8.7.4 Damages
The Patent Act articulates its own provision for the patentee’s right to seek compensatory damages from infringement in Article 128(1) as follows: “[a] patentee or exclusive licensee may claim for compensation for the damages caused by a person who has willfully or negligently infringed the patent or exclusive license.” Nonetheless, patent infringement is generally viewed as a type of tort under the Civil Act. Accordingly, as in cases of a tort, the plaintiff in a lawsuit seeking compensatory damages has to contend and prove that (i) the plaintiff is the patentee, (ii) the infringer has willfully or negligently infringed the patentee’s patent right, (iii) the infringer’s patent infringement is unlawful, (iv) the infringer was capable of assuming liability at the time of the infringement, (v) the patentee suffered damages, and (vi) there is proximate causation between the infringement on the patent right and the damages suffered by the plaintiff.166
8.7.4.1 Elements
Damages may be awarded only upon the showing of infringement. As the criteria for establishing infringement have been discussed in detail above, the following discussion focuses on other elements for receiving damages.
Claimant (i.e., the patentee). The claimant seeking damages must be the patentee or exclusive licensee. For a jointly owned patent, it is the judicial practice to award damages only in proportion to each right holder’s percentage of ownership. A nonexclusive licensee does not have standing, as the right has no exclusive effect, but a sole nonexclusive licensee may be successful in a tort claim based on infringement of credit.
The party responding to the claim for damages (i.e., the infringer). In most cases, the defendant in a lawsuit seeking damages for patent infringement is the direct infringer. Where indirect infringement is established under Article 127 of the Patent Act, the indirect infringer is also liable to compensate for the damages. Further, as in cases of tort under the Civil Act, any person who has aided or abetted patent infringement is also held liable for damages jointly with the patent infringer. In cases where patent infringement is divided among multiple parties,167 joint tort prescribed in Article 760 of the Civil Act may be established. Views are split on whether the objective element that each tortfeasor’s act jointly occurred is sufficient to establish joint tort (objective joint tort theory) or whether the subject element of the tortfeasors’ knowledge of acting jointly or conspiring to act should also be met (subjective joint tort theory).
Willfulness or negligence. A damages claim requires willfulness or negligence to succeed. However, the intent element is rarely disputed in practice because the Patent Act sets forth that “a person who infringes a patent or exclusive license of any third person shall be presumed negligent regarding such infringement.”168 The amended Patent Act effective on January 8, 2019, added a provision allowing the court to enhance damages up to three times the actual damages if the infringement of the patent or exclusive license of another person is deemed to be willful. This new provision is expected to be one of the key issues that draw attention in practice.
8.7.4.2 Calculation of damages
The patentee may seek compensation for any damages sustained as a result of the infringement from any person who has willfully or negligently infringed the patent or exclusive license. The Patent Act provides that an infringer is presumed to have infringed with negligence. The Patent Act recognizes four grounds in assessing damages: (i) loss suffered by the patentee, (ii) the profits earned by the infringer (which is presumed to be the amount of damages suffered by the plaintiff), (iii) reasonable royalty (at the minimum) and (iv) damages determined at the court’s discretion based on an examination of the evidence and a review of overall arguments. Discretionary damages may be awarded if the nature of the case makes it difficult to produce evidence proving the actual damages incurred.
An action for damages resulting from infringement must be filed within three years from the date the plaintiff became aware of the damages caused by the infringement or within 10 years from the date of the infringement, whichever is earlier. The plaintiff must identify the alleged infringer. An action for damages based on an infringer’s unjust enrichment may be filed within 10 years.
8.7.4.2.1 Lost profits
The patentee’s lost profits as the basis for the award of damages is stipulated in Article 128(2) of the Patent Act. This provision was recently amended to ensure fair compensation by clarifying that, on top of lost profits, the patentee may also recover reasonable royalties for the infringing goods that were transferred in excess of the right holder’s production capacity (partial amendment by Law No. 17422, effective from December 10, 2020).
For units that were within the patentee’s production capacity, lost profits may be awarded for the number of units that the patentee would have sold but for the infringement. For these units, the damages may be calculated by multiplying the number of units of the infringer’s transferred articles by the profit per unit that the patentee could have sold in the absence of the infringement (Article 128(2)(i) of the Patent Act). This excludes the number of units the patentee could not sell due to reasons other than the infringement (if any) and the number of units that were outside of the right holder’s production capacity.
