Challenges in the Path to Harmonization on Patent
Damages Calculation: Key Issues in a Comparative
Approach (*)
Invited Researcher: Tatiana MACHADO ALVES (**)
One of the elements that indicate the strength of a country’s intellectual property system is
its aptitude to adequately compensate damages caused by patent infringement. Patents are known
for having a dual – and seemingly contradictory – purpose: they must award enough incentives topromote innovation without hampering fair competition and the development of new technologies.
This delicate balance requires an adequate and proportional system of remedies that can properly
address violations of a patent right and discourage future infringement. The deterring effect, albeit
controversial within the general framework of tort law, is a reality to patent law. As increasing
limitations are imposed on the possibilities of obtaining injunctive relief in patent infringement
disputes, the importance of an effective damage system grows. In this context, the proposed
research investigated the issues that represent a challenge to the efforts of harmonization of IPR
systems in terms of patent damages. To this purpose, we performed a comparative analysis oftheory and practice in Japan, the United States, England, Germany, and Brazil, focusing on thetreatment given to the issues of enhanced damages, patent damage apportionment, and damages
for indirect infringement. Based on our research, we presented our view on possible ways to deal
with these topics to attempt to close the gap between the referred jurisdictions without undermining
national particularities.

I. Introduction
This report discusses the challenges that lie in the path of patent damages harmonization by
conducting a comparative study focused on three controversial issues: enhanced damages,
apportionment and indirect infringement. The jurisdictions analyzed are the United States, Japan,
Brazil, England, and Germany.
The importance of adequate damages compensation for an effective patent system isundeniable. Together with injunctions, damages are considered the traditional and primary forms oflegal relief for patent infringement. However, for a long time, their incidence encompassed mainly
acts of past infringement and exceptional situations in which injunctive relief was deemed notadequate.
Recently, though, limitations have been imposed to the granting of permanent and/or
preliminary injunctions under the grounds that they would represent an abuse of the patent right.
Although this trend has been, in most countries (with the exception of the United States), limited to(*)This is a summary of the report published under the 2017 Collaborative Research Project on Harmonization of Industrial
Property Right Systems under a commission from the Japan Patent Office .
(**) Ph.D. Candidate, Law School, Rio de Janeiro State Universityiinfringement cases related to Standard Essential Patents (SEP), there is, at least in theory, no
impediments preventing this understanding from spreading to other situations. After all, as put by
certain scholars discussed in this report, the right to exclude third parties is not of the essence of thepatent right, but a policy choice made by the legislator. The system must provide enough protection
to the patentee and to his invention; however, if this will be done by means of injunctive relief or bystrengthening other forms of legal relief is a choice of public policy.
Within this context, the role played by patent damages in the costs-benefits analysis performedby patentees when deciding whether to seek the enforcement of their IPRs in certain jurisdictions
will likely grow in importance.
1. Premises to the analysis
Preliminarily, this report defined five premises that underlie the study performed herein. First,
that various elements influence the calculation of patent damages, which makes it harder to perform
a comparative analysis on the disparities in term of damages awards across jurisdictions. This
analysis can lead to misleading results if one tries to pinpoint as the cause of such disparities only
one element that influence the calculation of patent damages.
Second, that patent law strong connection with general private law should be, at least,
questioned, in view of the particularities of the former. Third, that the deterrent effect, albeit refutedby general private law scholars, is a real goal of patent law. Patent remedies should not only
compensate for a private wrong but also sanction the wrongdoer and discourage (i.e. provide adeterrence for) future acts of patent infringement.
Fourth, that patent damages are a matter of public policy (as well). This means that any
changes to the patent law of a given country is influenced not only by the legality andconstitutionality of the proposed amendment, but also by political considerations related to thatcountry commitments before the international community (e.g. treaties and agreements signed,
participation in international organizations, concern for its image before other countries, etc.), andthe political priorities at a national level (e.g. the executive and legislative agenda, the interests ofrelevant players, etc.).
2. Scope of the analysis and methodology
The report focused on three issues that, in its author’s view, present significant challenges topatent damages harmonization: enhanced damages, apportionment, and indirect infringement.
The research adopted a comparative methodology, with the analysis of legislation, case law,iiand literature of five countries: the United States, Japan, Brazil, England, and Germany. Further, thisreport used available empirical studies on patent litigation and, more specifically, patent damages in
the referred jurisdictions. Additionally, five interviews were conducted with experts in Japanese
patent law.
Based on that analysis, this report outlines general proposals that could be considered when
promoting further harmonization.
3. Structure of the report
This report is divided into five chapters. It starts with an overview of the civil remedies
available in each jurisdiction, followed by a comparison that allows identifying the main similarities
and differences between them. Next, the report presents the general aspects related to patent
damages, including some controversial issues on the methods of calculation adopted by the analyzed
countries. After, the three topics that are the focused of this study are examined separately, as thetreatment awarded by each jurisdiction is described and compared. Finally, this report concludes by
proposing a few measures that could be helpful when considering the implementation of changes
that could improve the system of patent damages.

