Japan: Revisions Made To The Japan Patent Law Relating To Employee Invention System (Made Effective On April 1, 2016)

Last Updated: 15 March 2017
Article by Naohisa Akashi and Manabu Hirata

Summary:

Article 35 of the Patent Law, which prescribes the employee invention system, was amended by the 2015 revision in order to reduce potential litigation risk, which may otherwise increase as technical innovations made by businesses become more highly developed and complicated. The revised law, which came into effect on April 1, 2016, newly prescribes: that (i) an employer can make an agreement (via, e.g., a contract or employment rules) with an employee that when the employee makes an "employee invention" (i.e., an invention made in the course of exercising his work duties), the right to obtain a patent for the "employee invention" shall inherently be vested in (i.e., shall inherently belong to) the employer; that (ii) the employee can receive a reward for his "employee invention" in the form of "reasonable [..] economic profits", which shall not be limited to a "remuneration" (monetary reward), but shall also include any other types of economic profits; and that (iii) the Minister of Economy, Trade and Industry shall provide a guideline for determining the "reasonable profit" as a reward for an "employee invention". This article explains the changes made to the employee invention system in Japan by the 2015 revision to the Patent Law.

1. The employee invention system under the old Patent Law

The Patent Law prescribed that a right to obtain a patent for an invention, which occurs when the invention is made by the inventor, is inherently vested in the inventor, on the grounds that only a natural person (not an artificial person such as a business entity) is eligible as an inventor. This principle also applies to a so-called "employee invention", i.e., an invention made by an employee in the course of exercising his work duties under the control of the employer (Article 35, paragraph 1 of the Patent Law). There was no exception to this principle under the old Patent Law, which was effective until the 2015 revision came into effect on April 1, 2016.

According to the old law, an employer is only allowed to make an agreement (via, e.g., a contract or employment rules) with an employee in advance that when the employee makes an "employee invention", the employer shall succeed to the employee's right to obtain a patent for the "employee invention" or, if the employee has obtained a patent right based on the "employee invention", to the employee's patent right, provided that the employer offers the employee a reasonable remuneration as a monetary compensation (Article 35, paragraph 5 of the old law). Otherwise, the employer is only eligible as a non-exclusive licensee for a patent right granted for the "employee invention" (Article 35, paragraph 1 of the old law).

However, there were a number of cases before the 2004 revision to the Patent Law where even though an employer paid an employee remuneration as a reward for his "employee invention", the employee filed a lawsuit claiming that the remuneration is not "reasonable remuneration" as monetary compensation for the "employee invention" (e.g., the Supreme Court decision held on April 22, 2003, for Case No. 2001 (Ju) 1256).

Accordingly, in order to reduce the employers' risk of being sued by their employees and also decrease the employers' possible litigation costs, the Patent Law was amended by the 2004 revision to explicitly prescribe that "remuneration" as compensation for an "employee invention" is deemed to be "reasonable" as long as the entire process from determination of the remuneration amount to payment of the remuneration is "reasonable".

2. Problems involved in the old employee invention system

Since the 2004 revision to the Patent Law established a clear standard for determining "reasonable remuneration" as a reward for an "employee invention", there have been only a few instances of litigation seeking compensation for damages relating to an "employee invention" under the 2004-revised Patent Law.

However, there has recently been a growing demand from industry to revise the Patent Law further, in view of recent changes in technical innovations made by businesses, for the following reasons.

  1. Recurrence of the employees' risk of being sued by their employees

    There has been a tendency in recent years for a single invention to be typically made by a group of employee inventors, with support from other employees, and for a single product to be often covered by as many as several hundreds to several thousands of patents. These development have rendered the process of determining "reasonable remuneration" for an "employee invention" more complicated, gradually increasing the employers' risk of being sued by their employees again.
  2. Instability in attribution of a right relating to an "employee invention"

    As mentioned above, the old law prescribed that an employer can make an agreement (via, e.g., a contract or employment rules) with an employee in advance that the employer shall succeed to the employee's right to obtain a patent for his "employee invention" or the employee's obtained patent right based on his "employee invention". However, such an agreement may cause the following problems.

    1. Problems relating to double assignment of a single right
      Since the right to obtain a patent for an "employee invention" is inherently vested in the employee without exception under the old Patent Law, the employee can logically assign the right in advance both to his employer and also to a third party. The employer has to file a patent application for the "employee invention" in order to perfect the succession of the right to obtain a patent for the "employee invention" from the employee and to assert the succession against any third party. If the third party files a patent application earlier than the employer does, then there is a risk that the employer may not be able to succeed to the employee's right to obtain a patent for the "employee invention". In this case, the employer is only eligible as a non-exclusive licensee in the event a third party obtains a patent right for the "employee invention".
    2. Problems relating to joint inventions
      Since joint research and development projects between two or more business entities and/or research institutes are becoming more common, it has become more difficult to clarify the attribution of the rights for inventions made through such joint research and development. Specifically, when two or more researchers employed by different employers create a joint invention, each joint inventor inherently obtains a share of the right to obtain a patent for the joint invention. In this case, a joint inventor who wishes to assign his share of the joint right to another party via, e.g., a contract, has to obtain consent from all of the other joint inventors, not only when the assignee is a third party, but also when the assignee is his employer. This may make the assignment process complicated and often render it unclear as to who currently owns each share of the joint right.

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