WINDS FROM JAPAN No.10
WINDS FROM JAPAN
Issue No. 10, January 2000
Licensing Executives Society Japan
Heading Toward the New Century
By Masashi Kurose
For over the past 30 years, Japan has been active in the transfer of manufacturing technologies to countries in East-Asia. The technologies thus transferred have contributed to significantly enhance manufacturing capacity in the receiving countries and have formed a zone of vital industrial production in the world. However, this does not necessarily mean that all technology transfer (TT) from Japan to East-Asia were carried out smoothly. Some licensors were faced with problems caused by insufficient infra-structure on TT in the receiving countries, such as outdated TT-related policies, poor legal protection of licensed technologies, and conservative governmental restraints on TT. These factors have frequently created impasses, cooling their enthusiasms to TT. Members of the LES Japan's East-Asia Working Group are mainly from manufacturing companies in Japan who are engaged in licensing activities. They regularly hold study meetings on various problems arising out of TT to East-Asian countries. As questionnaire surveys showed the greatest number of problems related to TT to China, we chose as our first topic for study issues arising out of TT between China and Japan. We published a study report in September 1996, which reviewed many actual cases involving member companies and high-lighted problems underlining TT to China from Japanese companies. The report focused on items to be resolved in order to further promote TT to China from Japan, as well as recommendations for LES China and the Chinese authorities.
Utilizing the contents of this report, LESJ organized a joint symposium with LES China in June 1997. This symposium was an important opportunity for LESJ and LES China. The two societies discussed frankly various problems involved in TT between the two countries and agreed to cooperate to solve any and all bottlenecks.
Following China, we chose as our next study topic the ASEAN countries, more particularly, Malaysia, Thailand, Indonesia, Singapore and Vietnam. A joint symposium with LES Malaysia in June was the highlight of our activities in 1999, which has been reported in our study report published in September 1999. Through those activities, we believe that we now have a fair understanding of the current situations of TT-related problems in East-Asian countries.
In the year of the millennium, we set new goals for the coming 2 years. They are:
1) Changes in the legal system in China since its accession to WTO;
2) Expectations of East-Asian countries for TT from Japan;
3) Study of technologies of small & medium-sized companies in Taiwan;
4) Intellectual Property System in Korea with emphasis on enforcement; and
5) the ASEAN Free Economic Zone Plan and law refinement.
Results of our study will be discussed at a workshop "Technology Transfer in APEC," when the 2002 LES International convenes in Osaka. Apart from our new goal, our group will maintain contacts with the LES Korea and the LES Philippines, and with countries preparing for the establishment of its own society, such as Singapore and Thailand.
Leader, LES Japan East-Asia Working Group
Patent Attorney, Kyowa Patent & Law Office
Attending the LES European ConferenceBy Kensuke Norichika
On September 22-25, 1999, there was a LES European Conference in Venice, Italy. The Conference was originated under the theme of "Business & Licensing - A challenge for European companies in a changing world -." This article outlines the Conference and reports on the workshop I attended. A strong storm welcomed us to Venice during the previous evening of the Conference and then we had beautiful sunny days during the Conference. All participants abroad enjoyed the water taxies, canals, islands and sightseeing of historical points.
The attendants of the plenary sessions and workshops were able to learn, study, discuss and exchange most recent issues on business and licensing. About 400 people and 150 accompanying persons attended the Conference, which was twice as many as what the organizing committee had expected. Countries sending large participants were: Italy (about 100), USA (about 60), Germany (about 50), UK & France (less than 50 each), and Japan (7 & 2 accompanying persons). The participants from Japan were the largest from Asian countries.
Locations of conferences were set around the Venetian Island and several other islands. Water busses and taxies were necessary to attend different conferences. Because of different locations, some participants lost their way to get to the right conference place.
