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28 July 2014
On February 1 2013 the IP High Court admitted the application of Article 102(2) of the Patent Law for assumed damages in the Paper Diapers Storage Cassette patent infringement case, which has been appealed and is pending before the Supreme Court (for further details please see "IP High Court allows assumed damages under Article 102(2) of Patent Law"). On January 30 2014 the Tokyo District Court followed this decision and likewise admitted application of Article 102(2). However, the court also admitted a repudiation of the assumption under Article 102(2) and thus accepted a reduction in damages suffered by the patent owner.
Article 100 of the Patent Law provides as follows:
Article 102 of the Patent Law provides as follows:
Article 103 of the Patent Law provides that an infringing party is presumed to have been negligent in respect of the infringing act.
Article 1(2) of the Civil Code provides that the exercise of rights and performance of duties must be done in good faith and in accordance with the principle of trust.
Article 2 of the Code of Civil Procedure provides that the courts must make efforts to conduct civil procedure fairly and promptly, and the parties must sincerely and faithfully observe civil procedure.
Plaintiff KK Clover Network Com, which owned the patent for a device that automatically generates telephone number information, filed suit before the Tokyo District Court against defendant KK Jintec, which was manufacturing and using the device. KK Clover Network Com requested an injunction to stop the manufacture and use of the device, asserting that it infringed its patent under Articles 100(1) and (2) of the Patent Law. It also requested compensation for damages arising from the tort of patent infringement.
On January 30 2014 the Tokyo District Court issued its decision in favour of the plaintiff. The court noted that the case focused on four issues:
Violation of due process
In view of the rule that rights must be exercised in good faith and in accordance with the principle of trust (Article 1(2) of the Civil Code), and that the parties must sincerely and faithfully observe civil procedure (Article 2 of the Code of Civil Procedure), if the parties engage in two separate proceedings, any argument used in the subsequent litigation that is a mere repetition of an argument rejected by the court in the previous litigation may not be permitted under the rule of due process. The question of whether an argument in the subsequent litigation should be permitted must be answered in view of:
Considering the history of this litigation (in which substantial compensation was requested), the court held that the assertion of the concrete construction of the meaning of a "table of numbers thought to be existing as telephone numbers successively continuing with outside city numbers and inside city numbers" – which was not at issue in the prior litigation – did not produce a result contrary to the rule of justice and did not contravene the rule of due process in civil procedure.
Infringement of plaintiff's patent claim
The court examined the construction of the defendant's devices and concluded that Devices 2, 3 and 4 (except for the construction for mobile phone searches) fell within Requirement A of the plaintiff's patent claim. However, the court found that Devices 1 and 5 did not fall within this requirement. The court further found that Devices 2, 3 and 4 (except for the mobile phone search construction) fell under Requirements A, B, C and D of the plaintiff's patent claim. Thus, the court concluded that the devices fell within the claim of the patented invention.
The question of infringement under the doctrine of equivalents also arose with respect to Device 5. Pursuant to a February 24 1998 Supreme Court decision (Third Department), a product containing a part that is different from that specified in the patent claim construction in question is nonetheless considered to be equivalent to that patent claim (and thus belong to it) if the following requirements are met:
The court considered these requirements under the doctrine of equivalents and concluded that Device 5 did not meet the first and fifth requirements; thus, it did not fall within the claim of the patent in question.
As a result of this examination, the court held that Devices 2, 3 and 4 (except for the mobile phone search construction) fell within the claim of the patented invention, but Devices 1 and 5 did not.
Claim for injunction and destruction
The court determined that Devices 5 and 6 did not fall within the claim of the patented invention and found that the plaintiff had made no assertion, after conclusion of the second-instance oral argument in the separate litigation, on the concrete construction of the defendant's device regarding the change of design. Therefore, the court could not discern an actual or likely threat of infringement of the patent in question through the manufacture and use of the defendant's devices (other than Devices 5 and 6), making the plaintiff's claim for injunction and destruction groundless.
Amount of damages
The defendant was held to have infringed the patent in question through the manufacture and use of Devices 2, 3 and 4 and was thus presumed to have been negligent in this respect (Article 103 of the Patent Law). Therefore, the defendant was liable for the damages suffered by the plaintiff.
Although the plaintiff asserted that the calculation of damages should be based on the application of Article 102(2) of the Patent Law, the defendant rejected this argument. In this regard, the court noted that the purpose of Article 102(2) is to alleviate the difficulty of substantiating the amount of damages. Therefore, the application of this provision should be permitted in circumstances where the patent owner could have gained additional profit had no infringement occurred. Circumstances in which the patent owner does not practise or work the invention in question do not constitute a valid reason for refusing to apply this provision.
The plaintiff provided a service based on a database of telephone numbers generated from its device and was engaged in a similar business to that of the defendant, although the plaintiff's device was not the subject of these patent infringement proceedings. The court therefore considered that the patent owner could have gained additional profit had no infringement occurred.
In view of the submitted evidence and arguments, the court adduced the profit obtained by the defendant from the manufacture and use of Devices 2, 3 and 4 (excluding the portion relating to mobile phone searches) to be the amount of sales revenue minus deductible expenses. The defendant's relevant sales revenue amounted to Y275,302,800. The following expenses were deemed to have been incurred directly from infringement of the patent and were thus deductible:
The total profit obtained by the defendant from the manufacture and use of Devices 2, 3 and 4 was thus calculated to be Y99,942,225.
In calculating the amount of damages pursuant to Article 102(2), any profits gained by the plaintiff that do not derive from the exercise of the patented invention in question must be deducted from the amount of damages as one of the circumstances that partially repudiates the assumption of damages under Article 102(2). In this case, the following factors were considered:
In view of these factors, the court recognised that sufficient circumstances existed to repudiate the assumption that the profit specified above constituted the plaintiff's damages. The percentage of repudiation was evaluated to be 75%. Therefore, the damages calculated pursuant to Article 102(2) were reduced to Y24,985,556, as there was no evidence that the plaintiff had suffered damages exceeding this amount.
The plaintiff's legal fees, bearing a reasonable relationship to the defendant's act in tort, were set at Y2.5 million in view of the circumstances (eg, the plaintiff's damages, the complexity of the case and the content of the trial examination).
The court thus admitted compensation for damages amounting to Y27,485,556, plus 5% annual interest from October 9 2009 until payment in full.
Although the Paper Diapers Storage Cassette case is pending before the Supreme Court, the Tokyo District Court decision illustrates a significant issue with respect to the application of Article 102(2) of the Patent Law – that is, whether the repudiation of assumed damages under Article 102(2) should be permitted. This case demonstrates the application of such repudiation. The decision included a chart to indicate how the courts should calculate the value attached to such repudiation. Future decisions considering the application of Article 102(2) will likely rely on this chart to determine the repudiated amount.
For further information on this topic please contact Eiichi Fukushima at Nishimura & Asahi by telephone (+81 3 5562 8500), fax (+81 3 5561 9711) or email (email@example.com). The Nishimura & Asahi website can be accessed at www.jurists.co.jp.
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