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The IP High Court Holds that a Seller Should Cooperate if the Purchaser is Involved in an IP Dispute

by Masahito Imai (Kubota РJapan)

SoftBank BB Corporation v. Kanematsu Corporation (Japan: IP High Court Case No. 2015 (ne) 10069 (English Summary))

In a judgment of December 24, 2015, the IP High Court (the “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.

Background

Kanematsu Corporation (“Kanematsu”) and SoftBank BB Corporation (“SoftBank”) made a master agreement (the “Agreement”) and several 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. 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 by paying 200 million Japanese Yen as a license fee to Wi-LAN. The Agreement provided that: (1) Kanematsu warrants and represents to SoftBank that the Chipsets do not infringe any third party’s patents (Paragraph 18.1); and that (2) in case of a dispute relating to infringements of intellectual properties due to the Chipsets, Kanematsu must cooperate with, and indemnify and hold harmless SoftBank from damages (Paragraph 18.2). Based on these provisions, SoftBank counter-argued that SoftBank suffered damages of 200 million Japanese Yen (equivalent to the license fee) and this amount should be deducted from Kanematsu’s claim.

The Tokyo District Court (the first instance) rejected Softbank’s counter-argument, and upheld Kanematsu’s claim in full. SoftBank appealed to the Court.

Judgment of the Court

Regarding SoftBank’s assertion on Paragraph 18.1, the Court found no infringement of Wi-LAN’s patents, and rejected SoftBank’s assertion.

Regarding SoftBank’s assertion on Paragraph 18.2, the Court ruled that details of Kanematsu’s obligation in case of infringement of a third party’s intellectual properties must be determined by 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 Kanematsu, SoftBank and Ikanos agreed that Ikanos should provide information necessary for determining a reasonable license fee payable to Wi-LAN and its calculation basis.

Given this, the Court held that Kanematsu had the obligation to provide (1) technical analysis of Wi-LAN’s patents so that SoftBank could determine whether SoftBank needed to make a license agreement with Wi-LAN and (2) documents necessary for calculating a reasonable license fee. In this case, however, neither Ikanos nor Kanemasu provided them, and the Court found Kanematsu’s violation of Paragraph 18.2.

Additionally, the Court found that the damages were caused by Kanematsu’s violation of Paragraph 18.2, indicating SoftBank’s possible risk of Wi-LAN’s lawsuit that could result in SoftBank’s damages of much more than 200 million Japanese Yen, if SoftBank’s infringement of Wi-LAN’s patents had been established.

However, the Court upheld SoftBank’s claim only partially to the extent of 60 million Japanese Yen. This was because SoftBank had not examined whether the Chipsets actually infringed Wi-LAN’s patents, did not face an immediate risk of Wi-LAN’s lawsuit, but paid 200 million Japanese Yen without asking Wi-LAN its calculation basis. These circumstances were considered SoftBank’s negligence.

Comments

We often see agreements that contain provisions like Paragraphs 18.1 and 18.2 of the Agreement. This is the first case in which a Japanese court has interpreted these kinds of provisions.

Considering this judgment, when IP disputes occur, it would be important for a seller to cooperate with a purchaser regardless of whether infringement of intellectual property rights is established. What the seller is required to perform would be determined on a case-by-case basis. From a purchaser’s viewpoint, it would be important to consult with the seller fully in settling IP disputes so that the purchaser could be sufficiently compensated by the seller.