Higher damages are awarded in recent patent infringement lawsuits in Japan

Whether it is true or not, there has been a repeated criticizm over Japanese patent infringement litigation system that awarded damages amounts are not high enough to incentivize patent holders to bring infringement lawsuits in Japan.  However, a recent trend of awarding higher damages may blow away such criticizm.

According to a survey conducted by Kaoru Kuroda, a Japanese attorney at law and patent attorney at Abe, Ikubo & Katayama, among the patent infringement case judgements rendered after 2015 by Japanese IP courts, i.e. IP divisions in the Tokyo and Osaka District Courts and the IP High Court, the number of cases in which the amount of damages awarded is more than 300 million Japanese yen[1] is only three cases in three years between 2015 and 2018 (see Cases No.1 to No.3 below).  On the other hand, in three years from 2019 to 2022, the number of cases granting awards higher than 300 million Japan yen jumped up to 14 (see Cases No.4 to No.17 below), and IP courts awarded even higher damages exceeding one billion Japanese yen in 6 cases.

(Note: Summary of the judgement in English is only available for limited cases.)

It can be considered that the amendment of the damages calculation provisions of Japanese Patent Act in 2019 as briefly explained below may have stimulated the IP courts to grant higher damages awards.

Art. 102 of the Patent Act of Japan provides three ways of damages calculation methods; (i) presumption of damages based on infringer’s sales quantity multiplied by patentee’s profit rate (Art. 102(1)), (ii) presumption of damages based on infringer’s profit (Art. 102(2)) and (iii) reasonable royalties (Art. 102(3)).  When a patentee claims damages based on Art. 102(1) or 102(2), if an infringer succeeded in overturning the presumption by alleging that the patentee could not have sold the infringer’s sales quantity or that the patentee could not have gained a profit as much as the infringer’s profit, damages for such overturned portion are not awarded.

There had been a question as to whether the patentee can demand additional reasonable royalties based on Art. 102(3) for such portion where the presumption was overturned under Art. 102(1) or 102(2).  The amendment of the Patent Act in 2019 changed the then prevailing court practice of not awarding additional reasonable royalties and enabled patentees to seek additional reasonable royalties based on Art. 102(3) for the portions damages presumption was denied under Art. 102(1).  The amendment in 2019 did not change Art. 102(2), but it was generally considered and also described in commentaries of the amendement that the same principle should also apply to Art. 102(2).

The IP High Court (Grand Panel) decision on 20 October 2022 (Case No.17 above) found that reasonable royalties under Art. 102(3) can be granted for the portion where a presumption of damages based on Art. 102(2) was overturned, if the patentee would have been able to grant a license to the infringer in the curcumstance based on which overturning of the presumption was found.

Presumptions under Art. 102(2) [infringer’s profits] can be overturned if the infringer establishes circumstances such as [i] the invention is implemented only in a partial portion of the infringing products; [ii] presence of a difference in the business forms, prices, and the like between the patentee and the infringer (non-identicality of the market); [iii] presence of competitive products in the market; [iv] sales efforts (brand strength, advertisement) of the infringer; [v] presence of differences in performances of the infringement product and the product of the patentee (features other than the patent invention such as functions, designs, and the like).  The IP High Court (Grand Panel) applied Art. 102(3) and awarded reasonable royalties to the portion overturned by circumstance [iii]. In contrast, the Grand Panel denies the application of Art. 102(3) to the portion overturned by circumstance [i].

With these recent developments of the damages calculation, it is expected that the trend to grant higher damages by IP courts in Japan will continue for a while.

[1] 300 million Japanese yen is approximately 2 million EURO or 2.2 million USD.