- AIPPI Case Reporter: Mutsumi Sangyo K.K. v. Hinode Suido Kiki K.K. and
License & Property Control Co., Ltd.
- 掲載紙: AIPPI Journal
- 掲載日: 2007年3月
- AIPPI Case Reporter
- Patent Infringement Defense / Anticompetitive Arrangement / Technical Standard
- Mutsumi Sangyo K.K. v. Hinode Suido Kiki K.K. and License & Property
Control Co., Ltd.
- Intellectual Property High Court / Decided July 20, 2006 / Case No. Hei 18 (ne) 10016
- (Anti-Monopoly Law, Patent Law Art. 100.)
- Mutsumi Sangyo appealed the district court’s decision of patent infringement and damages against Mutsumi. On appeal, Mutsumi argued that Hinode Suido violated the Antimonopoly Law with its restrictive licensing arrangements. The Court held that the licensing arrangements were not so unreasonable as to cause violation of the Anti-Monopoly Law.
- Appellee, Hinode Suido Kiki K.K. is an owner of patents and utility models
relating to ground manhole covers made from steel (hereinafter referred
to as “Patents”). The Patents included some technical features which were
adopted as technical standards. The ownership of the Patents was assigned
to License & Property Control Co.
City Office of Fukuoka (hereinafter referred to as the “City Office”) was and is a major customer of the Appellee. The City Office designated for its official procurement program certain models of manhole covers developed by the Appellee and covered by the Patents. In so doing, the City Office asked the Appellee whether its Patents would be open for use by the suppliers of the manhole covers to meet the requirement of the official procurement program. The Appellee agreed to make the license free for the Patents which were concerned.
Thus, the manufacturers of the manhole covers who intended to tender the official procurement program needed the license from the Appellee. The license agreement had provisions that each licensee has a limitation for royalty-free production and that each licensee should purchase the products from the Appellee as follows. To make this arrangement possible, the Appellee first estimated a likely volume of annual demands from each local government and city office. In each jurisdiction, the Appellee set a cap at 75% of the estimated annual volume. Then, the 75% volume was divided by the number of the licensees to set an individual ceiling of production. Under this licensing scheme, each licensee, if its production volume is beyond its cap, the licensee was required to ask the Appellee for production on behalf of the licensee (OEM products).
Appellant, Mutsumi Sangyo K.K. was one of the licensees under this licensing
scheme. The Appellant did not renew its license and the agreement itself
was terminated in April 2004. After the termination of the license agreement,
the Appellee sued the Appellant charging that Mutsumi’s products infringed
the Patents. The suit was brought to the Osaka District court where the
Appellee claimed monetary relief in the amount of 110,987,000 Japanese
yen (approx. US$100 million) as well as injunction and destruction of infringing
products. Since another Appellee, Patent & Property Control intervened
in the suit claiming injunctive relief, the Appellee waived its own injunctive
relief claim on the complaint.
The Osaka District Court found the Patents infringed and awarded the damages
in the amount of 110,526,504 yen which was slightly reduced from the one
on the complaint. The Court also found the Patent & Property Control’s
injunctive claim permissible in its entirety.
Mutsumi appealed this decision to the Intellectual Property High Court. On its complaint, Mutsumi argued that Appellee’s license arrangement limited competition on the market and thus violated the Anti-Monopoly law of Japan. The Intellectual Property High Court dismissed the appeal and affirmed the findings of the District Court with minor changes in the amount and the reasoning.
- With regard to the issue of whether the license agreement offered by the Appellee was unreasonably competition-restrictive so as to cause a violation of the Anti-Monopoly Law of Japan, the Intellectual Property High Court (IPHC) elaborated as follows.
- The Anti-Monopoly Law of Japan exempts enforcement of copyright, patent right, utility model, industrial design right or trademark right from its application so far as it is based on appropriate and adequate grounds. (Section 21)
- The license agreement between the licensor (Appellee) and the licensee (Appellant) included provisions that set forth a limitation in production volume on the part of the licensee. Under the license, the licensee was granted a non-exclusive license to manufacture and sell its own products under the Patents. The agreement also stipulated that to the extent the production of the licensed products by the licensee below the stipulated volume, the licensee would not be required to pay any royalty under the license. However, it also set forth that beyond the threshold, the licensee was required to buy the products from the licensor.
- Evidence shows that the threshold was set at 75% of the annual market volume which was calculated by the licensor, assuming the likely purchase by each local government and city office. The volume figure with a 75% threshold was divided by the number of the licensees who wanted to apply for the official procurement program. There are two issues to be considered: illegality of including into the license agreement an obligation to purchase from the licensor and whether the 75% threshold is unreasonable.
- It is a legitimate right of the patentee that it would seek a profit from a licensing scheme using its own patent rights. It is not unreasonable that a patentee sets bifurcated license scheme which consisted of a royalty-free license and an obligation of purchasing the products from the licensor. In this case, the threshold was 75% of the estimated demand from the customers, i.e., local governments. It can be considered that beyond the 75% threshold, the licensor wanted to assure a profit under its patents, which is nothing wrong.
- The 75% threshold was determined based on the estimated market volumes. Calculation was made based on the reasonable estimation of likely orders from local governments. There is no evidence showing that the actual market competition was prevented or that such calculation of the annual demand volume was intentionally manipulated. Beyond the threshold, the licensor wanted to assure profits under its licensed Patents. Such profits are appropriate and there is nothing wrong in the context of the Anti-Monopoly Law.
- Based on the above findings, the IPHC ordered that Mutsumi pay to Appellee
the amount of 110, 216,054 yen as damages under the tort law plus legitimate
interest. The IPHC affirmed the finding of the District Court in favor
of Patent & Property Control.
- This case may not be appealing as a patent infringement case. It is apparent that it is hard for the former licensee to argue for non-infringement after the license agreement terminated. However, this case is interesting as an example of defense against patent infringement for at least two reasons.
First, Appellant’s arguments for defense were based on the Anti-Monopoly Law. Unlike in the United States, an alleged infringer cannot seek equitable relief of patent misuse. There is no statutory relief for which a doctrine of patent misuse is specifically applied. Thus, the alleged infringer could rely on a counterclaim that the licensor violated the Anti-Monopoly Law, or that licensor breached the law of torts under the Civil Code. In this case, the Appellee sought the former approach.
Secondly, and more interestingly, this case involves aspects of patent licensing adopted in technical standards. There was some agreement between the Appellee and the local government with respect to the use of the Patents in the designated technical standards. An interesting legal question is whether such fact influences the determination of legality of a restrictive conduct by the courts. In this case, however, the court did not address this question.
Only for readers’ reference, the Appellee in this case, Hinode Suido and other local manufactures of the ground manhole covers for official use, were once charged for a violation of the Anti-Monopoly Law by the Japan Fair Trade Commission (JFTC). JFTC announced its decision that a consorted price-fixation was formed in the market of manhole covers and concluded that there was a violation of the Law. In this case, Hinode’s utility model was available for local manufactures free of charge. With this free license, they were able to supply their own products to Fukuoka City. (JFTC’s decision in 1993 in the matter of Hinode Suido, et al).
It is probable that the Appellant in this instant case might have wanted to use the JFTC’s decision against the Appellee as leverage for any settlement negotiations. The Appellant might have expected that the Appellant would compromise. However, the Appellee did not compromise as the Appellant might have expected.