1. ntroduction
Calculating damages is a difficult task in patent infringement litigation even if the court has already found that the defendant committed patent infringement and the patentee is entitled to claim damages, and the amount of compensation is often disputed by the parties. In practice, the benefits obtained by the infringer can be calculated on the basis of “net profit” or “gross profit.” Those who support the “net profit” standard opine that the amount of compensation should be calculated on the basis of net profit, which is based on the gross profit obtained by the infringer from the infringement, and then deduct the “costs and necessary expenses required to implement such infringement.” However, those who support the “gross profit” standard opine that the infringer may deduct only the “costs and necessary expenses from the benefit they obtained” since the “cost and necessary expenses” stipulated in Subparagraph 2, Paragraph 1, Article 97 of the Patent Act is similar to the concept of direct cost in accounting and excludes indirect costs. Please refer to the following Intellectual Property Court judgment that adopted the gross profit standard (2011 Min Zhuan Su Zi No. 64 by the Intellectual Property Court; 2012 Min Zhuan Shang Zi No. 10 by the Intellectual Property Court; 2015 Tai Shang Zi No. 2133 by the Supreme Court and 2015 Min Zhuan Shang Geng (1) Zi No. 9 by the Intellectual Property Court).
2. Facts
The plaintiff is the owner of Taiwanese Invention Patents No. I260354 and No. I313310 (hereinafter collectively referred to as the “Patents”). In 2010, the plaintiff discovered that the defendants Company A and Company B were engaged in manufacturing and distributing products that infringed their patent rights (hereinafter referred to as “Products”), so the plaintiff entrusted our firm to conduct a patent analysis and it was found that the Products fell within the scope of the claims of the Patents. The plaintiff then entrusted our firm to send a cease-and-desist letter to the above-mentioned companies, but the defendants also entrusted a lawyer to issue a responsive letter, stating that their Products did not infringe the Patents and threatened to file an invalidation action against the Patents. Therefore, the plaintiff entrusted our firm to file a civil evidence preservation application with the court and such application was granted by the court and the attorney of our firm, the plaintiff and the judge of the district court visited the office of the opposite party to conduct the civil evidence preservation procedure. After the completion of the evidence preservation procedure, the plaintiff filed a civil lawsuit.
3. Issues
(1) Whether the Products manufactured and distributed by Company A and Company B fall within the scope of the claims of the plaintiff’s Patents.
(2) Whether the plaintiff is entitled to request Company A and Company B to compensate NTD 2,195,731 according to Articles 84 and 85 of the 2010 Patent Act (i.e., Articles 96 and 97 of the current Patent Act), Paragraph 1, Article 185 of the Civil Act, and Paragraph 2, Article 23 of the Company Act. How should the damages suffered by the plaintiff be calculated?
4. Summary of the Judgments
(1) This trial was conducted by the Taiwan Intellectual Property Court (TIPC) in the 1st and 2nd instance and by the Supreme Court in the 3rd instance, and then become final and binding after the Supreme Court remanded this case to the TIPC. During the trial, the TIPC held that the Products manufactured and marketed by Company A and Company B fell into the scope of the claims of the plaintiff’s Patents, and the 1st and 2nd instance judgments also found the Patents are non-obvious and accordingly dismissed the arguments of Company A and Company B. Therefore, the TIPC held that Company A and Company B should be liable for negligent infringement of the plaintiff's Patents during the remanded trial and the plaintiff is entitled to request the defendants to compensate the damages.
