The Making of an IP Nation

Back to Contents of Issue: December 2002

The message emanating from special government panels and the cloistered halls of academia is increasingly similar: Intellectual property rights hold the key to Japan's rebirth.

by Sara Harris

Since the beginning OF the year, momentum has been building behind a revival plan for the Japanese economy. The strategy aims to make a fundamental shift in the nation's industrial character from manufacturing powerhouse to knowledge society. In March, a special government panel was charged with developing a plan for strengthening patent protections and expanding Japan's intellectual property rights system. The 103-point outline released by the panel July 3 provides a framework for the rebirth of Japan in its new image: IP Nation.

The recommendations are far-reaching, covering changes in the education and judicial systems, foreign affairs, laws, employment -- and in basic attitudes. The panel writes in its report that in response to the globalization of economic activity, development of the information economy and fluidity of employment, it is necessary to "stimulate intellectually creative activity at all levels, including government, university, business and individual," and subsequently to protect the intellectual property that results. While the Patent Law has undergone revision regularly, the reforms proposed this time "are completely different" from what has passed to date, says Takafumi Yamamoto, chief executive officer and president of the Center for Advanced Science and Technology Incubation (CASTI), the University of Tokyo's technology licensing office. This time it is not just patent rules that are being addressed, he said, but how to promote inventions and how to create a "knowledge country."

Times have changed, explains Shigeo Takakura, senior chief examiner at the Japan Patent Office and counselor for intellectual property rights policy in the Cabinet Office. While Japan's status as a "second-runner" -- licensing technologies from overseas, modifying them and producing cheap, high-quality goods in large quantities -- fit its needs in the era of high growth, the policy is no longer sufficient, Takakura says. Japan has steadily lost its manufacturing strength to countries that can produce more cheaply.

It must now become a front-runner, says Takakura, by developing a system that provides incentives to inventors.

If implemented as proposed, the measures released in July will be the biggest changes to Japan's patent system in over 100 years. The current initiative also marks the first time that the strengthening of IP rights has been a national growth strategy since Japan created its Patent Office in the late 19th Century.

Officials are already moving on the plan. The most immediate effects of the outline, which is to be implemented over the next three years, are the establishment of an IP Strategy Headquarters in the prime minister's office and movement toward submitting a bill in the 2003 Diet session.

But overarching questions remain. Can it be done? And how will the success of this IP strategy be evaluated?

The need for speed
According to one private group active on the issue of intellectual property rights reform, Japan can revive its economy by making a concerted effort to implement a comprehensive IP strategy if it is done quickly. In fact, says the Intellectual Property National Strategy Forum, Japan can become the world's leading IP nation by 2010.

The 11-person forum, of which Yamamoto of CASTI is a member, has mirrored the federal effort since the group's founding in August 2001. This May it put out its own book, IP Nation, with 100 suggestions for achieving its goal of making Japan an IP world leader. It also released an evaluation of the panel's outline in late July, giving it good marks overall, but criticizing vaguely worded points and implementation timelines for being too slow.

The forum's most prominent member, Hisamitsu Arai, was Patent Office commissioner from 1996 to 2001, when he introduced a number of changes in the Patent Law -- such as a reduction of the time period in which a filer can request examination of an application -- that had a large impact on the system in Japan. Since then, he has actively promoted IP rights and protections as the means to Japan's economic rebirth, if not outright survival. Arai was a member of the government's IP strategy council, which adopted 52 of the forum's 100 suggestions.

Through lectures and other work, he has also spread the concept of "pro-patent," which is now standard in intellectual property circles. Materials on the history of Japan's patent system distributed by the Patent Office describe pro-patent policy as "an effort to stimulate industry and strengthen the ability to compete internationally by protecting inventors' rights and enhancing incentives to invent through the provision of stronger intellectual property protections."

Arai's position is that "the adoption of pro-patent policy saved the US from its last recession," explains Toshiko Takenaka, director of the Center for Advanced Study and Research on Intellectual Property and associate professor at the University of Washington School of Law. But, she adds, "This is his own theory, which is not necessarily widely adopted by US scholars or IP professionals."

Problems lurk
The problems with Japan's patent system may not be immediately obvious. Scholars say Japan has top-class legislation regarding intellectual property, and, at 439,175 filings in 2001, Japan's Patent Office fielded the largest number of patent applications of any patent office in the world. Takakura notes that this is one-third of the world total. By comparison, the US Patent and Trademark Office received 345,732 applications in the same year (fewer yet than Japan received in 1994).

The office is, however, perennially criticized for being slow. It is said to take nearly twice as long to process a patent application in Japan as it does in the US. And shortening the time in which applicants must file an examination request from seven years to three, a revision of the Patent Law that became effective in 2001, only increased each patent examiners' workload, which has been about 200 cases per year, according to Takakura. In 2000, there were 1,088 patent examiners, up 15 from five years earlier. Still, this number was about one-third of the number in the US, which has issued its own plan for reform.

The office is currently considering its options, Takakura says, including hiring more examiners and outsourcing certain steps in the examination process.

