Landmark German Case on Patent Damages, Part 1

Earlier this week, ip fray published a post discussing and excerpting a recent decision of the Seventh Chamber of the Munich I Regional Court, specifically the Judgment of Apr. 16, 2026, 7 O 8367/25.  The patent at issue is the German portion of EP 1 501 669 B1, for a “smoothing method for layered deposition modeling,” used in layered manufacturing techniques.  (I was interested to see that the inventors are from Eden Prairie, Minnesota, not much more than a stone’s throw from my house.)  The patent has expired, but the defendants were found to have engaged in indirect infringement during the patent term by selling machines and solvents used to carry out the process.  The present decision therefore focuses on damages, ultimately awarding €1,064,654.70 for the sale of 28 devices and 266 16-liter units of solvent (paras. 39-40), both used for carrying out the process.  But because “there are therefore few decisions regarding the amount of damages,” the court perceives “a need for judicial clarification on exactly how damages should be calculated. This is particularly necessary because, as a result of the European Court of Justice’s ‘BSH-Hausgeräte’ decision (GRUR 2025, 568), national courts are likely to have to deal with an increasing number of centralized claims for damages” (para. 42; I’ll be using machine translations throughout, subject to some adjustments of my own from the original German).  So beginning with paragraph 43 of the decision, the court sets out what it views as the relevant principles for calculating damages.  (These are summarized in the decision’s headnotes at the beginning of the decision, and these headnotes are the focus of the ip fray article.)  Overall, this appears to be quite an important decision, so I am dividing up my discussion and analysis into at least a couple of parts, with today’s post centering on the court's general statements regarding lost profits, royalties, and infringer's profits.

First, the court compares the three methods of determining damages (the aforementioned lost profits, royalties, and infringer’s profits), stating that the first of these is the hardest to prove but also tends to be result in a higher amount.  Reasonable royalties are comparatively easy to prove, and infringer’s profits something of a compromise between the two (para. 49), though the latter are not dependent on the amount of the patentee’s loss (para. 47).  This all seems largely correct to me, from an economic standpoint, although I would also point out that the infringer’s profit could be higher than the patentee’s own lost profit, if for example the infringer reaches markets the patentee doesn’t or is a more efficient producer of the patented article.  Overall, though, this discussion is in my view a welcome change from something I recall haven previously seen (see my discussion here) suggesting that in principle all three methods should converge on the same amount.

Second, the court notes that patentees’ reluctance to disclose their own financial information means that there are few decisions in which lost profits are awarded.  The court appears (to me) to want to change this, stating that all the patentee really needs to do is to prove its unit price and to offer the expert opinion of an auditor of what costs should be deducted (para. 51).  Moreover, the need to prove causation need not be insurmountable; all the patentee must do is prove a decline in sales following the infringement, and a rebuttable presumption then arises that these are caused by the infringement (para. 52).  The court suggests that the infringer can try to rebut the presumption through, perhaps, market reports--though the ip fray article suggests that in practice the presumption may be hard to overcome, because of the limited discovery available to defendants.

Third, the court says that patent owners can combine a lost profits award with a reasonable royalty or an award of profits, in cases in which the decrease in sales is at least partly attributable to other factors, or the infringer reaches additional markets that the patent owner didn’t serve.  But reasonable royalties can’t be combined with infringer’s profits (para. 53), all of which seems economically correct to me.

Fourth, in line with the BGH’s 2001 Gemeinkostenanteil decision, as a general rule when calculating an award of infringer’s profits, only the infringer’s direct costs should be deducted from its revenue (para. 54).  (The non-deductibility of allocable overhead, of course, leads to higher awards.)  In addition, however, the court stresses the importance of determining the extent to which the infringer’s profit is attributable to the infringement.  In this regard, it is essential to determine the appropriate base (Bezugsgröße).  Here, the court uses as an example an infringing brake pad.  In comparison with the entire vehicle the brake pad portion (Anteil) is vanishingly small; in comparison with the brake assembly, it is small; and in comparison with the brake pad itself it is, of course, 100% (para. 55).  In this regard, especially for a very small component of an entire product, the portion may be determined not be means of a percent but rather as a multiple of the standard license rate (para. 56).  In contrast, for machines which make use of a method or device claim, typically the percentage can be presumed to be 50% (para. 57).      

Fifth, a reasonable royalty can be viewed as a “safe harbor,” and the requirements for calculating it are minimal (niedrig).  The revenue from infringing products should be evident from the disclosure the defendant is required to make (in German, the Auskunft), after which it is necessary to determine the base (entire machine or component) and the typical license rate.  According to the court, the standard rate varies from 1% in the automobile industry to 10% for high-quality mechanical engineering (para. 58).  (The ip fray article suggest that these rates could really add up, since in Germany a separate action is required for each patent that is asserted by the plaintiff.  Or would the court take this procedural matter into account in calculating royalties, to avoid overcompensation?)

Sixth, the court states that because of differences between a negotiated license and license rate that is determined followed a finding of infringement, the latter can be higher, citing the Munich court’s 2010 Gülleausbringung decision (which I blogged about here).  This makes economic sense, since the infringer avoids certain risks that the voluntary licensee undertakes, and also because prior to final judgment there often will be some uncertainty as to infringement (though in Germany, there still may be substantial uncertainty as to validity, since the invalidation proceedings are separate from infringement proceedings).  As to the amount of the enhancement, the court says it can be up to three times higher (para. 59).  This actually seems pretty high to me, in view of the latter point about validity still potentially being in dispute.  

There is a lot more to the decision—some of it potentially quite path-breaking—including discussion of apportionment of profits, damages for convoyed goods, and springboard damages.  I will continue with my next installment on this decision in a few days.

UPC’s Hamburg L.D. Concludes that Infringing Offer Caused No Proven Damages

The decision is Fives ECL v. REEL GmbH, UPC_CFI_274/2023, issued on February 11, 2026.  The decision is the subject of a recent blog post on ip fray.  Last June, I blogged about an earlier decision (of the UPC Court of Appeal) in this dispute, writing that “the patent owner had obtained from a German national court a judgment of infringement, prior to June 1, 2023, and a declaration that the defendant would be liable for damages; but it thereafter pursued its damages claim before the UPC.  The UPC Court of Appeal held that the UPC was competent to hear the damages claim (but left open the question of whether national or UPC law would apply to that claim).”  The current decision holds that German domestic law applies to the damages claim, but that it wouldn’t matter in any event in view of the Intellectual Property Rights Enforcement Directive (paras. 100-10).  More interesting, however, is the court’s conclusion that, although the defendant was adjudicated to have made an infringing offer, it isn’t liable for any damages.  A copy of the original decision, in German, is linked to above; below, I use a machine translation that I have compared with the original.

