National Treasure – Protecting Japan’s Intellectual Property

By Willhemina Wahlin

In April this year, Japan saw the first group of retirees put their feet up en masse. The ageing population poses more of a threat to Japan’s economy, however, than merely the provision of pensions. A steep decline in the nation’s available labour force, if left unchecked, could lead to the demise of Japan’s international economic competitiveness. So what can a nation, faced with such a looming crisis, do? The government’s answer is to turn Japan into an “Intellectual Property Based Nation.” Although never short of an idea or two, the challenges lie beyond the proverbial light bulb above the head – the real issue is how to speed up the process of patent examinations, create a harmonized global patent application process, and expand the ways in which patent licenses can be exploited. Oh yes, and faster litigation, litigation, litigation.

The foundations of Japan’s IP laws

Japan’s first laws to protect monopolies for novel invention were enacted in 1871, and later the first patent statute was enacted in 1885, based upon the German Code of Civil Procedure. In 1959, the Patent Act was introduced, which has been amended many times since. Although there is a long history of IP law in Japan, it differs greatly from other nations whose laws are Roman based, such as the US’, which places much greater importance on the rights of the individual. This is sometimes attributed to the distinctly different cultural foundation that underlies property laws in Japan. H Stephen Harris Jr., in a 2002 report for the US Federal Trade Commissions and Department of Justice, wrote that, originally being based upon Chinese Confucianism, Japanese law is concerned with duty to society. “Because the cultural context informs one’s notions of property, including intellectual property, Japan’s intellectual property law, practice and enforcement reflect Japanese societal norms,” he wrote. “Chief among these are the interests of society.”

A Japan Patent Office (JPO) Official, who wishes to remain anonymous, explained that the issue of Japan’s historical and cultural background of IP policies has been in hot debate. “It seems that it is not so appropriate that the government choose any standpoint because the matter is still very controversial,” he told J@pan Inc, adding that, in his personal opinion, the most prominent driving force is industry. Changes in the IP climate in Japan, he said, “are a result of Japanese Corporations’ strategies, and they have recognized that intellectual property is more important than before, because more Japanese companies are based on technical capabilities.”

In reality, the bedrock of both Japan’s IP and industrial policies are not too far from each other. Although considered a liberalist economy by many, Japan has long fought for its ‘developmental state’ policy to be recognised by organizations such as the World Bank (see an old Japan Inc Newsletter for more on this: www.japaninc.com/jin367). Japan has long believed that public and private cooperation can greatly benefit an industry’s development, and this was certainly the case with Japan’s post WWII reconstruction. In other words, the greater good of Japan’s society was the center of its industrial policy then, and still appears to be at the heart of its IP policies now.

Keiji Masaki, a partner at the Shobayashi Patent and Trademark Office in California, agrees Japan has been influenced by the Confucian ideal that to have one’s work copied is a sign of appreciation. “If the work of somebody was no good, nobody ever copied it,” he explained. “Therefore, copying had been accepted as a sort of virtue by society for a long time in Confucian based Asian countries.” Today, most Japanese corporations have some percentage of intangible assets to their name. “I think the foundation of the Confucian ideal [is helping] Japan to become an “intellectual property based nation” because the protection of IP is ultimately a duty to society to make the creators create something valuable to society,” Mr Masaski said. “After a limited time of exclusivity, all the new ideas will become public domain and shared by society. It is a social duty to make it happen.” Knowing full well that Japan’s IP policies were lagging behind other nations, the Koizumi government announced the Intellectual Property Strategic Program in 2003 – and not a moment too soon for Japanese corporations already burnt in the fires of litigious battle with tough international competitors. Andrew Cobden, a patent attorney at Lovells in Tokyo, told Business Week’s Ian Rowley, “For a long time, Japanese companies did a lot of applying for patents but not much enforcing them.” The lack of enforcement is often attributed to the essentially non-litigious nature of Japan. “Japanese companies are still reluctant to file a law suit against the alleged infringers simply because they think litigation is not cost effective,” explains Mr Masaki, who thinks IP protection in Japan will never be like that of the US. He adds that no award in Japan has ever exceeded US$100 million. As such, there’s little prospect that the size of a settlement will outweigh the price of going to court in any substantial way.

