Regarding the ongoing study of the Research Group on the Patent System(First to Third Sessions)
HARAKENZO World Patent & Trademark
Takashi MURAKAMI, Patent & Trademark Attorney
The Research Group on the Patent System (RGPS – president: Tamotsu Nomaguchi, Executive Officer of Mitsubishi Electric), whose role is to study a major overhaul of Japanese patent law, has so far held four sessions, as previously announced in an article of the newspaper Nikkei Shinbun dated January 5, 2009:
· First Session: January 26, 2009
· Second Session: March 27, 2009
· Third Session: April 24, 2009
· Fourth Session: May 29, 2009
This presentation will focus on the contents of the first three sessions. The contents of the deliberations that took place during the fourth session had not been disclosed at the time of writing and will therefore be introduced at a later time.
2. General directions of study of the RGPS
The RGPS was established in order to “undertake, in a year corresponding to the fiftieth anniversary of the promulgation of the current Japan Patent Act, a comprehensive study of the Japanese patent system and of the form it will assume in the future, taking its origins into account”.
The general directions followed by the RGPS in its study are the following:
1) A patent system easy to understand and able to speed up the pace of innovation
2) Patent rights strong enough to survive a passage in court
3) The outline of a system based on international cooperation and allowing a faster acquisition of patent rights
More concrete points under study are as follows:
· Revision of the effect of patent rights
· Promotion of active patent exploitation
· Faster and more efficient resolution of disputes
· Increase in the quality of patents
· Establishment of a faster and more flexible examination system
· Promotion of an standardized international system
3. Contents of the deliberations
Deliberations over the above-mentioned points began from the second session onwards, as summarized below. The debates between the experts of the RGPS are still ongoing at this point, and the orientation of the future revisions remains undetermined.
3.1 Second Session : “revision of the validity of patent rights”
The debate during the Second Session focused on the revision of the effect of patent rights. Debated points concretely include:
1) Right to demand an injunction
2) Financial compensation (non-exclusive license arbitration)
3) Scope of the limitations to the effect of a patent right
3.1.1 Right to demand an injunction
In recent years, as a side-effect of the recent development of open innovation, the chances to be the target of another party’s enforcement of rights are on the rise. In such a situation, following the enforcement of a patent right and the subsequent grant of an injunction, it is possible (even in the case of an infringement over a patent whose contribution to the final product is extremely limited) to be forced to stop the production line for the totality of the product. There is therefore a risk that the grant of such injunctions might pose a threat to the development of innovation.
In this view, deliberations regarding the necessity to impose or not limitations to injunctions, from a pro-innovation perspective, took place during the Second session. The eBay ruling (No. 05-130), issued on May 15, 2006 by the US Supreme Court, and the conception of injunctions it illustrates were especially debated. An outline of the deliberations is included below.
Outline of the deliberations
● The viewpoint* based on which the injunction was granted in the eBay ruling was extremely well-balanced. Speaking from a pro-innovation perspective, it should be introduced in Japan as it is.
● The difference between the Japanese system and the US system can be described as follows. In the Japanese system, in principle, both an injunction and damages are granted. In the US system, on the other hand, a remedy against infringement, in principle, consists in damages potentially including punitive damages, while the grant of an injunction is an exceptional measure left to the discretion of the judge.
● The eBay ruling is merely the application to patent infringement of general principles recognized in the USA. Taking into account the differences between the US and Japanese system and practice and the negative effects that might result from a limitation of injunctions, great prudence must be applied when taking a decision.
● The right to request an injunction is extremely important in the case of small companies aiming for market expansion or market domination. In the case that a large company ignores the patent of a small company and begins a large-scale business activity, it is doubtful, taking into account the four elements of the eBay ruling, that an injunction would be granted.
● The examination guidelines regarding inventive step being stricter in Japan than in foreign countries, the negative influence exerted by valueless patents is limited. Further, pleas of invalidity in court are often recognized, and the fact that the amount of financial damages to be paid is calculated by taking into account the contribution ratio of the infringing part to the product makes high financial damages rare. As a consequence, the negative influence that could be exerted by overpowering patent rights is limited.
