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Article: February 2015 Asia-Pacific Litigation Update

Business Litigation Reports

Injunctive Relief for SEPs Limited in Japan. Japan appears to be limiting injunctive and exclusionary relief for holders of Standard Essential Patents (SEPs) encumbered by Fair, Reasonable and Non-Discriminatory (FRAND) licensing terms. On May 16, 2014, Japan’s Grand Panel of the IP High Court issued a decision holding that a holder of FRAND encumbered SEPs was not entitled to a preliminary injunction but was prima facie entitled to damages.

Injunctions are commonly granted in Japan as a matter of law following a finding of patent infringement. On February 28, 2013, however, after holding that certain electronic devices infringed FRAND-encumbered SEPs, the Tokyo District Court dismissed the petition for a preliminary injunction. (Case 38969 (wa), 2011; Case 22027 (yo), 2011; and Case 22098 (yo), 2011). The Tokyo District court held that the patent owner was not entitled to injunctive relief as well as damages because its misconduct during licensing negotiations constituted an abuse of rights. The court ruled that, as a FRAND-encumbered SEP holder, the patentee had violated its duty to negotiate in good faith. This was the first time that a Japanese court used the abuse of rights doctrine to deny an SEP holder’s right to seek damages and injunctive relief. The patent owner appealed the decision.

On May 16, 2014, the Grand Panel of the IP High Court upheld the Tokyo District Court’s decision dismissing the petition for a preliminary injunction but decided differently with respect to damages. (Case 10043 (ne), 2013; Case 10007 (ra), 2013; and Case 10008 (ra), 2013). The IP High Court held that the SEP holder was prima facie entitled to damages for patent infringement. However, the court found that the patent holder could not seek damages or relief in excess of any FRAND license fee because such damages or relief would be an abuse of rights.

Before issuing its decision, the IP High Court sought and received public comment as to whether injunctions and damages should be restricted for FRAND-encumbered SEP holders. According to expert commentators, the court’s request for public comment was without precedent or basis in the Japan Civil Procedure Code. The 58 public comments received by the IP High Court is another aspect that makes this case extraordinary and significant for patent litigation practice going forward in Japan.

Trading Down Under. Australia has traditionally been an outward facing nation. The combination of a small population on a large continent has led to an export driven economy, and as such, Australia has placed great emphasis on trade arrangements. These arrangements were greatly augmented last year by a raft of trade agreements concluded with three of Australia’s top four trading partners.

China-Australia FTA: China is Australia’s largest two-way trading partner. Negotiations for the FTA concluded in November 2014, and the parties are now working towards signature.

Japan-Australia EPA: Japan is Australia’s second largest two-way trading partner. The Economic Partnership Agreement entered into force on January 15, 2015.

Korea-Australia FTA: Korea is Australia’s fourth largest two-way trading partner. The FTA entered into force in December 2014.

These agreements are important in their own right. Quite apart from Australia being one of only a handful of western countries to negotiate a FTA with China, Australia has now concluded agreements with countries accounting for more than 60% of its bilateral trade.

However, the investment provisions in these agreements are of particular interest. This is because they represent a major shift in the Australian Government’s position. In 2011, Philip Morris brought a claim against Australia under the Hong Kong-Australia Bilateral Investment Treaty. This claim arose from Australian legislation mandating that cigarettes only be sold in plain packages. As a result of Philip Morris’ claim, the Australian Government publicly announced that it was modifying its negotiating stance so that future investment and trade agreements would not contain clauses permitting investors to bring claims directly against host states (‘ISDS Clauses’).

That position has changed. The Korea-Australia FTA includes an ISDS Clause. Likewise, although the negotiated text of the China-Australia FTA has not been released, it is also understood to contain an ISDS Clause. The Japan-Australia EPA did not contain an ISDS Clause; but the parties agreed to review that position if Australia subsequently agrees to an ISDS Clause with another country—as it has done with China.

Australia seems to be now firmly back on the investor-state arbitration bandwagon. Given the concerns many companies have about investing in China, it seems likely that some companies will structure their investments in China through Australia, and that the ISDS Clause in the China FTA will be put to use. Australia’s trade agreements may well have an oversized impact on investment arbitration in the region. Close attention will now be paid to the near-final negotiations of the Trans-Pacific Partnership.