Background
Foshan Shunde Herong Food Co., Ltd. sued BGI Japan Co., Ltd. for the unpaid price of processed eel products supplied under two sales contracts covering shipments dated September 7 and October 22, 2022. The seller sought US$713,249.92 plus late-payment damages at the Chinese-law rate of 4.485% per year from March 29, 2024 until payment.
BGI Japan asserted setoff based on two alleged counterclaims. It claimed damages for infringement of a patent whose relevant limitation required food-grade paperboard, excluding its water-repellent upper and lower layers, to have a basis weight of 960–1,440 grams per square meter. It also claimed contractual damages on the theory that the seller had supplied processed products made from dead eels, causing quality complaints and forcing BGI Japan to reduce its resale prices. The Tokyo District Court rejected both defenses and awarded the seller its entire claim, and BGI Japan appealed.
The Court’s Holding
The Intellectual Property High Court dismissed the appeal and affirmed the judgment in full. On the patent counterclaim, the court held that there was no adequate evidence that the paperboard in the seller’s products had the claimed basis weight of 960–1,440 grams per square meter. Whether the paperboard measured in BGI Japan’s evidence actually came from the seller’s products did not change that conclusion. Because infringement was not established, the patent-based setoff failed.
The contractual setoff also failed. Videos did not establish whether the eels shown were dead or merely alive in a state of suspended animation after immersion in ice water. Chats and a former employee’s statement referred only generally to complaints, returns, or the use of dead eels and did not concretely show that goods supplied under the relevant contracts failed to meet the agreed standard. A later published food-sanitation violation lacked sufficiently clear details and postdated the contracts, while no evidence connected BGI Japan’s reduced resale prices to the quality of the seller’s products. The court therefore found neither breach nor resulting loss.
Key Takeaways
- A patent-based setoff fails when the evidence does not establish that the accused product satisfies a required numerical limitation.
- General complaints, ambiguous videos, and broad statements about production practices did not prove that goods supplied under the relevant contracts were nonconforming.
- A buyer claiming damages from reduced resale prices must prove a causal connection between the seller’s alleged breach and the price reduction.
Why It Matters
The decision illustrates the evidentiary burden on a buyer attempting to defeat a payment claim through setoff. Each asserted counterclaim must be proved independently: technical evidence must establish every relevant patent limitation, and a sales-contract claim must identify concrete nonconformity in the goods covered by the contracts as well as resulting loss.
The ruling also shows the limited value of evidence that is ambiguous, generalized, temporally disconnected from the disputed transactions, or unsupported by proof of causation. Without stronger transaction-specific evidence, allegations about manufacturing practices and customer complaints will not offset an established obligation to pay the contract price.