The patent in suit is EP  c1 740 740 B1, for a “compact service module which is intended for electrolytic aluminium production plants.”  Plaintiff and defendant compete “in the market for special purpose cranes, which are used worldwide in various countries in aluminum furnaces as part of aluminum production” (para. 5).  In December 2016, the parties submitted competing bids for a project in Bahrain, which was to be built by Bechtel.  The first offers, dated December 2, were for twelve service modules and auxiliary bridges.  Defendant’s offer was higher than plaintiff’s.  Bechtel then requested that the parties provide a price “in the event these two parts were split and continued separately,” which the parties responded to on December 15.  Defendant offered a price reduction, while the plaintiff did not (para. 70).  Plaintiff didn’t get the contract; but then Bechtel decided to reopen the bidding process, and plaintiff submitted a new bid on February 21, 2017, which included a price decrease of €6,500,000.  Apparently plaintiff was then awarded the contract, but it (successfully) sued the defendant for having made an infringing offer, which it then followed up with this claim for lost profits.

The court rejects the claim for lost profits, for failure of proof as to amount and for lack of proof of causation.  From what I gather, the plaintiff didn’t proffer the December or February offers to the court (see paras. 18, 47), but rather sought to rely on evidence of (1) the defendant’s typical profit margin, according to the latter’s publicly available financial data from 2011-16, and (2) “projects implemented by the plaintiff in the past” (para. 51).  The former, however, is not sufficient proof, given that “defendant’s activities span multiple business segments,” and also that the submitted evidence reports the defendant’s gross margin (Bruttomarge), which may not be comparable to the profit margin for this project.  The latter as well is not sufficient, because the projects “predate the tender for the [present project] by eight to thirteen years,” “included contracts with a wide range of volumes,” and were reflective in part of both the greater market power enjoyed by the plaintiff at those earlier dates and a better economic environment generally for aluminum manufacturers and suppliers.  In addition, the court casts doubt on the technical advantage provided by the patented technology in comparison with alternatives (discussed further below), and concludes that in any event there is no evidence that any assumed advantage over the state of the art could justify the plaintiff’s alleged margin.  Moreover, the defendant’s bid included an “erection and installation concept” that Bechtel favored, to the point of requesting the plaintiff to include a similar concept in its proposal when bidding reopened—which “contradicts the assumption that the plaintiff would have prevailed in a hypothetical scenario without the defendant’s patent-infringing bid,” insofar as “the defendant had a competitive advantage over the plaintiff that was independent of the” machinery at issue (paras. 76-77).

Finally, we come to the causation issue.  The court begins this section by stating that it cannot “be ruled out that, even if the defendant had submitted an alternative offer that did not infringe the patent, the plaintiff would have had to reduce its offer of December 2/15, 2016” (para. 78).  Here, the analysis gets a bit confusing, with the court first seeming to indicate that the existence of a noninfringing alternative is irrelevant to the plaintiff’s entitlement to lost profits, and then appearing to walk it back:

79 As a general rule, the claim—in this case, the asserted loss of profits—cannot be countered by the defense of lawful alternative conduct (see BGH, GRUR 2024, 1201, para. 43 et seq. – Verdampfungstrockneranlage). According to the case law of the Federal Court of Justice (BGH), the defense that the damage would have occurred even if lawful conduct had been adopted may be relevant for the attribution of the damage. The relevance of the defense depends on the protective purpose of the respective infringed provision (BGH NJW 2017, 1104, para. 24; BGHZ 194, 194 = GRUR 2012, 1226, para. 35 – Flaschenträger).

 

80 In the case of a patent infringement, the defense that the same economic result could have been achieved through non-infringing acts cannot, in principle, lead to the exclusion of a claim for damages. A patent does not preclude third parties from competing with the right holder by offering non-infringing products. However, the offering and placing on the market of the protected subject matter is reserved to the right holder. A culpable infringement of this exclusive right must result in the infringer having to compensate for the resulting damage even if he could have offered other products. These principles also apply to the patent-infringing offering of a product.

 

81 These principles do not apply in the present case. This is because it is undisputed between the parties that the customer would always have requested a second offer in order to foster competition . . . .

 

82 If one therefore assumes that a non-infringing alternative offer must be included in the assessment, it cannot be definitively established that the plaintiff would certainly have been awarded the contract with its original offer.

The court then goes on to explain why the defendant’s Pavlodar model would have been both technically and economically more attractive than the proposals the plaintiff submitted in December 2016.  As a consequence, as stated above, the plaintiff fails to prove that it “would certainly have been awarded the contract with its original offer” (paras. 83-89).

I’ve noted (what I view as) similar inconsistencies in the German courts’ analyses of noninfringing alternatives before, for example in my June 2024 post on the Verdampungstrockneranlage decision cited above.  Maybe it’s fair to say, however, that under German law, the existence of a noninfringing alternative doesn’t necessarily preclude the plaintiff from recovering damages for infringement, but that the plaintiff still must present evidence as to the amount of those damages; and where, as here, it proceeds instead with an untenable lost profits theory, it gets nothing, though perhaps under other circumstances it would still be entitled a reasonable royalty—as may have been the case in Verdampfungstrockneranlage, where it is conceivable that there was some value to the defendant in making an infringing offer within Germany, as opposed to a noninfringing offer somewhere else, even if the end result would have been the same in that the defendant would have been awarded the contract (for a noninfringing project carried out outside of Germany).  If so, the German position may not be all that different from the U.S. position, under which (as reflected in cases such as Grain Processing Corp. v. Am. Maize-Prods. Co., 189 F.3d 1341 (Fed. Cir. 1999)), the existence of a noninfringing alternative means that the plaintiff can’t recover a lost profit (because it wouldn’t have made the allegedly forgone sales even absent the infringement), but the plaintiff may still recover a reasonable royalty reflecting the cost saving the defendant incurred by having used the patented technology over the noninfringing technology. 

In any event, my most recent effort to compare and contrast the law of noninfringing alternatives can be found at page 144 of my book Remedies in Intellectual Property Law, where I note that, although Canadian and French case law seems more or less consistent with the U.S. approach, the U.K. courts “continue to follow the House of Lords’ 1888 decision in United Horse-Shoe & Nail Co. v. John Stewart & Co., holding that the existence of noninfringing alternatives is irrelevant” to both lost profits and awards of infringer’s profits (though the U.K. courts recognize that noninfringing alternatives are relevant to reasonable royalties); and that “German courts also have held that the existence of noninfringing alternatives does not preclude an award of lost profits, though such evidence can affect the amount awarded,” citing both Verdampfungstrockneranlage  and Flaschenträger.

