Safeguarding trademarks presents real challenges amid the pandemic, with massive shifts to online trading, difficulties getting cases to court and physical enforcement challenges to name a few. As policymakers and regulators rush To adapt, many Asian jurisdictions have rejuvenated their regimes to protect valuable IP and the public interest
Recently, Japan has been giving stronger protection to its IP rights. The grand panel decisions of the Intellectual Property High Court in 2019 and 2020 have shown its intention to increase damages amounts. The country amended its Trademark Act in 2019 and 2021 to increase damages amounts and expand the scope of infringing acts.
As a result, the risk of Japanese trademark infringement is higher and a careful risk evaluation is recommended when selling products to the country. At the same time, the value of IP rights is also higher and infringement lawsuits are a more attractive option for global companies operating in the country. This article focuses on the recent statute amendments related to trademark infringement risk.
Expansion of infringement
Previously, to “import … goods or package of goods to which a mark is affixed” into Japan constituted trademark infringement only if it was done “as a business”, under articles 2(1)(i), 2(3)(ii), and 25 of the above-mentioned act. To meet the requirement for “as a business” did not need a commercial purpose, but should be conducted repeatedly or continually. For example, if products are repeatedly imported to Japan by a trading company for distribution, the trading company’s importation constitutes an infringement. However, suppose an individual imports goods for the first time for private use, in that case, it does not constitute infringement because it does not meet the “as a business” requirement.
Such importation by individuals has been more common recently, due to the expansion of e-commerce across the border. Also, sometimes it is not so clear if the importation is done “as a business” or not. To cover such cases, the new article 2(7) of the act provides that the “… act of importing includes an act of a person in a foreign country causing another person to bring into Japan from the foreign country”. Under this clause, a foreign entity that sells products to Japan “as a business” can be a trademark infringer, even if the entity itself does not directly import the products into Japan. However, the scope of the requirement “causing another person” is not so clear, so case laws are needed for a more accurate interpretation.
Previously, a foreign entity selling products to Japan via e-commerce platforms did not owe infringement liability, as long as it did not import the products by itself. However, once this amendment takes effect, such a foreign entity runs the risk of being sued before a Japanese court and held liable. In addition, the importation of the products may be injuncted by Japanese customs.
Accordingly, the amendment poses a substantial new risk to a foreign business that sells products to Japan. This is a significant change for some companies doing business across the border. Thus, when a foreign business plans to sell a large number of goods to Japan, even if the Japanese customers are non-business individuals, free-to-operate (FTO) research of a Japanese trademark is highly recommended. As a side note, the amended Japanese Design Patent Act has a similar clause, so FTO research for a design patent is also recommended.
Increase of damages amount
Recently, Japan amended the damages presumption clauses to increase the presumed damages amount. Due to the difficulty of proving the damages amounts of intangible trademark right infringements, the act has three types of damages presumption based on:
(1) trademark owner’s profit;
(2) infringer’s profit; and
(3) a reasonable royalty that gives the trademark owner the option to choose the type of presumption.
Presumption based on trademark owner’s profit. Under article 38(1) of the Trademark Act, the damages amount is presumed to be the trademark owner’s marginal profit per unit multiplied by the number of products assigned by an infringer. For example, suppose the trademark owner’s marginal profit per unit is USD50 and the infringer assigned 10,000 units. In that case, the presumed damages amount is USD500,000 — in an actual case, judges may reduce the amount, considering many factors.
If the trademark owner was unable to sell the assigned quantity entirely or partially, such an amount is deducted. This means that the quantity of products used in the calculation is limited to the trademark owner’s sales, or manufacturing capacity. For example, when the trademark owner’s capacity was limited to 1,000 units, even if the infringer sold 10,000 units, the presumed damages amount under article 38(1) is limited to USD50,000.
Previously, it was not so clear if a trademark owner could seek reasonable royalty for the amount that exceeds its capacity. However, the recent amendment clarifies that the trademark owner can still seek reasonable royalty damages for the amount exceeding its capacity, at least when there is a loss of licence opportunity.For example, the trademark owner can still seek damages that are calculated based on reasonable royalty for 9,000 units besides the profit-based presumption for 1,000 units. Thus, when the reasonable royalty per 1 unit is USD10, the total damages presumption is USD140,000 (USD50 x 1,000) + (USD10 x 9,000).
This results in an increase in the damages amount, and a small business with limited capacity, such as a startup, can seek fair damages. At the same time, this means an increase in trademark infringement risk.
Presumption based on infringer’s profit. Under article 38(2) of the act, the damages amount is presumed to be the infringer’s profit earned by the trademark infringement. For example, if the infringer’s marginal profit per unit is USD40 and the infringer assigned 10,000 units, the presumed damages amount is USD400,000. But when the trademark owner’s capacity is limited to 1,000 units, the damages are limited to USD40,000 (USD40 x 1,000). The recent amendment does not explicitly change article 38(2), but the trademark owner can likely seek reasonable royalty damages for the amount exceeding its capacity, just like article 38(1).
Presumption based on a reasonable royalty. Regarding the presumption based on a reasonable royalty, the recent amendment makes it clear that the court’s determination that the product infringes the trademark can be taken into consideration when calculating the reasonable royalty. This means that the court can decide a royalty fee amount higher than the parties would have agreed before the infringement.
At the time of licence negotiation, it is often uncertain whether the product actually infringes the trademark right or not. The royalty rate would have been higher if it were clear that the product infringed on the trademark right. Thus, the court can consider its determination that the product infringed trademark to increase the damages amount presumed, based on a reasonable royalty. For example, even if the trademark owner and the infringer agreed on a 5% royalty fee, the court can award 9% damages, considering the determining fact that the product infringes the trademark.
This results in an increase in the damages amount. If the reasonable royalty fee is low, it is sometimes economically reasonable for an infringer to violate a trademark right and pay the reasonable royalty, after losing litigation. This amendment makes it clear that the law does prevent such behaviour. At the same time, this means an increase in trademark infringement risk.
Under the recent amendments, the Japanese trademark infringement risk is higher, and careful risk evaluation, such as trademark FTO research, is highly recommended when selling products to Japan.
At the same time, due to the recent pro-IP trend in Japan, the value of Japanese IP including a trademark is higher, and infringement lawsuits in Japan are a more attractive option for global companies.
OHNO & PARTNERS
21/F Marunouchi Kitaguchi Building
Chiyoda-ku, Tokyo – 100 0005, Japan