Summary

On December 17 2014 the IP High Court reversed a decision of the Osaka District Court that had denied a damages compensation claim brought by KK Sakae under Article 100(1) of the Patent Law (121/1959, as amended) against both Koji Sangyo KK, which manufactured and sold metal wagons, and Trasco Nakayama KK, which purchased the metal wagons from Koji and resold them to end consumers. The IP High Court then modified the Osaka District Court decision, finding that Koji and Trasco had committed patent infringement as joint tortfeasors.

Background

Article 29 of the Patent Law provides as follows:

  • Any person that has made an invention which is industrially applicable may obtain a patent for the invention, with the exception of inventions:
    • which were publicly known in Japan or elsewhere before the filing of the patent application;
    • which were publicly worked in Japan or elsewhere before the filing of the patent application; and
    • which were described in a distributed publication or made available to the public through electronic means in Japan or elsewhere before the filing of the patent application.
  • Where an invention could easily have been made – before the filing of the patent application – by a person with ordinary skill in the art to which the invention pertains, on the basis of an invention or inventions referred to in the previous bullet, a patent shall not be granted for the invention, notwithstanding the previous bullet.

Article 100 of the Patent Law provides as follows:

  • A patentee or exclusive licensee may require a person that infringes or is likely to infringe the patent right or exclusive licence to discontinue or refrain from such infringement.
  • A patentee or exclusive licensee that is acting under the previous bullet may demand:
    • the destruction of the infringing articles (including articles manufactured through an infringing act in the case of a patented manufacturing process, as in Article 102(1)); and
    • the removal of facilities used for the act of infringement or other measures necessary to prevent the infringement.

Article 102 of the Patent Law provides that where a patentee or exclusive licensee claims compensation for damages caused by intentional or negligent infringement of its patent rights or exclusive licence, the profits gained by the infringer through the infringement shall be presumed to be the amount of damage suffered by the patentee or exclusive licensee.

Article 104-3 of the Patent Law provides that in litigation relating to the infringement of a patent right or exclusive licence, the patentee or exclusive licensee shall not exercise the right against the other party where the patent has been invalidated at a patent invalidation trial or where the extension of the effective period of patent protection has been invalidated at a patent extension invalidation trial.

Article 719 of the Civil Code provides that if two or more persons have, by their joint unlawful actions, caused damage to another person, they are jointly and severally liable to compensate for such damage (this applies even if it is impossible to ascertain which of the joint participants caused the damage). Instigators and accomplices are deemed to be joint participants for the purposes of this provision.

Facts

Sakae, which owned the patent on a metal wagon, filed suit before the Osaka District Court requesting an injunction against Koji to stop its manufacture and sale of the wagons and against Trasco, which purchased and resold the wagons. Sakae asserted that the wagons infringed its patent rights and demanded compensation for damages caused by Koji and Trasco as joint tortfeasors under Articles 100(1) and (2) of the Patent Law.

Osaka District Court decision

On February 28 2013 the Osaka District Court denied Sakae's claim under Articles 100(1) and (2) of the Patent Law.

The Osaka District Court noted that three issues were involved in the claim:

  • whether the defendants' products fell within the technical scope of the patented invention;
  • whether the patented invention should be invalidated through a patent invalidation trial; and
  • the damages suffered by the plaintiff.

As to the first issue, the court held that the defendants' products satisfied all of the requirements of the patented invention and thus fell within the technical scope of Sakae's patent claim.

As to the second issue, the court determined that the patented invention was easily thought of by applying one previous invention (Exhibit B-7) to another (Exhibit B-13); the court thus concluded that the patented invention should be invalidated through a patent invalidation trial. In this respect, the court also considered that the application of Exhibit B-7 to Exhibit B-13 was easily thought of.

Thus, the Osaka District Court rejected all of Sakae's claims, precluding any discussion of damages.

IP High Court decision

Sakae appealed to the IP High Court on March 7 2013.

On December 17 2014 the IP High Court reversed the decision of the Osaka District Court, finding Koji and Trasco guilty of patent infringement and accordingly modifying the Osaka District Court decision.

Four issues were raised before the IP High Court:

  • whether the appellees' products fell within the technical scope of the patented invention;
  • whether the patented invention should be invalidated through a patent invalidation trial;
  • whether there was joint liability between the tortfeasor appellees as to the damages suffered by Sakae; and
  • whether there was any merit in the appellees' invocation of the statute of limitations.

The court concluded that the original decision dismissing all of Sakae's claims should be modified, as Sakae's claim for damages compensation was justified (to the extent of the main text of the judgment), because the patented invention should not have been considered invalid on account of its high level of inventiveness. Thus, the appellees' products were held to have infringed the patented invention.

