1. Introduction
  Article 102 of the Patent Act is the provision which provides a calculation method of the amount of damage when a patentee etc. claims compensation for damages under Article 709 of the Civil Code against a person who infringes the patent. Specifically, Article 102, Section 1 of the Patent Act provides a method of calculating the amount of damage due to the reduction in the sales quantity of patented products as a result of the sales of products infringing the patent (lost profit).

  The figure illustrated below shows the outline of the calculation method of the damage amount prescribed by Article 102, Section 1 (Section1(1) in the current act) of the Patent Act. Note that, as the part relating to the sales quantity (the part in the brackets in the figure below), the quantity within the limits of an amount proportionate to the capacity of the patentee etc. to implement (implementable quantity) is considered.
 

  In the case (Case) at the grand panel of the IP High Court (2019 [Appeal Case] No.10003) where a decision (Decision) was made on February 28, 2020, holding was given about (1) to (4) described below which should be considered at calculation of the lost profit based on Article 102, Section 1 of the Patent Act.
(1) As for the determination of the "amount of profit per unit of articles which would have been sold if there had been no such act of infringement"
(2) As for the determination method of proportion of rebuttal to the presumption related to the calculated lost profit
(3) As for the determination of the "implementable quantity"
(4) As for the determination of the "circumstances under which the patentee etc. would have been unable to sell"

  In this article, the calculation method of the lost profit held in the Decision is explained. Note that although Article 102 of the Patent Act was revised in 2019, and the revised act was enforced on April 1, 2020, the calculation method of the lost profit explained in this article is also applicable under the revised act, and can be taken into consideration in litigation seeking compensation for damage under the revised act.

2. Outline of the Case

  This is a case in which Patentee (First-instance Plaintiff) who owns Patent 1 (JP5356625B2) and Patent 2 (JP5847904B2) titled "COSMETIC APPLIANCE," sought against Alleged Defendant (First-instance Defendant) injunction of sales etc. and disposal of the Defendant's products, and damage compensation.

  In the Original Case (2016 [Ordinary litigation, the First-instance] No. 5345), the court granted the injunction of sales etc. and disposal of the Defendant's products, as well as a part of the claim for damage compensation, as the sales etc. of the Defendant's products infringes Patent 2. In the Original Case, the court deducted 50% of the assigned quantity of the infringing products as they fall under the "circumstances under which the patentee etc. would have been unable to sell," and also reduced the damage amount by 90% considering the contribution of the invention.

  In the Decision, the court granted the injunction of sales etc. and disposal of the Defendant's products, and determined the damage amount more than the amount determined in the Original Decision, as the sales etc. of the Defendant's products infringe the Patent 2. Note that the quantity of sales of the Defendant's products (the quantity of 351,724) was not argued.

3. Calculation of damage amount
(1) As for the determination of the "amount of profit per unit of articles which would have been sold if there had been no such act of infringement"

(1-1) "Articles which would have been sold if there had been no such act of infringement"
    The "articles which would have been sold if there had been no such act of infringement" should be interpreted as products of patentee etc., of which the sales quantity is affected by the infringing act, that is, any products of patentee etc., which have a competitive relationship with the infringing products in the market.

(1-2) "Amount of profit per unit"
    The "amount of profit per unit" should be interpreted as an amount calculated by deducting an additionally required costs directly related to the manufacture and sales of products of the patentee, etc. from the sales figures of the products (marginal profit), and the burden of proof is on the patentee's side, including the capacity of the patentee etc. to implement the invention.

(1-3) Marginal profit of the patentee's products
   In the Decision, as a basis of the amount of the marginal profit, an amount was calculated by deducting the manufacturing costs and other costs from the sales figure. Here, the "other costs" to be deducted in addition to the manufacturing costs included sales commissions, sales promotion costs, advertising costs, etc. On the other hand, it was held that "it is inappropriate to deduct costs not directly related to the manufacturing and the sales of the products of the patentee, etc. from the sales figure, which normally include labor costs for management divisions, transportation and communication costs, etc."

(1-4) Brief summary
   In the Decision, taking the above into account, the marginal profit of the Patentee's products per unit was calculated as 5,546 yen.

(2) Determination method of proportion of rebuttal to the presumption related to the calculated lost profit

   The invention according to the Patent 2 (Invention 2) is a beauty equipment comprised of a rolling body, a support shaft, a bearing member, a handle, etc., and it can be determined that the invention is characterized by the shape of the bearing member and the inner peripheral surface of the rolling body (hereinafter, referred to as the "Feature"). The Feature is merely a part of the Patentee's product.