Federal Circuit Vacates Lost Profits Award

The case is Inventist Inc. v. Ninebot Inc. (USA), nonprecedential opinion (released last Friday) by Judge Dyk, joined by Judges Hughes and Stark.  The patent in suit (the ’250 patent) “discloses an electrically powered self-balancing unicycle” (p.2).  The patentee alleged that two generations of defendant’s products infringed.  The district court, construing the claims, concluded that the first generation infringed as a matter of law (and the defendant “does not challenge this ruling on appeal, p.4 n.2), but that the second generation did not.  The case went to trial on damages, and a jury awarded $835,220 in lost profits and $29,593 as a reasonable royalty.  Both parties appeal certain aspects of the lower court’s judgment.  The Federal Circuit affirms the finding that the defendant’s second generation product did not infringe, but vacates the damages award; given the subject matter of this blog, I will focus on the latter.

As for damages, the defendant argues, first, that it is entitled to a new trial “because the evidence was insufficient to establish marking of Inventist’s products in compliance with 35 U.S.C. § 287(a)” (pp. 8-9); but the Federal Circuit concludes that it lacks jurisdiction to consider this argument, because the defendant “did not amend its notice of appeal to include the district court’s later ruling on the new trial motion” (p.9).  Similarly, the defendant argues that “the lost profits award cannot be sustained because “the district court’s acceptance of Inventist’s flawed lost profit theory was unsupported by the evidence and contrary to well established law,” but the appellate court says it can’t consider this issue either because the defendant “did not file a [Federal Rule of Civil Procedure] Rule 50(b) motion after the verdict, nor did it file a motion for new trial on this ground” (p.10).  However, the defendant did preserve its third damages argument, that “the district court improperly excluded evidence of noninfringing substitutes” (id.), and the Federal Circuit agrees:

            The district court excluded “any proposed evidence” of “[n]on-infringing substitutes not on sale during period of infringement” and did not instruct the jury about the second Panduit factor [absence of acceptable noninfringing substitutes]. . . . Under our precedent in Grain Processing Corp. v. American Maize-Products Co., 185 F.3d 1341, 1349 (Fed. Cir. 1999), the noninfringing substitutes need not be on sale. Evidence of “available alternatives—including but not limited to products on the market”—may be used “to preclude lost profits damages.” Id. We held that under Panduit, “[t]he ‘but for’ inquiry . . . requires a reconstruction of the market, as it would have developed absent the infringing product, to determine what the patentee would . . . have made.” Id. at 1350 (internal quotation marks omitted; second omission in original). This means that just as a patentee engages in a “hypothetical enterprise” to construct its lost profits model, “alternative actions the infringer foreseeably would have undertaken had he not infringed” must also be taken into account. Id.at 1350–51. Thus, “an available technology not on the market during the infringement can constitute a noninfringing alternative.” Id. at 1351 (citing Slimfold Mfg. Co. v. Kinkead Indus., Inc., 932 F.2d 1453 (Fed. Cir. 1991)) . . . . We agree with Ninebot that the district court erred in applying the wrong legal standard. Indeed, Inventist conceded at oral argument that the district court applied the wrong legal standard. . . .

 

However, Inventist contends that under the correct standard, Ninebot did not show that its proposed noninfringing substitute could be readily commercialized, as required by Grain Processing. In its summary judgment motion, Ninebot argued that first-generation models could be modified to become noninfringing through a “simple design change, namely removing the pads from the lateral side cover,” and referred the Court to its later unicycle models. . . . In the first joint pretrial statement, Ninebot offered several witnesses who would testify:

 

[P]urpose of protruding pad was just a battery cover. Cost of wheel cover was minimal. About $20.00–30.00 US.

 

. . . . Contrary to Inventist, no more detailed offer of proof was required. . . . . This evidence, if credited by a jury, could have been sufficient to establish the existence of noninfringing substitutes, which would have defeated the lost profits claim, and Ninebot is entitled to a new trial (pp. 11-12).

The decision doesn’t indicate how many units the defendant sold or what the plaintiff's profit margin would have been on the lost sales--and I haven't looked into the underlying record--but if the trier of fact credits the defendant’s evidence, one might imagine that the lost profits awards could be substantially reduced on appeal.

Damages for Industrial Property Infringement in France

Grégoire Desrousseaux, Mayeul Ottaviani, and Louis Jabert have published an article titled L’évaluation du prejudice de la contrefaçon devant les juridictions françaises, Propriété Industrielle (“Quantifying infringement harm before the French courts”), Sept. 2025, pp. 15-26.  I highly recommend the article to anyone who wants to understand how the French courts calculate damages for the infringement of patents, trademarks, and designs.  The abstract reads as follows (my translation):

 

The transposition into French law of the damages calculation rules of Directive 2004/48/CE has caused a lot of ink to flow.  The authors have attempted an empirical, cross-sectional approach for the amount and calculation of damages, in compiling the accessible decisions rendered between 2016 and 2025 concerning patents, trademarks, and design and models.  An objective was to analyze, concretely, how the parties and the courts make use of the economic factors (often incomplete) to which they have access, to justify their demands and to guide their decisions.  Another objective was to try to identify—if they exist—the most common methods of calculation.

The article is enlightening.  The authors identified 52 decisions from the relevant time period, decided by courts of first or second instance (juridictions du fond), consisting of 26 patent decisions, 19 trademark decisions, and 7 involving designs and models.  They divide these into two basic categories, paragraph 1 and paragraph 2, reflecting the division set forth in the relevant statutory provisions for patents, trademarks, and designs, which for all three reads the same, to wit (again, my translation):

            For assessing damages and interest, the court takes into account distinctly:  (1) the negative economic consequences of the infringement, including lost profits and the loss sustained by the injured party; (2) the moral prejudice incurred by the latter; and (3) the profits realized by the infringer, including the intellectual, material, and promotional investments which the latter has derived from the infringement.

    

            However, the court may, alternatively and upon request by the injured party, award damages as a lump sum.  This amount is higher than the royalties or fees that would have been due if the infringer had requested authorization for the use of the right infringed.  This sum does not exclude compensation for moral prejudice inflicted upon the injured party.

According to the authors, 45 of the 52 cases (87%) made use of the first paragraph, and only 7 (13%) the second.  Of those falling into the first class, they found 4 that (wrongly, in their view) cumulated (that is, added together, if I understand correctly) lost profits with infringer’s profits.  15 were based on lost profits, 24 on infringers’ profits, and 2 used a mixed methodology (meaning that the amount awarded fell in between lost profits and infringers’ profits).  They describe the formula for lost profits as follows:  (1) the number of infringing products sold by the infringer, (2) multiplied by the price at which the plaintiff would have sold those products, (3) multiplied by the plaintiff’s profit margin, (4) multiplied by the taux de report—a term I find difficult to translate into idiomatic English, but which they define as the percent of the infringing products the plaintiff would have sold but for the infringement—(5) multiplied by the taux de pondération (the percent by which the infringed right contributed to the infringer’s sales).  The formula for calculating the infringer’s profits is:  (1) the number of infringing products sold by the infringer, (2) multiplied by the price at which the infringer sold them, (3) multiplied by the infringer’s profit margin, (4) multiplied by the taux de pondération.   They also find that plaintiffs frequently request and frequently are granted some amount for moral prejudice.  Finally, they remark that courts have a fair amount of discretion in applying the rules; they do not have to follow a strictly mathematical rule, and sometimes the relevant evidence (e.g., of consumer  behavior) have to be estimated qualitatively rather than quantitatively.

