Update on Article 35 of the Japan Patent Law Yoshi Inaba TMI Associates AIPLA Pre-Meeting, January...

Update on Article 35 of the Update on Article 35 of the Japan Patent LawJapan Patent Law

Yoshi InabaYoshi InabaTMI AssociatesTMI Associates

AIPLA Pre-Meeting, January 28, 2004AIPLA Pre-Meeting, January 28, 2004La Quinta Resort & ClubLa Quinta Resort & Club

Recent Subcommittee Recent Subcommittee ActivitiesActivities

October 2003 -- Patent System Subcommittee October 2003 -- Patent System Subcommittee published a Draft Report on the Employee Invention published a Draft Report on the Employee Invention System.System.

November 24, 2003 – Received AIPLA Comments November 24, 2003 – Received AIPLA Comments on the Draft Report. on the Draft Report.

December 2003 -- Public comments on the Draft December 2003 -- Public comments on the Draft report were gathered.report were gathered.

December 2003 – Patent System Subcommittee December 2003 – Patent System Subcommittee published the finalized Report on the Employee published the finalized Report on the Employee Invention System (nearly identical to the October Invention System (nearly identical to the October Draft Report).Draft Report).

Goal of the Employee Goal of the Employee Invention SystemInvention System

Balancing the Employer-Employee InterestsBalancing the Employer-Employee Interests Employee (i.e., inventor) Employee (i.e., inventor) Employer (e.g., an employer, a legal Employer (e.g., an employer, a legal

entity or a state or local public entity)entity or a state or local public entity) Promoting active R&D investment by Promoting active R&D investment by

Employer Employer rewarding Employee for rewarding Employee for

inventive activityinventive activity

Current Legal Mechanism for Current Legal Mechanism for Balancing the Employer-Balancing the Employer-

Employee InterestsEmployee Interests

Grant of statutory non-exclusive license to Grant of statutory non-exclusive license to Employer (Article 35 Section 1)Employer (Article 35 Section 1)

Validity of advanced transfer of patent to Validity of advanced transfer of patent to Employer in case of employee inventions (Article Employer in case of employee inventions (Article 35 Section 2)35 Section 2)

Award of reasonable remuneration to Employee Award of reasonable remuneration to Employee for transfer of employee invention (Article 35 for transfer of employee invention (Article 35 Section 3)Section 3)

Consideration of Employer contribution to the Consideration of Employer contribution to the invention and profit related theretoinvention and profit related thereto (Article 35 (Article 35 Section 4)Section 4)

Employee Invention Employee Invention Systems WorldwideSystems Worldwide

CountryCountry Patent primarily Patent primarily vests to:vests to:

Royalty-free use Royalty-free use of patent by of patent by Employer?Employer?

When employee When employee invention is invention is transferred:transferred:

JapanJapan Employee Employee (inventor)(inventor)

YesYes Reasonable Reasonable remuneration remuneration required.required.

United United StatesStates

InventorInventor YesYes No statutory No statutory remuneration. remuneration.

GermanyGermany EmployeeEmployee NoNo Clear guideline on Clear guideline on reasonable reasonable remuneration remuneration provided.provided.

UK, France, UK, France, Russia, ItalyRussia, Italy

EmployerEmployer YesYes Employee may Employee may demand demand reasonable reasonable remuneration.remuneration.

Major Problems with Major Problems with the Current Article 35 the Current Article 35

1) Unmanageable risks involved with R&D investments 1) Unmanageable risks involved with R&D investments by Employer:by Employer: Article 35 Section 3 “reasonable remuneration” is a Article 35 Section 3 “reasonable remuneration” is a

mandatory provision which overrides the mandatory provision which overrides the “remuneration” prescribed by company regulations or “remuneration” prescribed by company regulations or paid by Employer. See paid by Employer. See OlympusOlympus Supreme Court Supreme Court decision.decision.

The calculation of reasonable remuneration under The calculation of reasonable remuneration under Article 35 Section 4 is too vague.Article 35 Section 4 is too vague.

2) Remuneration amount is unilaterally determined by 2) Remuneration amount is unilaterally determined by Employer, and Employee often feels it is unfair.Employer, and Employee often feels it is unfair.

Article 35 Section 1. Article 35 Section 1. Statutory non-exclusive licenseStatutory non-exclusive license

No change proposedNo change proposed.. Employer directly or indirectly contributes Employer directly or indirectly contributes

to creation of employee invention (R&D to creation of employee invention (R&D planning, funding, facility, etc.).planning, funding, facility, etc.).

Small and medium companies often do Small and medium companies often do not provide for advance transfer of patent not provide for advance transfer of patent via agreement or company regulations.via agreement or company regulations.

Article 35 Section 2. Article 35 Section 2. Advanced Advanced transfertransfer

No change proposedNo change proposed.. Advanced transfer of rights relating to Advanced transfer of rights relating to

employee inventions identify the employee inventions identify the ownership of invention and will enable ownership of invention and will enable Employer to swiftly commercialize the Employer to swiftly commercialize the invention.invention.