Part of the challenge for Japan lies in the amendment of laws which will improve litigation procedures, allowing for greater discovery and an expansion of the court’s authority to increase damages for wilful infringement. There has already been some improvement in this area: Koizumi’s original program included an overhaul of the court system relating to IP, which included legislation that later enabled the establishment of the IP High Court in April 2005, as well as the broadening of working parameters for benrishi – Japanese IP attorneys. Additionally, a law was passed in 2003 that permits companies to block imports of any product they allege is an infringement of a patent license. However, as Rowley also pointed out, this has the potential to backfire, as patent license holders from other nations, such as LG in Korea, seek to do the same as a countermeasure.

However, there has been a steady increase in the presence of Japanese companies in the courtroom, not just as defendants, but increasingly as plaintiffs. “We can see a trend of Japanese companies enforcing their IP rights against infringers,” agrees Mr Masaki, but adds that litigation gets more attention than licensing.

Japanese corporations, for a number of years now, have been some of the largest holders of patents in the world, and this is rapidly increasing. The government’s attempt to sew up the holes in the patent examination process, as well improve anti-counterfeiting measures and create a harmonized global patent application process, have been revised in the Ministry of Economy, Trade and Industry’s (METI) “Advanced Measures for Accelerating Reform toward Innovation plan in patent examination” (AMARI Plan 2007), which was announced in January this year.

The plan METI’s AMARI Plan 2007 covers four main areas: the promotion of global-scale acquisition of IP rights and the attainment of a higher level of IP protection; the promotion of strategic IP management by companies; support for local regions and SMEs in IP utilization; and furthering efforts towards expeditious and efficient patent examination. Here, the issue of improving Japan’s patent examination process cannot be underestimated: the ultimate goal of achieving the highest global standard in patent examination is, says METI, “regarded as being one of the critical policy issues of the Japanese government as a whole in the Economic Growth Policy Outline…and the basic policies for Economic and Fiscal Management and Structural Reform 2006.” So, in other words, the nation’s economy is becoming increasingly dependant on how quickly it can patent its ideas. Mr Masaki says that, while there’s always room for improvement, the plan shows realistic targets and measures, which certainly help. However, he adds: “it may just be a stopgap measure to maintain first action pendency below 29 months. It is not clear how the ultimate goal of reducing this to 11 months by 2013 will be achieved.”

Patenting Japan: what’s the hold up?

The numbers of patents held by Japanese corporations is increasingly impressive: in the 2006 tally of the US Patent and Trademark Office (USPTO), 12 companies out of 25 on the list, compiled by IFI Patent Intelligence, were Japanese – eight of which were in the top 15. The total number of patents issued to Japanese applicants was a staggering 36,481 – approximately 26,000 more than Germany, who came in second. In 2005, the JPO received 367,960 Japanese patent applications, and in 2004, recorded the highest number of examinations of any patent office in the world.

However, the patent examination environment at the JPO, METI explains, is becoming increasingly severe. Applications are only getting more complex and technical in nature, especially in the biotech, optical and IT industries, and many contain several different claims. Examiners are under increasing pressure to not only have a high level of expertise in their technical field, but also work quickly to reach the numerical goals set out by the government’s policy. Although METI hired 131 new JPO examiners last year, bringing the total to 1,567, and plans to hire more each year until 2012, the figures seem small compared with its US counterpart. In 2006, the total number of examiners in the USPTO was 4,883, and this will be increased by at least 1,200 per year until 2012.

But one of the most challenging areas of patent examination is the globalization of IP. In its 2006 report, the World Intellectual Property Organization (WIPO) noted that the number of patent applications filed worldwide has increased from 884,400 in 1985 to 1,599,000 in 2004. Many applications are filed simultaneously in more than one office, so to streamline the process of examination, there has been a noticeable shift in applications filing under the Patent Cooperation Treaty (PCT) system. In short, the PCT system allows an inventor to file an international application for a patent, using one application, in one language. Although it is not yet possible to receive an international patent, the PCT system streamlines the process by allowing around 117 countries to access a digital file on the application. The most obvious benefit of this system is the pooling of information on prior art searches, and thus the digitization of application information is a key issue. Some patent offices have even raised the idea of using a 'Wiki' style system, which allows the general public to add information to prior art searches.

