Damages for Extraterritorial Injuries in Japanese Patent Law

When an act of domestic infringement causes the patent owner to suffer an extraterritorial loss, is the patent owner entitled to recover damages for that extraterritorial loss?  Last year the U.S. Supreme Court in WesternGeco held that the answer is yes, at least in cases arising under section 271(f) of the U.S. Patent Act, though questions remain whether the Coutrt's reasoning applies to infringement under other provisions of the act.  I think it does, but opinions differ.  For previous coverage on this blog, see, e.g., here and here, with the latter noting a Canadian patent case, and U.S. and German copyright case law, permitting monetary recoveries for extraterritorial harm.

Anyway, while I was in Japan two weeks ago, I learned from Professor Masabumi Suzuki that there are at least two cases in which Japanese courts have awarded damages for extraterritorial injuries caused by domestic infringement:  the Judgment of the Osaka District Court, Jan. 28, 2010, 2007 (Wa) 2076, and the Judgment of the Tokyo District Court, Sept. 25, 2013, 2010 (Wa) 17810, aff'd in part, Judgment of the IP High Court, Dec. 4, 2014, 2013 (Ne) 10103.  Summaries of all three can be found on the IP High Court's IP Judgments Database:   of the Osaka District Court decision here, of the Tokyo District Court decision here, and of the IP High Court decision here.  The second of the two--the Tokyo District Court/IP High Court case--requires a bit of explanation to understand.  There were two plaintiffs, the patentee/exclusive licensor and its exclusive licensee.  The defendant made infringing products in Japan, and exported and sold some of them outside Japan.  On these facts, the court permitted the exclusive licensee to recover damages under Japan Patent Act article 102(1) based on the exclusive licensee's profit margin multiplied by the defendant's sales, which included sales from products the defendant sold outside of Japan.  (This amount is presumed to be the exclusive licensee's lost profit under article 102(1).)  The patentee/exclusive licensor in turn sought to recover its own lost royalty, that is, the royalty the exclusive licensee would have paid the exclusive licensor, but-for the infringement, including royalties the exclusive licensee would have paid on the foreign sales.  Under Japanese law, however, when there is an exclusive license that has been registered with the Japan Patent Office, the license excludes even the patent owner from practicing the patent (see, e.g., my book p. 294 n.25), and the patent owner therefore cannot recover a reasonable royalty under Patent Act article 102(3).  Instead, it must prove its damages (if any) under the more rigorous requirements of article 709 of the Civil Code.  Here, the IP High Court held that the patentee/exclusive licensor was unable to prove that its licensee would have made those foreign sales, and thus it could not recover a lost royalty based on those sales.  In other words, for purposes of assessing the exclusive licensee's damages, the court presumes that the licensee would have made the defendant's sales (including the foreign sales), absent the infringement, while for purposes of assessing the licensor's damages, the licensor has to prove that the licensee would have made the alleged lost sales (and in this case, at least as for the foreign sales, it wasn't able to).  The overall result may seem odd, but the court concludes that it follows from the differing burdens of proof under the applicable statutes.  Nevertheless, both this case and the Osaka case provide examples of Japanese courts' apparent willingness to award damages for extraterritorial harms, under appropriate circumstances.  

News on Patent Remedies in China

1.  Nie Huiquan has published an article titled New Development in Chinese Practice on Calculation of Patent Damages Awards in the Nov.-Dec. 2018 issue of China IP Magazine (available here, but behind a paywall).  The author discusses the general framework for awarding patent damages in China; summarizes some descriptive statistics on damages awards; and discusses three cases, Watchdata v. Hengbao (for previous discussion on this blog, see here (guest post by Jill Ge), here and here); Siemens v. "SIEMIVES", a trademark case "which can also be used to guide the trial of patent infringement cases," in which the court awarded RMB 1 million as statutory damages; and the Quangzhou court's decision in Huawei v. Samsung (very briefly discussed on this blog here).  The author notes, among other matters, an increased willingness on the part of the Chinese courts to include attorneys' fees as compensable costs.

2.  Mark Cohen published a post on the China IPR Blog titled On Avoiding "Rounding Up the Usual Suspects" in the Patent Law Amendments . . ."  Professor Cohen notes that the recently released draft amendments to China's patent law "would enhance patent administrative enforcement" and "would also provide for punitive damages upon a judicial finding of willful patent infringement (Art. 72), with a maximum of 5x damages" (for previous mention, see here).  Mr. Cohen argues that "[u]sing remedies that are not at the core of a healthy IP system based on private rights (administrative remedies/punitive damages) are not a substitute for predictable, compensatory private remedies," a sentiment with which I fully agree. 

