WORLD TRADE
ORGANIZATIONWT/WGTCP/W/106
27 October 1998
(98-4172)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  English
COMMUNICATION FROM JAPAN
The following communication, dated 28 September 1998, has been received from the
Permanent Mission of Japan with the request that it be circulated to Members.
_______________
Relationship between the Trade-Related Aspects of Intellectual
Property Rights and Competition Policy
I. RELATIONSHIP BETWEEN INTELLECTUAL PROPERTY RIGHTS AND 
COMPETITION POLICY
Patent and copyright laws grant certain exclusive (monopolistic) rights to the developers and
creators of intellectual property, stimulating research and development for business entities, andpromoting the effective use of resources in the development of new technologies and the discovery of
new knowledge, thereby working as a promoter to introduce a new market or new technology.
Technology transactions could also have a pro-competitive effect when new business entities enter a
market, when the number of competing entities increases, or when technology can be utilised more
efficiently.
On the contrary, as intellectual property rights allow a certain amount of monopolistic use of
new technology and knowledge, these systems restrain the use by third parties as well as competition.
Thus, abuse of intellectual property rights could have an adverse effect on competition.  Not only may
intellectual property rights' transactions restrain competition through restricting business activities or
hindering fair competition, but such conduct may also adversely affect competition in the
development of technology.
Intellectual property schemes and competition laws have the same ultimate objective, i.e., to
encourage business ingenuity under the liberal economy system, thereby promoting the development
of the national economy.  Therefore, should a conflict arise, every endeavour to balance between the
two regimes would be necessary.  Wide discussions both nationally and internationally would also be
necessary to judge when the exercise of intellectual property rights violates competition law and
under what criteria the regulatory method should be.
Competition authorities have been discussing the relationship between intellectual property
rights and competition policy in international fora.  It should also be noted that in the negotiations ona treaty of database protection, negotiating countries have been striving to establish a legal framework
to ensure balance of protection and the use of databases.WT/WGTCP/W/106
Page 2
II. TRADE-RELATED ASPECTS OF INTELLECTUAL PROPERTY RIGHTS
(a) Intellectual Property Protection and its Impact on Trade
In today's economic environment, intangible assets are becoming increasingly important.
These assets, which are the result of human intellectual creative activity, such as invention, design,know-how and artistic creation, are known as "intellectual property".  Among the forms of intellectual
property, which are specifically entitled to legal protection, are inventions, trademarks, designs,
literary works and layout-designs of integrated circuits and trade secrets.  As the volume of trade in
goods and services involving intellectual property has increased immensely in recent years, the
importance of protecting intellectual property for the world economy has also grown enormously.  An
inappropriate and insufficient protection of intellectual property can distort free trade.  In developing
countries, the protection of intellectual property rights is often insufficient.  For example, developingcountries often limit protection to a very narrow subject area, provide protection for only a short
period of time, or lack strict enforcement.
This inadequate protection of intellectual property rights has a direct and adverse impact on
the normal economic activities of the property holder.  In addition, inadequate protection not onlyreduces the incentives and allocations of resources for new product development, but also impedes
and impairs investment and technology transfers from other countries, thus reducing domestic
technological development and ultimately causing a detrimental effect on the countries involved and
the world economy as a whole.
(b) Impact on Trade Caused by Differences of Intellectual Property Regimes
Some developed countries also have problematic intellectual property regimes that, for
example, openly discriminate against foreign nations, provide excessive protection or have regimes so
different from those employed by the rest of the world that their effect is discriminatory.
If each country's intellectual property rights' system causes excessive intellectual property
protection, discriminates against foreign interests, or varies widely from internationally generally
agreed-upon rules and procedures, time and money must be spent on the acquisition and enforcement
of rights, which will, in turn, distort free trade.
III. THE TRIPS AGREEMENT
To address the trade distorting effect of these problems, the WTO has sought to establish an
appropriate framework for the protection of intellectual property.  In recent years, as countries have
paid more attention to the trade-related aspects of this subject, intellectual property protection has
been frequently placed on the agenda of trade discussions.  Countries have recognized the need to
frame an international agreement covering as many governments as possible which establishesstandards on the trade aspects of protecting intellectual property.  As a result, the GATT negotiators
instituted negotiations on the Trade-Related Aspects of Intellectual Property Rights (TRIPS) - one of
the most important new areas included in the Uruguay Round negotiations.  A final consensus on the
TRIPS Agreement was reached in Marrakesh in April 1994 and took effect on 1 January 1995.  This
TRIPS Agreement contains the following provisions related to competition for ensuring fair and freecompetition.
(a) Prevention of Intellectual Property Rights Abuse
Article 8 of the TRIPS Agreement provides for each country to take appropriate measures in
order to prevent the abuse of intellectual property rights by its holders or the resorting to practices that
unreasonably restrain trade or adversely affect the international transfer of technology.  Articles 31
and 32 of the TRIPS Agreement also address the abuse of intellectual property rights by providingWT/WGTCP/W/106
Page 3
rules for the application of competition law (measures taken by a competition authority and a judicial
judgement) and solutions through the intellectual property regime itself (revocation/forfeiture and
compulsory licence).  Although Article 8 specifies application of the measures by the phrase,
"provided that they are consistent with the provis ions of this Agreement", the TRIPS Agreement as a
whole does not provide any standards for judging "the abuse of intellectual property rights" or specifyany contents of "appropriate measures".  Each country, therefore, has discretion in interpreting them,
taking into account its own national laws or regulations.