Following the welcome cocktail & dinner party on the first day, two add-on seminars were held. Under the theme of "Economic growth for the next millennium through research, licensing, and business development," LES Cdma/Autum/Chemical Industry Add-on was held. More than 100 attendants including the president and chairpersons of each organization attended the seminars. The other one was the Health Care Add-on.
In the 3rd day, following the opening ceremony and the plenary session in the morning, workshops were held in the afternoon concerning 10 subjects including "Management of Intellectual Assets in the Chemical and Allied Industries," and "Protecting, Financing, Licensing University and State Research Centers Technology." For the Workshops B1 and B2, two speakers were invited from Japan: Dr. Akira Mifune and myself.
In my presentation at the B2 Workshop, I focused on the IP protection of software focusing on the recent development of patent protection for the computer program related inventions and business models. The B2 Workshop was dedicated to the theme of "Patentability of Software." (More information on my presentation is available upon request.)
For details on Mr. Mifune's presentation at B1 Workshop, please see his following report.
Executive Director, Software Information Center
Recent Tendency in Technology Transfer
- Transition from pure licensing strategy to a portfolio of subsidiaries, joint ventures and new licenses -
By Akira Mifune
In order to understand why the pattern of technology transfer is being forced to change these days, we need to know the recent changes in the business environment. The key factor is the development of computerized communications and transportation. R & D management is also influenced significantly by changes in various factors: needs directed toward boundary or peripheral areas, and ecology-oriented technologies, where cost increases are inevitable. In addition, we should also cope with the birth of new technologies and markets beyond the existing scope of concepts. Furthermore, changes in political and trade structures have accelerated innovation in business activities. Then, how to manage strategic cooperation is discussed. On this issue, we have to analyze motivation and factors for strategic cooperation, as well as conducting feasibility studies for cooperation, and scrutinize the elements of finding suitable partners. Among others, particular importance should be given to the careful consideration of perception gaps on trade secrets, which tend to vary depending upon different types of business entities.
Finally, various suggestions for successful cooperation were made with emphasis on the importance of understanding corporate cultures of a potential partner.
Ph. D., Sanwa Research Institute Corporation
Greetings from a new Delegate of LES Japan
By Kenichi Nakano
During my attendance at the Delegate's Meeting of LESI in Melbourne and San Antonio as one of the delegates of LES Japan, I was most favorably impressed by the number of participants who were actively discussing and debating the future goals of LESI. I was also very much encouraged to see the number of delegates who were willing to lend their support to the various countries in need of foreign speakers for their domestic conference.
As a new delegate of LESI, I would like to make a proposal regarding the presentation at Workshop at the LESI Conferences. Considering the amount of useful information presented in the various Workshops, I believe it would be even more beneficial to the attendants if they could receive a brief summary of each of the main speeches. I believe this would contribute to improving the understanding of the attendants as well as improve the quality of the LESI Conference.We are now making preparations for the 2002 LESI Conference to be held in Osaka, and I am one of the members of the Public Relations Committee. I sincerely wish that the efforts of LES Japan will receive the valuable support of all members of LESI.
A. Aoki, Ishida & Associates
Recent IP Events in Japan
By Shoichi Okuyama
Is Game Software a "Cinematographic Work"? In recent decisions, Japanese courts were split on various copyright issues including the question of whether game software should be considered as "cinematographic work" under the Japanese copyright law.
In the most recent decision rendered on October 9, 1999 (Case Nos. 1998 (wa) 6979 and 9774, K.K. Capcon, Konami K.K. et al, v. K.K Act and K.K. Rise), the Osaka District Court found that six pieces of game software which run on PCs are "cinematographic work" under Articles 2(3) and 26 of the Copyright Law, and therefore, resale after authorized sale to consumers can be enjoined on the basis of copyright infringement.
On the other hand, in a decision rendered on May 27, 1999 (Case No. 1998 (wa) 22568, K.K. Josho v. K.K. Enix), the Tokyo High Court found that game software was not considered a "cinematographic work" under the Copyright Law. In this declaratory judgement action, the court concluded that no injunctive order would be granted against the second hand sales of game software on the basis of copyright infringement.
