January 29-30, 2013 Tokyo, Japan Exportation of Knock-Down Kits: (Direct or Indirect) Infringement? AIPLA Mid-Winter 2013 Pre-Meeting Yusuke Inui, Attorney at Law

Background 2

Facts Osaka District Court, Case No. H21(wa)15096 –Decided: March 22, 2012 –Plaintiff (Patent Owner): Murata Manufacturing Co. Ltd. –Defendant (Alleged Infringer): OPPC Co. Ltd. The Osaka District Court found Murata's patent infringed and valid, and ordered OPPC to pay damages of JPY 128,115,144 to Murata 3

Murata's Patent Patent (Japanese Patent No ) –Invention: A heat-treating furnace comprising furnace heaters –Expired on November 20, Furnace Heaters

OPPC's Products Firing furnaces "PLK (Planetary Batch Kiln)" –Used for firing MLCCs (multi-layer ceramic capacitors) and other chip-type electric components 5 Furnace Items to be fired

OPPC's Products (cont'd) OPPC sold: –1 product to a company in Japan –3 products to companies in Taiwan (exportation) –28 products to companies in South Korea (exportation) 6

Issues (Court's finding) 1.Does OPPC's (finished) products fall under the scope of the patented invention? → YES 2.Is there any ground for invalidating Murata's patent? → NO 3.Does OPPC's sales of its products to companies in Taiwan and South Korea constitute patent infringement? → Today's main topic 4.How much is the amount of damages? → JPY 128,115, 144 (based on OPPC's profit) 7

Exportation of OPPC's products (in parts) When OPPC's products were shipped (exported) to Taiwan and South Korea, the products were in the form of parts, not finished (assembled) products The products were then assembled in Taiwan/South Korea –In some cases, other parts (not shipped from OPPC) were added at the time of assembly 8

Exportation of OPPC's products (in parts) (cont'd) 9 Japan Taiwan/South Korea

Exportation of Knock-Down Kits 10

Knock-Down Kits Knock-Down Kit –A kit containing parts needed to assemble a product –Typically, the parts are manufactured in a 1st country, and then exported to a 2nd country for final assembly in the 2nd country –In some cases, the kit is incomplete and further parts must be added in the 2nd country at the time of final assembly (semi knock-down kit) 11

Knock-Down Kits and Patent Infringement Question: Does exportation of a knock-down kit somehow infringe a patent in the 1st country, where the patent covers only the final product? US: Specifically addressed by the Patent Act –35 USC § 271(f)(1) Whoever without authority supplies or causes to be supplied in or from the United States all or a substantial portion of the components of a patented invention, where such components are uncombined in whole or in part, in such manner as to actively induce the combination of such components outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer. 12

Knock-Down Kits and Patent Infringement (cont'd) Japan: The Patent Act does NOT have a provision that specifically deals with knock-down kits Must look at each definition of "infringement" in the Patent Act 13

Direct Infringement Direct Infringement (Article 2(3) of the Patent Act) –An act of producing, using, assigning, etc. (assigning and leasing …), exporting or importing, or offering for assignment, etc. (including displaying for the purpose of assignment, etc. …) the product –Exportation of the claimed product constitutes direct infringement –What about unassembled knock-down kits? When we say "products," we usually think of finished products, not parts thereof 14

Indirect Infringement Indirect Infringement (Article 101 of the Patent Act) i.… acts of producing, assigning, etc., importing or offering for assignment, etc. any product to be used exclusively for the producing of the [patented] product as a business; ii.… acts of producing, assigning, etc., importing or offering for assignment, etc. any product (excluding those widely distributed within Japan) to be used for the producing of the [patented] product and indispensable for the resolution of the problem by the said invention as a business, knowing that the said invention is a patented invention and the [patented] product is used for the working of the invention These provisions cover (to some extent) the act of producing, assigning, importing or offering for assignment, parts to be used for producing of the patented product 15

Indirect Infringement (cont'd) When these provisions say "[parts] to be used for producing of the [patented] product," does this "production" have to occur in Japan? Tokyo District Court, Case No.H15(wa)16924 (decided February 27, 2007) –"Production" means "production in Japan" (based on the principle of territoriality) –Parts that are to be used for production outside Japan do NOT fall under the indirect infringement provisions The indirect infringement provisions do NOT cover knock-down kits exported outside Japan 16

Knock-Down Kits and Patent Infringement Japan: –Direct Infringement: ???? –Indirect Infringement: Does not cover knock-down kits exported outside Japan 17

Osaka District Court Judgment 18

Osaka District Court Judgment The Osaka District Court found that OPPC's act constitutes direct infringement The Court reached this conclusion by considering several factors 19

Osaka District Court Judgment (cont'd) Factors considered by the Court 1)OPPC marketed its products (the finished firing furnaces) through its catalogues and websites Such act constitutes "offering for assignment" in Japan 20

Osaka District Court Judgment (cont'd) Factors considered by the Court 2)OPPC temporarily assembled the products in a factory in Japan, and performed an operation check Thereafter, OPPC disassembled the products into parts and shipped the parts to Taiwan/South Korea The parts added in Taiwan/South Korea were irrelevant to the patented invention 21 JapanTaiwan/South Korea (Temporary Assembly) (Irrelevant)

Osaka District Court Judgment (cont'd) Factors considered by the Court 2)OPPC temporarily assembled the products in a factory in Japan, and performed an operation check The temporary assembly constitutes "producing" in Japan (even though it is still an unfinished product) The reason why the temporarily assembled product is disassembled before shipment is merely for convenience of transportation 22

Osaka District Court Judgment (cont'd) Conclusion –Considering these factors, OPPC's act (as a whole) constitutes "assigning," even if its products were disassembled prior to exportation –Thus, OPPC's act directly infringed Murata's patent 23

Comments 24

Comments The Osaka District Court judgment opened the door for arguing that knock-down kits may constitute direct infringement, even if there is no provision in the Patent Act that specifically addresses this issue –Some scholars and practitioners have asserted this position in treatises and law articles, but this is the first time a court has taken such position 25

Comments (cont'd) Remaining Issues 1.The Osaka District Court judgment seems to emphasize the point that OPPC's products were temporarily assembled in Japan What if there was no temporary assembly? 2.In this case, all relevant parts were shipped by OPPC What if OPPC shipped only some of the relevant parts, and other relevant parts were added in Taiwan/South Korea? The Tokyo District Court judgment (decided February 27, 2007) (mentioned previously) refused to find direct or indirect infringement in such case 26

Thank you very much for listening!! Yusuke Inui, Attorney at Law Hogan Lovells Horitsu Jimusho Gaikokuho Kyodo Jigyo 27

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