Infringer's Profits as a Proxy for Plaintiff's Lost Profits in Japan

As I note in my book (p.309),  article 102(2) of Japan's Patent Act states that 

"[w]here 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 presumption therefore establishes awards of infringer’s profits as a proxy for compensatory damages, rather than as having their basis in some other theory such as unjust enrichment or deterrence (though, presumably, they may serve these latter purposes as well).  For reasons discussed in earlier portions of this book, a presumption of this sort is difficult to justify on economic grounds; and its weaknesses have not been lost on Japanese commentators.

One thing that such a presumption does have going for it, though, is that it simplifies damages calculations and thus (presumably) conserves on adjudication costs.  As I discuss in the paper I will be presenting at the University of Texas on Friday (and hope to post on ssrn before too long), though I am doubtful of the merits of this particular presumption I am of the view that some such presumptions or other simplifying heuristics sometimes may be justified, particularly where (as Professor John Golden points out in some of his recent work) the stakes of the dispute are low and/or the defendant has intentionally infringed.  

I bring these matters up here to place in context a recent Japanese case discussed by Yusoke Kurita in the March 2016 issue of AIPPI-Journal of the Japanese Group of AIPPI (pp. 84-86), SPIN Inc. v. Cinefocus Corp., Judgment of Aug. 25, 2015, Case No. 2014 (wa) 25858 (Tokyo District Court).  The plaintiff, the exclusive licensee of a patent for a "device for displaying moving images in the background of a stage," prevailed on its claim that one of the defendant's two devices infringed the patent.  Although the defendant was not manufacturing the infringing device "at this moment," the court awarded an injunction based on the defendant's previously having manufactured the device outside Japan.  As for damages, the plaintiff invoked articles 709 of the Civil Code ("“A person who has intentionally or negligently infringed any right of others, or legally protected interest of others, shall be liable to compensate any damages resulting in consequence”) and 102(2) of the Patent Act, quoted above (which, as I discuss in my book at pages 307-08, is intended to alleviate the difficulties of proving damages under article 709 alone).  According to Mr. Kurita's brief write-up, the court "accepted the plaintiff's claim for payment of 500,000 yen as damages as well as delay damages accrued thereon" (p.86).

Again, let me state that, in principle, I'm not wild about the idea of presuming that the plaintiff's lost profit equals the defendant's profit.  (Whether awards of defendant's profits can be justified on other grounds, such as deterrence, is another matter.)  But if one were going to indulge such a presumption nonetheless, perhaps this is the sort of case in which it makes sense:  though it isn't 100% clear from the write-up whether the defendant's infringement was intentional, the stakes of the case certainly appear to have been low (500,000 yen equals, as of today, U.S. $4,690).  Moreover, by virtue of the presumption, the plaintiff doesn't have to disclose its own internal profit margin (often a disincentive in some countries to plaintiffs seeking lost profits awards).  Nevertheless, the write-up doesn't indicate where the 500,000 yen figure comes from--whether that was that the profit the defendant earned from sales of the infringing device over what it could have earned using the next-best available noninfringing alternative, etc.  Overall, from a policy perspective the question is whether the method the court used is "good enough" to achieve the goals of patent law at acceptable cost.  Perhaps in a case involving such low damages the answer is yes, but I would be cautious about extending the presumption to matters where substantially more money is at stake.