In another decision, the Tokyo High Court (March 18, 1999, Case No. 1995 (ne) 3344, K.K. Koei v. K.K. Gijutsu Hyoronsha, "Sangokushi III (Three Kingdoms III)"), noted that game software is not a "cinematographic work" in the sense of Article 2(3) of the Copyright Law. In this decision the court also denied the claim for an injunction order and damages against the alleged infringer, who sold separate software which modifies certain parameter ranges for personalities in the original war game software which sets scenes in ancient China.
This Tokyo High Court decision is in contrast to an Osaka High Court decision (April 27, 1999, Case No. 1997 (ne) 3587, Konami K.K. v. Spec Computer K.K., "Tokimeki Memorial"). The Osaka High Court found that the original software in which a player courts a girl in various settings to finally win her love was a "cinematographic work." The disputed software also modifies certain parameter values that control the girl's behavior. The court found copyright infringement and granted a damages award of 11.4 million yen plus interest.
2. Sale of Windows PCs with an iMac look-alike Design Enjoined in a Preliminary Action
On August 24, 1999, Apple Computer filed for a preliminary injunction action against a Japanese computer start up, SOTECH, to stop the sale of its iMac look-alike Windows PCs (a Japanese market version of "eOne" sold in the US), which were introduced into the market July this year. On September 20, 1999, with unusual speed and decisiveness, the Tokyo District Court granted a preliminary injunction order contingent upon a deposit of 100 million yen (about 0.95 million US dollars) based on the Unfair Competition Prevention Law. The court pointed out the possibility of mis-identification by consumers. According to the decision, which can be found at the Supreme Court web site in the Japanese language, the first hearing was held on September 14, 1999. At that time the attorney for SOTECH who had prepared no documents to submit to the court was surprised to hear from Judge Iinuma that the proceedings were to be terminated with that single hearing. The SOTECH attorney managed to submit a brief in rebuttal to the complaint on September 17, and a decision was rendered only three days later. The court held that it expected SOTECH to prepare in advance for possible litigation when it started selling products that looked quite similar to Apple's iMac. Apparently, SOTECH had not expected unfair competition actions, while it had checked and concluded that no design registrations existed against its products.
3. Nippon Steel Sues NKK for Patent Infringement
In a surprising turn of events, Nippon Steel (a steel company with annual sales of about 20 billion US dollars) sued NKK (another Japanese large steel maker with annual sales of about 10 billion US dollars) for patent infringement and claimed damages of 2.6 billion yen (25 million US dollars) on October 4, 1999 according to news articles. The dispute arose from a licensing agreement between Nippon Steel and NKK on a patent Nippon Steel co-owned with Toyota. Lawsuits between large Japanese corporations have been rare. Traditionally, such leading companies, like Nippon Steel, have assumed a role of coordinating the industry, not taking divisive action like lawsuits. This lawsuit is symbolic of the changing corporate attitudes on patent infringement litigation in Japan.
4. Supreme Court Pushes to Speed up Patent Lawsuits
According to Nikkei (Nihon Keizai Shinbun, October 24, 1999), a project team set up by the Supreme Court last spring will publish specific measures to speed up the proceedings of patent infringement law suits. The average pendency of 25.7 months for all IP infringement lawsuits in 1998 is expected to be shortened by six months.
5. Copyright Law Will Be Amended Once Again
On November 9, 1999, a commission organized for the Agency for Cultural Affairs, an agency within the Ministry of Education, issued a report for another round of Copyright Law amendments. Under the proposals contained in this report, the upper limit of fines against corporations for copyright infringement is to be increased from the current 3 million yen to 100 million yen. Also, the court should be able to award damages higher than a reasonable royalty. A bill will be drafted by the Agency on the basis of this report for submission next year to the next session of the Diet.
