Introduction
Calculating damages in patent infringement cases has always been a difficult problem. There have been three methods widely used in all jurisdictions across the world after their continuous exploration, i.e., “lost profit” for the patentee, which he deserves but did not receive; “unjust enrichment” which is the market gain from the infringing activities; and patent “royalties.” But all of the above factors do not play out the same way in all countries.
I. China’s status quo and analysis
II. According to the Article 65 of China’s Patent Law, damages of patent infringement may be calculated on the basis of four considerations:
Actual loss incurred to the patentee due to the infringement, the infringer’s infringement profit, a multiplicity of the royalty fees, and the statutory damages. China’s Supreme People’s Court specifically interpreted the foregoing article in the Several Provisions on Issues Concerning Applicable Laws to the Trial of Patent Disputes, in which Article 20 provides guidelines for calculating actual losses and infringement profit, and Article 21 provides guidelines for determining royalty fees and the scope of statutory damages. In addition, Article 22 delineates the range of “reasonable expenses.” The Supreme People’s Court in its 2009 Interpretations drew on foreign experiences in calculating unjust enrichment to determine reasonable profit “by restricting the infringement gains to those obtained from the patent infringement activities, and deducting what is reasonable profit generated from other rights” in order to make the ultimate compensation more accurate.
III. Relevant foreign practices and latest trends
1. The United States
Section 284 of U.S. Patent Act provides that “upon finding for the claimant, the court shall award the claimant damages adequate to compensate for the infringement but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.”
In determining the specific amount of compensation, American courts will usually take into account the following two factors:
(1) Lost profits. This standard was established in the Panduit case of 1978 which includes four elements: a. demand for the patented products; b. absence of acceptable non-infringing substitutes; c. patentee’s manufacturing and marketing capability to exploit the demand; and d. the amount of the profit patentee would have made.
However, this standard has been criticized, and some adjustments have been made in specific cases by adding, e.g., market share, depreciation and other considerations.
(2) Reasonable royalties. Specifically speaking, the court would presume a hypothetical negotiation by which a willing patentee and the infringer would reach a licensing agreement before the infringement. The royalty rate under such agreement is the reasonable license. The Georgia- Pacific case illustrates the factors generally needed for consideration.
It should be noted that in the process of the Patent Reform Act, most controversial was the modification of the amount of damages that attracted most attention, for instance, the limitation on royalty recoveries, the role of court rather than jury for the determination, and economic value properly attributable to patent’s specific contributions over the prior art, as opposed to the whole claim, etc. However, the final 2011 Act made no amendment on damage calculation provisions, revealing that no conclusion has been reached in America in this regard.
2. The UK
The UK Patent Act provides two factors for consideration in assessing damages: (1) damages; and (2) an account of profit of the infringement. The UK practice aims at rectification by monetary rewards rather than retribution of the offenders.
The UK has a relative comprehensive method for calculating damages, whereby a proprietor may seek lost profit due to the infringer’s competition in the market, including lost profit from reduced sales, loss of goodwill, and price erosion, with a specific formula: actual sales by the proprietor × (proprietor’s original price – the lowered price) + actual sales amount × (proprietor’s original price ? proprietor’s costs).
The UK has a more checkered history in the calculation of infringer’s unjust enrichment, which was repealed in 1919 and re-introduced in 1949. The purpose of this principle is to make the calculation of damages more equitable, requiring a deduction of the cost in R&D, investment, manufacturing and sales which have incurred to the infringer, and the patentee would have no complaint in case his ineffective patent produces no profit in his bad luck.
3. France
The French Patent Law makes no specific provision on damages, but the Article 53(4) provides that “any assignee of (patent rights) license shall be accepted as a party in the action involving patent forgery brought by the owner of the patent so that the assignee may be compensated for the interests he deserves.” And likewise the court should of course accept the action brought by the obligee for his infringed rights and give compensation he deserves.
The question then is how to measure the so-called “deserves.” According to French judicial practice, there are two principles to follow, namely, (1) the compensation for infringement damages should be equal to, but shall not exceed the actual damages and (2) the compensation is limited to the direct damages resulting from the infringement .
4. Germany
According to Article 139(2) of German Patent Law, “any person who undertakes such action intentionally or negligently shall be liable for compensation to the injured party for the damage suffered therefrom. If the infringer is charged with only slight negligence, the court may fix, in lieu of compensation, an indemnity within the limits of the damage to the injured party and the profit which has accrued to the infringer.”
Specifically, Germany has established a method for patent damages compensation in judicial practice, which requires the defendant (1) pay appropriate royalties to the plaintiff, (2) repay the profits from patent infringement to the plaintiff and (3) pay the profits the plaintiff possibly acquires if there is no infringement. The third method may be applied where the patentee may have higher profits by selling patented products on the condition that the patentee must publicly disclose his profit margins.
5. Japan
Japan made eight amendments of its Patent Law during the period from 1999 to 2008, nearly one every year. The provisions related to compensation are the focus for amendments.
In Japan, there are four methods for calculating the amount of damages.
(1) Lost profit, which equals the profit acquired by the proprietor in its exploiting the patent product per unit × the total number of infringing products. However, there shall be a deduction of those that the patentee cannot make or cannot sell on the market in the absence of the infringing products;
(2) Positive harm, which equals the deduction of the patentee’s tangible property due to patent infringement, and its statutory provisions can be found in the Article 709 of Japanese Civil Code which is a general provision for damages;
(3) Unjust enrichment, which means that the patentee may not be entitled to damages if he has not worked the patent, similar to UK practice;
(4) Royalties, which equals “the amount of money from working the patent.”
There was a further amendment of civil remedies for patent infringement in Japanese Patent Law in 2008, including (1) a lowered standard of proof for lost profit. The lost profit equals the possible profit acquired by the proprietor where there is no infringement. Relevant amount may be deducted according to specific circumstances if the infringer’s evidence is accepted; (2) a requirement that specific circumstances shall be taken into consideration for the identification of technology transfer fee in determining the amount.
