Uncollected Royalty Should Not Be the Sole Basis for Calculation of Unjust Enrichment in Patent Infringement

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Company A, a patent holder, files a complaint against Company B for patent infringement of Company A's patent (hereinafter "Disputed Patent") from which Company B received unjust enrichment. Company A demanded that Company B returns the enrichment received. Taiwan Supreme Court rendered the civil judgment 106-Tai-Shang-Zi No. 2457 on September 26, 2018, which holds: "If one exploits a patent right owned by others without authorization, the gains obtainable by the exploiter shall be calculated based on actual gains possible from such exploitation objectively, and not on the patent holder's injury arising from the loss in licensing income." Taiwan Supreme Court also reversed the judgment of the lower court and remanded the case to the Intellectual Property Court.

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In the case, past judgments differ greatly in terms of the amount for which Company A is entitled. Judgment of the first instance (Intellectual Property Court's civil judgment 103-Min-Zhuan-Su-Zi No. 38) explained: It is difficult for Company A to prove the enrichment Company B received; hence according to the provision in Paragraph 2 of Article 222 of the Code of Civil Procedure, "Where a party has proved injury but is unable to or is under great difficulty to prove the exact amount, the court shall, taking into consideration all circumstances, determine the amount by its conviction."  The court considered circumstances as follows:

1. The total revenue from Company B's six major product categories is NTD$23,907,201,000. It is then determined that income from one category, "optical storage media products," should be NTD$3,984,533,500 (i.e. 23,907,201,000÷6). The product of the “disputed patent”  (i.e. DVD-R) is one of multiple products within "optical storage media product." Hence, the judgment of the first instance holds that revenue of Company B from the sale of the infringing product is approximately NTD$664,088,917 (i.e. 3,984,533,500÷6).

2. Further, with respect to Company A’s Claims 6 and 27, the infringing product only infringes the coding technical feature of Claim 6, and Claim 27 has causes for invalidation. As such, judgment of the first instance holds that Company B's revenue with respect to such products was approximately NTD$332,044,458 (i.e. 664,088,917÷2).

3. Further still, judgment of the first instance held that the infringing product's technology does not depend entirely on the Disputed Patent.  As such, Company A could not prove that the Disputed Patent is responsible for all of the revenue from the sale of the infringing product.

Based on the aforesaid, judgment of the first instance ruled that Company A may demand Company B to pay the unjust enrichment amount of NTD$10,500,000.

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However, judgment of the second instance (Intellectual Property Court's civil judgment 105-Min-Zhuan-Shang-Zi No. 24) reversed the judgment of the first instance. It used a totally different approach for the calculation of unjust enrichment and reached a vastly different number from the judgment of the first instance. Judgment of the second instance held: With respect to the sale of the infringing product, Company B received at least the enrichment of not having paid royalty for the Disputed Patent; conversely, Company A suffered at least the injury of not having been paid royalty for the Disputed Patent. Therefore, Company A may, pursuant to provisions related to unjust enrichment, demand Company B to return such enrichment. Regarding the amount of unjust enrichment, judgment of the second instance calculates as follows:

1. Since Company B did not provide details for the sale of the infringing product, one can calculate according to the relevant market research provided by Company A and the "DVD-R Disk Patent Licensing Agreement" which was publicly available during the period of the claim (in which the royalty for each DVD-R disk was US$0.06).  Based on those numbers, the total royalty amount should be NTD$3,310,568,910.

2. Although Company B counterpleaded that the aforesaid royalty rate in the licensing agreement was for "Company A's 199 foreign patents related to DVD-R disks," the court of second instance holds that the aforesaid licensing agreement was a "packaged patent licensing agreement." The agreement states that any DVD-R sold or disposed in any country which exploits any of the patents licensed shall pay a royalty (i.e. US$0.06). Since packaged licensing is a common business practice which is not only effective but also in the interest of both the licensor and licensee, such calculation of royalty rate is correct.

3. Company B also counterpleaded that one should consider the contribution the Disputed Patent made to the infringing product. However, the court of the second instance did not adopt this position and held that this case was a case for return of "patent royalty uncollected by the patent holder due to one's exploitation of the holder's patent without legal ground." Such calculation was not based on the revenue of the product. Therefore, the calculation has nothing to do with the degree in which the Disputed Patent contributed to the infringing product.

As such, the court of the second instance held that Company A’s demand of NTD$1,050,000,000 from Company B, is short of the NTD$3,310,568,910 allowable; thus it is permissible.

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The Taiwan Supreme Court rejected the aforesaid calculation.  In its civil judgment 106-Tai-Shang-Zi No. 2467, Taiwan Supreme Court explains that calculation of unjust enrichment should be based on actual gains and not uncollected royalties. As such, based on the following reasons, the Taiwan Supreme Court reversed the judgment of the court of second instance and remanded the case back to the Intellectual Property Court:

1. The court of the second instance used the licensing agreement made in 2009 as the only calculation basis for Company B's unjust enrichment for the period from 2003 to 2012. This is a meaningful time difference, which can lead to differences in damage calculation for Company A.

2. Moreover, if the Disputed Patent's degree of contribution to the infringing product is minimal, the gains Company B received by exploiting the Disputed Patent might be disproportionate to the royalty prescribed by Company A's packaged licensing agreement.

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The damage calculation method in this case, based on unjust enrichment, is rare and sparingly-used in Taiwan. Future development of this case is worthy of our attention.

(Author: Yun-Ting (Tim) Tsai , Associate of Formosan Brothers Attorneys-at-Law)

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