Another Japanese IP High Court Decision on Infringers' Profits

Last fall I mentioned Hamamatsu Photonics K.K. v. Tokyo Seimitsu Co., Case No. 2023 (Ne) 10037 (IP High Court Mar. 6, 2024), a case in which the Second Division of Japan’s IP High Court held that article 102(2) of Japan’s Patent Act did not apply but article 102(1) did.  By way of background, article 102(1), which addresses lost profits, reads (in translation) as follows:  “If a patentee or an exclusive licensee claims compensation for damages that the patentee or licensee personally incurs due to infringement, against a person that, intentionally or due to negligence, infringes the patent right or violates the exclusive license, and the infringer has transferred infringing articles, the amount calculated by multiplying the number of articles so transferred (hereinafter referred to in this paragraph as the ‘number transferred’) by amount of profit per unit from the products that the patentee or exclusive license could have sold if there had been no infringement, may be fixed as the value of the damage that the patentee or exclusive licensee has incurred, within the limits of an amount proportionate to the ability of the patentee or exclusive licensee to work the patented invention; provided, however, that if there are circumstances due to which the patentee or the exclusive licensee would have been unable to sell a number of products equivalent to all or part of number transferred, an amount proportionate to the number of products that could not have been sold due to such circumstances are to be deducted from the value of damage thus calculated.”  Article 102(2) then states that “If a patentee or exclusive licensee claims compensation for damages that the patentee or licensee personally incurs due to infringement, against a person that, intentionally or due to negligence, infringes the patent or violates the exclusive license, and the infringer has made a profit from the infringement, the amount of that profit is presumed to be the value of damages incurred by the patentee or exclusive licensee.”  Thus, while article 102(2) addresses infringers' profits, it is not considered to be a disgorgement remedy as such, but rather a means for estimating the plaintiff’s lost profit with reference to the profit the infringer made, subject to appropriate adjustments.  In the Hamamatsu case noted above, the plaintiff owned a patent reading on a component (a “stealth dicing” or “SD” engine) that is incorporated into an end product (“stealth dicing” or “SD” equipment).  The plaintiff claimed it was entitled to the defendant’s profit on sales of the end products, adjusted to reflect that the patent in suit contributed some but not all of the value of that product.  The Second Division of the IP High Court rejected that argument, though it concluded that under article 102(1) the plaintiff could recover lost profits on lost sales of SD engines it would have sold to the defendant, plus delay damages, totaling about 136,000,000 yen.

Professor Masabumi Suzuki recently alerted me, however, to an  April 2024 decision of the Fourth Division of the IP High Court, Hamamatsu Phototonics K.K. v. Tokyo Seimitsu Co., Case No. 2023 (Ne) 10037 (IP High Court Apr 24, 2024).  (An English-language summary, but not the full opinion, is now available on the IP High Court’s website.  The Japanese original is here, and a press release by Hamamatsu here.)  As the title indicates, the parties are the same; and while two other patents are in suit, if I understand correctly the products sold by the plaintiff and the products alleged to be infringed by the defendant are the same products.  Nevertheless, in this case, which was pending when the other case was decided, the court holds that article 102(2) entitles the plaintiff to recover an allocable portion of the infringer’s profits—specifically, the ratio of the price of the SD engine to the SD dicer (the end product), multiplied by the marginal profit on the sale of the engine—noting inter alia that the plaintiff’s product is the “core of the technology for the SD dicer.”  The amount awarded under this formula is approximately 832 million yen, which is higher than the plaintiff’s quantifiable lost profits under article 102(1) or a reasonable royalty under 102(3).

Although the two decisions reached different conclusions on the applicability of article 102(2), I’m not sure that they are irreconcilable on the law. The different outcomes may be attributable to the two divisions’ perception of the strength of the evidence submitted to them concerning the defendant’s marginal profit attributable to the SD engine.  In any event, I understand that both judgments are now final and that there is no further appeal pending.  I don't know, but I would guess that there might have been some accommodation made between the parties to avoid a duplicative recovery, though nothing to that effect is indicated in either decision as far as I can see.  Indeed, te first decision noted the pendency of the second decision, but stated that it would not presume to award only half-damages, since the infringement of the patents at issue in the second suit was still to be determined.  The second decision says that the first decision has not yet been “finalized” (according to my machine translation of the Japanese original, which is kind of rough).  Anyway, based on the latter decision, it appears that Japanese courts will now allow an allocable award of the infringer's profits in a case in which the patented invention reads on a component of the defendant's end product.