Article 35 Section 3. Article 35 Section 3. Reasonable remunerationReasonable remuneration

Proposed ChangesProposed Changes:: If the determination of “remuneration” for assigning If the determination of “remuneration” for assigning

rights has not been unreasonable in consideration of rights has not been unreasonable in consideration of the difference in the positions of Employer and the difference in the positions of Employer and Employee, the decided remuneration should be Employee, the decided remuneration should be respected. respected.

If such determination is unreasonable, Employee’s If such determination is unreasonable, Employee’s right to demand “reasonable remuneration” should right to demand “reasonable remuneration” should be recognized.be recognized.

In making the determination of unreasonableness, it In making the determination of unreasonableness, it is important to show deference to the independent is important to show deference to the independent agreement by Employer and Employee, and the agreement by Employer and Employee, and the steps taken in deciding the “remuneration” should be steps taken in deciding the “remuneration” should be evaluated with heavy emphasis. evaluated with heavy emphasis.


Specific Approach:Specific Approach: As a general rule, the “remuneration” should As a general rule, the “remuneration” should

be that which is determined by “voluntary be that which is determined by “voluntary decision” of Employer and Employee.decision” of Employer and Employee.


Specific Approach (cont’d):Specific Approach (cont’d): The determination of whether the remuneration was The determination of whether the remuneration was

voluntarily decided by both parties should be voluntarily decided by both parties should be determined by to what extent the will of Employee is determined by to what extent the will of Employee is reflected in the overall process of determination of reflected in the overall process of determination of “remuneration,” and emphasis will be placed on “remuneration,” and emphasis will be placed on substantive procedure taken in the decision process.substantive procedure taken in the decision process. E.g., contract, company rules, or other regulations E.g., contract, company rules, or other regulations

between Employer and Employee.between Employer and Employee.


Specific Approach:Specific Approach: If no “remuneration” was decided in If no “remuneration” was decided in

advance, or a decision of advance, or a decision of unreasonable remuneration was made unreasonable remuneration was made due to imbalance of power between due to imbalance of power between Employer and Employee, Employee Employer and Employee, Employee should still be allowed to demand should still be allowed to demand “reasonable remuneration” as under “reasonable remuneration” as under the current system.the current system.


Specific Approach:Specific Approach: Determination of reasonableness of remuneration should be Determination of reasonableness of remuneration should be

made based on:made based on: 1) reasonableness of the procedure taken to decide the 1) reasonableness of the procedure taken to decide the

“reasonable remuneration.”“reasonable remuneration.” e.g., If the regulation provides for a standard for e.g., If the regulation provides for a standard for

determining “remuneration,” does it take into account determining “remuneration,” does it take into account the will of Employee? How is the standard disclosed to the will of Employee? How is the standard disclosed to each Employee?each Employee?

2) how the “remuneration” was decided.2) how the “remuneration” was decided. e.g., Was the explanation of the decision given to e.g., Was the explanation of the decision given to

Employee, and to what extent? Was Employee Employee, and to what extent? Was Employee provided with an opportunity to object to the decision? provided with an opportunity to object to the decision?


Specific Approach (cont’d):Specific Approach (cont’d): Japan Patent Office should provide Japan Patent Office should provide

examples of unreasonable decisions of examples of unreasonable decisions of remuneration. remuneration.


Specific Approach:Specific Approach: The exact method of discussions or negotiations The exact method of discussions or negotiations

between Employer and Employee should not be between Employer and Employee should not be excessively regulated by law or regulations, and excessively regulated by law or regulations, and the decision of remuneration should be flexibly the decision of remuneration should be flexibly made by each Employer and Employee.made by each Employer and Employee.

Examples:Examples: Post-invention transfer should be allowed.Post-invention transfer should be allowed. Regulation for advanced transfer and standard Regulation for advanced transfer and standard

for calculation of remuneration may only for calculation of remuneration may only require majority vote of the Employees.require majority vote of the Employees.


Specific Approach:Specific Approach: Employer should preferably publicly Employer should preferably publicly

disclose the standard for deciding the disclose the standard for deciding the remuneration to guarantee remuneration to guarantee reasonableness of the remuneration.reasonableness of the remuneration.

Article 35 Section 4. Article 35 Section 4. Calculation of reasonable remunerationCalculation of reasonable remuneration

Objective:Objective: Bases for calculation of reasonable Bases for calculation of reasonable

remuneration should be clearly remuneration should be clearly defined.defined.

Article 35 Section 4. Article 35 Section 4. Calculation of reasonable remunerationCalculation of reasonable remuneration

Specific Approaches:Specific Approaches: Employer’s contributions to the patent after Employer’s contributions to the patent after

invention by Employee should be considered in invention by Employee should be considered in calculating the reasonable remuneration.calculating the reasonable remuneration. E.g., patent application process, post-invention E.g., patent application process, post-invention

development to reduce the invention to development to reduce the invention to practice, business expense in using the practice, business expense in using the invention, advertising and sales activities, invention, advertising and sales activities, license negotiations, R&D activities for license negotiations, R&D activities for peripheral inventions, etc. peripheral inventions, etc.

