Bkgrnd - Japan Employee Inventions

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Employee Inventions in Japan 9/20/2005 Ryoko Iseki

Seminar in Advanced Patent Law by Prof. Morris Fall 2005

Employee Inventions Comparative Law between US &

Japan

Ryoko IsekiAssociate Prof. of Faculty of Law

Doshisha Univ. Kyoto Japan

1. Nakamura Case (Nakamura v. Nichia Corp.) Points

(1) 3 judgments of courtsCourt date citation issue result

Tokyo District(trial)

Sep.19,2002

1802Hanrei

jiho 30

interlocutoryjudgment

control ofpatent

companyhas thepatent

Tokyo District(trial) Jan.30,2004 1852Hanreijiho 36

finaljudgment amount ofremuneration

$189millionpayment

Tokyo High

(appeal)

Jan.11,2005

1879Hanrei

jiho 141

court-mediatedsettlement

amount ofremuneration

$8.1million

payment

(2) Background The companys president ordered to stop the Dr. Nakamuras research. In

spite of that, he took a risk of dismissal and he hid and continued the work.

Tokyo District court held in the interlocutory judgment that this fact effects

to estimate the contribution of the parties. (That means the companyscontribution was very low.)

It was a very rare case.

Dr. Nakamura was visibly incensed at the TV press conference after the

settlement and said, Japans judicial system is corrupt.

(3) Why such a big amount?District court decision:

1) profit to be received by the company from the invention are $1.15 billion.

2) degree of contribution made by the inventor is 50%

Calculation is $1.15 billion 50% = $560 million = appropriate remuneration

capped by the claim : $189 million (100% of claimed amount)

(4) Why so different between trial court decision and appealcourts one?High court mediated settlement:

1) weigh heavy that possibility of substitute technology, and estimate the

inventions license fee rate lower.(profit is $110 million)

2) degree of contribution by the inventor is 5%

The policy is that adequate remuneration should be an amount sufficient to act

as an incentive for employees, while at the same time should be a amount that

allows the employer to outperform its competitors in the fiercely contestedinternational market, and to promote its development in a tough economic

environment.

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(5)Other similar cases:HitachiCo. case

TokyoHigh

Jan.29,2004

1848Hanrei

jiho 25

finaljudgment

amount ofremuneration

$1.5millionpayment

Ajinomot

o Co.case

Tokyo

District

Feb.24,

2004

1853

Hanreijiho 38

final

judgment

amount of

remuneration

$1.8

millionpayment

In Hitachi case, Tokyo High court held that adequate remuneration to

employee inventors still should be required even if the assigned right are a

foreign patent.

(6)Amendment of the Employee Invention System in PatentLaw

These lawsuits led the amendment.

2. Employee Inventions Issue in Japan

Employee inventions result from efforts of both employee & employer.

That requires certain arrangement of rights to inventions between employee

& employer.

We also need to consider about the balance of power of these parties.

Especially in Japan, the labor environment: LIFETIME employmentsystem should be considered in particular Japanese can seldomchange their job.

That means usually Japanese employees are much weaker than US

employees, so they can hardly negotiate with their employers about their

inventions.

3. US Law compared with Japanese Law1) Current law

US Japanno particular provision in the US statutes about employeeinventions.1

Patent Law 35

governed by common law, and arranged by contracts betweenemployee & employer, mainly by employment agreements

Not common lawsystem

Restatement of Agency, 2nd 397 When Agent Has Rightto Patents

Non-inventive work employee is entitled to patents

(Nevada State law stipulate contrary (2001)

Same to US

Comment a. employee invention transferable to employer Same to US

Comment a. contract is not necessary specifically so provided.2 Certain explicitstipulation required

1 Except of Executive Order 10096 (Jan.25,1950, 15 Federal Register No.16,pp.389-391), amended by Executive Order 10930, 10695, for federalemployees.2

Comment a. says Such an agreement may be found in specific terms in acontract of employment or from the circumstances surrounding theemployment, the nature of the work done, and the relations of the partiesduring the employment.