6. Report Published toward the Amendment of Patent Attorney Law
Also on November 9, 1999, a group within the Industrial Property Commission issued a report, containing a number of proposals. Namely: (1) Patent Attorneys to become qualified to handle licensing deals and process applications for border measures before the Customs Office; (2) the passing rates of the patent attorney examinations to be increased to raise the number of younger attorneys; and (3) to allow patent firms to be incorporated. The report also mentions that Patent Attorneys should be permitted to represent parties in infringement litigation. A bill will be drafted and submitted to the Diet this year.
7. Pressure Mounting on the Reform of Legal Profession
Now that the amendment of the Patent Attorney Law is in its final stage, the reform of the legal profession as a whole is entering into the final phase. Currently, attorneys at law effectively monopolize all legal work even outside the court, including arbitration and collection of credits. Current proposals include that judicial scriveners be allowed to represent parties before Summary Courts and that patent attorneys be allowed to conduct infringement litigation. The number of those who pass the national bar examination may be increased to 1,500 from the current level of 1,000 within the next several years. In academic circles, the possibility of establishing "law schools" (graduate level professional schools like those in the US) in Japan is now being explored. Patent attorneys are also under pressure for deregulation. The number of those who passed the national patent attorney examination was 211 last year up from 146 in 1998 and 110 in 1990. This number is likely to increase considerably within the next few years, probably to around four or five hundred. The current number of registered Japanese patent attorneys is about 4,200.
8. Experiment on Internet Patent Filing Begins
Several Japanese attorneys and companies are now participating in an experimental project for a future Internet filing system, conducted by a consortium of electronics companies under the supervision of the Japanese Patent Office. In addition, at a meeting held on November 12, 1999, the heads of the trilateral patent offices agreed on the standardization of electronic filing formalities. During the year 2000, another phase of the experiment will be conducted among the trilateral offices. Such Internet filing system may start operating in 2002. Also at this meeting it was agreed to review the result of examination between the US Patent and Trademark Office and the Japanese Patent Office particularly in the area of business method patents.
9. Korea and Japan Agree on Closer Cooperation in Patent Examination
On November 12, 1999, Nihon Keizai Shinbun (Nikkei Newspaper) reported that the governments of Korea and Japan agreed that mutual recognition of results of prior art search will be implemented from 2002.
10. New Biotech Examination Guidelines
On October 5, 1999, the Japanese Patent Office published additional examples for the examination of biotechnological inventions . This set of examples puts an end to many of the questions raised in connection with ESTs and SNPs. The new examples are based on the trilateral report on the hypothetical examination of biotech inventions , which aims at harmonizing examination practice among the trilateral offices. Similar examination guidelines are expected from the US Patent and Trademark Office and the European Patent Office.
Ph. D., Patent Attorney, Okuyama & Co.
Summary Report from Monthly Seminars
By Yoichiro Iwasaki
"Planning IP Strategies That Contribute to the Management," by Katsuo OGAWA, Associate Director (B), Hitachi Ltd.
Hitachi has from its inception in 1910 viewed the creation of IP as an important management strategy. The following are some measures Hitachi has taken to utilize IP as a strategic management tool:
1. Formed a Strategic IP Committee to convert key technologies into IPs.
2. Coordinated its IP strategies with business strategies: (1) to increase royalty income, (2) to encourage cross-licensing, (3) to take advantage of the exclusive nature of IPs to secure leading market share.
3. Recognized that 99% of patents are combinations of prior art, and that patents are not just born naturally, but must be consciously made.
4. Pursued a "Patent First" policy. Namely, discover a technical theme, and devise a technical solution therefor, and file for patents on the method, which is the simplest.
The Speaker went on to discuss some actual patent dispute cases, in which he had personally been involved. He maintained it is crucial to win not only the patent dispute, but also win in the marketplace with the product in question.
