Exclusive Manufacturing Agreement Template by srs85751

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									   ASSESSMENT OF
   An Answer to the
   Hypothetical Case

     October 26, 2005
     Ryuichi Shitara
Judge of Tokyo District Court
 One of the major targets of these policies
has been to achieve a speedy resolution of
patent infringement disputes and to offer the
patentee sufficient remedies.
 Criticism resulted in the revision of the
Japanese Patent Law with respect to the
damages clause in 1998, by way of
establishing Article 102(1).

(1) Article 709 of the Civil Code (plaintiff's
  lost profit)
    This provision stipulates that the
  plaintiff may recover damages having a
  causal relationship with the defendant's
  unlawful act.
(2) Article 102(2) of the Patent Law
  (presumption of damages based on
  defendant's profit)
    This provision states that, in a case
  where the defendant has gained profit by
  the patent infringing act, such profit may
  be presumed to be the amount of the
  plaintiff's damages.
(3) Article 102(3) of the Patent Law
  (amount equivalent to royalty)
    This provision allows the patentee to
  claim, as damages, at least an amount
  equivalent to a license fee covering the
  patented product.
ARTICLE 102 (1)

(1) Article 102 (1) of the Patent Law
  "In the event a patentee or an exclusive
  licensee claims monetary compensation
  against a person, who has intentionally
  or negligently infringed the patent right
  or the exclusive license right,
for damages caused by the infringement and
when the infringer has transferred the
infringing goods, the amount calculated by
way of multiplying the number of the infringing
goods transferred by the infringer by the
amount of profit per unit of the goods that
could have been sold by the patentee or the
exclusive licensee but for the infringement
may be treated as the amount of monetary
compensation, to the extent of the patentee's
working capability.
 However, in a case where the patentee
or the exclusive licensee was unable to
sell the goods for reasons other than
the infringement in an amount
equivalent to the entirety or part of the
number of transferred goods, the sum
attributable to the number of goods that
could not be sold for circumstances
other than the infringement shall be
deducted from the amount of
(3) Advantages for the Patentee under
   Article 102 (1)
・ Even when the existence of other
   substitute products is established in
   litigation, the causal relationship with
   respect to the lost profits suffered by
   the plaintiff will not be entirely denied,
   although the existence of such
   products may be considered as
   reducing the amount of damages.
 The significance of this statutory clause
lies in the conversion of the burden of
proof on the part of the plaintiff to the
 This provision allows the plaintiff to
meet the burden of proof merely by
establishing the amount of the
defendant's sales and the profit per unit
of the plaintiff's product.
(1) Introductory Remark
・Interpretation should be made in light
    of the legislative intent to provide
    adequate relief to the patentee
    whose patent right has been
・Interpretation should be in harmony
    with other court decisions rendered
    under the Civil Code and should not
    contain contradictions in logic.
(2) With regard to the "Patentee's
    Working Capability"
・ The first opinion is that the patentee
    needs to show that he was in a
    position to be able to supply his
    products in an amount equivalent to
    that of the infringing product at the
    time of infringement by his own factory
    or his subcontract factory or his
    potential and concrete capability.
The second opinion interprets the
"Patentee's Working Capability" so
widely that if a patentee has a potential
capability to be able to supply his
products in an amount equivalent to
that of the infringing product during the
life term of the patent right, the
"Patentee's Working Capability" would
be affirmed.
An answer to the hypothetical
question based on the majority
(a) In the hypothetical case, the 200,000
  unit plant for the production of the
  hydrogen cars was already built by TAC
  before 1999. It is clear that TAC has the
  Working Capability of more than
  200,000 cars per year.
(b) In the hypothetical case, it is written that
  TAC would have converted the idle capacity
  of its conventional car manufacturing facilities
  to produce 300,000 units of hydrogen cars.
  As TAC already built the plant for the
  production of the hydrogen cars before 1999,
  TAC would have no difficulty from the
  technical viewpoint in converting the
  conventional car manufacturing facilities into
  the plant for the production of the hydrogen
(c) In the hypothetical case, it is written
  that TAC would have entered into a
  subcontract agreement with its affiliated
  company Renault for the assembly of the
  remainder of the hydrogen cars, i.e.,
  737,500 units.
    However, in this case, there is no
  concrete evidence to show that there is a
  good possibility that Renault would make
  a subcontract agreement with TAC.
(3) With Respect to "Circumstances
    Disabling the Patentee's Sale“
   The first opinion is that "circumstances
    disabling the patentee's sale" should
    be interpreted to include "the
    infringer's superiority in the market and
    the existence of substitute products in
    the market." Specifically, it should
(a) special contributions made to the sale
  of the infringing product by the
  infringer's marketing and advertising
  efforts, market development efforts,
  unique sales methods, the company
  size and the brand image; (b) price
  competitiveness of the infringer;
(c) superior performance of the infringing
  product; (d) features of the infringing
  product which are unrelated to the
  patent, but are responsible for the sale
  thereof; and (e) presence of other
  substitute or competing products in the
  market other than the infringing product.
The second opinion is that the
"circumstances disabling the patentee's
sale" should be confined only to
extraordinary circumstances.
Court Decisions
 The Tokyo High Court (1999/6/15) held
 that, in a case where the market shares
 of the patentee, the infringer and a third
 party were 35%, 35% and 30%
 respectively, the plaintiff was in a
 disabling situation to sell his product
 with respect to the amount equivalent to
 the share of 30/65.
The Tokyo District Court (1999/7/16)
held that, in a case where the market
was divided by the patentee and his
licensor, and the price of the infringer's
products was similar to those of
licensor's products (both are lower than
those of the patentee), the patentee
could have sold one third of the sales
amount of the infringer.
The Tokyo District Court (1998/10/12)
denied the defendant's contention that
substitute products (drugs) existed in
the market, and denied the
circumstances disabling the patentee's
An answer to hypothetical case
based upon the majority
consumer’s reliance upon the
 technology of manufacturers such as
 GM and Toyota, and their goodwill
the expenditure of huge amounts for
the superiority in the technology of the
 infringing products
Considering the above-mentioned
circumstances, it is appropriate to
estimate that, but for the infringement
by GM, Dutch and Toyota, the patentee
and its cross-licensee (PTC) could not
have made and sold one-half of the
automobiles already sold by GM, Dutch
and Toyota during the past 4 years.
(c) In the hypothetical case, hydrogen-run
  automobiles of PTC are substitutes of
  the hydrogen-run automobiles of TAC.
  So it is appropriate that, but for the
  infringement by GM, Dutch and Toyota,
  the patentee (TAC) and its cross-
  licensee (PTC) would have sold the
  hydrogen-run automobiles in proportion
  to its market share.

