Protecting Your Patents and Trademarks in Japan: How is the Value of an IP Infringement Claim Assessed?

Japanese Attorney at Law - Bengoshi L.L.

• 11 min read

For businesses operating in an increasingly globalized and innovation-driven economy, the robust protection of intellectual property (IP) rights such as patents and trademarks is paramount. Japan, a significant hub for technological advancement and brand development, offers a comprehensive legal framework for IP enforcement. When these rights are infringed, litigation often becomes a necessary recourse. A critical initial step in any such civil action in Japan is the determination of the "Sogaku" (訴額) – the value of the subject matter of the action. This valuation is not merely a procedural formality; it plays a crucial role in establishing which court has jurisdiction and, importantly, forms the basis for calculating the substantial court filing fees. This article will provide an in-depth exploration of how "Sogaku" is assessed for claims involving key industrial IP rights – patents, utility models, designs, and trademarks – in Japanese civil litigation.

Overview of IP Litigation and "Sogaku" in Japan

IP-related disputes in Japan can proceed through two main channels: administrative litigation and civil litigation.

  • Administrative IP Litigation: This primarily involves appeals against decisions made by the Japan Patent Office (JPO), such as decisions on patentability or trademark registration. These appeals are typically heard by the Intellectual Property High Court. For "Sogaku" purposes in such administrative appeals (e.g., an action to rescind a JPO trial decision), the claim is generally treated as one not concerning property rights, or where the value is extremely difficult to determine, leading to a deemed "Sogaku" of 950,000 yen for calculating court fees.
  • Civil IP Litigation: This is the focus of our discussion and encompasses actions concerning infringement of IP rights, disputes over the validity of IP rights (often raised as a defense in infringement proceedings), claims for damages, and requests for injunctive relief. These cases are primarily handled by District Courts, particularly those with specialized IP divisions (such as the Tokyo and Osaka District Courts), with the IP High Court serving as the principal appellate court.

In civil IP litigation, the general principle that "Sogaku" reflects the economic interest asserted by the plaintiff holds true. However, the methods for quantifying this interest for intangible assets like patents and trademarks have evolved into specific practices and guideline-based formulas, especially within specialized courts.

"Sogaku" for Claims for Confirmation of IP Rights (権利確認請求 - Kenri Kakunin Seikyū)

An action for confirmation of an IP right seeks a judicial declaration that the plaintiff indeed holds a valid patent, trademark, or other IP right. The "Sogaku" for such a claim is, in principle, the economic value of the IP right itself.