" Current Cutting Edge Technology and IP Law" by Nanohiko (summary omitted here)
"Alliance between Academia and Industry. Results of a recent survey" by Kensuke NORICHIKA, Executive Director, Software Information Center, & Leader of Working Group
In August, 1998, a new law called the "Promotion of Technology Transfer from Academia" was enacted. This encouraged many organizations to establish Technology License Offices (TLO). Reflecting such movement, LES Japan also launched the, " University- Industry Cooperation" Working Group (UIC-WG) in September of the same year. As a starter, UIC-WG conducted a survey among LES member companies, which results are reported below. It was found that more than 50 Universities had plans to set up bodies to handle technology transfers, and 6 units had already been approved (by the Government) to be TLOs, which are eligible to be recipients of grants. Another significant movement is the effort to submit to the legislature a bill for "Strengthening the Technology Capabilities of Industry".
The survey also revealed that Industry hopes Universities to integrate their respective liaison offices so that such negotiations will be made simple and that technology transfer will be further stimulated. On the other hand, Industry expressed concern that royalties on technology may be priced upwards, and whether the TLOs will prosper and continue to exist. There are still several bridges to cross before TLOs can prove they are the solution to a successful technology transfer from Academia to Industry.
"Technology Transfer to China and ASEAN nations" by Masashi KUROSE (See the cover page article)
"Theory of Negotiations and its Application" by Masaru SAKUMA, Professor, International Business & Management, School of Policy Studies, Chuo University
The word "Negotiations" tend to signify in Japan just " bargaining" or "horse trading". But in today's business world, it is a means to solve issues in order to meet the interests of two opposing parties. Hopefully such solution will bring a win-win situation, which maximizes the benefits of those parties. The requirements of a good negotiator are to be able to: 1) minimize the communication and conceptual gap that may lie between the parties. 2) talk in Normative tense. Japanese tend to be Descriptive. 3) have patience, and be willing to listen to the other party's presentation. 4) be persuasive, and offer alternatives. 5) be expressive and likeable. Attack, when the opportunity arises, and conduct an aggressive defense when being pressed.
"Current Status in USA of Transfer of Academic Technology to Industry," by Kouzou ONO, Guest Professor (B), Research Center for Advanced Science & Technology, The University of Tokyo
Transfer of technology from academic circles to industry had been taken place from old, but the passing of the Bayh-Dole Act in 1980, paved the way for smoother transfers. Since then, a very close relationship was formed and has thrived, for example in the generic engineering field triggered by the Cohen-Boyer Act and in computer software as represented by the case of Microsoft. According to a 1997 report of the AUTM (Association of University Technology Managers), even when confined to TLOs (Technology Licensing Organizations), such activities created economic values of 30 billion dollars and jobs for 250,000 people in that year. In Japan, in August of 1998, the Law for the Promotion of Technology Transfer from Universities, etc. was passed in order to support such technology transfer to Industry. This law has been effective, but it has also unveiled certain problem areas particular to Japan, which appear to hinder Japan from reaching its target.
Those problems are:
1. The Japanese frame of mind, that values conformity as the most important aspect.
2. Tendency to treat or regard IP lightly
3. To hold smaller companies in low esteem
4. Many existing restrictions on Universities
It is felt that the current education system may have to be overhauled from the elementary school stage up, so that unique creativity and personality of each individual will be encouraged and rewarded.
September (9/21) "How to Cope with Taxiation in International Business" by Toshimichi IGARASHI, Manager of Taxes, IBM Japan Ltd.
1) Japan has Tax Treaties with 41 countries. The importance of such Treaties is demonstrated by the fact that approximately 80% of all direct investment from Japan are concentrated in those 41 countries.