The real problem, however, has been one of attitudes and awareness. Look at the patents granted and one finds that their productivity has been extremely low. Many are what is known as "sleeping," meaning they have not been licensed and put to work earning royalties. Companies also used to cross-license their discoveries at will. Employees may once have been content to work for the good of the company, Takakura explains, receiving JPY10,000 to JPY20,000 in acknowledgement of their discoveries. But now they need to be given incentives. In addition, a large number of patents have been for modifications of existing technologies, not original discoveries.

"Awareness of patents has been low," says Takakura. The current reforms, he suggests, are an effort to switch the emphasis from the quantity of applications to quality filings and to encourage patent use. Companies won't be able to get market share without doing so, he says.

Japan's IP legislation is already world-class, argues the University of Washington's Takenaka, and in areas governing cutting-edge technologies in computers and molecular biology, it surpasses European laws. In addition, judges are given assistance with technical aspects of their cases. If there is any serious hurdle to strengthening Japan's IP activity, she says, it is on the user's side. "Relatively few Japanese companies have a clear sense of IP strategies," she argues. "They still try to compete by the number of inventions, rather than their quality. Many patents owned by Japanese companies have never been enforced or licensed."

Such tactics -- which, far from posing problems, were beneficial in Japan's high-growth period -- are widely thought to characterize Japanese attitudes toward patents. But it was not always so. Meiji era inventors were high-profile national figures, the talk of their day. And the companies they built remain high-profile players today.

Kokichi Mikimoto is one of many Meiji era inventors who built vast empires on their discoveries. On the centennial of the Patent Office's creation, in 1985, Mikimoto, who patented the method for growing cultured pearls and founded the Mikimoto company, was chosen as one of Japan's top 10 inventors. Toyota, Matsushita and NEC are other companies that started with a few modest inventions to their name.

The Meiji era, when Japan established its patent system, was a heady time for inventors. The steam engine and powered spinning machine had been invented in Europe more than a century earlier, sparking the Industrial Revolution there. But the late 19th Century brought the patenting of Nobel's dynamite in 1867, Bell's telephone in 1876, Edison's incandescent lamp in 1879, and the internal combustion engine, granted to Clarke in 1880. Japan established its patent system under the Patent Monopoly Act of 1885.

In the Edo period, not only was the country closed off from many of the technological developments of the Industrial Revolution in Europe and the US, but the government, which stressed frugality and also felt it necessary to protect against potentially destabilizing inventions, passed a No Innovation Law in 1721. Guilds, however, exercised effective monopolies, and different regions of the country were granted exclusive rights to promote and sell unique local products.

After Japan opened its doors to foreign trade in the 1850s pressure built both internally and externally for legal protections for inventors, and for the licensing of technologies from overseas. Yukichi Fukuzawa, the founder of Keio University and the man depicted on the JPY10,000 bill, was a strong advocate of creating a patent system -- the result of missions he led to Europe and the US.

In fact, an early attempt was made, in 1871, with the adoption of Provisional Regulations for Monopoly, Japan's first patent law. It aimed to nationalize a process for granting rights that had previously been the responsibility of prefectural administrators. However, while the move did provide for legal infrastructure, there was no accompanying funding or trained personnel to support it, and the law was suspended in a year.

Gaun's struggle
Amidst the chaos and uncertainty following the Meiji Restoration and the changes it perpetuated, Japan decided to hold a National Industrial Exhibition in 1877. It was to become a climactic event in the history of intellectual property rights. The award for best invention at the expo, held in Ueno Park, was a machine for spinning yarn, created by Tokimune Gaun. But the publicity he received turned out to be a mixed blessing: combined with the relatively simple construction of the spinning machine, it simply meant that Gaun's work was easier to copy.

An English-language publication on the contribution of patent rights to Japan's industrial development, distributed by the Patent Office, summarizes the expo's significance: "It was extremely successful compared with other events of the time, but because a legal system for patents was not sufficiently established, the exhibition actually served to increase counterfeits." Gaun became the most famous victim of this trend. And although he devoted the remaining 23 years of his life to improving his invention, he never recovered his costs and died in poverty. The public outcry over his plight is said to have led directly to the adoption of the Patent Act.

In the first year under the new law, inventors filed for 425 patents. Patent No. 1 was granted to Mizumatsu Hotta for a rust-proof paint and painting method -- it took less than two months to process. By the turn of the century, the patent bureau, established in the Ministry of Agriculture and Commerce in 1886, was receiving over 1,500 applications a year.

Today is another age of discovery, although of a quite different character. Some of the recommendations today address the need to rapidly increase the technical expertise of IP professionals, including examiners, patent attorneys and judges in patent disputes. While there are some 40-50 specialists that are called in regularly to brief patent examiners on new developments in biotechnology and other fields, the fast pace of discovery in both the life sciences and IT has put significant pressure on the Patent Office to keep up.