  • General Approach: If an objective transaction price or a clearly established market value for the specific IP right is available, this can be used as the "Sogaku." However, such clear-cut market values are rare for unique IP assets. More commonly, the value is estimated based on the potential earnings or economic utility derivable from the right.
  • Valuation of Patents, Utility Models, and Design Rights:
    For these rights, which typically have a finite lifespan and are often linked to specific products or processes, specialized courts in Japan (like the Tokyo and Osaka District Courts, whose practices are highly influential) have developed formula-based approaches when a direct transaction value is not apparent. A common methodology involves:
    Sogaku = (Plaintiff's Annual Sales Attributable to the IP) x (Plaintiff's Profit Margin) x (Remaining Effective Years of the Right) x (Reduction Rate)Let's break down these components:Alternatively, if the plaintiff can provide a credible expert appraisal of the IP right's value or robust evidence of a comparable transaction price, courts may accept such a valuation.
    1. Plaintiff's Annual Sales Attributable to the IP: This is the portion of the plaintiff's yearly revenue directly generated by the product or service embodying the patent, utility model, or design.
    2. Plaintiff's Profit Margin: The net profit percentage earned on those specific sales.
    3. Remaining Effective Years of the Right: This is crucial. Current statutory durations are:
      • Patents: Generally 20 years from the filing date (Patent Act, Article 67).
      • Utility Models: 10 years from the filing date (Utility Model Act, Article 15).
      • Designs: 25 years from the filing date (Design Act, Article 21).
        The calculation uses the unexpired portion of this term at the time the lawsuit is filed.
    4. Reduction Rate: This is a critical factor, often a fraction like 1/4, applied to discount the projected stream of future profits to a present value and to account for various uncertainties. These uncertainties include market fluctuations, the possibility of the IP right being invalidated or becoming obsolete, and the inherent risks in forecasting future earnings.
  • Valuation of Trademark Rights:
    Trademarks have a different characteristic: they can be renewed indefinitely as long as they are in use. This influences their "Sogaku" calculation. The formula often resembles:
    Sogaku = (Plaintiff's Annual Sales of Trademarked Goods/Services) x (Plaintiff's Profit Margin) x (Standard Period, e.g., 10 years) x (Reduction Rate)Key differences:As with other IP rights, a valuation based on a credible appraisal or transaction evidence can also be considered.
    1. Standard Period: Instead of the actual remaining years of the current registration term, a standardized period (e.g., 10 years, which is the typical registration/renewal term under the Trademark Act, Article 19) is often used in the formula. This reflects the potentially perpetual nature of trademark rights if properly maintained and used.
    2. Reduction Rate: The reduction rate (e.g., 1/5) might differ from that used for patents or designs, reflecting the different risk profiles and commercial realities associated with trademarks.
  • Impact of Exclusive Licenses:
    If the IP right owner has granted an exclusive license covering the entire scope of the right, their direct economic interest might be more accurately represented by the royalty stream. In such cases, the "Sogaku" for the owner's confirmation claim might be based on:
    1. (Exclusive Licensee's Annual Sales x Contractual Royalty Rate x Remaining Years/Standard Period x Reduction Rate)
    2. (Fixed Annual Royalty x Remaining Years/Standard Period) – Discount for Present Value (Interim Interest)
      This reflects that the owner's benefit is primarily the licensing income.

"Sogaku" for Claims for IP Registration Procedures (登録手続請求 - Tōroku Tetsuzuki Seikyū)

Actions may be brought to compel a party to cooperate in registration procedures.

  • Establishment or Transfer Registration: Most industrial IP rights, such as patents, utility models, designs, and trademarks, require registration with the JPO to come into existence or for their transfer to be effective against third parties (e.g., Patent Act Article 66(1) for grant, Article 98(1) for transfer). A claim seeking a court order compelling a party to undertake or consent to procedures for the establishment (grant) or transfer of such a right is effectively a claim for the acquisition of the right itself. Therefore, its "Sogaku" is generally the full value of the IP right being sought, calculated using the same methods described above for "Claims for Confirmation of IP Rights."
  • Cancellation (Erasure) of an Existing IP Registration: If a party seeks to cancel an IP registration that they allege is invalid or improperly exists (e.g., a trademark registration that has become a generic term or was obtained in bad faith), the "Sogaku" of this claim is typically assessed as one-half (1/2) of the value of the IP right that is the subject of the cancellation action. The full value of the right itself would first be determined using the methods for confirmation claims, and then halved. The rationale is that while removing an improperly registered right confers a significant economic benefit (e.g., freedom to operate for the plaintiff, removal of an unfair competitive obstacle), it is perhaps not equivalent to the full value of establishing a new, positive IP right.

"Sogaku" for Claims for Injunction Against IP Infringement (差止請求 - Sashitome Seikyū)

A common and critical remedy in IP disputes is an injunction to stop the infringing activity. The "Sogaku" of an injunction claim represents the economic benefit the plaintiff expects to gain by halting the infringement, which is essentially the value of future damages or losses prevented.

