Adequate Patent Infringement
Damages in Japanese Courts:
Comparative Analysis
Toshiko Takenaka, Ph.D.
Professor of Law; Director, CASRIP
University of Washington School of Law
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
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
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
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
Tort Damage Theory
Similar Theoretical Framework
 Japan
– Cause-in-fact
– Legal/adequate cause (foreseeability)

U.S.
– Cause-in-fact
– Proximate cause (foreseeability)
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
Damage Measurements
U.S.
 Lost Profits
 Reasonable Royalty
 (Defendant’s Profit)
– Abolished

Japan
 Lost Profits
– Civil Code

Reasonable Royalty
 Defendant’s Profit
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
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)
U.S.: Panduit Test
Inference of Causation
Causation Inferred by Showing:
① Market demand
② Capability to meet such market
demand
③ Absence of non-infringing acceptable
substitute in the market
④ Profits the patent would have received
but for infringement
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.）
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
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
U.S.: Selection of Two
Measurements
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

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
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
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
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
1998 Patent Revision

Art. 102, Para 1
– Presumption of causation for lost profits

Art. 102, Para 4
– Removal of “ordinarily”
1998 Revision
Codification of Panduit Test
Causation Inferred by showing:
① # of infringing products sold by
infringer
② Net profit-per-product that patentee
would have sold but for infringement
– Deduction of variable costs only
③
Capacity to make and sell the # of
products sold by infringer
1998 Revision
Codification of Panduit Test
Rebuttal by Infringer
# of products P could not have sold
① Difference in infringing product and
patentee’s product
– Competing products
②
③
Presence of non-infringing acceptable
substitute in the market
Apportionment
– Entire market value rule
1998 Revision
Reasonable 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?
Impact of Revision
Patent-Utility Model Infringement
1989-1994 Average Damages Awarded
 $0.18 M (Median: $0.04M) 35.73%
1999-2004 Average Damages Awarded
 $1.11 M (Median: 0.22M) 43.19%
Patent
1996-2005 Average Damages Awarded
 $1.71 M
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
Impact of Revision
Japan: Damage Awards Average
$3,500,000
$3,000,000
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
U.S.: Big Damages 2005-07
U.S.: Damages Awarded Median
Thank You Very Much!
If you have a question, please
contact, Toshiko Takenaka, at
[email protected]