1.Introduction

In September 2018, the author, representing Hamamatsu Photonics K.K. (the plaintiff), filed three patent infringement lawsuits with the Tokyo District Court against Tokyo Seimitsu Co., Ltd. (the defendant). These lawsuits were based on five patents related to semiconductor wafer cutting devices, alleging that the semiconductor wafer cutting devices manufactured, sold, and exported by the defendant infringed on these patents. The overview of these three lawsuits is described in section 2 below, and the summary of the judgments is provided in sections 3(1) to 3(3).

In these lawsuits, numerous issues under the Patent Act concerning claims for damages and injunctions were contested. Since all six judgments from the district and high courts in these three patent infringement lawsuits have been finalized, this article aims to introduce an overview of the legal issues in each judgment. Due to space constraints, technical issues such as claim interpretation and invalidity defenses are omitted (for detailed judgments, please refer to the court’s website).

2.Overview of the Case

(1) The overview of the case is introduced below by quoting the first-instance judgment of Tokyo District Court Heisei 30 (Wa) No. 28930 (hereinafter referred to as “Lawsuit A”).

“The plaintiff is a technology development-oriented company primarily engaged in the development and manufacturing of optical semiconductors and optical application devices. The defendant is a manufacturer of precision measuring instruments and semiconductor manufacturing equipment.” (Judgment, p. 19)

“Stealth dicing technology, developed for the first time in the world by the plaintiff, is used for cutting (dicing) semiconductor substrates. … In stealth dicing, since the wafer surface is not processed, it does not generate dust that could damage functional elements formed on the wafer surface, eliminating the need for a pure water cleaning process. Additionally, it minimizes the processing area, making it a useful technology for cutting out chips of precise functional elements such as flash memory. The plaintiff has been manufacturing the stealth dicing engine unit (hereinafter referred to as “SD Engine”), the core module of the device for dicing semiconductor substrates using stealth dicing technology (hereinafter referred to as “SD Dicer”), and supplying it to semiconductor manufacturing equipment manufacturers, including the defendant.” (Judgment, pp. 24-25)

“On September 18, 2002, the plaintiff and the defendant entered into a contract related to the preparation for business collaboration, and on September 18, 2003, they entered into a business collaboration agreement (hereinafter referred to as “the Business Collaboration Agreement”). Based on this agreement, the plaintiff supplied the SD Engine manufactured by the plaintiff to the defendant and granted a comprehensive license related to the patent portfolio, including the patents in question, and the know-how of stealth dicing technology for the manufacturing and sales of SD Dicers by the defendant. In response, the defendant, based on the Business Collaboration Agreement, manufactured products (hereinafter referred to as “conventional defendant products”) by incorporating the plaintiff’s SD Engine into the SD Dicer body manufactured by the defendant and sold them to semiconductor manufacturers, the end users. … The Business Collaboration Agreement ended on September 18, 2017.” (Judgment, p. 25)

(2) The plaintiff, based on multiple patents related to the stealth dicing technology it developed, entered into a business collaboration agreement with Tokyo Seimitsu, a manufacturer of semiconductor cutting devices, and subsequently entered into similar business collaboration agreements with Disco Corporation. These agreements stipulated that the plaintiff would manufacture the SD Engine, the core of the stealth dicing technology, and sell it to the manufacturers who were parties to the agreements, licensing the patents in question. However, Tokyo Seimitsu, in violation of the agreement, began manufacturing the SD Engine itself and started manufacturing, selling, and exporting semiconductor wafer cutting devices (defendant products) incorporating it. Consequently, the plaintiff terminated the business collaboration agreement and filed multiple patent infringement lawsuits against Tokyo Seimitsu. (The business collaboration agreement between the plaintiff and Disco Corporation has continued smoothly, and the plaintiff continues to supply SD Engines to Disco Corporation.).