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8 states3 laws limit the extent of transfer of employeeinvention

Almost same tothese state laws

Comment a in case of inventive work employee, inventions areto be owned by employer although not so specifically agreed

Certain explicitstipulation required

Comment b license for employer: Shop Right Almost same to US

Consideration for the contract of convey right to patentto employer:

the employment itself or the continuation of

employment.4

Employee has rightto appropriateremuneration

2) Proposed revisions of lawBrown bill (1963)(88th H.R.4932), Moss bill (1970)(91st H.R.15512),

..Kastenmeier bill(1982)(97th H.R. 6635) etc.

The bills were primarily concerned with the allocation of ownership rights and

with assuring employed inventors "adequate" compensation for certaininventions. These bills followed West Germany law or Japanese law.

4. Japanese Patent Law1) Overview

The employee-invention system in Japanese Patent Law aims to coordinate

the interests of the employees who made the invention and of the

employers who supported the employees, under industrial policy to

encourage research and development activities and to increase investment

in them in Japan.

The right to obtain a patent originally belongs to the inventor (the

Employee). (same as US)

The Employer has the right of legal non-exclusive license. (35(1))

The Employer can reserve succession of the right to obtain a patent or the

right to a patent granted, or the establishment of an exclusive license.

(ONLY in the case of the Employee Invention) (35(2))

The Employee has the right to demand payment of ADEQUATE

REMUNERATION in return for allowing the Employer to succeed to the right

to obtain a patent of the right to patent granted or the establishment of an

exclusive license for the Employer. (35(3))

Difficult problem is arisen: How is the adequate remuneration calculated?

- Because the value of a patent is very difficult to estimate; it varies

depend on many factors.

- Also difficult to evaluate the contribution of both parties to development

of the invention

3 California, Washington, Minnesota, North Carolina, Illinois, Delaware, Kansas,Utah.4 Thibodeau v. Hildreth124 F. 892 (1st Cir. 1903), Conway v. White 9 F.2d 863 (2nd

Cir. 1925), Cubic Corp. v. Marty 185 Cal.App.3d 438, 1 USPQ2d(BNA) 1709,Hebbard v. American Zinc, Lead & Smelting Co.161 F.2d 339 (8th Cir. 1947),Harsco Corp. v. Zlotnicki 779 F. 2d 906, 228 USPQ(BNA) 439 ( 3rd Cir. 1985) cert.denied 476 US 1171 (1986).

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2) Problems in the Previous Provision The previous 35(4) stipulated that the amount of the remuneration shall be

determined in light of the profit to be received by the Employer from the

invention and the degree of contribution made by the Employer to the

making of the invention. The Supreme Court decided that even where the employment regulation

includes the provision on remuneration to be paid by the employer to the

employees, when the amount of remuneration is less than the amount

decided by the 35(4), the employees can demand payment of the

remuneration corresponding to the deficit. (The case of Olympus Co.,

Sup. Ct. April 22, 2003., 57 Minshu 477)

Based on this decision, many suits in which inventors file against their

former-employer demanding the deficit of remuneration have occurred.

Employers worried that they couldnt foresee how much should they pay to

the employee-inventors.

3) Purport of the new system The determination of remuneration shall be regulated by the contract,

employment regulation or other stipulations, which are voluntary

agreements between both parties concerned.

In order to avoid cases in which unreasonable determinations are decided

due to difference in positions of the employers and the employees, where it

is recognized unreasonable to pay remuneration in accordance with the

stipulations, the remuneration calculated by reference to certain elements

as the previous provision provided, shall be the appropriate remuneration.

Focus of argument is shifted to how unreasonableness couldbe judged.

Elements considered are:

A: PROCESS to the payment

B: AMOUNT of the payment

process weighs heavier.

A: 1) situation of discussion between the parties when formulating the

standards for determining the remuneration

2) situation of the disclosure of such standard

3) situation of listening to opinions from the employee on the

calculation

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