In a case of patent infringement the patent right holder is entitled to claim damages against the infringer based on several calculation methods of the damages. One of these methods allows the patentee to claim damages based on the profits earned by the infringer from the act of infringement. § 102 II of the Patent Act 1959 provides that “the amount of profits earned by the infringer shall be presumed to be the amount of damages sustained by the patentee”. Copyright Act § 114, Utility Model Act § 29, Design Act § 39, Trade Mark Act § 38 and Unfair Competition Prevention Act § 5 have similar provision of presumption of damages. Before 1959 the old Patent Act did not have any provisions on damages. The problem of damages was dealt with in the general tort law of the Civil Code. The problem of disgorgement of profits was known among the civil law academics,⁴ but the court cases on patent infringement were very few and there was no discussion on the issue of profit-stripping. It was only when the new Patent Act 1959 was prepared in the Committee for the revision of the old Patent Act that disgorgement of profits became an issue. The Committee proposed to introduce a provision on the disgorgement of profits⁵ and explained the necessity of such a remedy from the special vulnerability of intellectual property rights from unauthorized uses by others. It is said that they followed the models of American law and German law. But the Ministry of Justice and the Cabinet Legislation Bureau strongly opposed to the proposal of the Committee for a provision of disgorgement of profits. They thought the idea of disgorgement of profits is incompatible with the traditional concept of damages in tort law. Therefore the final draft of the Patent Act provided that the infringer’s profits shall be presumed to be the damages of the patentee. It was explained by the government that the purpose of this article was to alleviate the burden of proving damages which is often difficult in cases of infringement of intellectual property rights.

Courts applied this presumption only under strict requirements. Only when the patentee already used her invention in manufacturing the product and the products were sold in the market could the plaintiff invoke the presumption provision to claim damages calculated by the profits of the defendant. If the plaintiff was not using the invention or did not sell any product in the particular market where the defendant’s products were sold, the plaintiff was not able to invoke the presumption provision at all. In such a case it is difficult for the patentee to prove actual damages and therefore can claim only the reasonable royalty against the defendant.

This attitude of the court was criticized by many academics. Only recently the court changed its attitude by relaxing the requirements for the presumption.⁶ Now the presumption provision can be applied without plaintiffs proving that they are using their inventions and they have a market for their products. But because this provision on damages only provides presumption of damages the defendant can prove that the actual loss of the plaintiff was less than the profits made by the defendant. And then the amount of damages will be reduced to the actual loss sustained by the plaintiff. The present issue on this problem is how difficult would be the counter-evidence to destroy the presumption. It depends on the attitude of the court. If the court does not easily allow counter-evidence the presumption of damages will functionally become the same as disgorgement of profits.

A theoretically important problem is whether the statutory presumption of damages is applicable in a mere negligent case. Up to now in almost all the cases which came before the court, the defendant had knowledge that his act was infringing the patent right or other intellectual property rights. So all these cases were about intentional torts. But suppose the defendant did not know of the infringement, would a mere negligence of the defendant satisfy the requirement for the presumption of damages based on defendant’s profits? The answer under the Japanese law is probably yes. The Patent Act does not distinguish negligence and intention in this context.⁷ The majority of the academics would agree that bad faith is not the justification reason for stripping profits from the wrongdoers in cases of intellectual property right infringement. Then what would be the justification for the gain-based relief in negligent cases? Two ways of explanation are thinkable.

One way of explanation is to focus on the special feature of the intellectual property rights that they are vulnerable against unauthorized uses. Intellectual property rights are easily infringed by others regardless of whether their conducts are intentional or not. This explanation suggests that the justification for gain-based relief in intellectual property right cases is not how the infringement occurred but what kind of interest was infringed. It is a justification from the nature of the injured right.

Another way to explain why negligent infringers of intellectual property rights are held liable for gain-based relief is that the provision in the Patent Act and other Acts protecting intellectual property rights in Japan provides only presumption of damages. The defendants are therefore allowed to prove against the presumption and have the possibility to reduce the amount of damages to the actual damages of the plaintiff. Because such a presumption is not drastically different from the general law of damages, it is not unreasonable to apply the presumption provision in negligent cases. This explanation is based on balance consideration that more lenient the liability, the wider the application thereof.

In cases where other property rights such as ownership of a property are injured the necessity of disgorgement of profits is not discussed very much. But the structure of the problem is the same as in the intellectual property cases. There is on one hand the owner of the property who did not use the property and on the other hand there is the other party who used the property without authority and made profits. If the profits made by the unauthorized user are larger than the damages of the owner of the property the same problem of whether to allow disgorgement of profits arises. But as we shall see the court is reluctant to award gain-based relief in cases of illegal occupation of premises.

In the cases of illegal occupation of premises (a land or a house), the amount equal to the rent of these properties (in Japan the land and the house are separate properties) is the general damages. The court awards only the amount of rents as damages. If the plaintiff can prove special circumstances under which the plaintiff suffered special damages, then these special damages can be awarded to the plaintiff.⁸ Though not many but there are some cases in which plaintiffs were awarded damages more than the amount of rent. They can be classified as follows.