3.Summary of the Judgments

(1) In the lawsuit seeking only an injunction (Tokyo District Court Heisei 30 (Wa) No. 28929, hereinafter referred to as “Lawsuit B”), the Tokyo District Court judgment delivered on August 10, 2021, recognized the infringement of both patents (Patent No. 3935188, expiration date September 13, 2021 (Patent 1), and Patent No. 3990711, expiration date March 11, 2023 (Patent 2)) and granted an injunction against the defendant’s products by Tokyo Seimitsu. The Intellectual Property High Court judgment delivered on September 5, 2022, also recognized the infringement of Patent 2, which had not yet expired, and granted an injunction against the defendant’s products. Subsequently, on June 7, 2023, the Supreme Court dismissed the appeal and rejected the petition for acceptance, finalizing the High Court judgment that granted the injunction. It should be noted that approximately three years had passed from the filing of the lawsuit to the first-instance judgment, resulting in the expiration of Patent 1 after the first-instance judgment.

(2) In Lawsuit A, which sought both an injunction and damages, the Tokyo District Court judgment delivered on December 15, 2022, recognized the infringement of two patents (Patent No. 3867108, expiration date September 13, 2021 (Patent 3), and Patent No. 4601965, expiration date January 9, 2024 (Patent 4)) and granted both the injunction and damages claims against the defendant’s products. Subsequently, in the Intellectual Property High Court judgment delivered on April 24, 2024, although the two patents had expired, the infringement of Patent 3 was recognized for almost all the target products, and the infringement of Patent 4 was recognized for the old products among the target products, granting damages claims for almost all the target products.

The noteworthy aspect of this case is the amount of damages. The district court, based on Articles 102(3) and 102(4) of the Patent Act, recognized intentional infringement and other factors, and awarded damages amounting to 30% of the sales of the infringing products, along with attorney fees, totaling 1,506,978,762 yen. This is likely an unprecedented case recognizing such a high royalty rate of 30%. Additionally, it is notable as a case recognizing the application of the amended Article 102(4) and awarding high royalty damages.

In contrast, the Intellectual Property High Court reduced the royalty damages from 30% to 15%. However, this is still a significantly high royalty rate compared to previous cases. Furthermore, the High Court recognized the application of Article 102(2) even though the plaintiff was manufacturing and selling the core component, the SD Engine, rather than the cutting device corresponding to the infringing products. The court presumed the amount of profit obtained by the defendant as the plaintiff’s damages and, after applying the presumption rebuttal rate, awarded damages of 831,916,753 yen, including attorney fees. The details of these damage assessments will be introduced in section 4. The High Court judgment has been finalized.

(3) In another lawsuit seeking both an injunction and damages (Tokyo District Court Heisei 30 (Wa) No. 28931, hereinafter referred to as “Lawsuit C”), the Tokyo District Court judgment delivered on February 15, 2023, recognized the infringement of Patent No. 4509578 (expiration date January 9, 2024) for the old products among the target products and awarded damages of 131,161,399 yen (including 5% royalty damages and attorney fees). Subsequently, in the Intellectual Property High Court judgment delivered on March 6, 2024, the infringement of the old products among the defendant’s products was similarly recognized. Although the application of Article 102(1) was recognized instead of royalty damages, the amount of damages was 136,840,000 yen, which was not significantly different from the 5% royalty damages. This judgment was finalized following the withdrawal of the appeal.

4.Supplement on Claim Interpretation and Invalidity Defense

This article does not address the issues of claim interpretation and invalidity defense. However, in the judgment of Lawsuit A, six issues were raised regarding claim interpretation for Patent 1, and six issues for Patent 2. All of the defendant’s arguments were rejected for Patent 1, and infringement was recognized for the target products. For Patent 2, infringement was recognized for the old products among the target products, but the new products with design changes were found non-infringing in the High Court after being found infringing in the first instance. Additionally, 11 invalidity defenses were raised for Patent 1, and three for Patent 2, along with a defense of license, all of which were rejected as unfounded. For the patent holder to win a judgment, all these issues must be judged in favor of the patent holder.

