© Springer International Publishing Switzerland 2015Ewoud Hondius and André Janssen (eds.)Disgorgement of ProfitsIus Comparatum – Global Studies in Comparative Law810.1007/978-3-319-18759-4_23
23. Disgorgement of Profits in Japanese Law
Gakushuin University, Tokyo, Japan
Disgorgement of profits in a strict sense is not available in Japanese private law. But in certain types of tort and in breach of fiduciary duty remedies functionally similar to disgorgement of profits exist. In cases of infringement of intellectual property rights the profits gained by the defendant are presumed to be the damages suffered by the plaintiff. Also in cases of infringement of personality rights the amount of profits gained by the defendant is considered in calculating damages for mental suffering. Trustees and corporate directors are fiduciaries and are liable to compensate damages equivalent to the profits gained by the breach of fiduciary duties. In other areas of law such as consumer law and the law of unjust enrichment, the discussion has only begun recently. As for the theoretical problem, the justification grounds for the disgorgement of profits are important. Vulnerability of the interest and the idea of prevention seem to be the most promising.
KeywordsDisgorgement of profitsGained-based damagesPresumption of damages based on profitsInfringement of intellectual property rightsInfringement of personality rightsTrusteeCorporate directorsFiduciary dutyDuty of loyaltyConsumer lawUnjust enrichmentJustification for disgorgement
Professor of Law at Gakushuin University Law School, Professor emeritus of Tokyo University.
Disgorgement of profits as a remedy for civil wrong is discussed mainly in four areas. These are tort law, fiduciary law, consumer law and the law of unjust enrichment.
In tort law I include infringement of intellectual property rights and unfair competition, because they are basically considered to be tort in nature. As for the fiduciary law, Japan has a distinct body of trust law where trustees owe duty of loyalty and its violation causes liability for damages calculated by profits gained by the trustees. But also corporate directors owe duty of loyalty which constitutes important field of fiduciary law. In the area of consumer law at present there are no remedies which can be characterized as disgorgement of profits. The Consumer Affairs Agency is planning to introduce various methods for a more effective protection of consumers. Disgorgement of profits is one such a remedy, but the plan has not yet finalized.1 The fourth area is the law of unjust enrichment which is provided in the Japanese Civil Code.2 Unjust enrichment resembles the law of restitution in common law countries and it could be used to develop the remedy of disgorgement of profits within the legal system of the Civil Code. But according to the traditional doctrine and case law the requirements of unjust enrichment are not only an unjust “profit” of the defendant but also a corresponding “loss” of the plaintiff”.3 Therefore under present case law it is difficult to achieve disgorgement of profits via unjust enrichment.
Thus this report will focus mainly on tort law and fiduciary law. As for the other two areas of law there will be only a brief sketch. Even in the areas of tort law and fiduciary law, the Japanese law does not recognize disgorgement of profits as a legal concept. The remedies referred to in these areas are presumed damages and not disgorgement of profits in the strict sense. They are damages whose amount is determined by considering the profits of the wrongdoer. Therefore in the Japanese law context to emphasize the nature of damages the term “gain-based damages” may be more appropriate. But I will also use other terms “disgorgement of profits” or “gain-based relief” as well in a broad sense to explain the functionally corresponding system in Japan.
This report will mostly analyse the statutory solutions and case law in Japan. The academic writings are more positive in acknowledging disgorgement of profits as a remedy against the wrongdoer. But many of these writings are influenced by foreign laws and not based on materials of Japanese law. To elucidate the real and present situation of the law in Japan I will use mostly statutory provisions and the case law.
Infringement of Intellectual Property Rights
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.
Infringement of Other Property Rights
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.
The Amount of Rent as Minimum Damages
In a case of unauthorized occupation of a premise the owner of the property can claim as general damages reasonable amount of rent without the proof of actual damages. This is a well settled case law. Whether the defendant can reduce the damages by proving special circumstances in which the plaintiff did not actually suffer such damages was discussed in a case of a lower court.9 In this case the building owned by the plaintiff was old and was to be demolished soon. The defendant argued that the plaintiff suffered no damages equivalent to the rent because the plaintiff was going to demolish the building and had no plan to rent it to others. But the court awarded the amount equivalent to the reasonable or average rent as general damages.
The reasonable rent value of the property is awarded as minimum damages to the owner of the property.
Damages More than the Reasonable Rent Value Under Special Circumstances
The next problem is whether the owner can claim damages more than the amount of rent under special circumstances. Tokyo District Court of 31.05.1984 was a case of a sublease.10 The owner A of the house rented it to B and the tenant B subleased it to C without the permission of the owner. Under Japanese Civil Code the tenant cannot sublease the property without the permission of the owner (§ 612). Without the permission of the owner the occupation of the property by the subtenant is illegal and the owner can (i) require the subtenant to evacuate the property and/or (ii) terminate the lease contract with the tenant. In this case the owner A claimed damages against the tenant B for tort, because B was the person who caused the unauthorized occupation of the property by C. The owner not having terminated the lease contract with B was still entitled to receive rent from B, but in addition the court awarded the owner as damages the difference between the rent of the sublease of BC and the rent of the original lease of A B. The amount of the rent of the sublease was 195,000 Yen per month and was higher than the rent of the original lease which was 90,000 Yen per month. Awarding this difference (195,000 − 90,000 = 105,000 Yen) to the plaintiff means in fact stripping the profits from the defendant B who gained from the sublease.11