Merges on Lost Profits and Reasonable Royalties

Rob Merges’ paper Lost Profits and Reasonable Royalties:  Two Distinct Remedies for Two Separate Harms, 40 Berkeley Tech. L.J. 323 (2025), is now available on the journal’s website.  (I was favorably impressed with an earlier version of the paper, which I blogged about here.)  Here is the abstract:

I argue that the two types of damages described in the Patent Act are more than a menu of compensatory options. They describe two distinct types of harm caused by patent infringement. Each comes with a distinctive cluster of remedies. Harm to Product Markets (HPM) is redressed by lost profit damages, and in most cases a permanent injunction against future infringement. This type of damages can be thought of as the mirror image of damages for violations of antitrust law. Antitrust cases are about illicit lack of competition: a wrongful reduction in the competitive state of a product market. Patent damages are about illicit competition: the presence of an unauthorized competitor (the infringer) wrongly increasing the level of competition in the market for the patented item. Odd as it may seem to students of microeconomics, HPM damages are all about giving compensation for interference with a virtuous, or at least statutorily protected, monopolist.

 

The other type of harm, Lost Licensing Opportunity (LLO), occurs when a patent owner is not a participant in the product market for products embodying the patented invention. The traditional remedy of a reasonable royalty is applied in these cases: the law in effect writes a hypothetical contract in which the patent owner licenses its patent to the infringer. Compensation takes the form of an estimate of the value the infringer gained by using the patent owner’s technology as an input. When the input adds real value, and the patent owner is a repeat-player, specialized research and licensing company, the reasonable royalty measure of damages does much the same as HPM damages. The only difference is that damages in LLO cases are measured in markets for patent licensing, rather than for patented products.

 

But not all LLO harm is truly equal. Not all involuntary conferral of benefits should be thought of as the equivalent of a market exchange. Restitution emerged as a distinct branch of equity to address just this issue. Restitution principles reflect the fact that sometimes a benefit is conferred not on a willing market participant, but on a recipient who never asked for the “benefit” and had no effective notice of it; would prefer not to have received it; and in some cases is the victim of strategic, opportunistic tactics that make “receipt” of the benefit unavoidable. One example from patent law is when a patent owner alters patent boundaries to capture some of the value of the recipient’s own contributions. I call this “engineered encroachment.” In most contemporary private law interactions, the law protects the innocent defendant by requiring fault or intent before liability is imposed. But lack of notice, and the good vs. bad faith of the patent owner, are irrelevant in patent law’s regime of strict liability for direct infringers. My proposal here is for courts to sort out the different types of LLO harm using traditional principles of restitutionary recovery. When a patented, intangible input (benefit) is used (received) by an infringer, patent courts should deploy the full spectrum of restitutionary doctrine in pursuit of interparty fairness under the facts of each infringement case. In extreme cases of “engineered encroachment,” for example, courts might deny any recovery for infringement.

I don’t have much to add in addition to my comments from last year’s blog post on the draft version of the article.  One thing that struck me forcefully on reading the published version, however, was this portion from near the end of the paper, where Professor Merges argues against U.S. patent law’s turn towards formalism:

What’s needed, in my view, is patent law heresy. We need a little more wiggle room in at least parts of patent law. Formalism—or better, a stale formalism—stands in the way of flexibility, adaptability. Rules dominate over standards, when sometimes it ought to be the reverse. It seems at least odd, if not in fact heretical, to argue for the exercise of more judicial discretion. That goes against the grain of patent law in the Federal Circuit era. And it raises the anti-democratic specter of elite Platonic Guardians—monarchs in black robes—who are in charge because “they know better.” I realize all that.

 

But I have two extremely powerful responses. First, ironically perhaps, is history: patent law has always been a flexible and adaptable body of law. It has not, traditionally, been (as the Supreme Court put it in a not-long-ago opinion) “the prisoner of a formula.” Most notably, federal judges have at times invented doctrine out of thin air. In response to felt needs, they made up more stringent tests for patentability [citing to the origins of the nonobviousness doctrine], resolved a knotty issue of follow-on inventions [citing to the origins of the rule against double patenting], adapted remedies (as we have seen) to fit different types of patent-related harms . . . and so on. . . .

 

The second reason to install more flexibility in patent infringement doctrine is that flexible standards will promote true innovation more than the current rigid formalism. This is certainly true when it comes to remedies for LLO-type infringement harm. . . . Engineered patent encroachment may be in some sense legitimate in more than a few cases. But in many others, intentional boundary-shifting to capture third-party contributions will be the real story. There is little social value in this. . . .

 

The kind of balancing I am calling for ensures continued attention to overall fairness, and to the primary goals of the patent system. A conventional objection to this sort of attention to the big picture is that it is subjective, it is unpredictable. But absolute predictability through strict adherence to clear rules can produce unfairness. Especially when clever and creative actors take advantage of strict rules to manufacture an injustice (as, arguably, small component patent owners did when receiving a permanent injunction, pre-eBay). To prevent the “gaming” of rules, it is sometimes necessary to resort to meta-rules or principles whose very purpose is to modify strict rules when they lead to an unfair outcome [citing to Henry Smith, Equity as Meta-Law, 130 Yale L.J. 1050, 1080-81 (2021)].

I am inclined to agree.  Especially in this era of hyper-textualism, it is important to recognize that many familiar doctrines of patent law originated as judge-made common law, and that even the current statute leaves many gaps that have to be filled by judicially-crafted doctrine.  There is, to be sure, some risk that too much flexibility, balancing, and resort to multi-factor standards (as opposed to bright-line rules) will result in unpredictable, inconsistent, arbitrary, ad hoc, uninformed, or otherwise unwise results (as Merges recognizes).  But especially in IP law, some degree of “ad hockery” is inevitable, as Learned Hand pointed out more than once in the context of IP law.  More generally, in my view, judging sometimes requires the exercise of, well, judgment, as opposed to mechanical application of formal rules; and much the same reasoning underlies the civil law’s abuse of right doctrine, as I understand it from my reading of the work of Amandine Léonard and others.  That said, the debate is unlikely to be resolved anytime soon, if ever; and for a thoughtful discussion of a contrasting perspective, primarily within the context of copyright law, I recommend taking a look at Norman Siebrasse's paper Against Balancing, 35 IPJ 181 (2023).       