GM:       390,475×1/2×5/8=122,023

Dutch:    383,475×1/2×5/8=119,836

Toyota:   373,550×1/2×5/8=116,734
(e) Marginal profit
    The "profit per unit" in this clause
  should be interpreted as referring to
  the so-called marginal profit that is
  calculated by deducting additional
  expenses that would have been
  incurred to make an additional number
  of the patentee's products which could
  have been sold absent the
  infringement from the patentee's
  revenue of the additional sales.
(f) Amount of the Lost Profit


(g) Apportionment of other patents
・ When the patented invention pertains
    only to a portion of the patentee's
    product, the issue of contribution may
・ The majority view generally recognizes
    the need to limit the amount of
    damages according to the degree of
・ In the hypothetical case, the TAC patent
  has two sets of claims: one set directed
  to a passenger car employing the Pd2+-
  based catalyst system; and the other
  set to the catalyst system.
・The exclusive right of the first claim
  extends to such a passenger car
  (employing the Pd2+-based catalyst
  system) as a whole.
If, besides the TAC patent, there were a
 patented invention serving another
 determinative role in motivating the
 customer to purchase the automobile,
 the court would recognize the existence
 of such a patented invention as one of
 the circumstances disabling the
 patentee's sales under the Article
5 Provisions of Reasonable
Royalty (Article 102(3) of the
Patent Law) and Answers to
the Hypothetical Case
(a) patentee's licensing policy, whether a
  patentee does not permit the license, or
  whether a patentee achieved a success
  in the market;
(b) whether the patented invention is a
  pioneer invention or improved invention,
  or plays an important role in the
  accused products;
(c) the royalty rate of the actual license
  agreement of the patented invention or
  similar inventions;
(d) the amount of profit gained by the
  infringing act; and
(e) behavior or conduct of the defendant.
(2) In the hypothetical case, the
  aforementioned factors are as follows:
(a) total profit and profit per unit of TAC is 407
  million dollars and 2,930 dollars (the rate of
  the profit per unit is 9.8%.)
・The TAC patent claims were directed to the
  entire car employing hydrogen generation
  catalyst system.
・The automobiles are made up of so many
  different technologies and parts,
・TAC offered a 25 % rate to three
  defendants in 1998
・three license agreements made between
  PTC and each of the three defendants
  wherein a royalty rate 3% is employed
・the $300 million "lump-sum" royalty was
  offered by TAC in 1998.
・profits and profit per unit of GM are 915
  million dollars and 2,343 dollars per
  unit (profit rate is 7.8%),
  ・ those of Dutch are 889 million dollars
  and 2,318 dollars per unit (7.7%),
  ・ those of Toyota are 1,021 million
  dollars and 2,733 dollars per unit
(3) Considering all the aforementioned
  factors, the reasonable royalty shall be
  5%of the sales price of the automobiles.

GM    (390,475-122,023)×$30,000×5%
Dutch (383,475-
Toyota (373,550-

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