I'll be heading to Japan in a few days (more on this later this week) and so the time is ripe for discussion of an interesting Japanese case I just came across, NeoChemir Inc. v. KBC Co., IP High Court Judgment of August 27, 2014, Case No. 2014 (ne) No. 10016. Reimon Kunugi's write-up of the case can be found in Volume 40 of AIPPI-Journal of the Japan Group of AIPPI 102-03 (2015). There is also an English language summary of the case available on the IP High Court's website, here.
The facts are these. The plaintiff sought damages consisting of (1) compensation for the unauthorized post-publication, pre-grant use of the claimed invention in accordance with Japan Patent Act article 65(1), and (2) an award of damages for the unauthorized post-grant use and sale of the invention, in accordance with article 102(2). (If I'm reading this correctly, the defendant also sought some portion of its damages in the form of a reasonable royalty under article 102(3), but the main issue concerns article 102(2) and its relationship to article 102(1), as discussed below.) Article 102(2) reads as follows:
Where a patentee or an exclusive licensee claims against an infringer compensation for damage sustained as a result of the intentional or negligent infringement of the patent right or exclusive license, and the infringer earned profits from the act of infringement, the amount of profits earned by the infringer shall be presumed to be the amount of damage sustained by the patentee or exclusive licensee.
The defendant argued, however, that the plaintiff's product itself infringes a patent owned by a third party, Medion, who is not a party to the litigation. According to the defendant, the fact that the plaintiff's product infringes requires the court to reduce the amount of damages under article 102(1) of the Japanese Patent Act, which reads as follows:
Where a patentee or an exclusive licensee claims against an infringer compensation for damage sustained as a result of the intentional or negligent infringement of the patent right or exclusive license, and the infringer assigned articles that composed the act of infringement, the amount of damage sustained by the patentee or the exclusive licensee may be presumed to be the amount of profit per unit of articles which would have been sold by the patentee or the exclusive licensee if there had been no such act of infringement, multiplied by the quantity (hereinafter referred to in this paragraph as the "assigned quantity") of articles assigned by the infringer, the maximum of which shall be the amount attainable by the patentee or the exclusive licensee in light of the capability of the patentee or the exclusive licensee to work such articles; provided, however, that if any circumstances exist under which the patentee or the exclusive licensee would have been unable to sell the assigned quantity in whole or in part, the amount calculated as the number of articles not able to be sold due to such circumstances shall be deducted.
The defendant's argument was that the infringing nature of the plaintiff's products constituted "circumstances . . . under which the patentee . . . would have been unable to sell the assigned quantity in whole or in part" under article 102(1); and that since article 102(2) merely provides a means for presuming the amount of the plaintiff's lost profit (a presumption I have criticized, but that's what the statute says), those same circumstances should reduce the recovery under article 102(2). (I also would assume that the defendant is not arguing that the defendant's own products infringe Medion's patent, which might be a dangerous argument for the defendant to make! Presumably it's just some of the embodiments produced by the plaintiff that infringe.) The IP High Court ruled against a reduction, however:
. . . the court first ruled that the amount of damages is calculated under Article 102, paragraph (2) of the Patent Act and that it is not reasonable to consider that the proviso to Article 102, paragraph (1) is applicable or applicable mutatis mutandis to said calculation. The court then ruled as follows: The circumstance pointed out by the appellee may fall under the circumstance that completely annihilates a presumption set forth in Article 102, paragraph (2) of said Act; however, there is no sufficient evidence to find occurrence of a situation where the sale and manufacture of the products in which the Patented Invention is worked is hindered, such as the aforementioned third party's request for discontinuance of manufacture and sale of the products, though some of the products certainly fall under products infringing the patent right of said third party. Therefore, said circumstance cannot be regarded as one that completely annihilates said presumption.
The question of whether damages should be reduced because the plaintiff's own product infringes is an interested one. I'm inclined to think that the answer is no; if the third party wants to assert its rights against the plaintiff, it may do so, but that's between the third party and the plaintiff, and we should be careful adjudging the plaintiff's product to be infringing when the owner of the relevant patent isn't before the court (and may not, as apparently was the case here, have any interest in suing for infringement). I could imagine the rule advocated by the defendant opening some floodgates, since it's often possible that a plaintiff's product infringes somebody's patent that perhaps neither party is initially aware of. The defense reminds me a bit of the U.S. patent misuse defense, though, under which the plaintiff's misconduct can sometimes render a patent unenforceable--though usually only when the misconduct expands the scope of the patent in some manner. Off the top of my head, I'm not aware of any cases in which anyone has argued patent misuse because the plaintiff's product infringes somebody else's patent, though the misuse defense is similar (and rather peculiar) in allowing the defendant to assert misconduct that targets someone other than the defendant itself. For more discussion of misuse, see my article here and Daryl Lim's book.