1. 1 Decision by the grand panel of the IP High Court (February 1, 2013) re calculation of damages based on infringer’s profits Yasufumi Shiroyama Japan Federation of Bar Association Anderson Mori & Tomotsune yasufumi.shiroyama@amt-law.com

2. 2 Facts Sangenic International Limited (“SG”) is a British corporation, which manufactures waste storage devices (“SG Products”) in England and owns a Japanese patent. Aprica Children’s Products Inc. (“AP”) is a Japanese corporation, which used to be an authorized importer and distributor of SG Products in Japan. After the distribution agreement between SG and AP was terminated, SG appointed a third party, Combi Corporation (“Combi”), as a new importer and distributor of SG Products. AP then started to import and distribute waste storage devices manufactured in China. SG sued AP for patent infringement.

3. 3 Tokyo Dist. Court Judgment of Dec. 26, 2011 Patent was found valid and infringed. Injunctive relief was awarded. Compensation of damages equivalent to reasonable royalty was awarded. Presumption for the amount of damages based on infringer’s profit under Art. 102, Para. 2 of the Patent Act was not applicable because SG (patentee) was not working the patented invention in Japan by itself.

4. 4 IP High Court Judgment of Feb. 1, 2013 Presumption for the amount of damages based on infringer’s profit under Art. 102, Para. 2 of the Patent Act is applicable as long as there are circumstances where the patentee should have gained profits if no patent infringement occurred. The fact that a patentee’s business is different from an infringer’s business (i.e., they are not competing in the same business) should only be considered as one factor which may, or may not, destroy the presumption. In this case, presumption was not destroyed by the mere fact that it is Combi which is currently importing and distributing SG products in Japan.

5. 5 Background: Compensation of damages caused by patent infringement under the Japanese Law Article 709 of the Civil Code “A person who has intentionally or negligently infringed any right of others, or legally protected interest of others, shall be liable to compensate any damages resulting in consequence.” Limited to actual damages. Neither punitive damages nor statutory damages can be awarded.

6. 6 Presumption for the amount of damages under Article 102 of the Patent Act Three presumptions for calculating the patentee’s damages:  Para. 1: [profit from each competing product of a patentee] X [number of infringing products sold by an infringer]  Para. 2: Infringer’s profit gained through infringement  Para. 3: Reasonable royalty

7. 7 A patentee may argue for any number of these presumptions. If multiple presumptions are argued, the court will award the highest amount. It should be noted that a patentee still bears the burden of proving that it actually incurred the damages, despite the presumption about the amount of damages. However, this fact is rarely denied.

8. 8 Patentee’s own working of a patented invention as a precondition for the presumption based on an infringer’s profits Some district and high court precedents have held that the presumption based on an infringer’s profit only applies if the Patentee itself worked the patented invention. However, there are other cases which have found no such precondition. There are no Supreme Court precedents on this issue.

9. 9 Destruction of presumption Presumption is destroyed if an infringer proves that the amount of damages caused by infringement is smaller than the presumed amount. In precedents, relevant factors found to partially destroy the presumption under Para. 2 of Art. 102 (infringer’s profit) include the degree to which the invention contributes to a whole product, the existence of authorized licensees of a patent, etc.

10. 10 Scope of the present decision The IP High Court referred to a condition that “as long as there are circumstances where the patentee should have gained a profit if no patent infringement occurred”. It is likely that non-practicing entities still face difficulties if they argue that damages should be calculated using the presumption based on the infringer’s profits.

11. 11 END Thank you!