An upcoming case set to be heard by the Taiwan Supreme Court will clarify the distinction between compensation for unjust enrichment under Taiwan’s Civil Code and reasonable royalties calculated as damages for patent infringement in patent cases, particularly in the context of a case in which the statute of limitation for patent infringement has already expired.

Dutch electronics firm Koninklijke Philips N.V. (Philips) brought a patent infringement suit against Taiwan’s Gigastorage Corporation at the Taiwan Intellectual Property Court of first instance on April 28, 2014 [1]. Plaintiff Philips was the owner of the Taiwanese patent in contest, patent No. I82864 (‘864 patent), covering a “Method of converting a series of m-bit information words to a modulated signal, method of producing a record carrier, coding device, decoding device, recording device, reading device, signal, as well as record carrier”. The term for this patent lasted from January 1, 1997 until February 14, 2015. The plaintiff asserted that the defendant had intentionally infringed upon the patent in question by manufacturing and selling recordable DVDs (DVD-R, hereafter Infringing Product I) and rewritable DVDs (DVD-RW, hereafter Infringing Product II) [2] that contained a patented feature derived from the ‘864 patent, without authorization, from January 1, 2000, through February 14, 2015. The plaintiff sought damages and compensation of NT$1.1 billion (US$34.7 million) from the defendant on grounds of patent infringement, unjust enrichment and negotiorm gestio [3] within the same period.  

After rejecting the arguments the defendant made to challenge the validity of the ‘864 patent and question the determination of patent infringement, the court turned to the disputes regarding damages and compensation for patent infringement. When calculating damages for the period of patent infringement from January 1, 2014, through February 14, 2015, the plaintiff cited subparagraph 2 of paragraph 1 of Article 97 of the Taiwan Patent Act:

“The damages claimed pursuant to the preceding article may be calculated according to […] the profit earned by the infringer as a result of patent infringement.”

 This provision is designed to calculate the damages according to the infringer’s profits from patent infringement. The plaintiff used this provision to request that the defendant disgorge infringer profits as compensation. However, the court found that the income statement from the defendant dating from January 1, 2014 through February 14, 2015 disclosed a gross loss in sales for Infringing Product I of NT$3.7 million (US$122,427). Even though the defendant manufactured and sold Infringing Product I illegally without licensing the patent, the court held that the gross loss indicated that there were no profits from infringement and declined the plaintiff’s request for damages for the period in question.

It was undisputed that the scope of claim 6 of the ‘864 patent had been reduced to form part of “DVD Specification for Recordable Disc Ver. 2.0 (4.7G)”. Although the specification was published in May 2000, DVD-R products manufactured by the defendant were not certified by the A-level laboratory under the DVD Forum until April 15, 2003. The plaintiff also failed to present any evidence for proof of patent infringement from January 1, 2000, through April 15, 2003, by determining that the DVD-R products complied with the aforesaid specification. As a consequence, according to the court’s opinion, no damages were allowed as remedy during this period.

With regard to the damages for the period from April 16, 2003 to December 31, 2014, a statute of limitation defense was brought. According to paragraph 6 of Article 96 of Taiwan’s Patent Act, as confirmed by paragraph 1 of Article 197 of Taiwan’s Civil Code, recovery is not permitted under patent law if the right to damages are not asserted until two years or more have passed since the patentee became aware of patent infringement. The same goes if the right to claim damages is not asserted until more than ten years have passed from when patent infringement occurs. The court stated that a complaint of patent infringement constitutes the plaintiff’s acknowledgement of continuous patent infringement conducted by the defendant since April 14, 2000. The plaintiff first took legal action against the defendant on April 28, 2014. One can infer from the facts mentioned above that the court held that all damages due to continuous patent infringement, except for those occurring after April 28, 2012, were barred from recovery due to the statute of limitation.

Nonetheless, the court accepted the claim for compensation for unjust enrichment even though the claims before April 28, 2012, had already been barred due to the statute of limitation. Furthermore, the court interpreted paragraph 2 of Article 197 under Taiwan’s Civil Code as clarifying that the benefits the defendant enjoyed by practicing the ‘864 patent without a license constituted a saving in the royalties that would have been paid had they licensed the patent. Since there was no licensing agreement made with the defendant before the occurrence of patent infringement, the court adopted a hypothetical approach to determine reasonable royalties as compensation for unjust enrichment. First, the court found that the defendant’s total revenue from April 16, 2003, through December 31, 2013, was estimated at NT$23.9 billion (US$791.8 million). Then the court concerned itself with apportioning the contribution of the ‘864 patent to Infringing Product I. After discovering that the defendant ran six production lines, with Infringing Product I being merely one among six related types of products in the same production line, the court determined that the revenue the defendant obtained by making and selling Infringing Product I was NT$644 million (US$21.3 million). Furthermore, in view of the technical contribution of another claim of the ‘864 patent that was declared invalid and other art to Infringing Product I, the court held that NT$10.5 million (US$347,779) was adequate compensation for the plaintiff to seek from the defendant under unjust enrichment in light of the facts of the case and the hypothetical discussions on licensing negotiations.

After being appealed to the Taiwan Intellectual Court of second instance,[4] the parties in the case focused on damages and other compensation due to patent infringement. The defendant brought up the doctrine of good faith to block the request of the plaintiff over damages. The defendant argued that the plaintiff did not take legal action on patent infringement until April 28, 2014, 14 years and a day from when the plaintiff became aware of the manufacture and sale of Infringing Product I and Infringing Product II. Furthermore, the defendant stated that the plaintiff halted its action against the defendant for patent infringement on the ‘864 patent when they lost a patent infringement case involving a related patent in Italy. The defendant asserted that the unreasonable delay by the plaintiff in bringing the lawsuit falls under the laches doctrine and thus relief for patent infringement should be barred.