3.  Expressing somewhat analogous concerns, albeit in the context of a copyright matter, Tian Lu published a post on IP Kat titled The CNY 260 million fine on QVOD is final!  The post discusses the recent affirmance of a decision of the Market Supervision Administration of Shenzhen Municipality imposing a fine of RMB 260.148 million (about US $39 million) against QVOD, "a peer-to-peer video streaming and sharing platform."  And in a not-entirely-dissimilar vein, albeit involving a different country, is Hans Eriksson's post on IPKat titled Swedish Supreme Court finds hypothetical licence fee too hypothetical, involving a fine leveled against a streaming site.  All of which is beginning to make me think I ought to resume writing about copyright damages one of these days . . .

Slides from my recent talks in Tokyo and Nagoya

As I mentioned recently, I was invited to speak at events held last week at Waseda and Nagoya Universities in Japan.  I am very grateful to Professors Masabumi Suzuki and Christoph Rademacher for their hospitality.  I received some excellent feedback on the project I am working on, on territoriality and patent remedies, and I learned a great deal from the other speakers about patent and other IP issues (including remedies issues) in Japan, Taiwan, and China.  

For readers who may be interested, the slides for my talk ("Is Territoriality Dead?") are available here.

Lincoln, Darwin, and Invention

The following is a reprint of a post I originally published on February 12, 2014.

Because today (February 12, 2014) is the 205th anniversary of the birth of both the sixteenth United States President, Abraham Lincoln, and the great naturalist Charles Darwin, I thought it might be worthwhile to say a few words about Lincoln, Darwin, and their relevance to contemporary issues of patent law.  I will return to my normal subject of patent remedies later this week.

Lincoln was the first, and so far only, U.S. president to obtain a patent--specifically, U.S. Patent No. 6,469, dated May 22, 1849, titled "Buoying Vessels over Shoals."  Here is a link to the patent, and another to a write-up about it by Cherise LaPine on the "How Stuff Works" website.  Lincoln's model of his invention is on display in the Smithsonian Institution in Washington, see here, but apparently the invention was never built or commercialized. 

In the late 1850s, Lincoln also delivered a lecture on "Discoveries and Inventions," which according to the website Abraham Lincoln Online was not a big hit either.  (It is also distressing to see, in a few parts, how the Great Emancipator was capable of making disparaging comments about other peoples, but the historical record is what it is.)  But the last paragraph has become well-known and is still cited in contemporary debates over patent policy:   

Next came the Patent laws. These began in England in 1624; and, in this country, with the adoption of our constitution. Before then any man might instantly use what another had invented; so that the inventor had no special advantage from his own invention. The patent system changed this; secured to the inventor, for a limited time, the exclusive use of his invention; and thereby added the fuel of interest to the fire of genius, in the discovery and production of new and useful things.

From a comparative standpoint, it would be interesting to know whether any other heads of state have ever obtained patents.  Angela Merkel is a physicist and Margaret Thatcher was a chemist, but I’m not aware if either of them (or any other head of state) ever received a patent.  For an interesting discussion titled “Chemists and Engineers Who Were Heads of State,” see this link.   

To my knowledge Darwin had no patents either, though of course the principle of evolution by natural selection is one of the key scientific insights of all time, and our understanding of it has certainly laid the groundwork for a huge amount of further discovery and invention.  In my I.P. courses, however, I often use Darwin’s race with Alfred Russel Wallace to be the first to publish the theory an example of the independent, near-simultaneous discovery of scientific principles or inventions by two or more persons.   Here's something I've written about the matter in the past:

The principle of evolution by natural selection traces its origin, of course, to the writings of Charles Darwin and (less familiarly to many readers) his contemporaries Alfred Russel Wallace, Patrick Matthew, and William Charles Wells.  See Charles Darwin, The Origin of Species by Means of Natural Selection or the Preservation of Favored Races in the Struggle for Life (1859); Charles Darwin, The Descent of Man and Selection in Relation to Sex (1871); Alfred Russel Wallace, On the Tendency of Varieties to Depart Indefinitely from the Original Type, 3 J. Proceedings of the Linnean Soc'y (Zoology) 53 (1858); see also Daniel C. Dennett, Darwin's Dangerous Idea:  Evolution and the Meanings of Life 49 (1995) (discussing Matthew’s articulation of the principle of natural selection); Stephen Jay Gould, The Structure of Evolutionary Theory 137-38  n.* (2002) (discussing Matthew and Wells); Michael Shermer, In Darwin's Shadow:  The Life and Science of Alfred Russel Wallace 147-48 (2002).  Darwin’s race to complete publication of The Origin of Species, upon learning that Wallace had independently discovered the principle of natural selection, is recounted in, among other sources, Shermer, supra, at 118-21, 128-50; Robert Wright, The Moral Animal 301-10 (1994).