But this is not unique to Japan. Over the course of patent history, the very nature of what can be patented has changed. To receive a patent in Japan, an invention or discovery must currently fulfill three criteria: novelty, utility, and originality. While early inventions were largely machines or other devices and manufacturing processes, definitions later expanded to included substances created through chemical processes, for example, and, most recently, business methods.

Under Japan's original patent law, according to another Patent Office publication, inventions "contrary to public order or relating to medicines and drugs" could not be patented. Between 1959 and 1994, Japan had a law on the books decreeing that no substance manufactured through nuclear transformation could be patented.

What can we patent?
Today, the definition of patentability continues to be debated in legislative committees and in the courts. While living things are not patentable, the identification of a genomic sequence with a particular biological function could be. Not only are scientific developments stretching the technical knowledge of examiners, they are in danger of surpassing the speed at which patent laws can be developed to evaluate and handle them. As a result of the fast pace of discovery in cutting-edge technical fields, patent offices worldwide are now facing an unprecedented increase in applications. "The most urgent agenda for (patent offices in Japan, the US and Europe) is how to handle ever-increasing applications with even more complex technologies," says Takenaka.

In addition, because the jurisdiction, and rules, for each patent office are different, inventors must file multiple applications, depending on where they want to retain the rights to their discoveries. Removing "the redundant work and fairly (allocating) examination workloads are the keys for these offices to survive," Takenaka contends.

One-third of Japan's researchers are in academic institutions. When the topic of discussion is technology transfer, it's no surprise that the conversation soon turns to the nation's universities.

There are currently 29 technology licensing offices, or TLOs, recognized by the government, serving both public and private universities around the country. In 1999, the Diet passed the TLO Law, also known as the Japanese Bayh-Dole Act, after a US law passed in 1980 that gave universities rights to develop internally -- and profit from -- the results of federally funded research. Subsequently, offices around the country lined up for government approval. Each TLO has adopted one of three forms: kabushiki gaisha (a joint-stock company), foundation, or organization within a single university. As part of the system, the government covers two-thirds of such costs as holding seminars and conducting research. TLOs are supported up to a maximum of JPY30 million per year for five years.

In addition, the government licenses and employs 120 patent advisers, who are sent to various TLOs to facilitate the matching of university-based findings and technologies with businesses that can put them to use.

TLOs are too busy with just patents, says Takakura. He thinks they need the advisers to go out and sell the idea of a license to potentially interested businesses.

TLOs do indeed have their hands full with the searching, advising and examining necessary to get successful research results patented, confirms Hiroshi Suetomi, the head of business development at Hokkaido Technology Licensing Office. In Hokkaido's case, the office is overburdened even with the assistance of the two government-sponsored advisers working there.

Hokkaido TLO was established in December 1999. Since that time, it has filed for 72 patents domestically and 19 overseas; in addition, it has inked 13 license agreements. Patents are pending on inventions ranging from a method for storing potatoes to an environmentally friendly substance for keeping sea creatures from sticking to your boat, to monoclonal antibodies, which are produced by the identical offspring of a cloned antibody-producing cell. Although there are several TLOs nationwide that are affiliated with more than one academic institution, Hokkaido TLO is the only one that serves all of the universities and technical higher education institutions in a single prefecture or administrative region.

But while all of the research it uses is locally grown, the TLO searches for potential licensers nationwide. Especially in such areas as post-genome research, Suetomi says, chances are greater with a large national interest than with Hokkaido businesses, which are mostly small- and medium-sized. "It's not possible to license just to Hokkaido businesses," he says.

Forming a TLO network
With TLOs from every region looking for suitable partners nationwide, and potential licensees -- both in Japan and overseas -- searching for appropriate technologies, how to integrate the separate TLOs into a functional network is a looming issue.

In addition, with the administrative reorganization of national universities in two years, it is possible that they will gain the right to hold patents, which are now either in the inventor's name or the government's. Such changes are expected to have significant consequences for TLOs.

After 2004, Suetomi says there is another worry: How will TLOs run without government support?
Based on the experience of TLOs in the US, few should expect to be turning a profit before their first decade. CASTI at the University of Tokyo is a notable exception. Chief executive and president Yamamoto hopes more TLOs will follow CASTI's lead. The key, he says, is learning from the successes and mistakes of others.

CASTI, founded in August 1998, is modeled after TLOs established at such US universities as Stanford, MIT, and the University of California at San Francisco by Niels Reimers, with whom Yamamoto was a consultant in the 1990s. As of September, CASTI has helped inventors file over 400 patents and finalize over 70 licensing agreements. The office's income comes from the royalties accrued through such contracts.

By improving the environment for inventors, Yamamoto envisions the day when university researchers are "heroes," becoming international stars on par with athletes starring in international soccer and baseball leagues today. An inventor in Japan might provide the solution for an environmental problem in London, for example. But "without patents," he adds, there will be "no incentive."

While the shape of things to come is still unclear, the changes afoot have inspired an enthusiasm that is palpable. Says Suetomi, "These are very exciting times." @
Sara Harris is a Chiba-based freelance journalist and a frequent contributor to J@pan Inc, including Two of a Kind -- Man and Ape in the August 2002 issue.

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