Japan: The IP High Court Holds That A Seller Should Cooperate If The Purchaser Is Involved In An IP Dispute

Last Updated: 27 January 2017
Article by Masahito Imai

In a judgment issued on December 24, 2015, the IP High Court held that a seller of chipsets is liable for the purchaser's damages caused by the purchaser agreeing to pay money to a patent owner in negotiations between the purchaser and the patent owner, because the seller failed to meet its contractual obligations to cooperate sufficiently with the purchaser in settling the dispute (IP High Court Case No. 2015 (ne) 10069).

Background

Kanematsu Corporation (the plaintiff and the appellee. Hereinafter "Kanematsu") and SoftBank BB Corporation (the defendant and the appellant. Hereinafter "SoftBank") entered into a master sale and purchase agreement (the "Master Agreement") and several individual agreements on sale of chipsets (the "Chipsets") manufactured by Ikanos Communications, Inc. ("Ikanos"), and Kanematsu delivered to SoftBank the Chipsets under these agreements.

However, SoftBank failed to pay Kanematsu for a part of the Chipsets. Therefore, Kanematsu filed a lawsuit against SoftBank demanding payment for such Chipsets.

On the other hand, Wi-LAN Incorporated ("Wi-LAN") claimed against SoftBank that the Chipsets infringe Wi-LAN's patents, and SoftBank settled this dispute with Wi-LAN by paying 200 million Japanese Yen as a license fee to Wi-LAN and its affiliates. In this regard, paragraphs 18.1 and 18.2 of the Master Agreement provided that: (1) Kanematsu warrants and represents to SoftBank that the Chipsets do not infringe patents and other intellectual properties of any third party (Paragraph 18.1); and that (2) in case of a dispute with a third party relating to infringements of intellectual properties due to the Chipsets, Kanematsu shall settle the dispute at its own responsibility and expenses, cooperate with SoftBank, and indemnify and hold harmless SoftBank from damages (Paragraph 18.2), respectively. Based on these provisions, SoftBank counter-argued that SoftBank suffered damages of 200 million Japanese Yen, which is equivalent of the license fee paid to Wi-LAN, and argued that this amount should be deducted from payment to Kanematsu.

The Tokyo District Court (the first instance) rejected Softbank's counter-argument based on Paragraphs 18.1 and 18.2 of the Master Agreement, and upheld Kanematsu's claim in full. SoftBank appealed to the IP High Court.

Judgment of the IP High Court

With regard to SoftBank's assertion on Kanematsu's violation of Paragraph 18.1 of the Master Agreement, the IP High Court found that the Chipsets do not infringe Wi-LAN's patents, and thus rejected SoftBank's assertion in this respect.

With regard to SoftBank's assertion on Kanematsu's violation of Paragraph 18.2 of the Master Agreement, the IP High Court ruled that details of Kanematsu's obligation in case of infringement of a third party's intellectual properties under Paragraph 18.2 must be determined by considering various factors, such as the third party's allegations on the infringements and negotiations with SoftBank.

In this case, Wi-LAN offered SoftBank a license of Wi-LAN's patents; SoftBank asked Kanematsu from the beginning whether the Chipsets infringe Wi-LAN's patents; and it was agreed between Kanematsu, SoftBank and Ikanos that Ikanos should provide information necessary for determining a reasonable license fee to be paid to Wi-LAN and its calculation basis.

Given these circumstances, the IP High Court ruled that, under Paragraph 18.2, Kanematsu had the obligation to provide technical analysis of Wi-LAN's patents so that SoftBank could determine whether SoftBank needed to enter into a license agreement with Wi-LAN, and also the obligation to collect and provide documents necessary for calculating a reasonable license fee to be paid by SoftBank to Wi-LAN based on the license agreement.

The IP High Court found that neither Ikanos nor Kanemasu provided sufficient technical analysis or documents regarding calculation of a license fee, and that Kanematsu did not perform its obligations mentioned above.

In addition, the IP High Court found that the damages equivalent to the license fee paid by SoftBank to Wi-LAN were caused by Kanematsu's violation of Paragraph 18.2. The IP High Court took into account the fact that, without receiving from Kanematsu or Ikanos any information on calculation of a reasonable license fee, etc, SoftBank would have faced a risk of a lawsuit to be filed by Wi-LAN and then a risk of suffering damages of much more than 200 million Japanese Yen, if SoftBank's infringement of Wi-LAN's patents had been established.

However, the IP High Court did not uphold SoftBank's counter-argument in full. This was because SoftBank had not examined whether the Chipsets actually infringed Wi-LAN's patents, did not face an immediate risk of being filed a lawsuit by Wi-LAN, and paid 200 million Japanese Yen without asking Wi-LAN the calculation basis of this amount as the license fee. These circumstances were considered to be SoftBank's negligence, and the IP High Court upheld SoftBank's claim only partially to the extent of 60 million Japanese Yen.

Comments

We often see sales agreements as well as license agreements that contain a provision regarding representation and warranty of non-infringement of third party's intellectual properties and a provision regarding an obligation of cooperation in case of disputes relating to infringement of IP rights. However, this is the first case in which a Japanese court showed its interpretation of these kinds of provisions.

This judgment is notable in several points.

First, although it was not demonstrated that the Chipsets delivered by Kanematsu infringe Wi-LAN's patents, Kanematsu was found to be in breach of its obligation under Paragraph 18.2, namely, the obligation of cooperating with SoftBank in settling the dispute between SoftBank and Wi-LAN in respect of alleged infringement of Wi-LAN's patents.

Secondly, the Court held that the actual conducts that the seller is required to perform under Paragraph 18.2 shall be determined on a case-by-case basis, taking into account the behaviors of the relevant parties.

Thirdly, like SoftBank's counter-argument in this case, a purchaser who has settled with a third party without having sufficient consultations with a seller, would not necessarily be able to recover all damages caused in the process of such a settlement.

Considering the last two points, when IP disputes occur, it would be important from a seller's viewpoint that the seller performs its obligation to cooperate with a purchaser, or and from a purchaser's viewpoint that the purchaser should consult with the seller fully in settling IP disputes (especially, when paying money to a third party who alleges in IP disputes that its patent is infringed) so that the purchaser would be sufficiently compensated even if the purchaser was compelled to pay a license fee to the third party.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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