Neither Darwin nor Wallace wrote upon a completely blank slate.  On the basis of fossil evidence and observation of existing species, a few naturalists before Darwin and Wallace had grasped the basic idea that species evolve; but no one had previously articulated with much precision the mechanism by which evolution occurs.  See Gould, supra, at 64-66, 137-39; Ernst Mayr, What Evolution Is 5, 23-25, 80-81 (2001); Mark Ridley, Evolution 7-9 (1993).  Perhaps the most notable attempt to articulate a pre-Darwinian theory of changes within species was that of the French naturalist Jean-Baptiste Lamarck, who proposed, incorrectly, in his 1809 work Philosophie Zoologique that species could pass on acquired characteristics to their offspring.  See Gould, supra, at 170-97 (providing a sympathetic overview of Lamarck’s life and work, while noting his errors); Mayr, supra, at 81; Ridley, supra, at 8-9 (noting that Lamarck did not invent the theory of inheritance of acquired characteristics, which can be traced at least as far as back as Plato). 

The fact that even landmark scientific discoveries (like the principle of evolution by natural selection, or Newton’s and Leibniz’s near-simultaneous invention of calculus), to say nothing of lesser discoveries and inventions, are not only based on earlier contributions (as Newton said, “If I have seen further it is by standing on the shoulders of giants”) but also often are arrived at roughly the same time by different individuals working independently is also of potential relevance in crafting an optimal patent policy.  For an interesting discussion, see, e.g., Mark A. Lemley, The Myth of the Sole Inventor, 110 Mich. L. Rev. 709 (2012) (arguing that the principal public benefit of the patent system may reside less in its role in stimulating invention than in stimulating patent races). 

Remedies News from Canada

1.  Norman Siebrasse published a post last month on Sufficient Description titled Legal Fees Not a Deductible Expense in an Accounting.  The case, Human Care Canada Inc. v. Evolution Techs. Inc. 2018 FC 1302 supplementary reasons 2018 FC 1304.  The case holds, among other matters, that the defendant is not entitled to deduct its litigation expenses from an award of profits (which makes sense).  It also quotes a 2011 case for the proposition that courts should decline to enter permanent injunctions in favor of prevailing patent owners "only in very rare circumstances," and denies compound interest. 

2.  Steven Brachmann recently published a post on IP Watchdog titled Canada Patent Law Changes Are Bad News for Patent Owners.  From the title, you might think that Canada was thinking of reintroducing compulsory licensing of pharmaceuticals, or maybe of abolishing patents altogether, but in fact the changes are the (in my view, rather modest) ones I've blogged about a couple of times (here and here).  Specifically, Canada recently enacted amending its Patent Act to include a provision stating that FRAND commitments are binding on subsequent assignees.  The legislation also permits use of prosecution history "[i]n any action or proceeding respecting a patent" (as the U.S. does); authorizes the regulation of demand letters (something many states in the U.S. now permit, though to my knowledge these laws haven't been used much); establishes a statutory experimental use defense (like many countries have, and which I believe Canada previously had under common law); and extends the prior user defense a bit.  Ah, but the sky is falling . . . 

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In other news, the Federal Circuit last week affirmed a district court decision that a case was exceptional, and that fees amounting to $600,000 were merited, in Drop Stop LLC v. Zhu; and it (1) affirmed a contempt order relating to a press release the publication of which violated a protective order, and (2) remanded an order awarding litigation sanctions to allow the district court to vacate that order, in  Codexis, Inc. v. EnzymeWorks, Inc.   Both cases are nonprecedential and quite fact-specific.        

Federal Circuit to Visit Minnesota

The United States Court of Appeals for the Federal Circuit will be sitting in Minneapolis and St. Paul April 1, 2, and 3.  The April 3 sitting will be at my home institution, the University of Minnesota.  I will be away that week, but I urge any of my readers who happen to be in the area--especially my students!--to attend at least one of these sittings.  Here is a link to the court's press release; I will post further information regarding specifics, as it becomes available.   Hat tip to 717 Madison Place for bringing this to my attention.

