1. Adequate Patent Infringement Damages in Japanese Courts: Comparative Analysis Toshiko Takenaka, Ph.D. Professor of Law; Director, CASRIP University of Washington School of Law

2. Outline Background –Japan’s National IP Strategy Comparison with EU Developments IP Enforcement Revisions –Improvements in Evidence Taking Document Production Orders 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 (1977) Intellectual Creation Cycle –Adoption of National Strategy to Become IP based Nation Enactment of Basic IP Law (2002) Creation of IP headquarters within Cabinet

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

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

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

7. 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 tortuous acts

8. Damage Measurements U.S. Lost Profits Reasonable Royalty (Defendant’s Profit) –Abolished Japan Lost Profits –Civil Code Reasonable Royalty Defendant’s Profit

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

10. U.S.: Lost Profits Patentee: Burden of Proof Causation between Infringement and Damages –Courts favor inventors –Showing the causation with a reasonable probability (need not negate every possibility that a customer would have bought a different product)

11. U.S.: Panduit Test Inference of Causation Causation Inferred by Showing:  Market demand  Capability to meet such market demand  Absence of non-infringing acceptable substitute in the market  Profits the patent would have received but for infringement

12. U.S.: Lost Profits Entire Market Value Rule –Patentee may recover lost profits for an entire patented product even if the patent covers only a portion of such product Functionality requirement Demand for the entire product requirement –Convoyed Sale (spare parts, etc. ）

13. U.S.: Reasonable Royalty Guaranteeing Reasonable Royalty as Bottom Line Compensation –No reduction for innocent infringers –Only enhancement for willful infringers Case-by-Case Analysis –Georgia Pacific factors –Prior license – Minimum compensation –No prior license – High royalty rate

14. U.S.: Selection of Two Measurements Patentee can select either lost profits or reasonable royalty depending on the conditions in the market More than one measure of damages may be applied –Lost profits as to some sale by the infringer and a reasonable royalty as to other sales

15. U.S.: Selection of Two Measurements

16. Japan: Lost Profits Multiple Tests to Negate Causation –Patentee must exploit the patented invention –Identity between the patentee’s product and infringing product –Presence of acceptable substitutes High Burden of Proof Apportionment Lack of Evidence Taking Procedures

17. Japan: Reasonable Royalty No Guarantee to Compensate Actual damages –Courts may reduce the amount exceeding a reasonable royalty if infringement is not willful or the defendant engaged in infringing act without gross negligence Reliance on industry standard –Prior license - Maximum compensation –No prior license – Low royalty rate

18. Japan: 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

19. Japan: Infringer’s Profits Rebuttal by Infringer Proof of actual damages Factors which negate causation for the full amount of profits –Presence of non-infringing acceptable substitute in the market –D’s marketing efforts –Apportionment

20. Huge 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

21. 1998 Patent Revision Art. 102, Para 1 –Presumption of causation for lost profits Art. 102, Para 4 –Removal of “ordinarily”

22. 1998 Revision Codification of Panduit Test Causation Inferred by showing:  # of infringing products sold by infringer  Net profit-per-product that patentee would have sold but for infringement –Deduction of variable costs only  Capacity to make and sell the # of products sold by infringer

23. 1998 Revision Codification of Panduit Test Rebuttal by Infringer # of products P could not have sold  Difference in infringing product and patentee’s product –Competing products  Presence of non-infringing acceptable substitute in the market  Apportionment –Entire market value rule

24. 1998 Revision Reasonable Royalty Case-by-Case Analysis –Higher than a legally negotiated royalty –A variety of factors Guarantee of Minimum Compensation? –Courts’ discretion to reduce surplus from a reasonable royalty - Reserved –Split awards of lost profits and reasonable royalty – possible?

25. 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

26. Impact of Revision Not as significant as expected –High awards in early cases –Decrease in the average amount of damages in recent cases –Small number of cases going to damage calculation Possible Reasons –Infrequent request of lost profits –Multiple factors to reduce the presumed lost profits

27. Impact of Revision

28. Japan: Damage Awards Average

29. U.S.: Big Damages 2005-07

30. U.S.: Damages Awarded Median

31. Thank You Very Much! If you have a question, please contact, Toshiko Takenaka, at toshiko@u.washington.edu