The court disagreed with the defendant on the good faith defense, and reasoned that more evidence was necessary to prove if specific acts by the plaintiff implied forbearance on their behalf. Otherwise, the court cautioned that the statute of limitation was preempted by the doctrine of good faith if the relief in this case can be barred merely by the fact that the plaintiff didn’t undertake a lawsuit in due time after becoming aware of the occurrence of patent infringement.

Following the holding of the court of first instance, the statute of limitation defense put forth by the defendant worked effectively against the request for damages sought by the plaintiff. In addition, the court was of the opinion that the unsuccessful lawsuit in Italy backed the defendant’s claim of non-infringement. The court observed that the defendant had carried out due diligence in assessing whether the manufacture and sale of the products in question infringed upon the ‘864 patent. Therefore, the court held that there was no negligence in the defendant’s actions before the plaintiff brought the lawsuit to constitute patent infringement under Taiwan’s patent law in this case.

In view of the 15-year statute of limitation and the requirement of no subjective attribution for the acting party, the court affirmed that compensation could be calculated on the basis of unjust enrichment in the case. According to the court’s interpretation of unjust enrichment in this case, the illegal benefits the defendant received without a license were the reasonable royalties that it would have paid to the plaintiff if it had licensed the patent. After looking into the evidence concerning the sales volume of the infringed DVD-R products during the period of patent infringement and the other DVD-R patent licensing agreements, the court found it feasible to adopt the interpretation of an industrial report by Fujiwara-Rothchild Ltd. on DVD related products in the period from 2003 through 2013. In addition, the price of a DVD-R disk to calculate compensation under unjust enrichment was determined by the court at US$0.06. The defendant argued that that price was estimated on the basis of 199 related patents covering DVD-R disks owned by the plaintiff and attempted to persuade the court to consider apportionment according to the technical contribution of the ‘864 patent. The court rejected this argument, however, reasoning that the price of a DVD-R disk at US$0.06 was determined after considering the efficiency of package licensing as admitted by commercial practice in the market. The court also stated that the concept of apportionment is not relevant to the calculation of compensation for unjust enrichment as this kind of compensation relates to the reasonable royalties saved without legally justified grounds.

Finally, the court affirmed the decision of the court of first instance on patent infringement and the related compensation under unjust enrichment but raised the compensation due to unjust enrichment from NT$10.5 million (US$347,779) to just over NT$1 billion (US$33.1 million).

The case has now been appealed to the Taiwan Supreme Court. It will be interesting to see the ultimate decision of the Supreme Court concerning the dispute over damages in regard to the possible overlap of patent infringement and unjust enrichment. Beyond this case, we also expect the Supreme Court to instruct the lower courts on how to interpret whether or how the compensation under unjust enrichment should be made in the case of patent infringement to comply with patent law. There are, at least, three key issues that we expect the Supreme Court to clarify in order to streamline the resolution of similar disputes in the future. The first point is whether the doctrine of good faith under civil law can be applied to cases of patent infringement to prevent abuse of patent rights through litigation, especially when Taiwan’s legal system has adopted a principle of unity in civil and commercial law. By referring to the development of US patent case law on laches and equitable estoppel in remedies,[5] it is a good time for the Supreme Court to use the opportunity presented by this case to instruct us on under what circumstances the doctrine of good faith may imply that the laches doctrine or equitable estoppel should prevent a patentee’s ability to seek remedy due to unreasonable delay.

The second point concerns the statute of limitation for patent infringement. While the statute of limitation for patent infringement is a term of two years counted from when the patentee becomes aware of the occurrence of patent infringement or a term of ten years from when the infringing act occurs, the statute of limitation for unjust enrichment according to Taiwan’s Civil Code is a term of fifteen years from when the rights or related remedies are available. Since special provisions are made for patent law in civil law in Taiwan, we will also expect to see the Supreme Court make a judgment on whether the statute of limitation specified under patent law preempts that specified under civil law, or whether the longer term stipulated by the statute of limitation on unjust enrichment can be applied in cases in which the remedies for patent infringement have been barred due to the statute of limitation for patent infringement having already expired under patent law.

The last point concerns the issue of reasonable royalties under unjust enrichment. In previous instances, the Intellectual Property Court has not made a clear distinction between reasonable royalties as damages for patent infringement and reasonable royalties as compensation for unjust enrichment in its past judgments. However, a fundamental difference exists in the legislative purposes of damages for patent infringement and compensation for unjust enrichment. This case will give the Supreme Court a good opportunity to provide a guideline for calculating reasonable royalties as compensation for unjust enrichment, compared with the approach of hypothetical negotiation adopted to calculate damages. Furthermore, it will also clarify whether the concept of apportionment should be applied to compensation for unjust enrichment.

1. See Zhi Hui Cai Chan Fa Yuan 103 Nian Du Min Zhuan Su Zi Di 38 Hao Pan Jue (智慧財產法院103年度民專訴字第38號判決)
2. Claim 5 of Infringing Product II has been invalidated on the grounds of lack of an inventive step.
3. The compensation for negotiorm gestio wasn’t allowed in this case, to avoid double remedies in light of the compensation for unjust enrichment.
4. See Zhi Hui Cai Chan Fa Yuan 105 Nian Du Min Zhuan Shang Zi Di 24 Hao Pan Jue (智慧財產法院105年度民專上易字第24號判決)
5. See SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC, 137 S.Ct. 954 (2017).

Author: Chung-lun Shen Current Post: Professor, College of Law, National Chengchi University Education: S.J.D., Maurer School of Law, Indiana University-Bloomington

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