Japan
Recent developments in IP law
Yoshitaka Sonoda
Sonoda & Kobayashi
This chapter looks at recent developments in Japanese IP law and practice.
Legislative changes
In 2005 many important legislative changes were made to the IP system in Japan, particularly regarding IP rights enforcement. The highlight of the year was the establishment of the IP High Court, which began operating in April 2005.
Establishment of IP High Court
The IP High Court has been established as a special branch of the Tokyo High Court to strengthen the judiciary’s ability to deal with IP litigation under Japan’s planned pro-patent system. The IP High Court has subject-matter jurisdiction over the types of cases described below. It is the only court with appellate jurisdiction over the cases judged by the Japanese Patent Office and the cases judged by district courts dealing with patents and the rights of authors of programs (program copyrights).
Jurisdiction: Figure 1 sets out the jurisdiction of the IP High Court. While the subject-matter jurisdiction of the IP High Court is similar to that of the US Court of Appeals for the Federal Circuit, the IP High Court differs in that it will handle only IP cases, whereas the US court also functions as an appellate court for the International Trade Commission. Although the IP High Court only began operating in April 2005, when it took over duties from the old IP section of the Tokyo High Court, it is expected to be a source of expert decisions on future IP cases.
Integration of standards for validity of patents at court and at the JPO
The Patent Law has recently been amended to state that a patent right cannot be executed if there are grounds for invalidity. While at first glance this rule seems to state the obvious, it will have a profound effect on actual practice. Before the introduction of this amendment, the Japanese Supreme Court decision in the Kilby Patent case (April 2000) set a precedent that the courts must work on the assumption that a patent is valid unless there are clear grounds to believe that the patent will be invalidated by the Patent Office. Under this precedent, in a hypothetical case where it has been proven that there are grounds for invalidity but not clear grounds for invalidity, a court may still have to assume that the patent is valid, even if the patent is such that it would eventually be invalidated by the Patent Office. The amendment has solved this problem. Since the courts are now empowered to use the same criteria as the Patent Office to judge on the validity of patents, they can decide to deny execution of a patent where there are grounds for invalidity without having to wait for a Patent Office decision.
Appointment of experts and reorganisation of law clerk system
Since patent-related litigation often requires a high level of technical expertise, a new system for the appointment of experts has been introduced in order to assist judges’ understanding of highly technical subjects.
The experts are selected by the presiding judge to provide technical explanations to help the judge understand the arguments and evidence. There are currently about 150 members of the expert group - mostly researchers affiliated with universities or national research organisations. When appointing an expert, the presiding judge must hear the opinions of both parties and cannot appoint an expert if both parties oppose the appointment. The parties may also comment on the explanations given by the experts. In addition, the parties can challenge experts and apply to have them excluded from proceedings, as their opinions can have a significant impact on the judgment. The parties are always present when the experts present their opinions and are free to comment, so the experts do not have the opportunity to influence the judge(s) without the intervention of the parties.
The Civil Procedure Code has been amended to strengthen and clarify the duties of the law clerks. The revisions make it clear that the law clerks can offer their opinions to the judges, ask the parties direct questions, and urge the production of evidence and request explanations from the parties with regard to factual and legal issues during almost all court proceedings, including oral hearings, in camera proceedings, interrogatories for preliminary injunctions, examination of evidence and settlement negotiations.
Confidentiality orders and exclusion from public inspection
If a production method for a product comes under scrutiny for possible infringement, the defendant may be able to prove non-infringement by disclosing the production processes used. However, this may come at the cost of being forced to disclose trade secrets. There have been cases in which a party has lost simply because it refused to submit its trade secrets when ordered to do so by the court. In order to avoid such circumstances, in camera proceedings were recently introduced. These are proceedings in which a party discloses information only to the court in order to explain that the information is a trade secret. If this information is acknowledged to be a trade secret, it need not be disclosed to the other party. One drawback is that a plaintiff which has brought an infringement suit on a patent for a production method may be forced to accept a decision of non-infringement without ever knowing the production method being used by the defendant, as it is a trade secret. This has been criticised as being unfair to such plaintiffs.
Under the revised in camera proceedings, the court may show a party and its attorney nominal trade secrets produced by the other party and hear their opinions on whether they are trade secrets. Since this procedure essentially causes the trade secrets to be disclosed to the competing party, a confidentiality system is in force to protect the interests of the party disclosing the information. A party under a confidentiality order may not disclose the information to anyone other than those who are also under a confidentiality order, and cannot use the information for any purpose other than to seek resolution of the case. Furthermore, while court records are generally made available for public viewing, if a party that is not under the confidentiality order requests perusal of a portion subject to the confidentiality order, this is not allowed without the consent of the party that requested the confidentiality order, thus preventing third parties from viewing trade secrets.
Parallel importation and patent, trademark and copyright infringement
The courts have recently handed down decisions regarding parallel importation and the infringement of rights in Japan. Parallel importation is treated differently according to whether the products are protected by patents, trademarks or copyrights, so the subject must be clearly distinguished when considering whether parallel importation constitutes infringement.
