1. Patent Enforcement the U.S. and Japan Comparative Law Perspective Toshiko Takenaka, Ph.D Director, CASRIP University of Washington School of Law Visiting Professor, Waseda Law School

2. Outline Background – Japan’s National IP Strategy Comparison with EU Developments IP Enforcement Revisions – Improvements in Evidence Taking Document Production Order In-Camera Procedure – Adequate Damages Comparison with German damage awards

3. National IP Strategy METI-JPO “Pro-Patent Policy” Initiative – Key-person: Mr. Hisamitsu Arai – Report Published by Commission on IP Rights in the 21 st Century (1997) Intellectual Creation Cycle – Adoption of National Strategy to Become IP based Nation Enactment of Basic IP Law (2002) Creation of IP headquarters within Cabinets

4. National IP Strategy IP Enforcement Restructure – 1998: Adequate damages to compensate infringement Adoption of US Case Law Doctrine – 1999: Improvement in evidence taking procedure Expansion of scope in document production order Introduction of in-camera procedure – 2004 civil procedure revision

5. National IP Strategy Patent-Technology Specialized Courts – 2003 Civil Proc. Revision Exclusive jurisdiction: First instance-Tokyo & Osaka Dist. Ct.; Appeal-Tokyo High Ct. – April 2005: IP High Court Semi-independent from Tokyo High Court Patent-Technology expertise in all levels

6. Comparison with EU Lisbon Agenda (2007) – Promotion of academic-industry knowledge transfer – Knowledge triangle Japan: Cycle for Intellectual Creation

7. Comparison with EU IP Enforcement Directive (2004) – Improvement in evidence preservation and taking procedure – Adequate damages to compensate infringement Patent Specialized Courts – EU: Community Patent System – EPO: European Patent Litigation Agreement

8. Improvement in evidence taking procedure

9. Evidence Taking in the U.S. Discovery Procedure –Fishing evidence Fact finding Evidence for trial –Very broad scope Anything related to claims and defenses From parties as well as non-parties

10. Evidence Taking in the U.S. Discovery Devices –Interrogatories Location of Documents Person with Knowledge –Requests for Documents & Things –Requests for Admissions –Depositions Sworn testimony recorded by a court reporter –Expert Reports and Depositions

11. Evidence Taking in Japan Request for Document Civil Procedure Law Article 220 of the Civil Procedure Law i.The documents that the party has cited in the lawsuit; ii.The documents that the person possessing the documents may be asked for documents delivery or inspections according to another law; iii.The documents that have been prepared with regard to the legal relationships between the person possessing the documents and the petitioner of the order. Amendment of Civil Procedure Law in 1996 Not limited to the 3 categories Broad area of exceptions One of the exceptions : documents stating secrecy

12. Evidence Taking in Japan Request for Document Patent Law Original Patent Law limited to the case where the damages need to be proved Not limit the obligation to the three categories General terms, and broad area of the court discretion Amendment of Patent Law in 1999 not only for the proof of damages, but also for the proof of infringement does not permit to refuse the document production order on the ground of the secrecy Still broad area of court discretion

13. Evidence Taking in Japan Burden of Proof Very rigid, cannot be used to search evidence The party who seeks the production order must clarify –the representation of the document –its purpose –the person possessing the document –the fact that need to be proven –the reason for the obligation to produce if the plaintiff claims specify the defendant’s products that composed an act of infringement in good faith, the defendant who wants to deny that shall clarify the specific conditions of his/her products

14. Evidence Taking in Japan In Camera Procedures Amendment of the Civil Procedure Law in 1996 citizen’s general obligation the person possessing the documents may refuse the document productions if they contain trade secret the judge determines whether the information is a trade secret or not. Amendment of Patent Law in 1999 Courts determine whether there is a reasonable ground to refuse the document production. the court may order the parties to produce the documents and may disclose them to the parties and ask their opinions. Protective Order is necessary

15. Evidence Taking in Japan Open Trial Requirement Constitution Trials need to be open to public Exception: only if the open trial could be dangerous to public order or morals The party may ask the court to ban the inspection of the record by people other than the parties  not enough

16. Evidence Taking in Japan Open Trial Requirement Amendment of Patent Law in 2004 when the existence or non-existence of infringement is to be determined, and if it is necessary for the parties or witness to make statement regarding trade secret, the open court may be banned This is exception to the open court principal But not to be used to prove the amount of the damages Unfair Competition Prevention Law Article 13: Same system in Trade secret infringement case