2) One area which merits close study is the Transfer Pricing between a parent company and its foreign subsidiaries. The tax authorities of each country tend to try maximizing its tax revenues. This has resulted in foreign companies being imposed a huge amount of fines and back taxes. Attempts are being made by various countries to rectify such undesirable effects. Japan is moving towards adopting transfer pricing rules to alleviate this problem
3) In order to discourage other countries from lowering their tax rates for the purpose of inducing direct Investment from abroad, countries have tended to engage in a race to lower their tax rates. It became a vicious circle, and In April 1998, OECD Issued a Guideline called "Harmful Race of Taxation"
4) The need for Tax Planning is imperative, but in Japan where payment of taxes is viewed as disposal of profits, such Planning appears difficult to take hold.
5) Tax issues related to e-commerce, especially those transcending national borders, were also discussed.
October (10/14) "Theory and Practice of Negotiations" by Tasuku MATSUO, Attorney at Law, Matsuo Law Office (Summary omitted here)
November (11/17) "The Theory and Practice of Patent Protection of Software" by Hidemi MATSUKURA, Patent Attorney, Shuuwa Patent Law Office
Don't miss Spring in The Netherlands!
And —c it will be great, promises Emma van Oosterom, president of LES Benelux. Heading the Organising Committee for the LES International Conference 2000 in Amsterdam, she is the one to know. The conference, from 21-24 May, will be held in the traditional old Dutch, but with five stars granted, Hotel Krasnapolsky in the very heart of Amsterdam at the Dam Square - opposite the Royal Palace.
The center of Amsterdam is world-wide famous for the beautiful canals where wealthy 16th century merchants built elegant homes and sturdy warehouses, in the time when Amsterdam was the richest city of the world. There will be ample time for sightseeing in Amsterdam, Dutch country sight, a boat trip at the old canals or even a golf tournament. The Netherlands is a very good starting point for trips in Belgium, Luxembourg and all other European cities. Amsterdam boasts one of the largest and best-equipped airports in the world: Schiphol and the Thalys train will take you to the center of Brussels in two hours or to Paris in less than four. All the main German cities are within an easy distance.
The Conference, ''A World of Innovation'', will host a large variety of highly interesting topics. On Sunday afternoon the conference starts with three add-ons: a Licensing Course and workshops on Communication techniques and Consultancy. The Plenary Sessions on each morning of the conference are crammed with specialists of high-tech industries and organisations with in the first session on Monday morning speakers of Philips, Lernout & Hauspie and TNO, one of the largest contract research organisations in Europe. On Tuesday Professor Charles Gielen of Nauta Dutilh and the Honorary Justice Hugh Laddie will lead a debate on the protection of trademarks followed by presentations on strategies for technology management. Wednesday morning the conference presents two unusual topics as Industrial Espionage and Marketing and Licensing Sports Events. The Monday and Wednesday afternoons are filled with twelve workshops with such a wide range of topics that these will give each conference participant the opportunity to select a topic of his/her special interest.
All together, with almost 100 speakers and chairs from more than 30 countries around the world, combined with a splendid social and partner program, exploring all interesting venues of Amsterdam and its surroundings, the LESI 2000 Conference promises to become the event every one interested in technology and licensing has to attend.
Full program details, including registration forms
September 1999 issue les Nouvelles
Additional information and registration
LES 2000 Conference Secretariat
c/o LGCE, P.O. Box 83005, NL-1080 AA Amsterdam
Phone +31 20 679 3218, fax +31 20 675 8236
Licensing Developments in Japan
By Yuzuru Hayashi
Deputy Manager, Legal Affairs Department, Nikon Corporation
Licensing, especially in the area of advanced technology, is today the key to success or an essential condition to enter a high-tech industry market, current or new. The Japanese patent authority has, in the recent years, begun changing its policy regarding patent application and procedures toward a more "pro-patent" one. This paper is intended to present a brief overview of such shift, and what is to be expected in the area of patent licensing.