The amount of damages for patent infringement claimed by the plaintiff is summarized as follows:
| First instance judgment (2011 Min Zhuan Su Zi No. 64 by the Intellectual Property Court) |
1.The plaintiff demanded that the defendants should jointly compensate the plaintiff 1.65 million NTD plus interest. 2.The nature of the damage compensation does not allow the infringer to deduct their opportunity cost. For example, we cannot allow a robber to deduct any salary that he may have received if he did not engage in robbery. As the result, the patent infringer may not deduct the cost of hiring employees to manufacture the Products. 3.During the infringement period, Company B sold 11,016 Products for the amount of 3,834,845.82 NTD. The average unit price was 348.12 NTD. The total cost of the Products was 245.2 NTD, of which 20 NTD for the assembly fee is the cost of the infringement, which cannot be considered as the cost or necessary expenses stipulated in Subparagraph 2, Paragraph 1, Article 85 the Patent Act. Therefore, the gross profit of the Products was about 29%, and it is reasonable for the plaintiff to request damages in the amount of 1,133,723 NTD from Company B. 4.During the infringement period, Company A sold 6,140 infringing Products for the amount of 2,567,535.5 NTD. The average unit price was 418 NTD. The total cost of the Products was 245.2 NTD, of which 20 NTD for the assembly fee is the cost of the infringement, which cannot be considered as the cost or necessary expenses stipulated in Subparagraph 2, Paragraph 1, Article 85 the Patent Act. Therefore, the gross profit of the Products is about 41%, and it is reasonable for the plaintiff to request damages in the amount of 1,062,008 NTD from Company A (since the plaintiff requested both companies to be jointly liable, the compensation is limited to 516,277 NTD.) |
| Second instance judgment (2012 Min Zhuan Shang Zi No. 10 by the Intellectual Property Court) |
1.The plaintiff expanded their claims to 4.95 million NTD, which was adopted by the court. 2.According to Subparagraph 2, Paragraph 1, Article 85 of the 2010 Patent Act: When the patentee claims damages, the amount can be calculated based on the benefits obtained by the infringer from the infringement; if the infringer cannot prove the costs or necessary expenses, the total income from the sale of the item shall be considered as the profit. In other words, if the infringer can enlist its costs and necessary expenses, the infringer may deduct them from the amount of profit. However, there is no specific definition of “cost and necessary expense.” If we refer to the definition of direct and indirect costs in accounting, direct cost refers to traceable costs, which can be directly recognized or attributed (such as to a company department or product), while indirect costs refer to costs that cannot be directly identified or attributed to a specific object, but must be apportioned through a specific method. The costs and necessary expenses stipulated in Subparagraph 2, Paragraph 1, Article 85 of the 2010 Patent Act are close to the direct cost in accounting and do not include indirect costs. Therefore, where the infringer can prove the costs and necessary expenses, the patentee may request the infringer to compensate the damages calculated based on the profits obtained from the infringement, which is usually the “gross profit” in accounting instead of “net profit” or “net profit after deducting tax” after deducting indirect costs. 3.Accordingly, the damages awarded in the second instance were identical to the first instance, and the personnel expenses of the defendant shall not be deducted as necessary expenses. The gross profit rate of the Products of Company B is about 29%, and the plaintiff is entitled to request a joint compensation of 1,133,723 NTD. The gross profit rate of the Products of Company A is about 41%, and the plaintiff is entitled to request a joint compensation of 1,062,008 NTD. |
|
Third instance judgment |
The plaintiff requested an expansion of claims of 3.3 million NTD plus interest in the second instance. However, since the expanded claims were not tried in the 1st instance and the 2nd instance directly discarded the 1st instance judgment, such judgment is flawed. Furthermore, as the 2nd instance judgment did not elaborate whether the infringement intentional or due to negligence, the reasoning of this judgment is insufficient. Therefore the 2nd instance judgment was discarded and the case was remanded to the TIPC for reconsideration. |
|
Remanded judgment |
1. If the infringer can list its costs and necessary expenses, the patentee may request the infringer to compensate its damages based on the “profits” obtained from the infringement, which is usually identical to the “gross profit” in accounting, not “net profit” or “net profit after tax” after deducting indirect costs or taxes. 2. The determination of the amount of damages in the remanded judgment is identical with the judgment of the second instance. 3.The defendants argued that the taxes payable for the sale of Products are necessary expenses and should be deducted. However, as taxes are not deductible costs and necessary expenses stipulated in Subparagraph 2, Paragraph 1, Article 85 of the 2010 Patent Act, such argument was dismissed. 4.The judges held that since both parties were engaged in the manufacture and sale of textile machines, the defendants should be careful not to infringe others’ patents when manufacturing and selling the Products. Although the defendants admitted that they attempted to design around the patent (but were not successful), they should avoid distributing Products which may constitute patent infringement. However, since the defendants still manufactured and distributed such Products, their acts should be considered to constitute negligent infringement. |
Reference: Anthology for the 70th Anniversary of Tai E's Law Practice
