- Damages Calculation Methods for Patent Litigation
- May 25, 2015
- Law Firm: Lee Tsai Partners Attorneys-at-Law - Taipei Office
- In the event of patent infringement, the patentee may request that the infringer eliminate or prevent infringement and pay damages. Article 97 of the Patent Law provides for three methods to calculate the damages for invention patents as discussed below:
II. The gain obtained by the infringer from an infringing act may be used.
III. The reasonable royalty that can be collected from licensing the invention patent may be used as the basis for damages calculation.
In addition, since the Intellectual Property Case Adjudication Law does not exclude Article 222, Paragraph 2 of the Code of Civil Procedure, when a patentee has substantiated damage but cannot prove the amount, the court shall set the amount at its discretion after considering all circumstances.
Infringer's gain from infringing acts (Article 97, Paragraph 1, Subparagraph 2 of the Patent Law)
Amount based on reasonable royalty (Article 97, Paragraph 1, Subparagraph 3 of the Patent Law)
Amount set by the court at its discretion (Article 222, Paragraph 2 of the Code of Civil Procedure)
Damage to the patentee due to the infringement (Article 216 of the Civil Code)
In addition, it is worth mentioning that of all the 42 cases, 5 cases involve the court's award of punitive damages at a multiple of 1.5 to 3 under Article 97, Paragraph 2 of the Patent Law.
The above table shows that currently in practice, damages are still calculated primarily based on "an infringer's gains from infringing acts."However, although such calculation method is based on an infringer's gain, still the patentee shall assume the burden of proof. Since we currently do not have a system like the discovery procedure in the US, adjustments were made in practice in the 2011 amendments to the Patent Law concerning how an infringer's gain can be calculated.
In practice, it is often difficult to substantiate the lost in a patentee's gain to calculate the damages under Subparagraph 1. Even if a patentee can provide evidence to illustrate the reduction in sales amount after the patent is infringed, the court would still require the plaintiff to substantiate the causal relationship between the reduction in sales and patent infringement (102-Min-Zhuan-Su-136), which is very difficult to substantiate in practice. As a result, there has been no decision in patent litigation in the last two years where damages were calculated based on lost in gains under Subparagraph 1.
As for calculations based on an infringer's gain under Subparagraph 2, the Patent Law of 2003 adopted a theory of total sales volume. To wit, a patentee is only required to substantiate the sales volume of all of an infringer's infringing products with the deduction of the costs and necessary expenses substantiated by the infringer. If the infringer cannot substantiate the costs and necessary expenses, the total sales volume will be used as the total gain obtained from infringing acts. However, after the effective date of the new law (amended on December 21, 2011 and effective on January 1, 2013), which adopts a theory of total gain, the court may consider all evidence to determine an infringer's gain and should not rely solely on the total sales volume as the basis for damages calculation (The 102-Min-Zhuan-Su-13 Civil Decision of the Intellectual Property Court, which stated: "According to the Statement on the Plaintiff's Gist of Oral Arguments on June 11, 2014 in this matter, the Plaintiff requested that his damages be calculated based on the gain from the infringer's infringing acts in accordance with Article 97, Paragraph 1, Subparagraph 2 of the 2013 Patent Law. In addition, the difference between the above provision and Article 85, Paragraph 1, Subparagraph 2 of the 2003 Patent Law is merely that Article 85, Paragraph 1 of the 2003 Patent Law also adopts a theory of total sales volume "to use the total revenue from the sale of such items as the gain if the infringer cannot substantiate his cost or necessary expenses").
If Subparagraph 2 is relied on as the basis of calculation, the following two calculation methods are common in practice:
I. (Sales Volume * Selling Price) - (Cost + Necessary Expense):
This calculation method is the most common in practice, even though it is not true that all expenses asserted by the defendant are always accepted by the court as costs or necessary expenses. Usually, the court tends to regard purchase costs, freights, customs tariffs and processing fees, which are expenditures directly related to product sales, as costs or necessary expenses, while indirect expenditures such as labor costs, rents and typical operating costs are usually excluded by the court.
II. Sales Volume * Typical Standard Profit in the Industry (Table on Standard Profits for Industries Released by the Ministry of Finance):
This calculation method was practically not adopted in most cases before the Patent Law was amended in 2011 (The 99-Tai-Shang-2437 Decision of the Supreme Court, which stated: "The original trial court failed to conduct exhaustive investigation, elected to calculate the Appellant's damage by taking the sales volume obtained from the materials submitted by Hsiang Kang Co. in May and June of 2009, such as invoices, shipping records, export declarations, and from the trading information submitted by Ya Kuan Co. in May 2009, multiplied by a 10% net profit rate for the industry as mentioned above, and demanded the Appellee not to seek real joint and several damages. This approach is certainly inappropriate"). This calculation method was affirmed after the Patent Law was amended (the 102-Min-Zuan-Su-3, 13 and 56 Decisions of the Intellectual Property Court). In addition, the net profit rate may also be set as mutually agreed between the parties (the 101-Min-Zhuan-Su-34 Decision of the Intellectual Property Court).
As to the damage amount awarded by the court under Article 222, Subparagraph 2 of the Code of Civil Procedure, since the court may grant such award only when the party concerned cannot substantiate the amount of damage, this provision is supplemental by nature in its application. This is different from Article 97 of the Patent Law, under which the court shall not be requested to determine the damage amount if the patentee can provide an explanation backed by evidence. To wit, if the Plaintiff can choose another calculation method, such method shall not be selected as the basis for damages assessment. When damages are awarded by the court, the consideration is usually based on information such as the duration of infringement, selling prices and profit margins of infringing products, the authorized capital and operating revenues of the infringer, etc.