17. Evidence Taking in Japan Protective Order Amendment of Patent Law in 2004 Courts ban the use of the information against the inspecting parties for the purpose other than the proceeding of the litigation Unfair Competition Prevention Law Non-compliance: imprisonment for no more than 5 years or fine no more than 5 million yen Note on the description of the trade secret The trade secret itself should not be described It should be cited the location in the briefs or documents formally To avoid the risk of disclosure of the confidential information

18. US Courts Patentee Win Rates Price Waterhouse Coopers, A Closer Look: 2008 Patent Litigation Study: Damages Awards, Success Rates and Time-To-Trial （ PWC, Damages) http://www.pwc.com/extweb/pwcpublications.nsf /docid/ebc144cf6220c1e785257424005f9a2b

19. Japanese Courts Patentee Win Rates Including utility model Murata, Kaneko & Iwamatsu

20. Adequate Damages

21. Tort Damage Theory Similar Theoretical Framework Japan – Cause-in-fact – Legal/adequate cause (foreseeability) U.S. – Cause-in-fact – Proximate cause (foreseeability)

22. Damage Measurements Japan Lost Profits – Civil code Reasonable Royalty Infringer’s Profit U.S. Lost Profits Reasonable Royalty (Infringer’s Profit) – Abolished

23. Tort Damage Policy Japan – Civil Law System Restitution: Returning to the situation but for infringement U.S. – Common Law System Role of individuals to participate in enforcement of rights Deterrence of tortious acts

24. Patent Law Policy Japan Sympathy for innocent infringers – Ceiling for innocent infringers – Preference for lost profits U.S. Emphasis on Adequate Compensation – No ceiling but guaranteeing bottom line – Preference for lost profits

25. Panduit Test Inference of Causation Causation Inferred by Showing: ①Market demand ②Capability to meet such market demand ③Absence of non-infringing acceptable substitute in the market ④Profits the patent would have received but for infringement

26. Lost Profits in US Courts （ PWC, Damages)

27. Lost Profits in Japanese Courts

28. Significant Difference in Damages Average Damages Awarded U.S.(1990-92): USD 92 M Japan(1990-94): JPY 4.6 M (USD 0.46M) – Infrequent lost profit awards Exploitation requirement Difficulty in obtaining evidence Apportionment – Reasonable royalty Legally negotiated royalty: maximum recovery

29. 1998 Patent Revision Art. 102, Para 1 – Presumption of causation for lost profits Art. 102, Para ３ – Removal of “ordinarily”

30. 1998 Revision Codification of Panduit Test Causation Inferred by showing: ①# of infringing products sold by infringer ②Net profit-per-product that patentee would have sold but for infringement – Deduction of variable costs only ③Capacity to make and sell the # of products sold by infringer

31. 1998 Revision Codification of Panduit Test Rebuttal by Infringer # of products P could not have sold ①Difference in infringing product and patentee’s product – Competing products ②Presence of non-infringing acceptable substitute in the market ③Apportionment – Entire market value rule

32. 1998 Revision Reasonable Royalty Case-by-Case Analysis – Higher than legally negotiated royalty – Variety of factors Guarantee of Minimum Compensation – Courts’ discretion to reduce surplus from a reasonable royalty – Split awards of lost profits and reasonable royalty – possible?

33. 1998 Revision Infringer’s Profits No Revision Causation inferred by showing: Profits resulting from Infringement – P’s exploitation of the invention (competing products?) – What is profit? – Allocation of burden of proof

34. 1998 Revision Defendant’s Profits Rebuttal by Infringer Proof of actual damages Factors which negates causation for the full amount of profits – Presence of non-infringing acceptable substitute in the market – D’s marketing efforts – Apportionment

35. Impact of Revision Patent-Utility Model Infringement 1989-1994 Average Damages Awarded $0.18 M (Median: $0.04M) 35.73% 1999-2004 Average Damages Awarded $1.11 M (Median: 0.22M) 43.19% Patent 1996-2005 Average Damages Awarded $1.71 M

36. Japan: Impact of Revision

37. Japan: Average Damages Awarded

38. U.S.: Large Damages 2005-07 （ PWC, Damages)

39. U.S.: Median Damages Awarded （ PWC, Damages)

40. Comparison with German Damage Awards Implementation of Directive Defendant’s Profits – Calculation of Profits – P’s exploitation of invention not necessary – No factors for reduction Reasonable Royalty – License analogy (any increase from legally negotiated royalty?) Lost Profits – Unpopular measurement

41. Thank You! Acknowledgment Some slides are prepared by Prof. Ryu Takabayashi, Waseda Law School and Mr. Shinichi Murata at Kaneko & Iwamatsu