction, the court found that the classification result achieved by using the defendant's cloud system was inconsistent with that which would be arrived at if the defendant's system implemented the claimed invention in the plaintiff's patent. Rather, it was likely that the defendant's system conducted classification by using a machine-learning algorithm, as argued by the defendant.
In its reasoning, the court found that when the terms 'commercial product', 'shop' or 'ticket' were separately entered into the defendant's system as transaction data, each transaction was classified into account titles of 'equipment/supply expenses', 'welfare benefit' or 'short-term loan', respectively. However, if the term 'commercial product shop ticket' was entered into the defendant's system as transaction data, the transaction was classified into the account title of 'purchase turnover'.
The court noted that this result showed that the defendant's system did not extract a keyword from a term entered as transaction data or refer to a correlation table retaining correlations between keywords included in the transaction data and account titles. This finding was based on the fact that, if the defendant's system did extract a keyword from the transaction data and use such a correlation table, the classification result for the term 'commercial product shop ticket' should have been the same as any of the classification results for 'commercial product', 'shop' or 'ticket'.
The court also found that even if the same term was entered into the defendant's system as the transaction data, different account titles were output as the classification result if the amount contributed or service category of the transactions data was different. The court further found that if a term that did not exist as a normal Japanese word was entered as the transaction data, the term was classified under a kind of accounting title. The court noted that these facts also showed that the defendant's system did not use keywords and a correlation table to classify the transaction data into certain account titles. This finding was based on the fact that – if the defendant's system did implement the plaintiff's patented invention – when the same terms were entered for the transaction data, the classification result would have been the same. Further, when the term was not a normal Japanese word, the plaintiff's patented invention failed to produce the corresponding classification result.
No patent infringement – doctrine of equivalents
The court dismissed the plaintiff's claim regarding the defendant's alleged patent infringement under the doctrine of equivalents, ruling that the defendant's act did not satisfy the following requirements:
The court examined the prosecution process of the plaintiff's patent and publicly available documents relating to the patent and determined that the substantial part of the patent was the function of referring to the correlation table by using the keyword that had the highest priority determined by applying a certain priority order if there were multiple keywords in the transaction data.
However, as stated for the claim of literal infringement, the defendant's system did not implement that function, meaning that it replaced a substantial part of the claimed invention of its patent and did not meet the doctrine of equivalents requirement that the replaced part be an insubstantial part of the patented invention.
The court also found that in the course of prosecution of the plaintiff's patent, the plaintiff had intentionally excluded products that did not implement the function that the court found to be the substantial part of the plaintiff's patented invention. Therefore, the defendant's cloud system, which did not implement the substantial part of the plaintiff's patented invention, did not meet the doctrine of equivalent requirement that there be no proof showing that the applicant intentionally excluded the accused product from the patented invention during the prosecution.
Motion for production of documents
In response to the plaintiff's motion for the production of documents, the court conducted an 'in-camera' review pursuant to Article 105(2) of the Patent Act – that is, the court requested that the defendant provide it with the requested documents and reviewed them internally in order to determine whether they satisfied the requirements for document production under Article 105 of the act. After conducting the in-camera review, the court dismissed the plaintiff's motion by reasoning that the documents requested by the plaintiff contained no information implying that the defendant's system implemented the plaintiff's patented invention and thus were not required as evidence to prove the defendant's infringement of the plaintiff's patent. In light of this, the court ruled that the importance of securing the confidentiality of the requested documents exceeded the value of the requested documents as evidence for the case; thus, there were reasonable grounds for the defendant to refuse production of the documents.
In light of the above findings, the court found that there were no grounds for the plaintiff's claims. As the plaintiff did not appeal the judgment to the IP High Court, the Tokyo District Court's judgment became final and conclusive.
Arguably, the plaintiff's patent claims were not broad, as the patent was rejected during prosecution before the Japan Patent Office and the plaintiff amended and restricted the claims' scope in response to the rejection. If the court had found infringement of the patent by the defendant, the patent would have been subject to a claim of invalidity by the defendant that could have been argued in the same proceedings pursuant to Article 104-3(1) of the Patent Act.
How defendant rebutted claim
The defendant's clever approach enabled it to successfully rebut the plaintiff's claim of patent infringement by showing the output of the data processing, including the classification result, by using the defendant's system. As the court found, the result of the classification was contradictory to the result of the classification utilising the plaintiff's patented invention, and the defendant was not required to disclose the details of the actual process implemented in the defendant's system as evidence for the rebuttal.
Since court proceedings must, in principle, be open to the public, if the defendant had disclosed the actual processes of its system, the evidence would have been made publicly available. Although a party may request that the court limit which parties may inspect or copy such evidence in cases where the evidence contains confidential information or a trade secret pursuant to Article 91(1) of the Code of Civil Procedure (109/1996), as amended, it is unclear whether the court would have accepted such request in these circumstances. Even if a court accepts the request and issues an order to limit access to the evidence by third parties, the evidence will be available at least to the other party, which may try to bring another claim based on the information contained in the disclosed documents.
In this case, it was beneficial for the defendant to be able to rebut the plaintiff's claim by showing the publicly available classification results without disclosing the internal process of the defendant's system, which is confidential and not available to the public.
Collection of evidence
Further, it is generally difficult for a plaintiff in this type of system patent infringement case to determine what process or method is actually implemented in the defendant's allegedly infringing system. Since the process or method is not usually public, the plaintiff can only presume what processes or methods are implemented in the defendant's system based on information such as the function or output of the allegedly infringing system.
In this regard, although the plaintiff's motion was dismissed in this case, a possible measure for a plaintiff that has difficulty obtaining evidence of infringement would be to use the document production process pursuant to Article 105 of the Patent Act in order to obtain effective evidence held by the other party. In particular, in cases of alleged infringement of a system or other patent where the patent holder generally has insufficient information on the internal workings of the alleged infringer's product, it would be worth considering using the document production process.
For further information on this topic please contact Hiroshi Suga or Tomoyuki Miyauchi at Nishimura & Asahi by telephone (+81 3 6250 6200) or email (firstname.lastname@example.org or email@example.com). The Nishimura & Asahi website can be accessed at www.jurists.co.jp.
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