II. Civil remedies for patent infringement: an introductory overview of nationalframeworks
The violation of a patent right generates many grievances that can not only harm the patentee,
but also have a negative impact on the patent system as a whole. Patents cannot meet their primary
goal of rewarding and fostering innovation if their infringement goes unanswered. For that reason,
legal systems have to provide remedies that can provide an effective and satisfactory answer
whenever a patent right is violated.
The five jurisdictions analyzed for this report make available a good number of different formsof relief for the event of patent infringement. The application of these remedies varies according, first,
to the national frameworks, and, second, to the particularities and necessities of each individual case.
By comparing the five countries, this report identified the main similarities and difference
among them in term of patent remedies. For instance, although some remedies have the same source
in all analyzed countries (e.g. injunctive relief and damages compensation are always statutorily
provided), other forms of relief can have different grounds (e.g. destruction of infringing goods,
which are provided by statute in Japan, England and Germany, and admitted as judicial remedies in
Brazil).

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In addition to different combinations of remedies, there are disparities in terms of thetreatment awarded to each form of relief. The analyzed countries adopt different criteria for applying
similar remedies, which can result in gaps in terms of their availability and extent, depending on thejurisdiction. Perhaps the most notable example is injunctive relief; whereas U.S. courts apply a strict
test to decide on the granting of a permanent injunction, making it very hard to obtain a preliminary
injunction as well, in the other countries there are fewer limitations being imposed, especially topermanent injunctions. Save for exceptional situations (to this date, mainly SEP cases), injunctive
relief will be automatically granted as a consequence of a finding of infringement.
The imposition of further limitations to the granting of injunctive relief should be conditioned,
though, to the strengthening of other legal remedies, particularly of monetary relief. On one hand,additional monetary relief that could encompass collateral damages caused by the infringing acts
would be helpful in discouraging infringement by increasing its overall cost to the perpetrator
without having a direct sanctioning and deterrent purpose. On the other hand, it is important toestablish proper rules and standards that allow for a correct and precise determination of damages
compensation. The methods for calculation, the rules of evidence applied to prove the occurrence
and extent of damages, and the elements taken into account in the determination of monetary relief
need to be properly defined and applied by national legislation and case law, in order to secureadequate patent protection and confer predictability to the outcomes in damages disputes.

III. Methods of patent damages calculation in a comparative approach
Basically, there are three methods being commonly used in the calculation of patent damages
across the world: lost profits, infringer’s profits, and reasonable royalties.
According to a strict conception, strongly tied to tort law, lost profits are considered the only
true form of “damages compensation”, as they accurately reflect the losses suffered by the rightowner’s due to the legal injury. However, due to the particularities of patent infringement – notably
the difficulties in determining the occurrence and extent of damages, and the goal of deterring future
infringement – it is accepted that other methods of calculation might be better suitable in certain
situations to determine the monetary award.
This report presents a comparative analysis of empirical data that indicates in the analyzed
jurisdictions the lost profits’ method is the least adopted one. In countries wherein infringer’s profits
is available as a method of calculation – Japan, Brazil and Germany – this is the most adopted
method, followed by reasonable royalties. In the United States, where the infringer’s profits cannot
be used as a method for calculation of patent damages, reasonable royalties are, by far, the most
adopted method, followed by lost profits and by a combined application of the two methods.