Recent Articles on Damages in China

Two recent articles in the Queen Mary Journal of Intellectual Property may be of interest to readers who follow developments in Chinese patent/SEP litigation.

1. Zhang Guangliang and Geng Bang have published An Active Exploration of Global Licensing Rate Adjudication Methods for Standard Essential Patents:  The Chinese OPPO v. Nokia Case, 15 Queen Mary J. Intell. Prop. 238 (2025).  Here is the abstract:

The decision rendered by the Chongqing First Intermediate People’s Court in OPPO v Nokia represents a landmark moment in the adjudication of global licensing rates for SEPs within the Chinese judicial system. This ruling not only expedited a resolution between the parties, who had been entangled in over 100 global SEP litigations for two and a half years, but also made significant advancements in the methodologies employed for determining global SEP licensing rates. The case achieved three pivotal breakthroughs in the context of 5G SEPs across global jurisdictions: it established the first ruling on the cumulative industry rate for 5G standards, determined the inaugural generational technical value ratio for multimode devices spanning 2G-5G and rendered the first adjudication of a global licensing rate for 5G multimode devices. This case has substantially enriched the frameworks for adjudicating global fair, reasonable and non-discriminatory (FRAND) licensing rates and has further propelled the evolution of global adjudication rules governing FRAND licensing for SEPs.

2. Renjun Bian has published an article titled Explaining the ‘Low and Unexplainable’ Patent Damages in China:  An Empirical Analysis of 992 Judicial Opinions, 14 Queen Mary J. Intell. Prop. K. 405 (2024).  Here is the abstract:

Patent damages in China are commonly criticized as low and unexplainable, which raises concerns over the overall credibility of China’s patent system. This article describes and reports the results of a large-scale empirical analysis of 992 invention patent infringement lawsuits decided by Chinese courts between 2014 and 2018 with damages awarded. The results show that whether patent damages in China are low depends on the selection of standards. If compared with damages granted by courts in the United States or the expectations of patent holders, patent damages in China are undoubtedly low. However, if considering the patent holder’s actual losses – a more rational standard – the allegation of low patent damages does not stand. In addition, around 64.1% of the variations in patent damages in China can be explained by pre-selected ex ante factors, among which proxies for patent value and scale of infringement play an important role. These findings demonstrate that patent damages in China are not as low and unexplainable as commonly believed. Instead, the rather ‘low’ damages compared to their counterparts in the United States reflect the main body of patent infringement lawsuits between small entities over technology improvements on small widgets and goods in China. 

3. Also of interest, in regard to China and SEPs, is an essay by Michael Franzinger in today’s Law360, titled How WTO’s Anti-Suit Injunction Ruling Affects IP Stakeholders.  For my previous post on the recent ruling by a WTO arbitration panel, finding in favor of the E.U. in its case against China, see here.

Federal Circuit Vacates Judgment Including Lost Profits on Convoyed Sales

On Monday I blogged about the Federal Circuit’s nonprecedential opinion last week in Roland v. InMusic, which discussed (among other things) the “inexorable flow” exception to the U.S. rule that a patent owner can recover lost profits only for its own lost profits, and not for those of a subsidiary or other affiliated company.  Last week’s other Federal Circuit decision on damages, Wash World, Inc. v. Belanger Inc., is a precedential opinion authored by Judge Stark, joined by Judges Lourie and Prost.  Much of the opinion addresses the question of whether the defendant forfeited certain arguments relating to claim construction by not raising them in a timely fashion before the district court.  (The Federal Circuit’s answer:  yes as to two issues of claim construction, no as to the third but it doesn’t matter because the district court’s construction was correct.)  A similar question comes up in connection with the damages award, but the court concludes that there was no forfeiture.  The damages issue on appeal is therefore whether there was sufficient evidence for the jury award of $9.6 million in lost profits, given that about $2.6 million of it apparently related to “convoyed” sales.  The Federal Circuit concludes that there was not, and therefore remands with instructions to remit the $2.6 million.

Convoyed sales are sales of goods or services that are complementary to the sale of the patented article.  They may include things such as spare parts or other nonpatented subject matter that may typically be sold along with the patented subject matter.  In Rite-Hite Co. v. Kelley Corp., 56 F.3d 1538, 1550 (Fed. Cir. 1995) (en banc), the Federal Circuit announced the following standard for deciding when the patent owner may recover lost profits on sales of these convoyed goods:

. . . when recovery is sought on sales of unpatented components sold with patented components, to the effect that the unpatented components must function together with the patented component in some manner so as to produce a desired end product or result. All the components together must be analogous to components of a single assembly or be parts of a complete machine, or they must constitute a functional unit. Our precedent has not extended liability to include items that have essentially no functional relationship to the patented invention and that may have been sold with an infringing device only as a matter of convenience or business advantage.

As I discuss in my forthcoming book Remedies in Intellectual Property Law, the requirement that the convoyed goods “function together with the patented article,” and not merely be sold along with the infringing product as a matter of convenience, differs from the rule followed in the U.K., France, Japan, and Germany, all of which apply a simple but-for principle, albeit subject to limitations on damages for harms that are too remotely caused by the infringement.  In our article Rethinking Patent Damages, 10 Tex. Intell. Prop. L.J. 1, 89 (2001), Roger Blair and I argued that the Federal Circuit's rule might be justified as a sort of bright-line proximate causation rule.  In Patent Remedies for Complex Products:  Toward a Global Consensus (C. Bradford Biddle et al. eds., 2019), on the other hand, my coauthors and I, in the chapter titled Lost Profits and Disgorgement, recommended that courts should award lost profits on sales of convoyed goods “provided that the patentee can demonstrate both (1) “but for” causation and (2) proximate causation, which is established by demonstrating that sales of the unpatented component, part, or good was ‘reasonably foreseeable by an infringing competitor in the relevant market,’” and I am inclined to think that that is the better view.  The meaning of “function together with the patented component” is itself not always clear, as the Wash World case shows.  There, the relevant claim was for a “spray-type car wash system” comprising three elements: a carriage, a spray arm mounted from the carriage, and a lighting system distributed along the arm.  The convoyed goods were unpatented dryers (see opinion p.24).  As Dennis Crouch points out, however, in his post yesterday about the case, although “according to the court, the patentee did not present evidence of how the components functionally interacted or depended on each other,” perhaps the patentee could have “presented specific evidence showing that the dryers were functional aspects of a carwash system–part of a single unit that is ordinarily sold together”--or drafted its claims more broadly to cover the entire car wash system, not just the novel feature.  If so, the Federal Circuit’s rule seems kind of arbitrary.  Moreover, while a full compensation rule may or may not be necessary to provide the optimal incentive to invent (or optimal deterrence of infringement), it is a simple rule to understand; and traditional proximate causation analysis arguably is sufficient to ensure that losses that are too remote, unforeseeable, indirect, etc. would be excluded.

