5 December, 2018
It has become more and more common for patentees in patent infringement cases to claim damages not just based upon the provisions in the Patent Act, but also upon unjust enrichment doctrine, a quasi-contract concept set forth in the Civil Code. The patentee asserting unjust enrichment typically would claim that the infringer practiced the patent without any legal ground and should be required to return or restitute the benefit acquired therefrom.
The main reason for the patentee to assert unjust enrichment is that the damages claim based on the Patent Act is subject to a two-year short-term statute of limitations, while the damages claim based on the unjust enrichment doctrine of the Civil Code is subject to a 15-year long statute of limitations, which may give the patentee a chance to significantly increase the amount of damages. If a patentee is allowed to claim for the return of benefit acquired by the infringer out of infringement of the patents based on the theory of the unjust enrichment, what exactly is the benefit the thae infringer has acquired?
If the infringer does acquire benefits, how should the amount of benefit that the infringer is obliged to return be calculated? These issues have long puzzled scholars, practitioners, and patent related industries since neither the Patent Act and the Civil Code have shed any light on the issues nor have court decisions provided sufficient guidance.
In the patent infringement lawsuit filed by Koninklijke Philips N.V. (“Philips”) against Gigastorage Corporation (“Gigastorage”), Philips alleged that Gigastorage infringe upon one of its DVD-R patents in Taiwan. The second instance of the Taiwan Intellectual Property Court (“IP Court”) rendered a judgment in June 2017, holding that even though the defendant should not be held liable for the patent infringement by virtue of the Patent Act, the defendant should nevertheless return benefit it had acquired to the patentee based on the unjust enrichment provisions of the Civil Code.
The IP Court indicated in the decision that although DVD-R discs produced by Gigastorage did infringe Philips’s No. 82864 Taiwan patent (‘864 Patent), there was no intention or negligence on Gigastorage’s part to infringe the ‘864 Patent because that Philips had previous filed a patent infringement lawsuit against Gigastorage in Italy based on the Italian patent conrresponding to the ‘864 Patent and had lost that lawsuit in 2004.
However, the IP Court held that Gigastorage should nevertheless return to Philips the unjust benefits due to Gigastorage’s use of the ‘864 Patent based upon the unjust enrichment provisions of the Civil Code.
As a result, the IP Court recognized Philips’ claim that Gigastorage should return a significant amount of unjust benefits, which was calculated based on a standard rate of USD 6 cents per piece set forth in Philips’s patent pool license agreement which contains 199 patents, including the ‘864 Patent.
Due to the unusual reasoning in the IP Court’s judgment and the substantial amount awarded in favor of the plaintiff, the case drew a lot of attentions from the industries and the legal professionals. The Supreme Court, after more than one year of review, rendered the Judgment No. 106 Tai-Shang-Zi-2467 on September 26, 2018, which decided the following important aspects regarding the unjust enrichment concept in patent infringement context:
When the reasonable dominant power conferred by the patent is undermined and the patent right is infringed, one party’s assets could unjustly increase at the the cost of the other party’s. In that circumstance the theory of “patent infringement” and the theory of “unjust enrichment” may be applicable concurrently. The intention or negligence on the infringer’s part would be required for a successful damages claim based on patent infringement under the Patent Act. On the other hand, the requirements of a claim based on unjust enrichment are different. Since patent right is a property right, the Patent Act does not prevent the application of unjust enrichment provisions of the Civil Code. From the property law standpoint, a patentee is certainly entitled to assert its rights based on the unjust enrichment doctrine as provided for in the Civil Code.
The benefits acquired by one who practiced another’s patent without license should be determined based on the actual benefits that were obtained objectively rather than the loss of license fees by the patentee. The IP Court erred in calculating the benefit acquired by Gigastorage based on the royalty rate set forth in the patent license agreement drafted by Philips in 2009, which is the rate for a pool license for a total of 199 patents (including ‘864 Patent). The IP Court improperly equated the amount of unjust benefit acquired by Gigastorage out of practicing the ‘864 Patent with the amount of damages sustained by Philips, i.e., the amount of consideration (license fee) that Gigastorage failed to pay pursuant to the provisions of said pool license agreement.