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1. Controversial topics on the application of the methods
This report also identifies some of the key controversial issues surrounding the interpretation
and application of the three methods of calculation. First, there is the requirement adopted by certain
jurisdictions for the patentee to either work the invention or be a competitor in the relevant market inorder to claim the application of the lost profits and infringer’s profits methods. As a correlated
question, in the United States and in Japan, the amount of damages award can be impacted if thepatentee is found to not have had the capability of working the same amount of product as theinfringer.
A second controversial issue is the requirement of proof of the causal nexus between claimed
lost profits and infringement, under which the patentee must prove a demand for the patented
product and the lack of acceptable noninfringing substitutes.
Third, there is the possibility of combination of different methods. This can be particularly
useful when a country refuses granting lost profits or infringer’s profits when the patentee could nothave worked the same amount of products as the infringer. In these cases, admitting a calculation ofreasonable royalties in relation to that amount of product the patentee could not have worked isimportant to secure compensation for the use of the patented technology and prevent unjust
enrichment by the infringer.
Finally, there are divergent views on the admittance of ex post elements in the calculation ofreasonable royalties. In the United States, at least in theory, if not so much in practice, thedetermination of royalties in the context of litigation should be done according to a “hypotheticalnegotiation scenario”, through which the court should try to define the amount of royalties theparties have agree upon if they have negotiated a license prior to first infringement. On the other
hand, in Japan and in Germany, ex post elements are allowed to take part in the assessment of
reasonable royalties in order to provide the deterrent effect of patent infringement.

IV. Enhanced damages
1. The deterrent effect in Patent Law
It is widely accepted in patent law that remedies in this field must encourage good-faithnegotiations of licensing agreement by discouraging infringement. This goal can be achieved bymaking violation of patent rights not-economically viable for the infringer.
While this might seem simple in theory, in reality complications arise from the difficulty indetecting the occurrence of infringement. Patents are, after all, immaterial property, making itv

considerably harder to know when they are violated. It is not unusual for infringement to fly under
the patentee’s radar. The underlying difficulties in detection of infringement combined with the highcosts of research and development of new technologies can impose an excessive burden on thepatentee and, consequently, impair innovation. Further, they can provide incentives for third parties
to infringe, as they know their chances of getting caught are slim.
Traditionally, injunctive relief has been the main source of the deterrence effect for patent
infringement. By barring the infringer from further commercializing the patent-covered product,
injunctions also prevent him from obtaining a return for the investments made to manufacture andmarket the product – especially if the infringer cannot design around the patent, or assign theinvestments made for the manufacturing and marketing of other products. However, in some cases,
the potential economic losses derived from a future prohibition of continued exploitation of thepatented invention may not be sufficient to discourage potential infringers.
For the situations in which the threat of injunctive relief cannot provide an effective deterrent
effect, careful thought should be given to how other remedies (including monetary relief) can
perform the deterring purpose with equal effectiveness. One way to achieve this goal is by allowing
the granting of enhanced damages awards that surpass solely compensatory damages in view ofcertain circumstances and factors.
The problem with enhanced damages is that in most jurisdictions principles of general tort law
deny the deterrence effect for damages compensation. According to this conception, damages
awards should be solely of compensatory nature, as the sanctioning and deterring effect areunderstood to be better left for criminal and administrative law.
2. Current scenario for punitive damages across the globe
This report adopts a conception that differentiates between enhanced damages and punitive
damages. The former are thus understood as a category that encompasses the latter. In this sense,
damages awards can be enhanced in view of different factors and circumstances, one of them being
the infringer’s reproachable conduct. In this situation, when the increase in the amount of damages
compensation is determined as a mean to punish the behavior of the agent of the violation and/or toprevent similar acts, there is the specific (and controversial) figure of punitive damages.
There are arguments both in favor and against punitive damages. The main arguments
supporting the adoption of this institute for patent infringement are the deterrent effect they canprovide, helping to prevent future occurrences of violation of patent rights. As for the arguments
against punitive damages, in addition to the claims that the system of damages upon tort is notintended for general prevention and/or sanctioning, and that sanctioning and prevention are properlyviaddressed by criminal and administrative law, many also argue that punitive damages allow for an
unjust enrichment of the victim, and that it can generate legal uncertainty and a risk of arbitrary
decisions by the judge, as the application of punitive damages require a finding of willfulness.
Taking into consideration these arguments, there are alternative approaches that could be
adopted to address the problem of deterrence while avoiding incurring on the same objections rose
against punitive damages. The admittance of ex post elements in the calculation of reasonableroyalties is an example. Another one cited by this report is the determination of damages as a lumpsum based on the facts and evidence on the dockets. Allowing a certain degree of flexibility in thedetermination of damages awards can be useful to circumvent the difficulties that might be present incertain cases to produce evidence on the extent of damages.