  • Guidance from Statutory Damage Presumptions: While "Sogaku" is about future prevention, its valuation often draws an analogy from the statutory provisions for calculating monetary damages for past infringement. The Patent Act (Article 102), Utility Model Act (Article 29), Design Act (Article 39), and Trademark Act (Article 38) provide rebuttable presumptions for quantifying damages, such as:
    • The infringer's profits derived from the infringement.
    • The IP right holder's lost profits due to the infringement.
    • A reasonable royalty that would have been payable for a license.
  • Valuation Formulas for Injunctive Claims (Patents, Utility Models, Designs):
    The "Sogaku" is typically estimated by projecting one of the above damage heads over the remaining effective life of the IP right, and then applying a reduction rate. Common approaches include:The reduction rate (e.g., often cited as 1/8 for sales/profit-based methods in injunctive claims) is typically more significant (i.e., results in a lower "Sogaku") than for confirmation claims. This reflects the greater uncertainties involved in forecasting future prevented losses over potentially many years, the preventative (rather than constitutive) nature of the claim, and the possibility that the injunction might not cover the entire remaining life of the IP or that market conditions could change.
    1. Based on Plaintiff's Lost Profits:
      Sogaku = (Plaintiff's Annual Sales Reduction Due to Infringement x Plaintiff's Profit Margin x Remaining Years of Right x Reduction Rate)
    2. Based on Defendant's (Infringer's) Profits:
      Sogaku = (Defendant's Estimated Annual Sales of Infringing Products x Defendant's Estimated Profit Margin x Remaining Years of Right x Reduction Rate)
    3. Based on Reasonable Royalty:
      Sogaku = (Estimated Annual Reasonable Royalty x Remaining Years of Right) – Discount for Present Value (or multiplied by a different kind of reduction factor)
  • Valuation Formulas for Injunctive Claims (Trademarks):
    Similar formulas apply, but often using a standard projection period (e.g., 10 years) due to the renewability of trademarks, rather than the actual remaining years of the current registration term. The reduction rates might also be adjusted (e.g., a 1/10 rate for sales/profit-based methods, or a flat percentage discount like 20% if using a royalty base where precise present value calculation is complex for initial fee purposes).
  • Multiple Rights or Products: If an injunction is sought based on the infringement of several distinct IP rights, or against several different infringing products under a single IP right, the "Sogaku" would generally be the sum of the values calculated for each distinct infringing activity or right, unless these claims are considered to protect a single, indivisible economic interest (which is less common in infringement scenarios involving different products or rights).

"Sogaku" for Ancillary and Declaratory IP Claims

Certain claims are often made alongside or in relation to primary IP infringement actions.

  • Claim for Disposal/Destruction of Infringing Articles (廃棄請求 - Haiki Seikyū):
    IP holders can request a court order for the destruction of goods that infringe their rights, or of machinery primarily used for such infringement (e.g., Patent Act Article 100, Paragraph 2). This claim is considered ancillary to the main claim for an injunction. Its purpose is to ensure the effectiveness of the injunction by removing the means of future infringement.
    Consequently, the "Sogaku" of a claim for disposal is not calculated separately; its value is deemed to be absorbed into, and covered by, the "Sogaku" determined for the primary injunction claim.
  • Claim for Measures to Restore Business Reputation/Credit (信用回復措置の請求 - Shin'yō Kaifuku Sochi no Seikyū):
    An IP holder whose business reputation has been harmed by infringement may request the court to order the infringer to take measures necessary to restore that reputation, such as publishing an apology (e.g., Patent Act Article 106).
    • If the cost of these specific measures (e.g., the advertising expense for a corrective statement or apology in a designated publication) is reasonably calculable, that cost constitutes the "Sogaku" for this claim.
    • If the nature of the measures makes their cost incalculable or extremely difficult to determine at the outset, this claim is treated as one where the "Sogaku" is extremely difficult to value. In such cases, the deemed "Sogaku" of 950,000 yen is applied.
  • Declaratory Judgment Actions:
    • Confirmation of Non-Existence of Right to Injunctive Relief (Sashitome Seikyūken Fusonzai Kakunin): A party anticipating an infringement suit (the potential defendant) may preemptively sue the IP holder, seeking a declaration that the IP holder has no right to an injunction against their activities. The economic interest for this plaintiff is the ability to continue their business operations without the threat of an injunction. The "Sogaku" for such a claim is calculated using principles analogous to those for an actual injunction claim, but from the perspective of the party seeking the declaration (i.e., based on their sales/profits that would be protected if the declaration is granted).
    • Confirmation of Not Falling within the Scope of an IP Right (Kenri Han'i ni Zokushinai Koto no Kakunin): A party may seek a judicial declaration that their product, process, or mark does not fall within the scope of a particular IP right held by the defendant (i.e., a declaration of non-infringement). While Japanese courts are historically cautious about purely advisory "scope determination" actions, negative declaratory judgments confirming non-infringement under specific circumstances can be permissible. The "Sogaku" for such a claim would also be calculated based on the economic interest of the plaintiff in obtaining this negative clearance, similar to the claim for non-existence of an injunction right.

