Yu-Li Tsai of Deep & Far examines how damages are calculated in patent infringement litigation

In recent years, Taiwan’s Intellectual Property Court has begun to make internal reforms regarding case judgements because many have argued that the success rate for a plaintiff in patent infringement litigation was too low.

One of the most notable changes has been the percentage of invalidity holdings, which has been reduced from 60 percent to 30 percent. It is good news for patent owners because this gives them a greater chance of winning a civil lawsuit and damages.

Therefore, we believe that the practice in calculating damages, which is sometimes described as the last mile for realising the value of a patent, will become more important in the future.

Article 97(1)(b) of Taiwan Patent Act stipulates that the damages claimed may be calculated according to “the profit earned by the infringer as a result of patent infringement”.

In addition, under current practices, the patent owner still needs to provide evidence to prove the actual earned profit by including deductible costs and necessary expenses of the infringer for producing infringing products into the damages calculation.

The deductible costs and necessary expenses should include only direct costs other than indirect costs in accounting practices. The direct cost means the traceable ones, namely, the cost that can be directly recognised as or attributed to the cost factors.

The indirect cost means the cost that cannot be directly recognised as and attributed to the cost factors, and should be apportioned through specific approaches.

Therefore, in the situation that the infringer provides evidence showing deductible costs and necessary expenses, the earned profit of the infringer should be calculated based on the ‘gross profit’ (revenue minus the direct cost) rather than the ‘net profit’ on which the indirect cost is further deducted from the gross profit.

However, cases become complicated when the infringer cannot provide sufficient evidence to show deductible costs and necessary expenses.

On 29 March, the IP Court decided a case (‘10338) about how the court calculates damages when there is insufficient evidence to prove the earned profits from the infringements of an infringer.

In the present case, a patent owner sued an infringer for infringing patented DVD-R techniques. The patent at issue was 294,862 and the claims involved were 6 and 27.

The plaintiff claimed damages on the basis of the earned profits from the infringement by the defendant, so the fiscal years for profit calculation, deductible costs and necessary expenses of the infringer would affect the results of the finally awarded damages.

The plaintiff asserted that the infringements lasted from 1 January 2001 to 14 February 2015, but the IP Court held that the infringements only lasted from 1 January 2003 to 14 February 2015.

In addition, the defendant provided evidence to demonstrate that from 1 January 2014 to 14 February 2015, it suffered from a gross loss status after deducting the direct costs from the revenues.

Therefore, the fiscal period in which the plaintiff could claim damages became only from 1 January 2003 to 31 December 2013. However, the defendant could not provide detailed accounting reports or evidence showing any deductible costs and necessary expenses during the effective period, so the IP Court could only consider all factors on the basis of equity to make the decision.

The IP Court considered the following factors:

● Using the business revenue during the infringing period as a calculation basis;
● Whether the business revenue came from the products at issue;
● The contribution percentage of the patent at issue to the products at issue; and
● The factors for considering contribution percentage include: the use circumstances of users; the degree that the patent helped in obtaining a product certificate; and references from licensing contracts.

After considering these factors, the IP Court held that the total amount of the business revenue of the products during the effective period was about NT$ 664,088,917.

In addition, the IP Court held that Claim 27 should be invalid, so the relevant business income to be considered should be adjusted down to NT$ 332,044,458 (NT$ 664,088,917÷2).

However, the IP Court finally awarded damages of only NT$ 10.5 million to the plaintiff simply based on some ratiocination because the defendant provided insufficient accounting reports or evidence showing any deductible costs and necessary expenses during the effective period.

In view of this decision, we may infer that the IP Court considered that the contribution percentage of the patent at issue to the products at issue was at least 3 percent (NT $10.5 million ÷ NT $332,044,458 = 0.0316).

However, no matter to which industry or official authority is referred, there is no referable basis for the contribution percentage, and the court’s practices can only demonstrate case by case rules without a unified standard.

In another IP Court decision (‘10061), where the patent at issue belongs to DVD6C, the IP Court held that: “The defendant alleged that the patent at issue is only one of DVD6C’s 400 patents, so the damages which the plaintiff claimed should be divided by 400."

"Nevertheless, so far as the issue whether the optical discs manufactured by the defendant needed to use all of DVD6C’s 400 patents or what the value proportion between the patent at issue and the other 399 patents is concerned, we did not find that the defendant provided any evidence to prove its allegation.”

“Therefore, we did not agree with the defendant’s assertion that the plaintiff can obtain only one-400th of the claimed damages because DVD6C has 400 patents.

In addition, the plaintiff’s patent is a part of its DVD specifications, the technical features of the patent at issue are fixed on the entire disc and unable to be individually separated, and if there were not the patent at issue, the disc would be valueless."

"Therefore, it is clear that the patent at issue makes the contribution percentage for the disc to perform one hundred percent of its function, and it is groundless that the defendant asserts one-400th of the claimed damages to compensate the plaintiff.”

Contrary to the ‘10061 case, in the present ‘10338 case, the IP Court only used half of the business revenues to calculate damages because one of the two independent claims was ruled invalid.

Apparently, even though the products at issue in the two cases are both DVDs, the IP Court’s opinions are not unified. Therefore, under current practices, it is suggested the patent owners provide as much information as possible so as to expect that the judges can make a more logical and objective decision on the basis of more sufficient evidence and operable factors.

In practice, we generally cannot expect that an infringing defendant would voluntarily provide its sales information or financial reports. Based on equity, however, the patent law or civil procedure law actually does not require the plaintiff to prove the actual damages.

In contrast, the laws authorise the court to consider all possible factors for a specific case to reach a final decision that is appropriate in compensating the plaintiff’s damages. The factors to be considered include proved infringement facts, time period, and the contribution percentage of the patent at issue.

So far as the contribution percentage is concerned, the IP Court’s standards are still inconsistent, so before a precedential judicial opinion comes out, patent owners should provide as much information as possible for the judges to make a more logical and objective decision.

This information may include: the use circumstances of the users, the degree that the patent helped in obtaining product certificates, and references from licensing contracts.

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