Brief Analysis on the Application of “Patent Contribution Rate” to the Calculation of Damages in Patent Infringement Cases in Taiwan (Taiwan)

Sean Tsou

1. Concept of “patent contribution rate”

The so-called “patent contribution rate” means, as it literally suggests, the degree of contribution of a certain patent to the value of a certain product.  This concept has emerged due to the considerations over damages calculation in patent infringement cases, i.e., whether the entire profit derived from an infringer’s sale of the infringing items can be claimed as damages when the patentee is claiming damages for items infringing the patent.  If the answer is negative, what is the reasonable percentage of the profit derived from the infringing items which can be claimed by the patentee as the damages?

In particular, in an era of technological advancement and strong awareness of intellectual property protection, a product not only embodies one patent but also can contain hundreds, if not thousands, of patents.  Under such circumstances, scenarios where a patentee is seeking damages for infringement on several patents by a single infringing product or several patentees are seeking damages for different patents over the same infringing product make the calculation of damages more complex and difficult and highlight the necessity of in-depth exploration of the patent contribution rate in practice.

2. Damages calculation methods under the Patent Law in Taiwan

A retrospective observation of provisions concerning damages calculation under the Patent Law in Taiwan shows that Article 97, Paragraph 1 of the Patent Law amended in 2011 specifically stipulates three calculation mechanisms, namely, the “actual damages or lost profits,” “profits obtained by the infringer,” and “reasonable royalties.”  Simply put, the “actual damages or lost profits” are calculated in reference to the specific “damage or lost profit” suffered by a patentee or “the difference between the profit that can normally be obtained from the practice of a patent and the profit obtained after the same patent is practiced following the infringement” under Article 216 of the Civil Code.  The “profits obtained by the infringer” is calculated by the “profit from the infringing activities,” while the “reasonable royalties” are calculated by the “reasonable royalties that may be collected from the licensing of the patent.”

Of all the above three calculation approaches, the “profits obtained by the infringer” are the most commonly used in practice in Taiwan, perhaps because when it is difficult to substantiate the damage in a patent infringement case, the sales amount of infringing products as ascertained by investigation is then used as the basis of calculation, which is oftentimes the approach with the lowest difficulty in substantiation but the highest amount of damages.  Moreover, before the Patent Law was amended in 2011, the second part of Article 85, Paragraph 1, Subparagraph 2 of the old Patent Law provided: “If the infringer cannot substantiate the cost or necessary expenses, the entire revenue from the sale of such items shall be the profit as obtained.”  This further enhanced the motivation of a patentee to use the “profits obtained by the infringer” to calculate the damages in past practices.

It is noteworthy that when the full-text of the Patent Law was amended in 2011, the language “the entire revenue from the sale of the items shall be the profit as obtained” in the old law was deleted with the amendment reasons indicating: “The calculation of the damages in this manner obviously assumes that the patented products at issue monopolize the product market.  On one hand, however, a patent does not necessarily translate into a monopoly of the product market, and the profits gained by the infringer may very well come from competitive products and market profits of third parties and may not entirely vest with the patentee.  On the other hand, when the infringer’s existing distribution network or market power is quite strong, if all profits derived from such products are attributed to the patentee due to infringing activities, the compensation to the patentee would appear excessive.”  The argument that the attribution of all profits derived from the infringing products to the patentee would appear excessive reflects, to a certain extent, that the legal amendments at that time took into account the concept of the patent contribution rate.

3. Application of the “patent contribution rate” reflected in court decisions in patent cases in Taiwan

Although there is no clear wording of “patent contribution rate” in the Patent Law in Taiwan, still the Taiwan courts have rendered decisions that affirmed the concept.  For example, the 102-Min-Zhuan-Shang-3 Decision of the Intellectual Property Court indicated: “During the inception of the patent law regime, one patent was basically deemed one product.  However, the relationship between patents and products has become the relationship of the technical contribution or production value contribution to the products after prosperous industrial development, and a patent does not ipso facto represent the entire value of the patented products.  Therefore, whether the damages for patent infringement should still be determined by the value of the patented products or should also include the cost incurred by the patentee due to the separate development and innovation efforts or additional maintenance as result of the infringing activities would affect if a patent system can fulfill the policy function of promoting industry advancement.  This clearly indicates that patents do not represent the entire value of the products, and the relationship between the patents and the products is “technical contribution to the products” or the “degree of contribution to the production value,” and this is the core concept of the patent contribution rate.  In terms of the specific applications of the concept, an observation of the decisions utilizing the concept of the patent contribution rate in recent years indicates that the courts mostly followed Article 222 of the Code of Civil Procedure, which provides that the court may consider all circumstances of the individual case and use its discretion to decide the amount of the ultimate damages, and used the patent contribution rate as part of all circumstances they may consider based on their discretion.

