Employees' Inventions: the Moves for Amendment of the Patent Law

July 1, 2003
HARAKENZO World Patent & Trademark Patent Law Firm
Patent & Trademark Attorney
Kazuya HASEGAWA

Recently, lawsuits concerning Article 35 of the Patent Law (stipulating employees' inventions) are filed in succession, such as the Olympus case, Nakamura v. Nichia Corporation concerning the inventions of blue LED, and the Ajinomoto case concerning artificial sweetening. What is particularly disputed is the amount of "reasonable remuneration". According to Article 35 of the current Patent Law, an employee etc. has the right to a "reasonable remuneration" when, for example, he has enabled the right to obtain a patent with respect to an employee's invention to pass to the employer etc. in accordance with the contract (Patent Law, Article 35(3)). The amount of such "reasonable remuneration" shall be decided by reference to the profits that the employer etc. will make from the invention and to the amount of contribution the employer etc. made to the making of the invention (Patent Law, Article 35(4)). Thus, although "the right to demand a remuneration" is admitted under the current law, there is virtually no clear basis for calculating the amount of "reasonable remuneration".
If an employee etc. demands for a "reasonable remuneration" as an exercise of "the right to demand a remuneration," the employer etc. tends to estimate the "reasonable amount" at a small amount, claiming that the company has made a high amount of contribution.
On the other hand, the employee etc. tends to estimate the "reasonable amount" at a large amount, claiming that he has made a high amount of contribution. As a result, there is a gap between the amounts of "reasonable remuneration" claimed by the employer etc. and the employee etc, resulting in a dispute. Such disputes including the foregoing lawsuits are caused in various places.
On April 22, 2003, the Third Petty Bench of the Supreme Court (Chief Justice: Toyozo Ueda) rendered the first decision in the appeal hearing of the Olympus case, as follows:
An employee who has enabled the right to obtain a patent with respect to an employee's invention to pass to the employer may, if the amount of remuneration according to the contractual provision or other stipulation stipulated in advance is short of the amount as set forth in Article 35(3) and (4) of the Patent Law, demand the employer to pay
the shortfall.
As a natural consequence of this judgment, it is expected that more and more lawsuits will be brought by (former) employees against employers etc., disputing the amount of "reasonable remuneration".

The purpose of employees' inventions Article 35 of the Patent Law is stipulated for the purpose of balancing the stakes of employees etc. and employers etc., by equitably weighing up, for example, the roles of and contributions by the employees etc. and employers etc, so that industrial activities are smoothly carried out. In this way, the ultimate object of the Patent Law - contribution to "the development of industry" - is attained. The right to demand a remuneration is granted to employees etc. so as to protect employees etc., who tends to be inevitably in disadvantaged positions due to the employer-employee relationships, and to increase the willingness of employees etc. to make inventions.
However, in light of the current situation surrounding employees' inventions, there is a possibility that employees may lose their willingness to make inventions, thinking that, in case of employees' inventions, too much importance is attached to the benefits of employers etc. due to disparity of powers between employers etc. and employees etc., no matter how significant the inventions are. On the other hand, employers etc. may think that they should pay a large sum of remuneration if an employee etc. makes a significant invention, although their companies will enjoy increase in benefit. This may also decrease willingness of the employers etc. for industrial activities. Thus, it seems that the current system is not serving the purpose of the Patent Law. Therefore, it is obvious that Article 35 of the Patent Law needs to be amended.

Opinions of some organizations concerning the amendment to Article 35 of the Patent Law
[Japan Patent Attorneys Association]
Japan Patent Attorneys Association released the following draft amendment (January 27, 2003).
Article 35(3)
The employee, etc. shall have the right to a reasonable remuneration when he has enabled the right to obtain a patent or the patent right with respect to an employee's invention to pass to the employer, etc. or has given the employer, etc. an exclusive right to such invention in accordance with the contract, service regulations or other stipulations.
However, this provision shall not apply when otherwise prescribed in the contract concluded on an individual basis between the employer, etc. and the employee, etc., if the terms of the contract is reasonable and the employee, etc. is well-informed before concluding the contract.