Gigastorage asserted that the ‘864 Patent has little contribution to the products in dispute because the function of the products at issue are not affected with or without the use of the ‘864 Patent. If such argument is true, it would be questionable for the IP Court to equate the amount of benefit acquired by Gigastorage for using the ‘864 Patent with the amount of the royalty fees to be paid by Gigastorage.
The second instance of the IP Court found that Philips was aware of Gigastorage’s manufacture and sales of the DVD-R products as early as 2003, and that Philips filed the infringement lawsuit against Gigastorage in Italy in 2004 based on the Italian patent corresponding to the ‘864 Patent. That lawsuit was dismissed by the Italian court on the ground of no infringement.
The second instance of the IP Court further found that Philips had not asserted any patent infringement claim against Gigastorage after the aforementioned Italian court’s dismissal for a period of 10 years before filing the instant lawsuit in Taiwan in April 2014.
The second instance of the IP Court failed to consider Gigastorage’s argument that according to the customary trade practice in this society, Philips was idle in exercising its rights for a considerable period of time.
Further, Philips instituted the claim against Gigastorage based on the unjust enrichment doctrine only after Gigastorage had relied on the belief that Philips would not exercise its right and had practiced the ‘864 Patent to produce the products at issue for a long time. Thus, Philips’s claim should be barred by its breach of the principle of good faith.
For the above reasons, the Supreme Court vacated the judgment of the second instance of the IP Court and remanded the case to the IP Court. The purpose of unjust enrichment doctrine under the Civil Code is not about recovery of the damage, but about requiring a person acquiring unjust benefits to return the benefits that should not have been acquired if the legitimate scope of rights and interests had been exercised.
Thus, the amount of the benefits to be returned based on the unjust enrichment doctrine should be the amount of benefits acquired by the recipient, rather than the amount of damages suffered by the claimant. This principle was established in a Supreme Court’s precedent in 1972 and has been followed by the courts at all levels for many years thereafter.
In cases where patent infringement and unjust enrichment doctrines are concurrently applicable, the courts have relied on the Supreme Court’s precedents about occupying the land of another without justification, where the courts found that the benefits acquired by the illegal occupant should be equivalent to the rent, and held that the unjust benefit acquired by a person practicing the patent of another without justification should be equivalent to the patent license fee.
However, since patent is an intangible property right, in the cases of unauthorized use of another’s patent, the patentee is not prevented from continuing to use the patent right (the patentee can still use or license others to use the patent). Further, in this high-tech society, oftentimes a single product is covered by many different patents (i.e., “patent stacking”) and each individual patent has different contribution to the product.
Therefore, in a patent infringement case, the benefit acquired by a defendant in using a particular patent is obviously different from the nature of benefit acquired by a person occupying a land without justification, which inevitably results in exclusion of use of the land by the owner or any other person. Thus, the benefits acquired by the defendants in a case for patent infringement and a case for unauthorized occupancy of the land should not be calculated in the same way. Among court decisions concerning patent infringement, this Supreme Court decision is the first decision to announce that the benefits acquired in practicing another’s patent without justification should not be determined directly based on patent licensing fees that the patentee lost. It is also the first decision which clearly rules that the contribution rate of a patent should be considered when calculating “benefits of unjust enrichment” (i.e., in a patent infringement lawsuit, the contribution rate of a specific patent to the product and technology should be considered in determining the benefit acquired by the defendant who practices another’s patent).
In addition, this Supreme Court’s decision is also important in that it is also the first time for the Supreme Court to apply the doctrine of latches based on the “principle of good faith” in a patent infringement case. The Supreme Court opined that if there existed facts proving that a patentee had not exercised the right for a considerable long period of time so as to give rise to the defendant’s reliance, then the patentee breached the principle of good faith and lost the right to claim unjust enrichment after the defendant’s long-term mass production and use of the patent. Here, the Supreme Court clearly attempted to strike a balance between the rights of the patentee and the interest of the defendant in patent infringement cases where patent infringement and the unjust enrichment doctrines are concurrently applicable.
For further information, please contact:
Dr. Jeanne Wang, Partner, Tsar & Tsai Law Firm
law@tsartsai.com.tw