Japan Patent Office Building

In July 2006, the first Patent Prosecution Highway (PPH) Pilot Scheme was announced between the USPTO and the JPO, and this has since been expanded to include the UK and South Korea. The aim is to make examinations more efficient and cost effective through the sharing of digitized information. Accelerated examinations currently require an applicant to conduct prior searches, and give comparisons between their own invention and other prior art. The PPH, however, allows a request for accelerated examination to an office of second filing using the findings of the first office of filing and the claims given in the application. This saves a great deal of time for both the applicant and the second office of examination, and in turn makes the patent examination of a higher quality.

For benrishi, the PPH could well have a positive and extremely negative effect. Mr Masaki explains: “The PPH will reduce the workload of benrishi and the patent practitioners in the world, since multiple existing prosecution jobs will be consolidated into a single job in the future. Currently, the US, Europe and Japan are separately prosecuting patent applications on the same invention, but this will become one, and all other countries will have to respect the result.” Effectively, he explains, this will be a 3 to 1 reduction in the workload of benrishi and patent attorneys in the US and Europe, which is great for inventors, but a whole load of trouble for patent practitioners. “The number of jobs for benrishi and patent practitioners will diminish drastically, as well as the waiting list at the patent offices. Only a number of successful patent firms will survive in such competitive environment, so the M&A of patent firms will become more visible in the future. It also brings about a competitive environment among the patent offices in different jurisdictions, as well as among the patent firms in different regions.”

Standardization, cross-licensing and patent pools

Cross-licensing has sometimes been an area of dispute between US and Japanese corporations – the former viewing it as a protectionist measure, while the latter view it as a way to clear obstructions to industry development. Japan views cross-licensing as useful, particularly in areas of R&D that require some level of standardization, such as DVDs, flat panel TVs and mobile phones. Toyo University’s Hakime Yamada, in the 2006 paper ‘Patent Exploitation in the Information and Communications Sector: Using Licensing to Lead the Market’, wrote:

In the real world, there are frequent overlaps between individual companies’ R&D areas because companies always monitor market trends carefully and sometimes need to adopt the same technology to ensure interoperability between modules for products incorporating a lot of modules.

If more than one company is developing technology in a certain field, it is often the case that they come up with similar ideas, albeit independently of each other. If they each file patent applications that are approved separately, they can allow cross-licensing of their patents, which allows for the further development and commercialization of the technology. It is often the case in cross-licensing that a group of companies, perhaps two or three, do not charge each other for their patent rights, and this aids in avoiding a tragedy of anti commons being reached – that is, when rights to a particular patent license are denied to others resulting in development stalemate in the industry as a whole. Such a case is the recent litigation between Canon and the US firm Nanotech. Canon acquired the rights to Nanotech's patent for electron field emission display services, which Canon desperately needs to develop its SED television (surface-condition electron emission display). Canon, after acquiring the rights from Nanotech, entered into a 50/50 venture with Toshiba to develop the SED televisions. According to court documents, Nanotech approached Toshiba about applying for a separate license to Canon's, to which Toshiba referred them on to Canon. After many months of wrangling, and major setbacks in bringing the SED televisions to market, Canon agreed to buy out Toshiba. However, the buyout appears to be in name only, as it is yet to be seen just how many of Toshiba's engineers will still be retained by the venture. Seemingly naïve f`or a company as experienced in the IP courtroom as Canon, the failure to negotiate a crosslicensing agreement with Nanotech for all three parties has cost them dearly: failure to launch the SED TV early this year may well see rivals step in much earlier with competing technologies, such as laser TV.

In terms of duty to society, crosslicensing appears made for Japanese business. It allows corporations to work together for the development of the industry as a whole, and indeed without it, some innovations may never see the light of day. “Between the companies who have IP portfolios with similar strengths, royalty free cross-licensing is a simple solution for maintaining the competitiveness of companies against others,” says Mr Masaki. “They can exclude unique technologies from the cross-licensing arrangement to preserve the competitiveness of each other, and still eliminate uncertainty involving patent litigation.”

It’s clear that Japan will never be an overly litigious nation, such as the US, and this has both positive and negative ramifications for not only Japanese inventors, but also foreigners wanting to protect their ideas within Japan. However, in relation to the licensing of intellectual property, Japan is making fast inroads to ensuring that its national assets are protected. It remains to be seen, though, if Japan’s grey matter can create panoply for its grey-haired population.