Relationship between parallel importation and patents
The leading ruling on parallel importation and patent infringement is the Supreme Court decision in the BBS case (1998). The Supreme Court held that sales of a product, whether inside or outside Japan, could be considered as surrendering to the purchaser all rights to the products, so that acts of importing and selling the products in Japan do not constitute infringement. However, the Supreme Court also held that if the seller and purchaser agreed to exclude Japan from further sales or use of the product, the importation and sale of the product would constitute patent infringement, thus making it clear that parallel importation does not constitute patent infringement subject to certain conditions. The decision indicates that a manufacturer holding a patent in Japan can prevent parallel importation by a third party by making it clear when selling the product (ie, by providing an indication on the product) that it does not consent to importation of the product into Japan.
In December 2004 the Tokyo District Court ruled on a similar case. The defendant imported and sold ink tanks for Canon’s inkjet printers, the tanks having been used, recovered and refilled with ink in China. Canon argued that “the recycling of discarded articles by refilling them with ink is essentially a new act of production and therefore constitutes an act of patent infringement”. However, the courts held that since “the patent lapses at the point Canon sells the products, whether overseas or domestically…the refilling of ink is within the range of product repair and does not constitute new production”. The court also considered the case in comparison to the Disposable Camera case, where it was held that the act of loading new film into a discarded disposable camera and selling the camera constitutes patent infringement. The court distinguished the case by stating: “Ink is a consumable, compared to which the ink tank itself has a longer lifetime and can be reused. This differs from the case of a disposable camera, in which removing film from the camera after use and loading with new film can cause the camera to be partially destroyed.”
Relationship between parallel importation and trademarks
The Supreme Court has held that parallel importation of genuine products bearing a trademark does not constitute infringement because it does not harm the origin indication function and quality guarantee function that are the essential functions of a trademark (Parker case, February 1970).
However, the Supreme Court recently indicated that parallel importation of products can constitute infringement of a trademark under certain conditions. In that case, an English company holding trademarks to the Fred Perry brand in Japan and overseas licensed a manufacturer in Singapore to produce the products and use the trademark. In violation of the agreement, the manufacturer subcontracted the manufacture of the products to a company not acknowledged in the agreement, affixed the trademark to these products and sold them overseas. A Japanese importer purchased these products overseas, imported them to Japan and sold them. The Supreme Court held that the importation and sales of the products by the Japanese importer constituted trademark infringement. The reason was that the products lay outside the scope of the agreement concerning the manufacturer, thus losing the origin indication function of the trademark. Furthermore, the quality of the products was not necessarily the same as that of legitimate products because the manufacturers differed, thus also losing the quality guarantee function. The Supreme Court made it clear that the parallel importation of genuine products does not infringe a trademark, but the parallel importation of similar but non-genuine products bearing the trademark does constitute trademark infringement.
Relationship between parallel importation and copyrights
The system for the international protection of copyrights differs from that of patents and trademarks (in which rights are independent between countries) because a single copyright is held to be generated by the completion of an authored piece, with each country bound to protect that copyright under the Berne Convention and the Universal Copyright Convention. Therefore, national borders are not of much consequence, and as long as a copyrighted work is sold legitimately in any country, the problem of copyright infringement does not seem to arise no matter where the product is subsequently sold.
However, in the 101 Dalmatians case the Tokyo District Court held that where videos of the Disney film 101 Dalmatians that were legitimately purchased in the United States were imported into Japan and sold, the sales of the genuine videos constituted copyright infringement because “in Japan, there are no laws or established judicial precedents holding that the act of distributing an authored work without the permission of the copyright holder cannot be considered to be copyright infringement on the grounds that it is parallel importation”.
Other important decisions and recent trends
In a case disputing whether word-processing software developed and sold by Justsystem infringed Matsushita Electric’s patent relating to “an information-processing device and information-processing method”, the IP High Court overturned a Tokyo District Court decision by ruling that the patent could not be enforced as there were grounds for invalidity. The IP High Court held that although the use of personal computers installed with Justsystem’s program fell within the technical scope of the patent and thus constituted indirect infringement of the patent, the patent could not be executed because the invention could have been readily invented by those skilled in the art based on the prior art.
While the patent infringement action was ultimately rejected based on the invalidity of the patent, it should be noted that many recent patent infringement cases have ended in loss by the plaintiff due to a judgment of patent invalidity by the IP High Court. One such case is the Pachinko Slot case, in which the Tokyo District Court ordered damages of Y8.4 billion, the highest damages ever awarded by a district court. In the Blue LED case, which disputed the amount of consideration due to an employed inventor, the Tokyo District Court ordered the employer to pay Y20 billion in undue enrichment damages, but on appeal the parties settled for Y800 million (five per cent of the original award). This amendment has been explained by the reasoning that the High Court was seriously questioning the validity of the patent.
Looking at statistics from the last five years, over 50 per cent of the patents judged to be valid by the Patent Office in appeals for invalidation have been invalidated upon appeal to the IP High Court. When enforcing IP-related rights, both the patentee and the defendant should act with this in mind.
