Domestic and International Patent Strategies for the Japanese Market

Last month Karl Ruping reported on the basic principles of patent protection in the Japanese computer industry. In this segment he discusses domestic and international patenting strategies. The trilogy ends next month with the recent extension of patent law to software technologies.

By Karl Ruping

Competition in high technology indus- tries is increasingly global. And with the harmonization of intellectual property regimes, international patent portfolios have become an important weapon. Strong patent rights can ensure cross-licensing of interdependent technologies, secure access to new product or geographic markets, and attract favorable funding from investors. The Japanese patent holder enjoys a 20-year exclusive right to commercially work a protected invention. The inventor or an assign must be the first to submit an application with the Japanese Patent Office (JPO) which sufficiently describes a novel advance not easily anticipated by one skilled in the technical art.

This is one of the strongest of intellectual property rights, and thus the most sought after. But patent protection is not without its limitations. One is that the application is publicly laid open 18 months after its submission and an awarded patent is published. Both actions will disclose your revolutionary invention to the world. Thus, even if the application is in the end rejected, any proprietary information disclosed no longer qualifies for trade secret protection and will become prior art.

The inventor must also consider the expense involved in pursuing even a clearly patentable invention. Not only are there application fees and periodic maintenance cost over the life of the patent, expensive professional advice is often necessary in processing an application.

Enforcing a patent right may also be expensive and frustrating. Despite the introduction of new discovery mechanisms, it is still difficult to obtain evidence from a defendant to support an infringement claim. Even with sufficient proof, the costs in securing and defending a patent may be more expensive than the recovery available.

Japanese patent law appears to encourage patent infringement. In theory, parties negotiating a patent license agreement will reach a reasonable royalty payment for the particular use. In a finding of infringement, however, a Japanese court will often award damages in the sum of a reasonable royalty.

The rational infringer will consider the probability of being discovered and the further probability of a court finding sufficient proof of infringement before paying a licensing fee. It is the patent holder who is at a disadvantage: critical evidence often remains beyond the reach of the plaintiff and infringement claims proceed at a glacial pace. Thus, a patent holder may agree to settle a patent infringement case at a rate even below what should otherwise be a reasonable royalty.

The JPO has long recognized the need to correct the low recovery rates for patent infringement. A recent attempt to introduce triple damages was met with strong resistance, not from any infringer lobby but by civil code stalwarts opposed to a dangerous US import: punitive damages.

In the spirit of compromise, the Diet enacted legislation that will increase the maximum statutory fine from 5 million to 150 million yen as of January 1, 1999.

International Perspective

Japanese patent law protects an invention only within national boundaries. To obtain rights to your technology overseas a global patent strategy is necessary.

Patentability rules are not uniform across the world and it should not be assumed that Japanese provisions are the international standard. Inconsistent novelty and inventive step provisions raise the possibility that activities which do not affect Japanese prior art may still destroy patentability in other countries.

For example, French patent law will consider novelty-destroying public use any place in the world, unlike the Japanese Patent Act which looks only to domestic use. For example, initial market research activities in India may not prevent a Japanese patent application, but will frustrate a French filing.

In some instances an application in one country will be counted as prior art in a second, and a strategy of parallel filing is necessary to retain foreign novelty. Fortunately, Japan is a member of several patent treaties that offer the local inventor certain filing privileges overseas.

The Paris Convention allows a JPO applicant to file a patent to the same invention in any of the 143 member states within 12 months from the initial filing date. The first Paris filing establishes a priority date from which conflicting patent applications and prior art challenges will be measured. The applicant must still meet domestic filing formalities and patentability requirements.

The Patent Cooperation Treaty (PCT) provides a centralized filing and examination procedure for its 94 member states. A domestic national or resident can submit an international patent application with a PCT receiving office, such as the JPO. The application designates the particular member-states countries in which the applicant wishes to reserve the right to patent into once the PCT procedure has matured.

The applicant selects an International Searching Authority to conduct a review of conflicting prior art. The application and the resulting International Search Report is published within 18 months of the first filing. The applicant can then go directly to the national patenting phase within 20 months from the priority filing date.

The PCT applicant may further delay the national phase by appointing a patent office to perform a preliminary examination of the claims. For purposes of economy this is usually the same office that performed the prior art search. The PCT examination is to determine whether the application appears to satisfy the novelty, inventive step, and industrial utility provisions of the PCT. If successful, the fortunate applicant has 30 months from the priority date in which to enter the national phase, selecting from the country designations made in the original PCT filing.

National patent offices are not bound by the PCT international search or the examination report. However, both are helpful in the domestic examination process and facilitate a quick resolution of the patent application. The JPO is the preferred International Review and International Examination office due to its reputation for extensive non-patent prior art resources and thorough review. A close second is the European Patent Office. But if you hope to secure a domestic

Japanese patent soon after entering the national phase, choose the JPO as it is notoriously slow in examining PCT filings that were not processed though its own office.

The leading benefit to using the Paris Convention is that PCT procedures delay the expense of national examination such as domestic filing fees, legal expenses and translation costs for up to 30 months. This period allows further R&D and market analysis to provide a better evaluation of the inventionÕs commercial value. Further, the decision to undertake these costs can be made after a preliminary examination which, if positive, will be compelling for the patent office that performed the examination and influential for other selected national patent offices.

These benefits, however, must be weighed against the additional costs required for the PCT application as well as the sometimes unwanted delay in the global patent process due to an additional layer of international search and examination procedures.

Parallel Imports

Parallel products are a thorn in the side of global patent holders. An enterprising company will purchase patented products in a lower priced country and import the products into Japan for sale at a profit, but below the local market price. Is this patent arbitrage a violation of the foreign or Japanese intellectual property right?

In BBS vs. Jap. Auto, the Japanese defendant purchased automobile wheels in Germany that were protected by both Japanese and German patent rights. These products were imported into Japan without the express consent of BBS and sold at prices below those of the exclusive licensee.

The BBS case went all the way to the Supreme Court of Japan, which held that the parallel importer did not infringe the Japanese patent. Reversing prior case law, the court opined that a purchaser of a product protected by a similar German patent obtains the right to use the product, including the right to import and resell the product in Japan. This presumption is overcome when the sales contract contains an express reservation or when a notice is attached to the product limiting trade in the Japanese market.

The BBS decision raises more questions than it answers. The Supreme Court did not offer a test for patent similarity between the Japanese and foreign legal system. A Japanese patent may share many similarities with a patent obtained in Germany, the original model for Japanese patent law. It is not clear, however, if the same holds true for a patent from China or Thailand, likely sources of parallel imports due to relatively low local prices.

The Supreme Court also did not elaborate on what form of notice is required, particularly to prevent parallel importation by those who are not privy to the original foreign sales contract. Physical notice becomes a problem when the patent is to chemical compound or a patented process. In terms of a content transmitted over the Internet, traditional shrink-wrap notice appearing on the product package may not be possible, but a click-wrap notice appearing as hypertext would seem to satisfy the BBS requirement.

Financial rewards from new innovations protected by patent rights can be lucrative. There are many complexities and pitfalls lurking in the atenting process, however, and the applicant should obtain competent legal advice at an early stage.¨

Karl Ruping is a US attorney (NY & MA) specializing in, (Intellectual Property) rights in high technologies. In addition to his Boston practice, Karl lectures on IP rights in Europe, Asia and the US. Questions can be direct to the author at


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