BY JACKY J. J. WANG

In the calculation of damages during a patent infringement suit, in accordance with Article 97, paragraph 1, item 2 of the current Patent Act, the profits earned by the infringer as a result of infringement may be used as the basis for the patentee to calculate the damages. This provision replaces the stipulation in Article 85, paragraph 1, item 2 of the previous Patent Act, which regulated that when the infringer cannot provide evidence to prove the cost or necessary expenses, the total income of selling goods is deemed as the profits. However, due to the “total income of selling goods” adopted in the previous Patent Act, it is obvious that the patentee is regarded as a monopoly on the product market and calculating the damages based on the total income of selling goods may result in undue damages being awarded. Therefore, in the current Patent Act the calculation of damages depends on the actual conditions in each case.

However, the question remains whether deleting the wording “infringer provides evidence to prove the cost or necessary expenses” from Article 85, paragraph 1, item 2 of the previous Patent Act indicates that the total income from selling the infringing goods by the infringer is equal to the damages suffered. In this regard, according to the Civil Judgment of the Intellectual Property Court 106 (2017) Ming Juan Shang Geng (2) Tzu No.1, since the patentee is not necessarily a monopoly on the product market, the profits earned by an infringer may represent market shares from competitive products and market profits of any third party, and thus do not necessarily and in their entirety belong to the lost profits of the patentee. If the infringer's original sales channel or market power is comparatively strong and the total profits of the infringement are attributed to the patentee, the damages for the infringement are obviously undue. Therefore, the profits earned by the infringer should be calculated considering the actual conditions in each case.

In the above cited judgment, it is further pointed out that when determining the amount of damages, if the earned profits of the infringement are equal to the damages suffered by the patentee, the causal relationship of the damages is overly simplified, and possible factors (such as the type of patent, the market power of the patentee and the needs of the consumers) which influence economics are ignored. For the purpose of explaining the profits, the amounts that can be deducted from the sales amounts of the infringing products sold by the infringer should be limited to directly related manufacturing costs and necessary expenses incurred by the infringer for the sale of the infringing products, and should not include other costs and expenses, even the total cost of research and development. Furthermore, production costs in economics can be divided into fixed costs and variable costs, and the total cost equals the fixed costs plus variable costs. The fixed costs do not change with the output, i.e., expenditures such as salary, property tax and insurance of management personnel are all fixed costs. The variable costs, however, such as costs of raw materials, increase or decrease as the output changes, hence, when calculating the profits of a patent infringement, it is only necessary to deduct the required variable costs from the additional sales, and the fixed costs should not be included.

However, it seems that there are different opinions on whether to include taxes when calculating the deductible items. According to the

Civil Judgment of the Intellectual Property Court 101 (2012) Ming Juan Shang Tzu No.10, the alleged infringer argued that the tax for the sale of the goods was a necessary expenditure. In accounting, taxation is based on net profits, and the so-called net profits refer to the balance of the operating income minus the operating costs and operating expenses. Thus, taxation is not included in the costs and necessary expenses that can be deducted. In contrast, the Civil Judgment of the Intellectual Property Court 106 (2017) Ming Juan Shang Geng (2) Tzu No.1 held that the sale of goods or services and import of goods within the territory of the Republic of China should be subject to a value-added or non-value-added business tax according to the law. Business tax that should be paid by the infringer is a variable cost with respect to the patent infringement. Therefore, when calculating the amount of damages, business tax should be deducted from the total amount of the payment of goods.

In summary, after the patentee has filed a patent infringement lawsuit, the calculation of damages can be made after conducting the patent validity analysis deciding whether the infringing goods fall within the scope of the patented goods. The foregoing judgments provide a clearer basis for patentees when considering whether to file a lawsuit.

Reference: /en/pdf/20180816f.pdf (Last visit: October 21, 2018)