● In Japan, the necessary leeway to limit the right to request injunction in the theoretical case of an abuse of rights (i.e. “jurisprudence over abuse of rights”) exists. However, the implementation of balanced measures of substitution must be studied carefully.
● In terms of patent right enforcement, future financial compensations and requests for injunction must be considered together. Patent rights being property rights, a failure to set up substitute measures or to establish a system providing financial compensations for subsequent losses could result in a violation of the provisions of the Constitution regarding the indemnification of citizen’s property.
* The following four elements were indicated as being considered when deciding whether an injunction should be granted or not:
1) Whether the owner of the right has suffered an irreparable injury.
2) Whether the remedies available at law are inadequate compensation for the injury.
3) Whether the hardships endured by the two concerned parties would be appropriately remedied by an injunction.
4) Whether issuing an injunction would injure public interest.
3.1.2 Financial compensation and scope of the limitations to the effect of a patent right
Other points debated during the Second Session include the following:
(1) The pertinence of a system of compulsory implementation acceptance when limiting an injunction, allowing for a financial compensation of the subsequent loss.
(2) The necessity to expand or not the scope of the limitations to the effect of patent rights, regarding the use, for experiments and research, of inventions related to advanced technologies in the field of research tools** for experiments and research purposes.
** All technologies considered as indispensable for research, such as animals and experimental devices/machinery used for experimental purposes, databases or software
3.2 Third Session: promotion of “active patent exploitation”
The Third Session dealt with the promotion of active patent exploitation, through the following themes:
(1) “License of right” system
(2) Opposition in the case of a non-exclusive regular license
(3) Exclusive license system
(4) Patent exploitation from as early as the filing stage
3.2.1 Opposition in the case of a non-exclusive regular license
In the Japanese system, oppositions can only be raised based on official registrations. Accordingly, the licensee of a registered regular license can raise an opposition against a third party, while the licensee of an unregistered regular license runs the risk of sustaining an injunction or a claim for damages, for example from the assignee of the patent right.
In practice, however, the RGSP pointed out that the following problems appear:
(1) In the case of a license agreement covering several hundreds or several thousands of patent rights, the registration of the non-exclusive regular license for each individual right is difficult.
(2) In the license contract, due to the necessity to settle in details a high number of conditions related to the scope of the implementation in order to oppose in just proportion the license, the registration of the totality of those conditions is difficult; as a consequence, the registration ratio of non-exclusive regular licenses is extremely low.
Further, as patent circulation and patent transfer is getting increasingly common, the effective exercise of patent rights is taking a plurality of aspects. According to the RGPS, this poses a threat to the business activity of the non-exclusive regular licensees for which the registration process is problematic. Additionally, it causes the Japanese system to be out of line with foreign countries.
During the Third Session, the members of the RGSP therefore discussed the necessity to review the current system of opposition against registration. The debate especially focused on the possibility to introduce a “legitimate opposition system”. The main points of the debate are summarized below.
Outline of the deliberations
● Under the current “register to oppose” system, the licensee runs the risk of sustaining an injunction or a claim for damages from a third party, such as the assignee of the patent right, if the non-exclusive regular license is not registered. However, as registration, from the viewpoint of business practice, is difficult, the current system is uneasy to use. There is therefore a strong need to introduce a new system of legitimate opposition, under which the licensee would be able, without having to go through a registration process, to oppose a third party by merely proving the existence of the non-exclusive regular license.
● A system such as the legitimate opposition system would constitute an exception to the general principles of Japanese civil law. However, considering that negotiations regarding patent rights usually take place between professionals well informed of the particularities of the system and that, in practice, all operations are conducted with due diligence***, it appears that such a system would not harm business stability, and should indeed be introduced.
● Laws such as civil law and commercial law form the infrastructure of social economy. Exceptions may exist if necessary, provided that their existence is justified. In the case of the legitimate opposition system, three problematic points can be envisioned:
(1) Whether or not it is possible to consider that the right related to a non-exclusive regular license can be claimed to a third party such as the assignee of the patent right.
(2) In the case that the right related to a non-exclusive regular license can indeed be exercised against a third party, whether or not it is possible to consider that the right can be exercised without registration.
(3) In the case of a third party who failed to become aware of the existence of the license in spite of reasonable efforts in this view, whether or not the right related to a non-exclusive regular license can be claimed.
