Taiwan Supreme Court issues decision on unfair enrichment in patent infringement case

The Taiwan Supreme Court passed judgment (2017-Tai-Shang Zi-2467, 26 September 2018), acknowledging that an infringer was entitled to claim the return of the unfair enrichment made in a patent infringement case. The court also clarified the method of calculating the return amount by explaining the nature of the claim for unfair enrichment and that the principle of good faith should be taken into consideration in such cases.

Background of claims for patent infringement in Taiwan

In patent infringement cases, Article 96 of the Taiwan Patent Act stipulates the following for patent owners. These are the rights to:

• exclude patent infringement;
• claim damages; and
• destroy the articles used in the infringement and the infringing products.

In addition to these rights, the Taiwan IP Court also holds that a patent owner is entitled to claim the unjust enrichment that the patent infringer made based on Article 179 of the Civil Code. This is not clearly stipulated in the act and has been the subject of much debate on both a theoretical and practical level in Taiwan.

Philips v Gigastorage

In the case filed by Koninklijke Philips NV against Gigastorage Corporation alleging patent infringement in 2015, the IP Court issued its judgment (2016-Min Zhuan Shang Zi-24) on 29 June 2017. It held that Gigastorage must return more than NT$1 billion to Philips. This was based on the claim for unfair enrichment under Article 179 of the Civil Code as Gigastorage had made unjust enrichment equal to the royalty unpaid to Philips by using the patent at issue. However, Gigastorage was not held liable for any damages under Article 96 of the Patent Act because the IP Court believed that Gigastorage was neither deliberate nor negligent in infringing the patent at issue. Philips had failed to take any further actions against Gigastorage in Taiwan after it had become aware that Gigastorage had infringed the patent at issue in early 2003 and litigation initiated by Philips in Italy against Gigastorage was dismissed by the Italian court in 2004.

The judgment surprised legal scholars and attorneys because the amount that the IP Court ordered to be returned was surprisingly high in comparison with other patent infringement cases decided based solely on Article 96 of the Taiwan Patent Act. The Taiwan Information Storage Association raised many questions regarding this decision. In an unusual step, the IP Court subsequently issued an announcement in reply to these questions in July 2017.

Supreme Court remanded the IP Court judgment in 2018

The Supreme Court remanded the IP Court judgment in September 2018, stating that the IP Court made an error calculating the amount to be returned as unfair enrichment.

The claim for unjust enrichment was admitted in this patent infringement case. The Supreme Court agreed with the IP Court that the patent owner is entitled to claim the return of the unjust enrichment based on Article 179 of the Civil Code.

An order for the return of unjust enrichment is different from an award of damages for patent infringement. The Supreme Court indicated that the purpose of ordering the return of the unjust enrichment was not to compensate the patent owner for damages, but to return the benefits that should not have been obtained based on the vesting of property. Thus, the calculation of the return amount of unfair enrichment was different from that of patent damages. The scope of the return of the unjust enrichment was limited to the gain made in that period rather than the damages or loss that the plaintiff requested. The IP Court errored in the calculation of the amount of unfair enrichment ordered to be returned, should have carefully considered a number of factors. These factors were confirmed by the Supreme Court. When calculating the amount ordered to be returned, the following should be considered:

• the timing of the return;
• the contribution of the patent at issue to the product at issue;
• the principle of good faith;
• the nature of the right;
• the type of legal act;
• the relationship between the parties;
• social economics; and
• any other related matters.

Timing

The amount ordered to be returned must be calculated at the time the obligation to make the return is discovered. The Supreme Court indicated that the IP Court judgment at issue erred when calculating the return amount from 2003 to 2012 based solely on the royalty determined by Philips in 2009 in its patent licence agreement involving 199 patents, including the patent at issue. The timing and the return amount was deemed questionable and must be further investigated and clarified.

The contribution of the patent at issue

The Supreme Court pointed out that the contribution of the patent at issue to the design and manufacture of the product at issue could be very small. This was not considered by the IP Court. Thus, the Supreme Court indicated that the amount ordered to be returned might not be fair.

Good faith and other relevant factors

Ultimately, the Supreme Court stated that it is necessary to consider the principle of good faith. The court emphasised that in this case, the right holder failed to enforce its intellectual property after a long period, so the defendant reasonably believed that the rights holder would never enforce its right. Therefore, the right should not be enforced because of good faith. The Supreme Court requested that the IP Court consider the nature of the right, the type of the legal act, the relationship between the parties, social economics and any other related matters when making decisions in such cases. This requirement applies even if the statute of limitations for this right has not expired.

Comment

There are many questions that have arisen as a result of this Supreme Court judgment. They pertain to the relationship between the statute of limitations and the principle of good faith, how a claim for damages under the Taiwan Patent Act interacts with a claim for unfair enrichment under the Civil Code and the correct timing to file a claim to return undue enrichment. These questions will hopefully be addressed in future judgments.

Nevertheless, according to the Supreme Court judgment, there is now no doubt that a patent owner is entitled to a return of some amount of unjust enrichment under the Civil Code in addition to the claims brought under the Patent Act. This result is beneficial to patent owners. Defendants will now be able to argue that the principle of good faith must be considered against patent owners who fail to enforce their patent rights in a timely manner.