  In the Decision, a norm was provided as a principle, that "even if the feature of the patented invention is only a part of the product of the patentee who implemented the patented invention, it should be factually presumed that the entire amount of the marginal profit that could have been gained by the sales of the patentee's products becomes the lost profit of the patentee."

  However, in the Case, although it was determined that the Feature contributed to the sales of the Patentee's products, it was also determined that a part of the Patentee's product that greatly attracts customers is other than the Feature (a structure of a rolling part which contacts skin, and a function of generating microcurrent by having a solar panel). Then, based on these determinations, it was held that "since it cannot be said that the Feature contributes to all the profit gained by the sales of the Plaintiff's products, it is inappropriate to determine that the all amount of the marginal profit which could have been gained by the sales of the Plaintiff's products is the lost profit, and thus, for the Plaintiff's products, the presumption of fact as described above should be partially rebutted."

  In the Decision, taking the above into account, the proportion of rebuttal to the presumption of fact was determined to be about 60% of the entire amount. Accordingly, it was determined that the "amount of profit per unit" for calculating the damage amount was 2,218 yen which was obtained by deducting 60% from the marginal profit per unit (5,546 yen) of the Patentee's products calculated as described in the above (1).

(3) "Implementable quantity"
  The "capacity to implement" in Article 102, Section 1 of the Patent Act can be a potential capacity, and in a case the quantity of products corresponding to the sales quantity of the infringing products can be supplied in a method of production outsourcing, etc., it should also be interpreted that the patentee has the capacity to implement, and the burden of proof is on the patentee's side. In the Case, according to the sales record of the patented products by the Patentee, the difference between the average sales quantity per month and the largest monthly sales quantity, was about 30,000. Therefore, it was presumed that the Patentee had a capacity of supplying the surplus products of the quantity of about 30,000. Accordingly, since the assigned quantity of the infringing products per month was about 20,000 in average, the Patentee was determined to have the capacity to additionally sell the entire amount of the assigned quantity.

(4) Determination of the "circumstances under which the patentee etc. would have been unable to sell"
  Article 102, Section 1 of the Patent Act stipulates that if there is a circumstance under which the patentee etc. would have been unable to sell the quantity corresponding to the all or a part of the assigned quantity of the infringing products, the amount commensurate with the quantity which falls under the circumstance where the sales is impossible, is deducted. When the infringer proves the circumstances of various types which can be determined as the circumstance under which the patentee etc. would have been unable to sell, and the amount corresponding to the quantity which falls under the circumstance, the amount corresponding to this quantity is deducted from the determined damage amount.

  The "circumstances under which the patentee etc. would have been unable to sell" are circumstances which impede the commensurate causal relationship between the infringing acts and the reduction in the sales of the patentee's products. Below, types of the "circumstances" held in the Decision are sequentially described based on the judgement in the Decision related to each type.

(4-1) Existence of difference in business form, price, etc. between the patentee and the infringer (Non-identity of the markets)

(a) Difference in price
  The Patentee's product was sold for 23, 800 yen, or close to this price. On the other hand, the Defendant's product was sold for about 3,000-5,000 yen. Considering this difference in price, even if the alleged infringing products had not existed, it should be said that not everyone who bought the Defendant's products would have bought the Patentee's products. Thus, the above difference in price can be determined as the "circumstance under which the patentee etc. would have been unable to sell."

  In the Decision, while it was both pointed out that the above difference in price was not small (affirmative to the "circumstance under which the patentee etc. would have been unable to sell"), and that there were not a little people who did not find the price important considering the characteristic of the product as a facial massager (denying the "circumstance under which the patentee etc. would have been unable to sell"), the court determined that the quantity falling under the "circumstance under which the patentee etc. would have been unable to sell" was about 50% of the entire quantity.

(b) Difference in sales channel
  The Defendant claimed that the target customers were different between the Defendant and the Patentee since the Patentee sold products at major online shopping service and department stores while the Defendant sold products at discount stores and variety stores. However, in the Decision, it was held that since it was difficult to determine there was a rule of thumb that people who bought products at major online shopping service or department stores did not buy products at discount stores or variety stores, the difference in sales form could not be determined as the circumstance under which the patentee etc. would have been unable to sell.