Federal Circuit Orders New Trial on Damages in Roland v. InMusic

The nonprecedential opinion, released last Thursday, is Roland Corp. v. InMusic Brands, Inc., authored by Judge Chen and joined by Judges Lourie and Reyna.  The case involved five patents relating to electronic drums and drumheads, and three relating to cymbals.  Plaintiff Roland first accused InMusic of infringing certain cymbal patents in 2011, but “after some back-and-forth between the parties,” Roland stated that “it did ‘not intend to pursue this matter’ if InMusic discounted the cymbals as represented and ‘does not engage in other infringing activities.’”  Then in 2015, “Roland wrote to inMusic, again accusing it of infringement and expressing Roland’s “surprise[]” to find certain inMusic products on display at a trade show. . . . InMusic responded on February 12, 2015, stating that the identified cymbal product line was 'radically redesigned after 2011' and that inMusic believed it had ‘Roland’s implied consent’ to sell these cymbals.”  Roland filed suit in 2016 (pp. 7-8).  The district court granted summary judgment of noninfringement as to three of the drum patents and one of the cymbal patents.  The jury found that the two drum and two cymbal patents in suit were infringed, and awarded Roland $2.7 million in lost profits and $1.9 million in reasonable royalties.   The district court denied prejudgment interest, however.  I will limit my discussion to the damages issues.

The lost profits award included profits lost not only by Roland itself but also by its U.S. subsidiary, Roland’s expert having “calculated a single, consolidated lost profits figure for the two entities in the first instance, and . . . an ‘alternative calculation’ in the event Roland is not entitled to the lost profits of Roland U.S.” (p.24).  The panel concludes that this was error:

The general rule is that “a patentee may not claim, as its own damages, the lost profits of a related company.” Warsaw, 778 F.3d at 1375. Roland attempts to claim as its own the lost profits of Roland U.S. under an exception known as “inexorable flow.” Under that theory, which has been previously argued to this court, the subsidiary’s profits flow inexorably or inherently to the plaintiff parent company. See Mars, Inc. v. Coin Acceptors, Inc., 527 F.3d 1359, 1367 (Fed. Cir. 2008), mandate recalled and amended on other grounds, 557 F.3d 1377 (Fed. Cir. 2009). In Mars, we affirmed a grant of summary judgment to the defendant on the plaintiff’s claim of lost profits because the record could not support a finding that the wholly owned subsidiary’s profits flowed inexorably to the plaintiff. Id. at 1364, 1367. Because we concluded that the subsidiary’s profits did not in fact flow inexorably to the plaintiff, we expressly declined to “decide whether a parent company can recover on a lost profits theory when profits of a subsidiary actually do flow inexorably up to the parent.” Id. at 1367. This court has not since addressed whether inexorable flow is a legally cognizable theory of lost profits. Nor must we do so now, for like the Mars court, we conclude that Roland did not offer sufficient evidence to support a factual finding of inexorable flow of profits.

 

Roland argues that it established inexorable flow based on a single sentence of testimony from Roland’s Senior Executive Office and Roland U.S.’s Executive Vice President, Naoyuki Tamura . . . :

 

Q. What happens to the profits of Roland U.S. on those sales of mesh drums?

 

[A.] Because Roland U.S. is a 100 percent owned subsidiary of Roland Japan, the profit it made will be returned to Roland Japan in the form of dividends.

 

Mr. Tamura’s conclusory testimony provided no basis for the jury to find that Roland U.S.’s profits inherently flowed to Roland during the relevant period . . . .   

 

Roland argues that even if it is not entitled to the lost profits of Roland U.S., it is still entitled to that portion of the award comprising its own lost profits. However, the jury rendered a single lost profits award that did not separate Roland’s profits from Roland U.S.’s. . . . And we cannot say that the jury necessarily accepted or would have accepted [Roland’s expert] Ms. Heinemann’s alternative calculation accounting for only Roland’s own lost profits. . . (pp. 25-27).

As I note in my forthcoming book on IP Remedies, the formalism embodied in the U.S. rule that “a patentee may not claim, as its own damages, the lost profits of a related company” is somewhat different from the standards applied in some other countries, including the U.K., Spain, and Japan.

As for reasonable royalties, Roland’s expert relied on three licenses to support a $20 per drumhead royalty for the two drum patents asserted at trial (’458 and ’535).  Two of these, however, licensed ’458 and a patent not asserted at trial, and the third licensed ’535 and three other patents not asserted at trial. Moreover, each covered “only single-layer mesh drumheads, in contrast to the double-layer mesh technology at issue in the parties’ hypothetical negotiation.” In the court’s view, the expert’s testimony did not sufficiently account for these differences.  Moreover, one of the licenses was in settlement in litigation, and while this is not disqualifying in and of itself, there needed to be testimony addressing this contextual difference as well (pp. 28-32).  The expert also testified to a $2 per cymbal royalty for the cymbal patents, but the expert included in her calculation “pre-design cymbal sales that were not found by the jury to infringe” (pp.32-33).  The court also notes, however, that the district court allocated very little time for the testimony on damages, because of pre-existing travels plans on the part of the expert and a juror, and so it concludes that “the fairer option is to afford Roland a new trial on both lost profits and reasonable royalties” (p.34).

The court rejects the defendant’s argument that Roland was equitably estopped from enforcing its patents, because there was conflicting testimony concerning whether Roland indicated in 2011 that it wasn’t going to enforce the cymbal patents (pp. 35-36).  It agrees with the plaintiff, however, that there were insufficient grounds to deny prejudgment interest:

We have previously explained that an “award of prejudgment interest is ‘the rule, not the exception.’” Energy Transp. Grp., Inc. v. William Demant Holding A/S, 697 F.3d 1342, 1358 (Fed. Cir. 2012) (citation omitted); see also Gen. Motors Corp. v. Devex Corp., 461 U.S. 648, 655–57 (1983); 35 U.S.C. § 284. Still, “it may be appropriate to limit prejudgment interest, or perhaps even deny it altogether, where the patent owner has been responsible for undue delay in prosecuting the lawsuit.” Gen. Motors, 461 U.S. at 657. In order to “show that delay was undue, a defendant must, at least generally, show that it was prejudiced.” Kaufman, 34 F.4th at 1375.

 

            The district court denied prejudgment interest after finding that “Roland knew of inMusic’s accused cymbals as early as 2011, yet Roland waited until 2015 to raise complaints about inMusic’s cymbals’ configuration, and waited until August 2016 to sue.” . . . The court concluded that Roland’s delay was undue and “economically prejudiced inMusic because inMusic expanded its cymbals by incorporating them into newly launched kits while under the understanding that Roland had approved the redesigned cymbals during a call with Mr. Gill in 2011.” Id. The court reasoned that “had Roland not sat on its hands during this years-long delay, inMusic could have taken remedial steps and could have dedicated resources to other non-infringing designs.” Id. For two separate reasons, however, the district court abused its discretion in denying prejudgment interest . . . .