V. Damages apportionment
In patent infringement litigation, apportionment of damages is necessary in view of the manyfactors that can influence the selling price of a product, making it hard to clearly identify the causal
nexus between the infringing acts and the damage suffered by the patentee. Apportionment thus aims
at determining the portion of the value of the product that can be attributed to the patented invention
and, as such, give rise to a compensation for its undue exploitation.
This report analyzed two approaches to apportionment. First, it considers the factors that can
influence the profits obtained by the patentee or by the infringer. Even after determining the marginal
profits of the patentee or of the infringer, as well as the amount of sales the patentee lost or the ones
the infringer made, it is not certain that the entire profits obtained by either party can be attributable
to the patented invention. Factors such as the seller’s brand power, marketing efforts, higher qualityof the product, lower price, consumer’s preference, amongst others, can influence the amount of
profit made by them. Whether such factors should determine (or not) an apportionment of patent
damages, and to what extent is a question dealt with differently by the five analyzed jurisdictions.
A second dimension of the issue relates to the apportionment of damages in a
multi-component product. Not always will the infringing product be entirely covered by a single
patent. More often than not, the patent will cover only a part (which can be significant or not) of a
product that comprises other non-patented features. Furthermore, in many cases, other infringed
patent may have been combined in a product with other patented features that also increment thevalue of the infringing product. Also in regard to apportionment under this perspective the compared
countries adopt different approaches.

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1. Comparative analysis of the factors that can influence apportionment
Overall this research found that there is some uniformity in the criteria that are admitted byeach jurisdiction to influence the apportionment of patent damages on this perspective. Elements
such as the consumer’s preferences, the power of the infringer’s brand in the market, and technicalqualities of the infringing product that are not linked to the patented feature and provide a better
performance, have been found to be generally accepted in the five countries as factors that can betaken into account when determining the amount of damages, as they might influence the financial
results of the infringing product sales.
On the other hand, factors such as the infringer’s selling capabilities (i.e. experience, business
relationships, etc.) and his marketing efforts, as well as the infringing product lower price, have beendenied in some jurisdictions as grounds to reduce the amount of patent damages.
2. Do all roads lead to Rome? The different methods to apportion damages in
multi-component products
In regard to the determination of the value of the patented feature against other – patented or
non-patented – features in a multi-component product, apportionment of damages can be made bydifferent methods. In theory, as they are essentially evidentiary means to comply with a substantive
requirement, these methods should all lead to the same result.
In the United States, the rule is to determine the value of the patented technology in regard to
the smallest salable patent practicing unit (SSPPU) in a multi-component product that implements
the invention. Exceptionally, when the patentee can prove that the patented invention drives
consumer demand, the court will adopt as the royalty basis the entire market value (EMV) of the
product to determine the incremental value of the patented technology.
In other countries, though, courts will use as their starting point the entire product and apply a“contribution/non-contribution ratio” to apportion between the patented feature and other features ofthe product. This approach can, at least in theory, better account for the complementarities resulting
from the combination of features, as they are included in the initial assessment.