(4-2) Existence of competitive products in the market
  The Defendant claimed the existence of a number of competitive products as the circumstance under which the patentee etc. would have been unable to sell. In the Decision, although the court determined that at least 29 types of products similar to the products of the Patentee and the Defendant were sold as of April, 2019, it held that there was no evidence sufficient to prove the existence of the competitive products to the Patentee's products sold in the market.

(4-3) Marketing effort made by the infringer (brand power and advertisement)
  The Defendant claimed its marketing effort as the circumstance under which the patentee etc. would have been unable to sell. However, in the Decision, it was not determined that the Defendant made marketing effort sufficient to be regarded as the circumstance under which the patentee etc. would have been unable to sell.

(4-4) Existence of difference in performance of the infringing products and the patentee's products (features other than patented inventions such as function and design)
  The Defendant claimed that although the Invention 2 is the invention related to a bearing, the manufacturing costs for a bearing of the Defendant's product made up a small part of the manufacturing costs for the entire product, and the bearing was a kind of accessories, and thus, it corresponds to the circumstance under which the patentee etc. would have been unable to sell. However, in the Decision, it was held that the circumstance that the Invention 2 is the invention characterized by a part of the beauty equipment was considered in the examination for partial rebuttal to the lost profit ((2) described above), and thus, there was no need to consider it as the circumstance under which the patentee etc. would have been unable to sell.

(5) Damage amount
  The damage amount of the Patentee according to Article 102, Section 1 of the Patent Act was calculated to be 390,060,000 yen based on the formula in the below figure.

4. Study
 In the Original Decision, it was held that "the contribution of the use of the technology of the Invention 2 to the sales of the Defendant's products is not large, and considering this circumstance, it is appropriate to determine the contribution rate as 10%." That is, in the Original Decision, when the feature of the patented invention was only a part of the product, this was considered in the "contribution rate" to the sales of the "defendant's products" so as to adjust the damage amount. On the other hand, the Decision held the way of thinking that, when the feature of the patented invention was only a part of the product, this was considered in the "rebuttal rate" to the marginal profit of the "patentee's products" so as to adjust the damage amount.

 Article 102, Section 1 of the Patent Act intends to consider as the damage amount of the patentee, the amount of damage due to the reduction in the sales quantity of patented products as a result of the sales of products infringing the patent (lost profit). Therefore, the way of thinking in the Decision, that the contribution of the patented invention to the "patentee's products" is brought up as an issue, is considered to be more in line with the intent of Article 102, Section 1 of the Patent Act which focuses on the profit that the patentee could have gained.

 Moreover, in the Original Decision, the "contribution rate" was determined as 10%, while in the Decision, the "rebuttal rate" was determined as 60% (40% when converted into the "contribution rate"). Thus, the damage amount determined in the Decision was increased from the amount determined in the Original Decision. Also, in another grand panel case (2018 [Appeal Case] No.10063, see our previous News Letter) which precedes the Decision explained in this article, an original decision was supported regarding the calculation of the damage amount equivalent to the royalty under Article 102, Section 3 of the Patent Act. The original decision determined the amount equivalent to the royalty at a royalty rate higher than a royalty rate set for the ordinary license agreement. Furthermore, in the revision of the Patent Act in 2019, the provision advantageous to the patentees was added regarding the calculation method of the damage amount. In consideration of the above, it can be said that, in Japan, the situation in litigation seeking compensation for damage due to patent infringement is advantageous to the patentee's side compared to the past.

5. References
 In the revision of the Patent Act in 2019, the following two provisions were newly established regarding the calculation method of the damage amount.
- A part of profit gained by the infringer, which was not previously subject to the compensation as it exceeds the production capacity etc. of the patentee, can be claimed for the damage compensation by deeming that the patent right is licensed to the infringer (Article 102, Section 1(2) of the Patent Act).
- When calculating the damage amount based on the amount equivalent to the royalty, the amount which would be determined if negotiated on the premises of infringing the patent, is considerable (Article 102, Section 4 of the Patent Act).

 The four types of the "circumstances" described in 3. (4) "Determination of the 'circumstances under which the patentee etc. would have been unable to sell"' of this article, were similarly held in the preceding grand panel decision (2018 [Appeal Case] No.10063, see our previous News Letter) in which the calculation method of the damage amount under Article 102, Sections 2 and 3 was held.