 

First, the finding of undue delay based on the alleged call with Mr. Gill cannot be squared with the district court’s findings and analysis of the evidence in its order denying inMusic’s equitable estoppel defense. . . . Though the district court might permissibly rely on other evidence to find that Roland independently learned of the redesign prior to prosecuting its suit against inMusic (and hence, there could be undue delay to justify denying prejudgment interest, but no misleading conduct for purposes of equitable estoppel), the court cited no such evidence (or any evidence) in denying prejudgment interest. On remand, the court may not again limit or deny prejudgment interest to Roland absent analysis of how other evidence in the trial record supports a finding of undue delay.

 

Second, even if Roland knew of the redesign, the district court relied on an incorrect standard for prejudice. The court reasoned that inMusic was prejudiced because it expanded its cymbal line before Roland brought suit, whereas inMusic “could have” instead explored noninfringing cymbal designs . . . . But speculation about what inMusic “could have [done] to not infringe” the Cymbal Patents, without “evidence that it would have” done so, is insufficient to demonstrate prejudice. Kaufman, 34 F.4th at 1375. . . . We remand for the district court to resolve this factual dispute—specifically, what inMusic would have done absent any delay by Roland—and to determine whether inMusic demonstrated prejudice sufficient to limit or deny prejudgment interest to Roland.²²

 

²²  The district court’s denial of prejudgment interest was also based solely on Roland’s purported knowledge of the accused cymbals and delay in prosecuting its suit with respect to infringement of the Cymbal Patents. On remand, to the extent that Roland seeks, and the jury awards, separate damages for infringement of the Drum Patents, the district court should not limit or deny prejudgment interest with respect to that category of damages (pp. 37-39).

Japanese IP High Court Decision in Fuji Medical Instruments Mfg. Co. v. Family Inada Co.

I am rather late in reporting on this decision—the Judgment of Oct. 20, 2022, 2020 (Ne) 10024 (IP High Ct. Grand Panel)—but better late than never.  An English-language translation is available on the IP High Court’s website, here.  The plaintiff asserted three patents, referred to in the decision as Patents A, B, and C, relating to massage chair apparatuses or machines.  The plaintiff claimed that twelve products made by the defendant infringed.  The district court concluded that none of the defendant’s products infringed, but on appeal the court finds that the export or sale of Defendant’s Products 1 and 2 infringe Patent C.  The judgment of the court begins at p.75 of the translation, with the damages portion beginning at p.148.  The damages questions center on articles 102(2) and (3) of the Japanese Patent Act, which in translation read as follows:

If a patentee or exclusive licensee files a claim for compensation for damage that the patentee or licensee personally incurs due to infringement, against a person that, intentionally or due to negligence, infringes the patent or exclusive license, and the infringer has profited from the infringement, the amount of that profit is presumed to be the value of damage incurred by the patentee or exclusive licensee.

 

The patentee or exclusive licensee may fix the value of the damages that the patentee or licensee has personally incurred as being equivalent to the amount of money the patentee or exclusive licensee would have been entitled to receive for the working of the patented invention, and may claim compensation for this against a person that, intentionally or due to negligence, infringes the patent or violates the exclusive license.

Applying the first of these provisions to the present case, the court observes:

Given that it is generally difficult for the patentee to prove the value of damages, and that this could result in causing an inconvenience that reasonable damage compensation would not be achieved, the purport of this provision is to reduce the patentee's difficulty of proof by presuming the amount of profit gained by the infringer from the infringement to be the value of the damage, if the infringer has gained such profit. Thus, if there are any circumstances suggesting that the patentee could have gained profits if no patent infringement had been made by the infringer, it should be construed that the application of Article 102, paragraph (2) of the Patent Act would be allowed by deeming that the patentee has incurred damage due to that infringement (see the judgment of the Special Division of the Intellectual Property High Court rendered on February 1, 2013 and the judgment of the Special Division of the Intellectual Property High Court rendered on June 7, 2019). In light of the purport of that paragraph, if the patentee was exporting or selling a product which is of the same type as the infringing product, targeting the same consumers, and which is in such a competitive relationship (a competing product) in the market that it could have been exported or sold if no patent infringement had been made by the infringer, it can be evaluated that the sales of the patentee's competing product decreased due to the infringement; therefore, it is reasonable to construe that there are circumstances suggesting that the patentee could have gained profits if no patent infringement had been made by the infringer. Moreover, it should be construed that the patentee's product does not necessarily need to be a product working the patented invention or need to demonstrate the same function and effect as the patented invention in order to say that such circumstances exist (pp. 149-50).

Reviewing the evidence, the court concludes that

In light of the commonality in the function of being capable of massaging a massage recipient's forearms, Appellant's Product 1 is found to be a product in such a competitive relationship (a competing product) in the respective markets in the common destination countries mentioned above that it could have been exported if Defendant's Product 1 had not been exported. Therefore, it is found that, regarding Appellant's Product 1, there are circumstances suggesting that the Appellant could have gained profits if no infringement of Patent Right C had been made by the Appellee. Accordingly, Article 102, paragraph (2) of the Patent Act is applied to the calculation of the amount of the damages incurred by the Appellant in relation to the export of Defendant's Product 1 (p.150).

And similarly for Defendant’s Product 2 (pp. 150-51). 

On, then, to calculation.  There follows a lengthy discussion of what expenses should be deducted from the defendant’s turnover to calculate its profits (pp. 152-57).  The amounts are redacted, but we are told that once the appropriate expenses are deducted, the marginal profit the defendant earned from sales of Product 2 are “nil.”  So only the marginal profit from the sales of Defendant’s Product 1 count for purposes of article 102(2), but that doesn’t mean the plaintiff recovers all of that amount, either.  As indicated above, there is a presumption that the defendant’s profit from sales and export of infringing goods equals the plaintiff’s lost profit, if the evidence shows that the plaintiff could have earned additional profits but for the infringement.  But that presumption can be rebutted, at least in part:

The Appellee alleged that the following matters fall under grounds for rebuttal of the Presumption: [i] the fact that the patented inventions are worked only in a part of Defendant's Product 1; [ii] the existence of competing products in the markets; [iii] the non-identicality of the markets; [iv] the Appellee's marketing efforts (the brand power and advertising); and [v] the performances of Defendant's Product 1 (functions, designs, and other characteristics other than Inventions C) (p.157).

Reviewing the evidence, the court states:

. . . the technical meaning of Inventions C is not high, and the contribution of Inventions C to forming the motivation to purchase Defendant's Product 1 is limited. Therefore, it is found that the marginal profit amount that the Appellee gained from the export of Defendant's Product 1 . . . includes parts to which Inventions C do not contribute. Therefore, the fact that Inventions C are worked only in a part of Defendant's Product 1 is found to fall under grounds for rebuttal of the presumption (p.159).

