CASRIP Newsletter - Fall 1997, Volume 4, Issue 3
The JPO's Industrial Property Committee Proposed to Increase Patent Infringement Damages
On November 25, 1997, the Japanese Patent Office's Industrial Property Committee published a report, reviewing infringement damages and criminal sanctions available under current law and proposing revisions on provisions on current law which provide (1) calculation of patent infringement damages, (2) presumption of manufacturing method for products resulting from a patented method, (3) production of document, (4) offence of patent infringement and (5) dual liability for patent infringement.1 The report was created by the Infringement Damages Subcommittee members representing legal communities, industry, scientists and journalists to respond criticisms to the current patent infringement damages granted by Japanese courts. Typical criticisms include (1) the current system does not give enough incentive for the investment to R&D activities; (2) patent litigation takes long time and very expensive although patent infringement damages are very low, which encourages, instead of deter, infringement; and (3) since Japanese courts cannot give effective protection, it is better to litigate patents in U.S. courts. Currently, Japan's industrial property system, particularly patent system, is going through a major change to provide sufficient incentive for developing pioneer inventions and encourage basic research and developments to respond the policy announced by Japanese government to become a leading country producing advanced and basic technologies.2 This policy of becoming a leading pro-patent country is strongly influenced by the U.S. government's policy in the eighties, which increased patent protection.
The report includes a variety of surveys including diagrams indicating the average of patent infringement damages granted by Japanese courts much lower than that of U.S. courts, and a low rate of cases in which damages in the form of lost profits are granted by Japanese courts, and confirmed concerns indicated by industry with respect to lack of enough protection. Thus, the subcommittee reviewed possibility of revising patent statutes (1) to make it easy to establish damages in the form of lost profits; (2) to provide measures to deter infringement; (3) to increase damages in the form of reasonable royalty; (4)to remove the provision which enables courts to reduce damage award when the infringer infringed the patent with no gross negligence; (5) provide measures to award attorney's fee; (6) to improve measures to obtain evidence for infringement; (7) to accelerate proceedings to grant preliminary injunction; (8) to accelerate invalidation proceedings; and (9) to improve court.
Among proposals made by the subcommittee are to revise the provision for calculation of damages to clarify that patentees who have not exploited their invention can claim damages in the form of infringement if they have potential capacity to exploit their inventions. Under current case law, Japanese courts automatically deny relief by damages in the form of lost profits or infringer's profits if the patentee does not exploit the patented invention.3 Whether to grant lost profits is also an issue of controversy in the United States4 although a recent panel decision affirmed that no exploitation by the patentee does not preclude (but may make it difficult to establish) damages in the form of lost profits.5
Further, the subcommittee proposed to introduce a provision to enable courts to increase damages up to three times of damages established by the evidence. The enactment of this proposal will have a significant impact on Japanese legal system since Japanese tort law has structured to aim restitution and damages for torts have never take a significant role in Japanese general tort law. The Japanese Supreme Court consistently struck down provisions to set damages beyond compensatory amount. It also recently refused to enforce a judgment of U.S. court granting punitive damages for patent infringement.6 The subcommittee also proposed to enable courts to increase the amount of reasonable royalty up to three times since the amount of royalty rates currently granted by Japanese courts simply reflect the industry standard or standard published by the Japanese Patent Office for licensing patents owned by Japanese government.
Another significant propose which may impact on procedural aspects of Japanese patent litigation is to introduce a presumption of infringement for patents on a process or manufacturing devices if the patentee established with a reasonable probability but could not establish that the accused infringer uses the process or device. Lack of a discovery system and burden of producing evidence under Japanese Civil Procedure much higher than the preponderance evidence made it very difficult for patentees to establish infringement. This revision aims to reduce the burden. A provision under consideration was to enable courts for requesting a disclosure of the manufacturing process or device once the process or device is identified by the patentee. The subcommittee also suggests a possibility to create a patent court comparable to the U.S. Court of Appeals for the Federal Circuit. In short, all proposals show strong influence from case law developed by the Federal Circuit and its court system. If the proposals are accepted, Japanese damages system which was originally created by translating German case law will move closer to its U.S. counterpart.
The Japanese Patent Office is expected to draft a bill to revise the patent law on basis of the proposal and introduce it to Parliament sometime next year. Whether the bill will become a law depends on approvals from other government sectors which may be affected by the proposed revisions. Particularly, the Department of Justice may indicate concerns on the introduction of provisions of increased damages beyond the compensatory damages, considering the needs to coordinate with damage provisions in other statutes. It is no doubt that JPO officials must go long way to actually implement the proposals into a law.
-- Toshiko Takenaka
1The Japanese Patent Office, Infringement Damages Subcommittee, Industrial Property Rights Committee, Strong Protection of Intellectual Property, (Nov. 25, 1997).
2The Japanese Patent Office, the Commission on Intellectual Property Rights in the Twenty-First Century, Challenges for Breakthrough (April 7, 1997)
3Toru Toyama, Study with respect to Proper Civil Remedies for Infringements of Intellectual Property, 1996 IIP Bulletin 62 (1996).
4Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 35 U.S.P.Q.2d 1065 (Fed. Cir. 1995)
5King Instruments Corp. v. Perego, 65 F.3d 941, 36 U.S.P.Q.2d 1129 (Fed. Cir. 1996).
6Judgment of Supreme Court of Japan, July 11, 1997.