Hsiu-Ru Chien Frank Lee November 14 2022 How to calculate damages on basis of reasonable royalties Lee and Li Attorneys at Law | Intellectual Property - Taiwan Hsiu-Ru Chien, Frank Lee Intellectual Property IntroductionFactsDecisionCommentIntroductionOn 21 December 2011, article 97(1)(3) was added to the Patent Act to establish a legally reasonable remedy for damages to patentees so that the burden of proof on patentees is appropriately waived. Article 97(1)(3) originally read as follows: "Damages suffered is recognised as equivalent to the amount of royalties that may be collected from exploiting the invention patent being licensed." On 11 June 2013, article 97(1)(3) was amended to read as follows: "The damages claimed may be calculated according to the amount calculated on the basis of reasonable royalties that may be collected from exploiting the invention patent being licensed."On 29 June 2022, the Intellectual Property and Commercial Court issued a civil judgment regarding the calculation of damages on the basis of reasonable royalties.(1)FactsThe patentee of Taiwan Design Patent No. D208862, entitled "Frame Member", claimed that the defendant, who manufactured and sold the frame members, infringed its patent. According to article 97(1)(3) of the Patent Act, the plaintiff presented the patent licence agreement to the third party and requested that damages be calculated on the basis of reasonable royalties that could have been gained by licensing the patent.DecisionThe Intellectual Property and Commercial Court ruled as follows.In view of the contents of the patent licensing agreement, the plaintiff agreed to license the frame member design patent of Design Patent Application No. 108,307,991 and the Patent to a third party. Both parties mutually assented that the license period is five years, during which the third party may use and sell said frame member products in the territory of the Republic of China, as well as that the third party shall pay the plaintiff NT$1.8 million. As the plaintiff did license the two frame member design patents (including the Patent) to others, the monthly royalty amount is supposed to be NT$30,000 based on the preceding license period and calculation of royalties (NT$1.8 million divided by 5 years, and again by 12 months, equals NT$30,000). Since the preceding two patents licensed by the plaintiff are both design patents entitled "Frame Member" and ought to have comparable value, the monthly royalty amount of the Patent should be NT$15,000 (NT$30,000 divided by 2 equals NT$15,000). Hence, it is admissible that the plaintiff took the aforesaid monthly royalty amount of NT$15,000 as the basis for calculating damages suffered, and requested for NT$180,000 (NT$15,000 multiplied by 12 months equals NT$180,000) from the defendant as damages for a compensation period of one year at least since December 24, 2010, when the IP firm assessed that the frame member in dispute infringed the Patent.CommentRationale for Patent Act amendmentBased on the patent licensing agreement between the patentee and the third party, the amount of damages suffered by the patentee was recognised as equivalent to the royalties potentially received from licensing the patent. However, the judgment appears to be inconsistent with the rationale for article 97(1)(3) of the Patent Act dated 11 June 2013, which clearly lays out that damages calculated on the basis of reasonable royalties should exceed the amount of the royalty provided by the licence.Prior to the amendment, the calculation of damages was based on an amount that was "equivalent to the amount of royalties collected from exploiting the invention patent being licensed". However, this could discourage infringers from obtaining a patent licence first: the damages calculated on the basis of reasonable royalties for patent infringement were the same as those that would be determined by acquiring a licence in advance.Other relevant judgmentsAfter the amendment to article 97(1)(3) of the Patent Act on 11 June 2013, the award of damages to the patentee can be roughly divided into two types, as follows.Equivalent to amount of royalties under licenceExamples of this type of damage award include the following:In a civil judgment rendered by the Intellectual Property Court on 27 February 2014, the Court considered the past licensing of the patent in dispute and the royalties published on the patentee's website. It calculated the reasonable royalties requested by the patentee in proportion to the reduction of the royalties granted in the past.(2)In a civil judgment rendered by the Intellectual Property Court on 22 June 2019, the Court held that it was reasonable for the patentee to claim damages based on the daily royalty of the patent in dispute as agreed between the patentee and the third party, and to calculate damages based on the number of usage days of the infringing product.(3)In a civil judgment rendered by the Intellectual Property Court on 10 April 2014, the Court considered the fact that, after originally licensing its product at a royalty of 10,000 new Taiwan dollars per product, the patentee raised the amount to 20,000 new Taiwan dollars per product for a third party that had infringed on the patent in the first place and obtained a licence after a warning from the patentee. The Court commensurately accepted a royalty amount of 20,000 as the basis for calculating damages.(4)Determination of reasonable royalties in accordance with principle of balancing equitiesIn a civil judgment rendered by the Supreme Court on 17 July 2015, the Court held that even though the patentee had not licensed the patent in dispute, and was therefore unable to generate an estimated royalty, the Court could still determine appropriate and reasonable royalties in accordance with the principle of balancing equities. At its discretion, the Court may take into account patent royalties for similar technology and licensing agreements based on:the facts of the infringement;the market presence of the licensor and the licensee;the contribution of the patent technology to the profits or technology of the infringing product; andthe market share of the infringing product.(5)Remaining questionsThese judgments suggest that the courts tend to refer to actual royalties granted and often deem equivalent royalty amounts under licence as reasonable royalties for damages suffered by the patentee. If the patent has not yet been licensed and there is no actual royalty amount to reference, the courts will determine reasonable royalties at its own discretion, based on other relevant factors in accordance with the principle of balancing equities. However, if an equivalent royalty amount under licence is directly determined as equivalent to damages suffered by the patentee, it seems that there is a contradiction with the rationale for the Patent Act amendment. If reasonable royalties are recognised in accordance with the principle of balancing equities, this may seem to be a subjective an uncertain assessment. Such issues require further clarification through judicial practice.For further information on this topic please contact Hsiu-Ru Chien or Frank Lee at Lee and Li Attorneys at Law by telephone (+886 2 2763 8000) or email ([email protected] or [email protected]). The Lee and Li Attorneys at Law website can be accessed at www.leeandli.com.Endnotes(1) 2021 Min Zhuan Su Zi No. 48.(2) 2012 Min Zhuan Shang Zi No. 50.(3) 2017 Min Zhuan Su Zi No. 98.(4) 2013 Min Zhuan Shang Zi No. 52.(5) 2015 Tai Shang Zi No. 1343.