"Sogaku" for Claims for Monetary Payment (損害賠償請求 - Songai Baishō Seikyū)

When an IP holder claims monetary damages for past infringement, the "Sogaku" calculation is straightforward: it is the specific amount of money claimed by the plaintiff. This adheres to the general rule for all monetary claims.

  • Joinder with an Injunction Claim: It is very common for a plaintiff to seek both an injunction against future infringement and monetary damages for past infringement in the same lawsuit. In such cases, these two types of claims are generally considered to protect distinct economic interests:
    • The injunction addresses the prevention of future harm and loss.
    • The damages claim addresses compensation for past harm and loss.
      Because they are not considered to be targeting the same singular economic benefit, and the damages claim is not merely ancillary to the future-looking injunction, their respective "Sogaku" values are aggregated (summed up) to determine the total "Sogaku" of the lawsuit.

Practical Considerations for IP "Sogaku" in Japan

Navigating "Sogaku" in IP litigation requires attention to several practical elements:

  • Evidentiary Support: Parties asserting a particular "Sogaku" (especially for injunctions or confirmation of rights based on economic projections) must be prepared to provide credible prima facie evidence for the figures used in their calculations, such as sales records, profit analyses, financial statements, relevant license agreements (for royalty analogies), market data, and expert opinions or appraisals where appropriate.
  • Influence of Court Guidelines: The valuation formulas and approaches, particularly those developed and applied by specialized IP courts like the Tokyo and Osaka District Courts, are highly influential. While these are often internal guidelines or established practices rather than binding statutes for valuation per se, they provide a strong indication of how "Sogaku" will likely be assessed.
  • Inherent Complexity and Discretion: IP valuation is inherently complex due to the intangible nature of the rights and the uncertainties of market dynamics and technological development. The use of reduction rates in formulas acknowledges this. Courts ultimately retain discretion in determining the final "Sogaku," especially if the plaintiff's initial calculation is challenged or appears unreasonable.
  • Strategic Fee Management: For businesses, understanding these valuation methodologies is crucial not only for budgeting litigation costs but also for making strategic decisions. For instance, the potential "Sogaku" might influence decisions about the scope of an injunction sought, the specific IP rights asserted, or how damages are framed and calculated.

Conclusion: A Specialized Approach to Valuing Intangible Rights

The assessment of "Sogaku" in Japanese intellectual property litigation involving patents, utility models, designs, and trademarks is a specialized and often formula-driven process. It seeks to translate the economic value of these intangible rights and the impact of their infringement into a monetary figure for crucial procedural purposes. Common approaches involve analyzing sales data, profit margins, the remaining or standardized duration of the IP right, and applying carefully considered reduction rates to account for future uncertainties, especially for claims like injunctions and confirmations of rights. Monetary damage claims are valued at the amount sought, while certain ancillary claims are either absorbed or assigned deemed values.

Given the potential for high claim values, particularly when future economic benefits or losses are projected over many years, and the complexity of applying these valuation principles, an accurate "Sogaku" determination is of paramount importance. It requires careful analysis of the specific IP right, the nature of the alleged infringement, and the type of relief sought. For businesses navigating IP disputes in Japan, close consultation with experienced Japanese IP litigation counsel is vital to ensure that the "Sogaku" is appropriately assessed, thereby setting a correct foundation for court fees, jurisdiction, and overall litigation strategy.