Similarly, “Defendant's Product 1 and Appellant's Product 1 did not have the same markets to the extent that the destination countries are different” (p.161), so this too partially rebuts the presumption that plaintiff would have earned the defendant’s marginal profit from sales of Product 1.  (“The portion of the exports to destination countries to which Appellant's Product 1 was not exported . . . is equivalent to 7% of the export volume of Defendant's Product 1” (p.163).)  On the other hand, the evidence does not substantiate the defendant’s allegation that “even if Defendant's Product 1 were not sold, the demands of consumers and traders (including overseas agencies) in overseas markets will shift to competing products of other companies, but not to Appellant’s Products 1” (p.160); that “Appellee's brand power and advertisement of Defendant's Product 1 contributed to the extent of forming the motivation to purchase Defendant's Product 1” (p.162); or that “the design of Defendant's Product 1 contributed to the extent of forming the motivation to purchase Defendant's Product 1” (p.162).  So these allegations do not succeed in rebutting the presumption.  Putting it all together, the court concludes that “[t]he amount of damages to the Appellant based on Article 102, paragraph (2) of the Patent Act is found to be ●●●●●●●●●●● yen in total, which is equivalent to 10% of the marginal profit amount of Defendant's Product 1” (p.163).

But wait—there’s more.  At this point, the court goes on to consider what a reasonable royalty would be under article 102(3); that is, “even where the presumption under Article 102, paragraph (2) of the Patent Act is partially rebutted, if the patentee is found to have been able to grant a license for the rebutted portion of the presumption, it should be construed that application of paragraph (3) of said Article would be allowed” (p.164).  However, “[i]t cannot be found that the Appellant could have granted a license for such part to which Inventions C have not contributed.”  Therefore, “in this case, it is reasonable to allow application of Article 102, paragraph (3) of the Patent Act only for the rebutted portion of the presumption relating to grounds for rebuttal due to the non-identicality of the markets” (p.165).  Similarly, for Defendant’s Product 2 (some of which, if I understand correctly, was sold domestically, and some exported), the patentee is entitled to a 1% royalty.  The 1% rate is based on, inter alia, industry and judicial averages for the type of product at issue, and the fact Patent C covers an incidental feature of the product and does not have a high “technical meaning” (pp. 168-69).   

The end result is that:   

(1) For sales of the Defendant's Products 1, the patentee is entitled to 10% of the defendant's marginal profit under article 102(2).  

(2) For sales of Defendant's Products 1 that did not compete against products the patentee would have made, because they were produced for export to countries to which the patentee did not export its own products—amounting, as noted above, to 7% of the export volume of Defendant’s Product 1—the patentee is entitled to a 1% royalty (that is, 1% of the defendant’s turnover on these products) under article 102(3).

(3) The court adds these two numbers together to arrive at the damages for Defendant’s Product 1.

(4) For sales of Defendant’s Products 2, for which there was no marginal profit, the patentee recovers a 1% royalty on turnover.

Although all of the above amounts are redacted, the total damages awarded, including attorneys’ fees, is given as ¥391,549,273 (about $2.5 million using today’s exchange rate).

A few things to note, assuming I have understood all of the above correctly.  First, this appears to be yet another case in which a court has awarded damages reflecting gains or losses in relation to transactions that occurred or would have occurred abroad, but which were caused by an initial act or acts of domestic infringement:  here, manufacture, export (which is an infringing act under article 101(iii)), and perhaps sales (I don’t know if any of the sales of exported products were consummated in Japan or if they were all consummated abroad).  As I have previously noted, there are a couple of other Japanese cases to similar effect, as well as cases in the U.S., Canada, the U.K., and Germany.  Second, the court reaffirms the principle that the plaintiff can recover under article 102(2) even if the product it sells does not work the patent invention; it’s enough that the plaintiff would have made additional sales of the product but for the infringement.  This is consistent with the Federal Circuit’s opinion in Rite-Hite v. Kelley, and with a 2020 Japanese decision noted here.   

Third, if I am understanding correctly, the court awarded the patentee 10% of the defendant’s marginal profit on exports of Defendant’s Product 1 (because Patent C did not contribute much to sales, and because 7% of the exports were to countries the plaintiff doesn’t serve), plus 1% of the defendant’s turnover on that 7% as a reasonable royalty for the portion of defendant’s sales that did not compete against the patentee’s products.  The court does not perceive this to be double counting, for reasons discussed at pp. 167-68:

. . . if it is found that the patentee could have granted a license for the portion of rebuttal of presumption regarding the presumption pursuant to said paragraph, it can be considered that the patentee has incurred damages of an amount equivalent to the royalties due to the loss of a licensing opportunity in addition to the lost profits due to decreases in sales. Therefore, it does not result in counting damages to the patentee twice. In addition, the Amended Patent Act 2019, for which paragraph (1), item (ii) of said Article was newly established, did not amend the provisions of paragraph (2) of said Article in the same way as paragraph (1), item (ii) of said Article; however, it does not immediately become a reason to deny the application of paragraph (3) of said Article for the portion of rebuttal of presumption regarding the presumption pursuant to paragraph (2) of said Article.

Article 102(1), alluded to above, states: 

If a patentee or exclusive licensee files a claim against an infringer for compensation for damage sustained as a result of the intentional or negligent infringement of their patent right or exclusive license, and the infringer has transferred articles that constitute the act of infringement, the amount of damage sustained by the patentee or exclusive licensee may be established to be the total of the amounts set forth in each of the following items.

 

(i) the amount arrived at when the amount of profit per unit for the articles that the patentee or exclusive licensee would have been able to sell if the infringement had not taken place is multiplied by that part of the quantity of articles that the person infringing the patent right or exclusive license has transferred (referred to as the "quantity transferred" in the following item) which does not exceed the quantity covered by the patentee's or exclusive licensee's ability to work the patented invention (referred to as the "workable quantity" in the following item) (if there are circumstances that render the patentee or the exclusive licensee unable to sell a quantity of products equivalent to all or part of the workable quantity, the workable quantity less the quantity not sellable due to those circumstances (referred to as the "specified quantity" in the following item));

 

(ii) if applicable, an amount equivalent to the amount of money that is to be received in exchange for the working of the patented invention under the patent right or exclusive license, for any quantity exceeding the workable quantity which is part of the quantity transferred, or for any specified quantity which is part of the quantity transferred (unless it is not found that the patentee would have been able to establish an exclusive license or grant a non-exclusive license under the patentee's patent rights, or that exclusive licensee would have been able to grant a non-exclusive license under the exclusive licensee's exclusive license).

I thank Professor Masabumi Suzuki for helpful discussion of this case.