Technical scope of patented invention

As to the first issue of whether the appellees' products fell within the technical scope of the patented invention, the court upheld the first-instance decision that the products satisfied all requirements of the patented invention and thus fell within its technical scope.

Invalidation claim

However, as to the second issue of whether the patented invention should be invalidated through a patent invalidation trial, the court did not consider that the patented invention could be easily thought of by a person with ordinary skill in the art based on the Exhibit B-13 and Exhibit B-7 inventions. The court also held that the patented invention could not easily be thought of by a person with ordinary skill in the art based on Exhibit B-13 and two other mentioned inventions, Exhibits B-18 and B-19. Further, the court considered that the patented invention could not easily be thought of by a person with ordinary skill in the art even by applying Exhibits B-18 and B-19 to the Exhibit B-7 invention. Therefore, all of the appellees' assertions relating to invalidation pursuant to Article 104-3 of the Patent Law were held to be groundless.

Statute of limitations

As to the fourth issue, the court determined that the tort-based claim for compensation of damages arising from sales of the appellees' products before April 27 2011 had no grounds on account of the statute of limitations.

Joint liability of appellees

If a tort is committed by multiple persons and joint liability can be recognised for each tortfeasor, it is necessary to distinguish either a subjective connection among the tortfeasors (eg, a conspiracy) or an objective connection, so as to identify circumstances where damage caused by one tortfeasor should be borne by all tortfeasors.

A manufacturer's sale of products to a reseller and the reseller's subsequent sale of the products to end consumers constitute a simple general transaction and joint tort liability cannot be asserted for such a connection, even if both the manufacturer and reseller mutually recognise and accept the transaction.

In this particular transaction, the manufacturer appellee Koji sold and delivered all of its products to the reseller appellee Trasco, but there was no evidence of a capital or personal relationship between Koji and Trasco. Further, the share of sales between Koji and Trasco was extremely low when compared with the total sales of both companies.

Koji was merely one of around 200 companies that conducted transactions with Trasco. However, the relationship between Trasco and Koji was based on the following factors:

  • Koji had manufactured the products based on the expectation that they would all be purchased by Trasco in view of Trasco's business capacity, as Trasco had total company sales of over Y119.5 billion and 105 manufacturing facilities across Japan as of 2009.
  • Trasco could ensure a steady supply of goods by exclusively purchasing Koji's products. Thus, it was interpreted that the two companies were manufacturing and selling the products through mutual cooperation.

In view of the above, the court held that there was an objective connection between the appellees' activities, and that the tortfeasors should thus be jointly liable.

Damages caused by Trasco

In calculating the amount of damages based on Article 102(2) of the Patent Law, the profits gained through the infringement are considered to be the sales revenue of the infringing products minus the total expenses, the cost of raw materials and any expenses directly fluctuating due to an increase in the sales volume of the infringing products.

Based on these guidelines, the court calculated the amount of damages caused by Trasco to be Y12,453,719. With the addition of Y1.5 million in attorneys' fees, the total amount of Trasco's damages liability was Y13,953,719.

Damages caused by Koji

The court used the same calculation method for Koji as that used for Trasco, finding the amount of damage caused by Koji to be Y16,116,402. With the addition of Y2 million in attorneys' fees, the total amount of Koji's damages liability was Y18,116,402.

Total damages

The court thus held that the appellees were jointly and severally liable to pay the appellant Y32,070,121.

The court recognised that the appellant's claims were well grounded to the extent of the main text of the judgment, but had no grounds on the other remaining points. Thus, the court modified the original judgment according to the main text.

Comment

Many patent infringement cases involve several joint tortfeasors, such as manufacturers and resellers of infringing goods. In such cases, the patent owner usually pursues the manufacturer as the prospective defendant and main target in the infringement suit. However, in this particular case the main target was not the manufacturer, but rather the reseller; this is presumably because reseller Trasco dominated the sales channel of the defendants' products on the market.

The court clarified that the simple relationship between manufacturer and reseller – and the mutual recognition and acceptance of this relationship – were insufficient to satisfy the connection criteria to hold them jointly liable. The court then considered Trasco's business capacity – with total company sales exceeding Y100 billion and many production facilities across Japan – and the fact that it had purchased all of the products manufactured by Koji. In light of these factors, the court ruled that Trasco and Koji were liable as joint tortfeasors, as there was an objective connection between the two.

Joint tortfeasor liability is thus not unique to general tort liability cases in Japan and it is likely that in future there will be increasingly more patent infringement cases in which joint liability is found.

For further information on this topic please contact Eiichi Fukushima at Nishimura & Asahi by telephone (+81 3 5562 8500) or email (e_fukushima@jurists.co.jp). The Nishimura & Asahi website can be accessed at www.jurists.co.jp.

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