Employee may already be heavily compensated Employee may already be heavily compensated for his inventive activity via salary or promotions.for his inventive activity via salary or promotions.

Scope of Article 35. Scope of Article 35. Foreign Patents related to Employee Foreign Patents related to Employee

InventionInvention

The Article will not regulate the transfer of foreign The Article will not regulate the transfer of foreign patent rights related to employee invention, or the patent rights related to employee invention, or the remuneration thereof.remuneration thereof. The patent systems differ in each country, and The patent systems differ in each country, and

legal and administrative hurdles exist.legal and administrative hurdles exist. Civil Law and other contract jurisprudence Civil Law and other contract jurisprudence

already provides a mechanism for domestically already provides a mechanism for domestically transferring patent rights in foreign countries. transferring patent rights in foreign countries.

Scope of Article 35. Scope of Article 35. Shortened Statute of Limitations will not Shortened Statute of Limitations will not

be providedbe provided Rationale:Rationale:

Civil Law Article 167 already defines Civil Law Article 167 already defines statute of limitations for general claims statute of limitations for general claims (i.e., 10 years).(i.e., 10 years).

Loss of evidence over time would in any Loss of evidence over time would in any case make establishing the case difficult.case make establishing the case difficult.

Doctrine of laches provides basis for Doctrine of laches provides basis for statute of limitations.statute of limitations.

Questions posed by AIPLA in the Nov. Questions posed by AIPLA in the Nov. 24, 2003 letter to Patent System 24, 2003 letter to Patent System

SubcommitteeSubcommittee

The official answers must await The official answers must await future case decisions.future case decisions.

However, I will offer my opinions for However, I will offer my opinions for your consideration.your consideration.

Q. Does Article 35 apply to any Q. Does Article 35 apply to any company operating in Japan, e.g., a company operating in Japan, e.g., a subsidiary of a foreign corporation?subsidiary of a foreign corporation?

A. Probably yes. Assuming the invention was A. Probably yes. Assuming the invention was made in Japan, by virtue of the principle of made in Japan, by virtue of the principle of territoriality and in view of the intent of the territoriality and in view of the intent of the Labor Standards Law (to protect the rights of Labor Standards Law (to protect the rights of employees working in Japan), Article 35 employees working in Japan), Article 35 should apply not only to Japanese entity should apply not only to Japanese entity employers but each and every employer employers but each and every employer located in Japan.located in Japan.

Q. Does Article 35 apply to any individual Q. Does Article 35 apply to any individual who makes an invention in Japan, e.g., a who makes an invention in Japan, e.g., a

foreign national only in Japan temporarily on foreign national only in Japan temporarily on a consultancy?a consultancy?

A. Depends on whether the individual in question is A. Depends on whether the individual in question is deemed an “Employee” under Article 35.deemed an “Employee” under Article 35.

No decision directly on this issue exists now. No decision directly on this issue exists now. Related opinion (re Copyright Law Article 15 Section 1):Related opinion (re Copyright Law Article 15 Section 1): RGB AdventureRGB Adventure case, Supreme Court, Hei. 13 (Rec’d) No. 216. case, Supreme Court, Hei. 13 (Rec’d) No. 216.

Held that the determination of whether an individual is deemed to Held that the determination of whether an individual is deemed to be “one that is engaging in the business of a corporation, etc.” is be “one that is engaging in the business of a corporation, etc.” is made based on whether the individual provides services under the made based on whether the individual provides services under the corporation’s control and supervision, and whether the corporation’s control and supervision, and whether the compensation paid by the corporation to the individual is a compensation paid by the corporation to the individual is a remuneration for his services rendered by looking to the mode of remuneration for his services rendered by looking to the mode of employment, existence of control and supervision, amount of employment, existence of control and supervision, amount of remuneration, method of payment, etc. remuneration, method of payment, etc.

Q. Does Article 35 apply to a Q. Does Article 35 apply to a Japanese national who makes an Japanese national who makes an

invention in Europe and patents it in invention in Europe and patents it in Japan? Japan?

A. Probably not. Article 35 generally A. Probably not. Article 35 generally applies to inventions made in Japan applies to inventions made in Japan only. (The nationality of the inventor is only. (The nationality of the inventor is irrelevant to the issue of where the irrelevant to the issue of where the invention was made.)invention was made.)

Q. Does it apply to European Q. Does it apply to European inventor who makes an invention in inventor who makes an invention in

Europe and patents it in Japan?Europe and patents it in Japan?

A. Probably not. Generally, A. Probably not. Generally, inventions made outside of Japan will inventions made outside of Japan will not be subjected to Article 35. not be subjected to Article 35.

~ The End ~~ The End ~

Thank you!Thank you!

Update on Article 35 of the Japan Patent Law Yoshi Inaba TMI Associates AIPLA Pre-Meeting, January...

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