Although there are a variety of rights that may be granted through licensing, the topic of this paper will be focused on licensing of patent rights. There are two reasons for this. One is the professional background of the author, who currently works for a manufacturer company, and as such, has been more involved in legal issues concerning patent rights. The other reason is that in the author's personal opinion, patent licensing plays an important role in the field of advanced technology, where globalization, strategic alliances between companies as well as the creation of new, global standards are the growing trend, not to mention the fierce competition that surrounds the so-called "high-tech" companies worldwide.
THE LEGAL ENVIRONMENT SURROUNDING LICENSING IN JAPAN
The substantive laws relating to patent rights are the Patent Law, which directly governs the creation of patent rights, the Antimonopoly Act ("Act Concerning Prohibition of Private Monopolization and Maintenance of Fair Trade"), the Unfair Trade Practices, a notification of the Japan Fair Trade Commission, and the Guidelines for Patent and Know-how Licensing Agreements under the Antimonopoly Act, also from the Japan Fair Trade Commission. The last three, in relation to patents, governs, or better said, limits the use of patent rights through licensing so as to prevent any activity detrimental to the fair competition in a given industrial market.
Japanese Patent Law and its recent revision
Regarding the Japanese Patent Law, it originated in 1885, and has been subject to two major revisions so far, in 1921 and in 1959. The recent trend in this field is the shift toward a pro-patent policy, or a strong, effective and wide protection of the patent right combined with accelerated creation of new patent rights through changes to the patent application and examination procedures.
In a symposium held by the Keidanren (the Japan Federation of Economic Organization) in 1998, such policy was officially addressed by representatives of the MITI and the Japanese Patent and Trademark Office. On that occasion, it was explained that the main aim for this policy is to attain and increase international competitiveness of the Japanese industry mostly in the field of international state-of-the-art technology development and commercialization.
In the past period after the enactment of the Japanese Patent Law, most patents in Japan were based on "improvement technology", while the expectation of the revised law is rather those patents based on "highly creative technology with value added".
Although the revision as planned by the patent authorities in Japan is not completed yet, we have begun to see some specific, concrete signs or the effect of such revision in recent court cases related to patent rights, like in the so called "H2 Blocker case ", in which the Tokyo District Court recognized and awarded the plaintiff in a drug patent infringement lawsuit a damage amount of approximately 3 billion Japanese Yen, and in the so called "Ball Spline case", in which the concept of the doctrine of equivalents was adopted.
Promotion of Academy-Industry transfer of Intellectual Property
Recently, an act regarding promotion of technical transfers by universities was enacted in Japan, and as a result, several offices dedicated to the technology licensing were established by universities to facilitate the transfer of intellectual property rights to industry in general. Before the enactment of such act, the academic sector in Japan was not an active participant in the world of intellectual property rights, as compared to the situation in the United States. This new law is especially designed to accelerate the transfer of unique basic technology to industry, aiming at the commercialization of such technology in the form of products or systems.
THE IMPACT OF PRO-PATENT POLICY ON LICENSING
The actual utilization of patent rights by parties other than the inventor or owner of the patent right is enabled in the form of licensing. Therefore, when discussing about pro-patent policy it is important for us in the commercial world to ascertain that patent licensing agreements or clauses in such agreements are formulated in such a way to take full advantage of the pro-patent policy. The following issues discussed are not quite unique to Japan, but are rather common issues relevant to every international licensing agreement.
Individual situations where licensing is the key factor can be found, for example, in a new product development scenario, an OEM supply scenario, and in a new technical standard creation scenario.
Scenario 1: New Product Development
This scenario includes several phases. The first phase is research and development, where basic technology is developed and the product concept is created. If the new product is only "new" to one party, that is, such party wishes to enter in a pre-existing product market by developing and manufacturing its own product for such market with the aid of some other party having the required resources, then there might not be a creation of a totally new technology, and therefore, the issue related to licensing is limited to the utilization of one party's patent or both parties' patents. This reverts back to a genuine form of licensing.
