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Patent High Court Hears an Anti-Monopoly Case

掲載紙: Winds from Japan No.31

掲載日: 2007年3月

In Japan, court cases relating to competition law are infrequent. Such cases are usually heard at the quasi-judicial tribunal, the Japan Fair Trade Commission (JFTC). However, there is one notable recent case in which arguments centered around a claim based on the competition law (Rokumi Sangyo v. Hinode Suido, et al,, 2006).
This case was initially brought by the licensor, who asserted that a former licensee without a valid license infringed its patents and utility models. The district court found in favor of the licensor and awarded monetary and injunctive relief. The former licensee appealed this decision to the Intellectual Property High Court (IPHC). In its appeal, it strongly argued that the licensor violated the Anti-Monopoly Law with its restrictive licensing arrangements.
The IPHC held that the licensing arrangements were not so unreasonable as to constitute a violation of the Anti-Monopoly Law.

Background of the Case

The patents and utility models in question related to ground manhole covers made from steel ("Patents”). The Patents included some technical features which were adopted as industrial standards by the industry.
In this case, a major customer was a city administrative office in Kyushu, Japan. The city office designated some manhole covers developed by the licensor for its official procurement program. In addition, the city office asked the licensor whether the relevant patents would be open for use by the local suppliers of the manhole covers to meet the requirement of the official procurement program. The licensor agreed to make the license free for the Patents.
Thus, local manufacturers of the manhole covers who intended to tender the official procurement program required a license from the licensor. The license agreement provided that each licensee had a limitation for royalty-free production and that each licensee should purchase the products from the licensor beyond the limitation.
To figure out the level of limitation, the licensor first estimated a likely volume of annual demands from the existing customers. In each jurisdiction of local government, the licensor 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, if a licensee's production volume was beyond its cap, the licensee was required to ask the licensor to produce the product on behalf of the licensee (OEM products).
The Osaka District Court found infringement of the Patents by the former licensee, and awarded damages in the amount of approximately US$1 million. The former licensee appealed the decision to the IPHC. In its complaint, the former licensee argued that the licensor's license arrangement restricted competition on the market and thus violated the Anti-Monopoly Law.
The IPHC dismissed the appeal and affirmed the findings of the District Court with minor changes.

Judgment of the High Court

With regard to the issue of whether the license agreement offered by the licensor was unreasonably competition-restrictive so as to cause a violation of the Anti-Monopoly Law of Japan, the IPHC elaborated on the matter as follows.
Basically, the Anti-Monopoly Law of Japan is not applied to copyright, patent right, utility model, industrial design right or trademark right from its application so long as such rights are based on appropriate and adequate grounds. (Section 21)
The license agreement between the licensor and the licensee 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 while the production of the licensed products by the licensee remained below the stipulated volume, the licensee would not be required to pay any royalty under the license. However, the licensee had to buy the products from the licensor beyond the threshold.
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 be assured of a profit under its patents, which is reasonable.
The 75% threshold was determined based on the estimated market volumes. Calculation was made based on a 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 be assured of profits under its licensed Patents. Such profits are appropriate and there is nothing wrong with this in the context of the Anti-Monopoly Law.
Based on the above findings, the IPHC ordered that the former licensee pays to the licensor the $1 million damages under the tort law, plus legitimate interest.

Discussion

This case may not be seemed a particularly important patent infringement case. Apparently, it is hard for a former licensee to argue for non-infringement after a license agreement has expired. However, this case is interesting as an example of defense against patent infringement for at least two reasons.
Firstly, the former licensee'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 the licensor breached the law of torts under the Civil Code. In this case, the licensor sought the former approach.
Second, and more interestingly, this case involves aspects of patent licensing and industrial standards. There was some agreement between the licensor and the local government with respect to the use of the Patents in the designated industrial standards. An interesting legal question is whether such a fact influences the determination of legality by the court with regard to restrictive conduct. In this case, however, the court did not address this question.
For readers' reference, the licensor and other local manufactures of ground manhole covers for official use were once charged with a violation of the Anti-Monopoly Law by the JFTC. The JFTC announced its decision that a consorted price-fixation was formed in the market of manhole covers and determined that there was a violation of the Law. In this case, the licensor's Patent was available for use by local manufactures free of charge. With this free license, they were able to supply their own products to major customers. (JFTC's 1993 decision in the matter of Hinode Suido, et al).
It is likely that the former licensee in this case might have wanted to use the JFTC's decision against the licensor as leverage for settlement negotiations. The former licensee might have expected that the former licensee would compromise in the end. However, it seems that the tactics did not work.

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