VI. Indirect Infringement
1. Damages for indirect infringement: determination of liability and quantification
The purpose of indirect infringement is to secure the effectiveness of patent protection in theviiisituations where it is harder or impossible to obtain relief against the direct infringer. Nonetheless,the configuration of indirect infringement should not lead to an undue extension of the scope of thepatent.
When it comes to determining the damages compensation for acts of indirect infringement,
there are two sets of questions that one must deal with: first, the issues that impact on thedetermination of liability, and, second, the subject of quantification of damages.
In terms of liability, the two main questions this report analyzed were whether compensation
for indirect infringement is conditioned to the existence of direct infringement, and how far in the
chain of supply the liability for indirect infringement can go. Within the scope of the former, thecorrelated theories adopted in the United States (atomistic and evidentiary approach) and in Japan(dependent and independent theories) were presented and evaluated. As for the latter, the reportdiscussed the understanding adopted by Japanese and English courts.
Regarding the apportionment of damages for indirect infringement, the main controversy
relates to the difficulty in establishing the precise causal nexus between the damages suffered by thepatentee and the acts practiced by the infringer, in order to determine the amount of compensationthat should be awarded. It seems logical to assert that even if the indirect infringer is jointly liable forthe damages caused to the patentee, not all methods of patent damages calculation may be applied tohim in the same way and to the same extent as to the patentee. In this sense, whereas the applicationof the infringer’s profit method should reflect only the profits that were actually obtained by theagent from his indirect infringing acts, the lost profit’s method could be claimed in its entirety fromboth the direct and the indirect infringer.

VII. Conclusion
As countries try to make their systems more attractive in terms of patent enforcement, it is
only natural that they aim at closing the gap with other jurisdictions seen as strong IP systems.
Harmonization is, after all, a natural consequence of a globalized world, where the exchange of
information and experiences happens at a fast pace.
In terms of patent law, history has shown that harmonizing substantive provisions – related,
for instance, to the requirements of patentability – may be easier than doing the same with the rules
related to enforcement. After all, whereas the former involves, on a legal-normative level, only
aspects of patent law, the latter will cross the line with procedural law, private/civil law, andadministrative law, making it significantly harder to promote harmonization. However, if complete
harmonization is not feasible, at least countries might try, wherein it is within their public policy
goals, to close the gap of the disparities in terms of patent damages awards.

ixThis report concludes by presenting a few proposals that may help in this task. In a nutshell,
five general proposals were introduced. First, the incorporation of additional/alternative forms ofmonetary relief, which can help to increase the overall costs of willful infringement and,
consequently, discourage future acts of violation, while avoiding putting a strain on fair competition.
Second, allowing the combination of the methods of calculation could help the fullcompensation of patent damages, by accounting for the portion of the profits that was deducted fromthe calculation based on lost profits or infringer’s profits. In this sense, it is worth reminding that themethods are provided with the intent of enabling the assessment of damages and determination of thecompensation. If the best way to calculate damages in a given case is by combining different
methods to reach a more precise definition of the monetary award, then this should be allowed.
Third, providing better standards that can guide the courts when apportioning patent damages
in order to confer enough predictability while still providing a good margin of flexibility. In thissense, more attention should be given to try to systematize the factors that can be allowed to be taken
into account and the means of evidence that can be employed to determine the incremental value ofthe patented technology in relation to either the entire product or the smaller unit that incorporates
the invention.
Fourth, in terms of liability for indirect infringement, it is recommended the adoption of acase-by-case evaluation that takes into account whether, in each particular situation, the acts ofindirect infringement should be addressed notwithstanding the lack of direct infringement.
Finally, as a final proposal this report recommends the adoption of measures that can improve
the proceeding to determine the occurrence and extension of damages. Here, both provisions ofprocedural design and of evidence law are briefly analyzed to present the ways through which,notwithstanding the substantive provisions, the procedure to calculate patent damages could become
more efficient.

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