On the other hand, if the new product is completely "new" to the world, that is, a creation of a new product market is simultaneously expected, then the issue of licensing becomes more complicated. A common issue here might be the ownership of the newly developed patent rights as well as an effective and sufficient protection of the parties' own patent rights.
Scenario 2: OEM Supply
In general, OEM supply can be categorized as (1) a supply of products that are independently designed and manufactured by the supplier, or (2) a supply of products that are manufactured following the design of the party requesting supply. In both cases, since, as discussed before, the pro-patent policy includes a stronger, wider and more rapid protection of the patent rights, a review of the patent indemnity clause ( the owner of the patent to offer protective alternatives if such patent rights are challenged by third parties) or the addition of a non-assertion clause (an agreement between the licensor and the licensee not to challenge the validity of the licensed rights) should be worth be considered.
Scenario 3: Creation of a New Technical Standard
There are two known types in creating a new technical standard. One is creating a standard by discussing in an independent, neutral commission or organization, like in the case of MPEG, a technical standard for digital movie image, and the other is creating a standard as a result of competition among individual companies having the resources to achieve the technology needed. The latter is commonly referred to as the "de facto standard", and often we have seen a fierce competition to be the leader for such standard as in the VHS vs. Beta video tape case.
Although tentatively categorized above, the reality is that a transaction rarely falls in one individual category. Especially today where globalization of the economic and industry market as well as the globalization of operation of the world's leading companies is a pre-condition, new projects concerning the creation of new products never seen before includes most, or all of the aspects of the transaction scenario as mentioned above.
In order to give an example of such situation, several years ago the world's leading photographic equipment manufacturers have gathered their efforts in creating a totally new standard for photographic film and photographic instruments. The standard is known as APS, Advanced Photo System.
Until an official release and offer of new technology license was done worldwide, the research and development phase of the technology had been conducted only among 5 companies, which represented, in total, a majority in market share of conventional, silver halide based photographic film and equipment.
In order to make the newly created standard a true "de facto standard", and to expand the new market for such standard to the widest extent possible, it is essential to offer the patent and know-how portfolio to every party that intends to enter into the new market, in such a fashion not to discourage them to receive the license at cost, and at the same time preserving the proprietary rights of the original development member companies and to compensate for the development cost.
Like in the case of APS, every new global technical standard is based on conventional technology plus new technology to enable compliance to the new standard, and the issue of how to share relevant conventional patent rights owned by individual companies has to be considered. Cross-licensing could be a solution to this issue.
The advantage of cross-licensing
Cross-licensing, the mutual grant of intellectual property rights between parties to a license agreement, might be regarded as an old "tool" but having some new application in licensing. It is common among the companies involved in licensing of intellectual property rights to use cross-licensing as a means of lowering the amount payable as royalty to the licensor.
In cross-licensing, both parties offer to the other party a number of patents (the patent portfolio). By comparing the value of both parties' portfolio, the difference in value, if any, is paid as royalty to the party owning the more valuable portfolio. A positive aspect of cross-licensing in addition to the lowering of the royalty payment amount is the fact that it can be useful to avoid future, potential infringement disputes.
The above aspect might explain the result in a recent research asking for the reason of filing applications for patents that approximately 10% of the Japanese companies answered: "to be in a better position in a cross-licensing negotiation". Under the Japanese pro-patent policy, this trend might continue in the future, also because in order that the cross-licensing strategy be successful, the essential point is whether a company or an individual is the owner of a strong, basic patent with value added that appears sufficiently attractive and valuable to the other party of the licensing agreement.
The pro-patent policy recently adopted in Japan aims at increasing competitiveness of the Japanese industry in a global level. And the specific tasks to be achieved under such a policy might suggest a shift of the entire Japanese legal structure with respect to intellectual property rights toward a model similar to the United States system and hopefully, to an internationally harmonized legal structure. Under such circumstances, developments in the area of licensing in Japan in the near future will certainly need attention, as well as developments in the same area in other countries.