5.**Assessment of Damages in the Judgment of Lawsuit A**

The assessment of damages in the judgment of Lawsuit A is noteworthy and will be explained by quoting the judgment.

(1) **Application of Article 102(3) of the Patent Act**

The first-instance judgment recognized the amount of profit obtained by the plaintiff from manufacturing and selling the SD Engine to the defendant’s competitors and the sales price of the defendant’s products, which was approximately 100 million yen per unit. Referring to the ruling on royalty damages in the 2019 Intellectual Property High Court Grand Panel judgment, it stated:

(i) “Invention 1 embodies the core technological concept of stealth dicing technology, with no fundamentally substitutable alternative technology,” and “Inventions 2-2 and 2-3 are practical technologies that respond to shape variations at the wafer edge.”

(ii) “The defendant originally entered into the Business Collaboration Agreement with the plaintiff and was licensed to implement the inventions… Even after the termination of the Business Collaboration Agreement, the defendant continued to manufacture and sell the defendant’s products, which infringe the patents in question. The defendant’s claim of an implementation license agreement based on a hastily written memo without specific license terms cannot be recognized… Considering these circumstances, it is reasonable to recognize that the defendant intentionally and unlawfully infringed the plaintiff’s patent rights… Given these facts, the defendant’s infringement is extremely malicious, lacking respect for intellectual property rights, and socially discreditable… In light of the purpose of Article 102(4) of the Patent Act, a reasonable royalty rate should be at least 30%.” (pp. 466-468)

The first-instance judgment recognized that Invention 1 had no alternative technology, the defendant’s infringement was malicious and intentional, and in light of the legislative intent of Article 102(4), awarded 30% royalty damages. In contrast, the Intellectual Property High Court judgment stated, “The appellant’s infringement cannot be recognized as intentional, though it may be grossly negligent,” and “A reasonable royalty rate for the respondent’s implementation should be 15%.” (pp. 100-101) It then assessed damages under Article 102(2) of the Patent Act.

(2) **Application of Articles 102(1) and 102(2) of the Patent Act**

In this case, the patent holder was manufacturing and selling the SD Engine, a core component of the SD Dicer, while the defendant was manufacturing and selling the complete SD Dicer. Thus, whether the plaintiff and defendant were in a competitive relationship was a point of contention. The first-instance judgment in Lawsuit A denied the application of Articles 102(1) and 102(2) of the Patent Act, stating, “The products sold by the patent holder correspond to parts of the infringing products and cater to different customers, thus not competing in the market.”

In contrast, the Intellectual Property High Court judgment in Lawsuit A stated, “If there are circumstances where the patent holder would have gained profits but for the infringing acts by the infringer, the application of Article 102(2) should be recognized, and it is not a requirement for the patent holder to be implementing the patented invention.” It further noted, “The domestic market for stealth dicers is almost exclusively supplied by the appellant and Disco Corporation, which receives SD Engines from the appellee. Although the appellee’s SD Engine is a component, it embodies the core technological features of the stealth dicer products and is the source of their competitive strength. Therefore, it should be recognized that the patent holder would have gained profits but for the infringing acts by the infringer. In other words, the completed products sold by the infringer and those produced using the parts sold by the patent holder compete in the same market for completed products, indirectly competing through the production or transfer of completed products using the parts sold by the patent holder.” Based on this, the court recognized the application of Articles 102(2) and 102(1) of the Patent Act, ordering the payment of damages under Article 102(2), which resulted in the highest amount of damages.

6.Reasons for the High Amount of Damages

This case recognized significantly high damages compared to other cases, as both the first-instance and appellate courts assessed the above amounts as damages. This is likely due to the fact that the invention in question embodies the core technological concept of stealth dicing technology with no fundamentally substitutable alternative technology, the defendant’s infringement was recognized as “intentional” in the first instance and “grossly negligent” in the appellate court, and the high profit margins of the SD Dicer and SD Engine due to their superior performance. These factors contributed to the high amount of damages recognized compared to other cases. (To be continued in the next issue).