Three New Papers on FRAND Issues

1.  Matthias Leistner has posted a draft on ssrn, titled FRAND Patents in Europe in the Post-Huawei Era:  A Recent Report from Germany, which will be a chapter in a forthcoming edited volume titled SEPs, SSOs and FRAND – Asian and Global Perspectives on Fostering Innovation in Interconnectivity (Hilto/Liu eds., Springer).  Here is a link to the paper, and here is the abstract:

Since 2015, the enforcement of FRAND patents in Europe is governed by the framework laid down in the Huawei/ZTE judgment of the CJEU. Influential post-Huawei/ZTE cases have been decided in Germany and the UK. After a brief outline of the development leading to Huawei/ZTE and of the contents of the Huawei/ZTE judgment, the present paper mainly reports on recent case law from Germany (with some comparative remarks and references on case law in England, the U.S. and China). Essentially, the paper argues that the German courts have specified the framework set by Huawei/ZTE, thereby tentatively answering many of the open questions raised by the rather generally framed judgment of the CJEU. Notwithstanding some remaining problems and some contradictions between the German courts’ approach and the English High Court’s as well as the Court of Appeal’s approach in Unwired Planet/Huawei, the present paper argues that enforcement of FRAND patents in Europe has become considerably more predictable since Huawei/ZTE, and that the general framework, established by the CJEU, allows for the development of fair and workable procedural standards guiding the enforcement of SEP’s and the possible competition law defence in Europe. In addition, the paper tries to identify and specify the fundamental considerations underpinning Huawei/ZTE. This allows to consider whether and to what extent the CJEU’s Huawei/ZTE doctrine should be broadened beyond the realm of genuine SEPs, which lead to a dominant position of the right holder, in the future. Also some additional avenues for the solution of SEP problems (such as through further upstream regulation of the standardization process and institutions, contract law and/or civil procedural law) are briefly proposed, which should be further developed and tested in the future.

I enjoyed reading the paper, which gives a thorough overview of the current state of German law on the subject, and I look forward to meeting Dr. Leistner at a forthcoming conference in Munich (the details of which I will be blogging about soon). 

2.  Peter Georg Picht has published a paper titled Schiedsverfahren in SEP/FRAND-Streitigkeiten: Überblick und Kernprobleme ("Arbitration Proceedings in SEP/FRAND Disputes:  Overview and Key Problems"), in the January 2019 issue of GRUR (pp. 11-25).  Dr. Picht is one of the coauthors of chapter 5, "The Effect of FRAND Commitments on Patent Remedies," in the forthcoming edited volume Patent Remedies and Complex Products:  Toward a Global Consensus (Brad Biddle, Jorge L. Contreras, Brian J. Love & Norman V. Siebrasse eds., Cambridge Univ. Press), which I have mentioned before (see here, with links to drafts of all of the chapters).  And I'll be seeing him soon as well, both at the Munich conference and at a conference two weeks earlier in Erlangen (details coming soon).  Anyway, here is the abstract (my translation from the German):

Alternative means for settling disputes involving intellectual property rights have gained prominence, especially with regard to FRAND-committed SEPs.  The recent past has witnessed a noticeable increase in arbitration proceedings and the development of the law in this sphere.  In this context, the present essay seeks to illuminate important aspects of SEP/FRAND arbitration proceedings and provides recommendations for the further development of the relevant legal framework.

3.  Alexander Galetovic and Stephen Haber have posted a paper titled SEP Royalties:  What Theory of Value and Distribution Should Courts Apply?, available here.  Here is the abstract:

Courts are often required to determine the royalty to which the owner of a FRAND-encumbered standard essential patent (SEP) is entitled. We argue that courts should use the observed royalties charged by licensors, the market rental price of assets created by investments in R&D. This “comparables” technique is used to value virtually all classes of assets and is based on the standard theory of value and distribution, price theory. Price theory explains where value comes from, how it is distributed among inputs, and how monopoly power is exploited and measured.

We further argue that courts should discard the “bottom up” and the top down techniques. Both are based on the theory of patent holdup and royalty stacking. This theory assumes that any observed royalty is the result of “excessive royalties” wrought by the additional monopoly power conferred by standardization through patent holdup and royalty stacking. Nevertheless, the theory is incoherent and rejected by the available evidence.

Proponents of the “bottom up” technique claim that courts should value SEPs as the incremental value of the standardized technology compared with its next-best alternative, which was discarded when the SEP became part of the standard. This has never been operationalized, however, because competing technologies never made it to market. Also, the bottom up technique is based on faulty game theory that elides R&D, assumes that competing technologies are freely available, and has absurd antitrust implications for any proprietary standard and well beyond SEP intensive industries.

Proponents of the “top down” technique claim that courts should determine the value of SEPs by, first, determining the cumulative royalty that the entire suite of SEPs would have obtained competing with its next best alternative, and then apportioning it among SEP holders. The first step shares the conceptual and practical flaws of the bottom up technique. The second step assumes that each stage of production chain creates a fixed amount of value that is independent of the rest of the production chain and of consumer demand. This is contrary to the basic implications of standard economics.