These difficulties cannot be overcome merely by pointing out that the current registration system is problematic, and valid justifications based on the situation prevailing in today’s society is indispensable.
● In order for such an exception to the general principles of Japanese civil law to be recognized, both the practical needs of the assignee and licensee and the theoretical side of the question must be taken into consideration. On the theoretical side, it has been pointed out that Japanese civil law, which bases itself on the assumption of material property, cannot necessarily be considered as the law of reference for immaterial property. Further, in some cases, such as the rights connected to real estate, exceptions to Japanese civil law exist even for material property (for example in the Land and House Lease Law). Accordingly, one may consider that exceptions to the general principles of Japanese civil law can be accepted for license rights, as they are refer to immaterial property.
*** “Due diligence” refers here to the research work conducted in order to determine the contents and the scope of the patent right which is considered for purchase.
3.2.2 System of exclusive license
Under the present system, the concept of “exclusive license” encompasses both “exclusive (monopolistic) licenses” and “exclusive regular licenses”. The exclusive licensee has the right to oppose a third party and request an injunction, but the exclusive license right must be registered to become effective. In return, the registered matters (name of the licensee, scope of the license, etc.) are disclosed.
In opposition to this, in the case of exclusive regular licenses, the license becomes effective even without registration, and the name of the licensee and the scope of the license are not disclosed. However, since the character of exclusivity of such an exclusive regular license is merely stipulated in the contract between the two parties, the license right cannot be opposed to a third party.
The Third Session mainly focused on the establishment of a new system regarding exclusive licenses. Licenses taking effect based on contracts were especially debated. The contents of the debates are as follows:
Outline of the deliberations
● Each domain of business has different expectations regarding exclusive licenses. Rather than a system guaranteeing exclusivity, the electricity sector favors a system allowing a convenient use of the patents needed for business. On the other hand, the pharmaceutical industry favors a system allowing a total exclusivity. Accordingly, it can be said that the demand for a revision of the exclusive license system is especially high among pharmaceutical companies.
● Systems of exclusive license in which the right takes effect only upon registration are specific to Japan and Korea and exist only in these two countries, thus causing problems in business dealings with foreign companies. Abolishing the current system of exclusive (monopolistic) license to replace it by a double system of exclusive license and non-exclusive license taking effect by a contract would make the Japanese license system easier to understand for foreigners.
● The Japanese registry system for real estate presupposes that the registration will be possible without fault. At this point, it appears necessary to consider whether a system based on the assumption that registration will not cause problems is pertinent, especially regarding exclusive (monopolistic) licenses (where registration itself bears negative effects – for example in the case that the disclosure of information related to the license is not wanted).
● The current system of exclusive (monopolistic) license, in which the right takes effect upon registration, puts a strong emphasis on the stability of business dealings. In practice, however, many problems have arisen, and we have at this point enough hindsight to judge whether or not this system is appropriate. In this regard, a system in which the license right takes effect based on a contract and in which registration is necessary only when opposing a third party would be conform to the provisions of Japanese civil law related to property right, and therefore appears introducible.
● Civil law considers that rights allowing safe business dealings shall be made obvious to all. In comparison, in the case of intellectual property, it will be necessary, when looking into narrowing the scope of the disclosed information, to study carefully where to draw the line between the necessity to disclose information relevant to the exclusive license on one hand and the disbenefit sustained by the owner of the right due to the disclosure on the other hand.
3.2.3 License of right and early exploitation
In the Third Session, the members of the RGPS also debated, among others, the following points:
(1) The introduction of a “license of right” system (already existing in countries such as the UK or Germany) making it possible to avoid the payment of patent maintenance fees regarding a registered patent by indicating one’s willingness to grant licenses.
(2) The suppression of the right of pledge regarding the right to obtain a patent, thus allowing the exploitation of the right from as early as the filing stage.
The study of the RGPS is expected to take about a year. Following the subsequent deliberations of the Industrial Structure Council in 2010, a revision of the patent law or a new law will be submitted during the ordinary session of the Diet in 2011, for a scheduled implementation later in 2011.
We will keep you informed of future developments in connection with the deliberations of the RGPS.
Website of the Japan Patent Office (June 2, 2009)