While the lost profit approach had been around before the amendment to the Patent Act, the pre-amendment statute did not answer the lingering question as to whether the patentee could also recover damages for the number of units that were outside of their production capacity. In response, the amended Patent Act effective on December 10, 2020, added a provision that, if the transferred amount of the infringer’s articles exceeds the patentee’s own production capacity, the patentee can recover reasonable royalty for the excess (Article 128(2)(ii) of the Patent Act).
This new provision clarified that an amount equivalent to the royalty prescribed in Article 128(5) of the Patent Act can be awarded as damages for the infringing products transferred to third parties that (i) exceed the quantity calculated by deducting the number of units actually sold from the number of units that could have been produced by the patentee or (ii) could not be sold due to any reason other than the infringement. The amendment clarified that a reasonable royalty for practicing the patented invention may be recovered for the above units (except for those for which the patentee could not have earned royalties even without the infringement: e.g., any number of units for which the patentee could not have granted an exclusive or nonexclusive license on the patent or for which the exclusive licensee could not have granted a nonexclusive license on the exclusive license).
8.7.4.2.2 Infringer’s profits
As it is relatively easier to establish the amount of profits gained by the infringer than the actual loss incurred to the patentee from the patent infringement, the infringer’s profit is often presumed to be the patentee’s lost profit. The “profit” here includes all types of profits earned by the infringer through the infringement on the patent right without specific limits. In practice, the net profit theory (i.e., profit = sales revenue – [fixed costs + variable costs]) and the marginal profit theory (profit = sales revenue – variable costs. Unlike the net profit theory, fixed costs are not deducted) are commonly adopted. While less challenging than proving lost profits, an infringer’s profits may also be difficult to prove without proper evidence. This has led courts to resort to awarding discretionary damages, as discussed below in Section 8.7.4.2.5.
8.7.4.2.3 Reasonable royalties
A patentee can recover reasonable royalties that they would have ordinarily received. The patentee should contend and prove (i) the infringement on the patent right, (ii) the sales revenue or quantity of the products manufactured and sold, and (iii) the reasonable amount of royalty that would have been received by the patentee. The patentee is not required to contend and prove specific occurrences of loss.
To determine the reasonable royalty for a particular patent, the following may be considered:
- the objective technical value of the patented invention;
- license agreements with third parties for the patented invention, if any;
- license agreements with the defendant in the past, if any;
- royalties that may be received for similar inventions in the same technical field;
- the remaining term of the patent;
- the type of the patentee’s use of the patent;
- the existence of substitute technologies for the patented invention; and
- the infringer’s profits from the infringement.169
The reasonable royalty provision does not set forth a ceiling for damages. Therefore, when the amount of loss exceeds the reasonable royalty, the patentee may also seek compensatory damages for the excess amount in accordance with the principle of compensation for actual harm.
8.7.4.2.4 Reduced damages
For balanced protection of both sides, the Patent Act protects the patentee by presuming the infringer’s negligence in Article 130 and prescribing the method of calculating damages in Article 128(2)–(5) while providing a protective measure for the infringer in Article 128(6). Article 128(6) prescribes that the court may consider the lack of willfulness or lack of gross negligence by the infringer when awarding damages, so the infringer should contend and prove as such to argue that an award should be reduced. However, even if the amount of damages is reduced accordingly, the reduced amount may not be lower than a reasonable royalty.
8.7.4.2.5 Calculation at the court’s discretion
When the nature of the relevant facts makes it extremely difficult to prove the underlying facts for establishing the amount of damages under any of the preceding grounds, even though the occurrence of harm itself has been acknowledged, the Patent Act allows the court to determine a reasonable amount of damages by taking into account the overall purport of the arguments and other relevant circumstances found based on the evidence, notwithstanding the provisions of Article 128(2)–(6). However, discretionary awards are by no means arbitrary, and most court decisions clearly state the calculation basis even when the amount of damages has been determined at the court’s discretion.
8.7.4.2.6 Enhanced (treble) damages
The amendment to the Patent Act effective on July 9, 2019, included provisions for an enhanced damages system that provides compensation up to three times the amount of damages when an infringement was willful. The term “willful” means that the infringer committed the act while being aware of the fact that the act would result in patent infringement. Under the amended Patent Act, in determining willfulness, the court should comprehensively consider the following factors: (i) whether the infringer is in a superior position to the patentee, (ii) willfulness or how well the infringer was aware of the likelihood that the infringing act would cause harm, (iii) the significance of the harm to the patentee, (iv) the economic benefits to the infringer resulting from the infringement, (v) the frequency and length of the infringing act, (vi) the criminal penalty for the infringing act, (vii) the financial status of the infringer, and (viii) the level of effort the infringer exerted to provide relief.