This draft amendment admits an exception to Article 35(3) of the Patent Law on the condition that there is a "reasonable and well-informed contract between an employer and an employee," while maintaining the basic principle of the current law. This system seems to be advanced by one step in that it leaves the treatment of employees' inventions up to individual reasonable contracts, although certain conditions are attached, while maintaining the basic principle of the provision of employees' inventions to protect employees etc (inventors), who tend to be in weak positions. However, concerning how to interpret the meaning of "reasonable and well-informed contract between an employer and an employee," there seems to be a room for debate.
[Japan Intellectual Property Association]
Japan Intellectual Property Association proposed the following draft amendment (December 7, 2001).
Article 35(3) and (4) are to be deleted, and the new
Article 35(3) is to be as follows:
The employer, etc. may provide in advance in the contract with the employee, etc., service regulations or other stipulations, in the case of an employee's invention, that the right to obtain a patent or the patent right shall be passed to the employer, etc., or an exclusive right to such invention shall be given to the employer, etc., and the conditions for such transfer or licensing.

This draft amendment is a drastic one that completely abolishes the current Article 35 (3) and (4) and, concerning the treatment of employees' inventions, respects the self-initiative of companies. This system intends to bring about such a situation where companies that offer attractive treatment for inventors (including the provision of incentives for inventions) attract excellent researchers capable of making significant inventions. This draft amendment relies on American way of thinking that positions contracts as a basis of society, which seems to be very reasonable.
However, since Japanese-style employment is currently under reorganization, it is still likely that employees etc. (inventors) are in weak positions.
Therefore, there remains a little concern that this amendment may weaken the protection of employees etc. (inventors).

Draft amendment proposed by the Japan Patent Office
The Japan Patent Office, especially at the Subcommittee on Patent System of the Industrial Structure Council, had been considering the amendment to Article 35 of the Patent Law, and recently released the draft amendment of Article 35 of the Patent Law (stipulating employees' inventions).
The draft amendment includes the following points:
- Amend the current provision stipulating that an employee who has passed a patent etc. to a company shall have the "right to a reasonable remuneration," and adopt the principle that the reward for inventions should be agreed between an employer and an employee by means of a reasonable contract in line with a labor agreement.
- In order to protect inventors, the current provision stipulating the "right to a reasonable remuneration" of the inventors should apply only in case a small company or a venture business that has never concluded such a contract in the past is involved, or in case where the contract in question is defective.
- As a basis for calculating the amount of "reasonable remuneration", the current provision only states that the amount shall be decided "by reference to the profits that the employer etc. will make from the invention and to the amount of contribution the employer etc. made to the making of the invention". Thus, the current provision does not present a clear basis. In order to equitably calculate the amount of remuneration, however, the expenses paid by companies should be considered. Therefore, the draft amendment should specify which contributions made by companies should be taken into consideration.
According to this draft amendment, how to treat an employee's invention is principally left up to an individual contract between the employer and the employee, and Article 35(3) of the current Patent Law is applied to protect the inventor only if the contract is defective, for example. As to the basis for calculating the amount of "reasonable remuneration," the draft amendment intends to decrease ambiguity in calculating the amount, by specifying which contributions made by companies are to be taken into consideration. This draft amendment is very promising in that it includes the respective benefits of the draft amendments proposed by Japan Patent Attorneys Association and by Japan Intellectual Property Association. This draft amendment will be submitted at the ordinary diet session next year, after its details are determined by this summer through consultations with the Intellectual Property Strategies Headquarter of the government.

Conclusion
In principle, these draft amendments leave it up to an agreement between a company and an individual as to how an employee's invention should be treated. Therefore, it is a mistake to expect that the problems of employees' inventions, especially those of "reasonable remuneration," are completely solved by these draft amendments. It is therefore inevitable that disputes over these problems are brought to court in the future. However, I hope that the problems of employee's invention in Japan will calm down at an early stage through an accumulation of judicial precedents and arguments, and that the system of employees' inventions will be established as a means of attaining the ultimate object of the Patent Law.

[References]
1. Japan Patent Attorneys Association, Views of Japan Patent Attorneys Association on the System of Employees' Inventions, released on January
27, 2003, in Japanese, available at:
http://www.jpaa.or.jp/seimei/syokumuhatumeikenkai_20030127.htm
2. Japan Intellectual Property Association, Advocacies Concerning Article 35 of the Patent Law Stipulating Employees' Inventions, December
7, 2001, in Japanese, available at: http://www.jipa.or.jp/opinion/35.pdf
3. Rensei Baba, "Abolish Article 35 of the Patent Law Stipulating Employees' Inventions," the 16th, available at:
http://bizplus.nikkei.co.jp/colm/colCh.cfm?i=t_baba16
4. Asahi Shinbun, May 21, 2003 edition, in Japanese.
5. Commentary on Industrial Property Rights, 16th edition, Hatsumei Kyokai, in Japanese.