As for how the patent contribution rate can be determined, the Intellectual Property Court held in one of its decisions: “It is quite common to see the stacking of multiple patented technologies in one product due to prosperous development of all kinds of industrial technologies, increasingly complex structure and functionalities of products and better-defined division of labor in the industry chains.  However, whether a court should include the rate of an infringed patent’s contribution to the overall prices of infringing products in its determination of the amount of damages for patent infringement should generally depend on factors such as the efficacy improvement to the overall product by the patented technology, the willingness of the consumers to buy, and the general trading circumstances in the market.  It is not appropriate to directly allocate such damages on a pro rata basis according to the number of patents as used merely by considering the number of patents used in a certain product.  To wit, in addition to technical considerations (e.g., the benefits of a patented technology to the enhancement of product functionalities, enhancement to the primary or associated functionalities of a product and the ability of a product to still achieve the primary functionalities in the absence of such patented technology), there are still economic considerations (e.g., the sufficiency of the functionality enhancement to affect the purchase decisions of the consumers, the physical divisibility of the patent and non-patent components, the ability of a divided component to independently serve as a trading object, and general trading practices).  This is not a simple mathematic question.  (see the 103-Min-Zhuan-Su-48 Decision and the 104-Min-Zhuan-Su-36 Decision of the Intellectual Property Court).”  This shows that the current practice in Taiwan is to determine the patent contribution rate on a case-by-case basis, and the potential determination factors which may serve as a reference generally include the “technical aspect” and the “economic aspect.”  For example, from the technical perspective, the Intellectual Property Court once determined the patent contribution rate based on the overall efficacy of a product component containing the patent relative to the entire product (see the 106-Min-Zhuan-Shang-30 Decision of the Intellectual Property Court).  From the economic aspect, the Intellectual Property Court also used the price difference between two products with one containing the features of a certain patent and the other having no such features as the calculation standard for the patent contribution rate (see 104-Min-Zhuan-Su-50 Decision of the Intellectual Property Court).

On a side note, although the Intellectual Property Court has rendered a decision finding the rate of an infringed patent’s contribution to an infringed product was 100% (e.g., the 103-Min-Zhuan-Su-48 Decision of the Intellectual Property Court), still the author strongly believes that the finding of a patent’s contribution rate to be 100% obviously needs justification, since it is hardly reasonable after all to completely ignore the infringer’s manufacturing technology, distribution channels and goodwill, which may potentially contribute to the value of the infringing product, while attributing the entire value of the infringing product to the existence of one patent, not to mention that if the contribution rate of one patent is determined to be 100% in the likely presence of multiple patents in the product, the value of the other patents would be completely denied.  Especially under extreme circumstances, when a patentee asserts multiple patents over the same infringing product for damages, if the contribution rate of the patents is not considered or if the contribution rate of each of the patents is determined to be 100%, the damages for which the infringer is liable would be several times that of the value of the infringing product.  This is truly not an appropriate argument that meets the fundamental principles of damages.

4. Conclusions

All in all, the author believes that the concept of the patent contribution rate basically reflects the “certain causal relationship” in tort law.  To wit, the concept of the patent contribution rate is used to define the scope of the “certain” damages that may be asserted by a patentee between the “cause” of an infringer’s patent infringement and the “effect” of the damage incurred by the patentee.  Therefore, even though the specific wording “the patent contribution rate” is not found in the Patent Law, still the provisions of Article 97, Paragraph 1 of the current Patent Law may be interpreted to contain the concept of the patent contribution rate.  For example, only when certain causal relationship can be established through the “patent contribution rate” can the “actual damages or lost profits” be used to define the scope of the damages or lost profits.  In addition, with respect to the “profits obtained by the infringer,” the reasons for amending the Patent Law in 2011 also show that the scope of profits obtained by an infringer should take into account the patent contribution rate in order to come up with a reasonable royalty amount.  Therefore, even though there is no such clear wording “patent contribution rate” in the current Patent Law in Taiwan, the patent contribution rate should certainly be considered in court decisions as a matter of legal theory.

Based on the foregoing reasons, the prevalence of the patent contribution rate in trial practices in Taiwan is quite a positive development trend.  However, the determination criteria and methods still highly rely on the discretion of judges.  It would seem necessary to secure the in-deep operation of the concept by way of further legislation.  It is expected that more court decisions in which the patent contribution rate is properly considered will emerge in Taiwan in the future to perfect the patent law regime and practices in Taiwan.