(i) Other Use without Authorization from the Right Holder
Compulsory licence is a typical case of other use without authorization from the right holder.
Compulsory licence means that a government by force gives third parties the enforcement right of a
patent without authorization from the right holder, therefore aiming to prevent a problematic activityof abusive licence rejection.  However, the abuse of a compulsory licence could distort the investment
and technology transfer from developed countries to developing countries and thus give an adverse
impact on economic growth in developing countries.
Article 31 of the TRIPS Agreement specifies several conditions that need to be respected
when allowing other uses without authorization from  the right holder.  In particular, paragraphs (c)
and (k) of this Article are important from a competition policy point of view as they allow other uses
without authorization in order to remedy a practice determined to be anti-competitive by judicial or
administrative procedures.  Therefore, although Article 31 does not specifically mention when to
allow other uses, the TRIPS Agreement is deemed to allow a compulsory licence if the licensingrejection is determined to be anti-competitive by judicial or administrative procedures.
(ii) Revocation/ Forfeiture
Article 32 of the TRIPS Agreement ensures an opportunity for the judicial review of any
decision to revoke or forfeit a patent.  This Article suggests that revocation/forfeiture could be ameasure to prevent the abuse of intellectual property rights, such as licensing rejection.
(b) Exhaustion
Article 6 of the TRIPS Agreement specifies that "nothing in this Agreement shall be used to
address the issue of the exhaustion of intellectual property rights".  The exhaustion of intellectual
property rights is a matter of whether parallel imports should be prohibited or not, which could alsohave a significant impact on the distribution of products in international trade.  There were serious
discussions at the last TRIPS negotiations due to large differences in standpoints on parallel imports
among countries.  Though judicial decisions in many countries often allow parallel imports, it still
seems difficult to agree upon the general rule on international exhaustion.
As for trademarks and patents, there are some judicial precedents to allow parallel imports of
genuine products throughout the US, the EC and Japan.  In Japan, for example, a lower court judged
that parallel imports of genuine products do not infringe the right of a trademark and thus allowed
such parallel imports.  In the US, some cases allow parallel imports for trademarks and patents, while
others deny them.  In the EC, although the Rome Treaty allows parallel imports for patents andtrademarks within the EC region, the rule does not apply to those from outside: the law of each
member State will apply to parallel imports from outside the EC, though such parallel imports are
generally not allowed in most EC countries.  In Japan, the Supreme Court decision allows parallel
imports for patent products under certain conditions.WT/WGTCP/W/106
Page 4
IV. MAJOR PROBLEMS
There are two major problems at the international level as regards the relationship between
intellectual property rights and competition policy.  These are: (1) refusal to license and anti-
competitive practices in the licensing agreements;  and (2) unreasonable obstruction of parallel
imports.
(a) Refusal to License and Anti-competitive Practices in Licensing Agreements
The provision or refusal to license itself is a right of intellectual property possessors.
However, with respect to intellectual property righ ts that have no alternative technology, the exercise
of such intellectual property rights may have an anti-competitive effect.  In addition, even though the
licence is provided, anti-competitive conducts would occur if the intellectual property rights cause thelicensor to restrict the amount, price or supplier/buyer of the patented goods, raw materials,
components, etc.  Therefore, specific discussion is necessary regarding under what conditions refusal
to license and other exclusive conducts should be regulated by competition law.  Until 1985,
UNCTAD had discussed the text of an international code of conduct on the transfer of technology.
The text submitted by the President of the Conference during its sixth session specified 14 types ofrestrictive practices from which countries making technology transactions should refrain.  Those
practices included grant-back provisions, price fixing, export restrictions, and so forth.  It seemed that
both the developed and the developing economies agreed to the greatest extent the 14 practices
themselves as restrictive ones.  However, they did not agree on the standards on which the judgement
of illegality should be based (more specifically, there was no consensus on the conditions of "unduly"practices).  This was because the developed economies had the idea of "competition standards"
(standards in light of whether or not the exercise of intellectual property rights would have a negative
impact on competition in related markets), while most of the developing economies adopted the idea
of "development standards" (standards in light of  whether or not the acquisition or implementation of
intellectual property rights by enterprises of developed economies in developing economies impededthe transfer of technology or the economic growth of developing economies).  In order to reduce
barriers for the international business activities of licensors, it is necessary to harmonize
internationally the standards for restrictive practices.
(b) International Exhaustion and Parallel Imports
Exhaustion of intellectual property rights means that once the right holder or the person
authorized releases the products that are the subjec t for intellectual property rights, its intellectual
property rights are considered to be exhausted; then a third parties' use or sale is not considered as an
infringement of the intellectual property rights.  This exhaustion is recognized domestically, though
for international exhaustion, the problem is whether the right holder, or the person authorized, can
enforce his/her rights to prevent those imports based on intellectual property rights once he/sheintroduces the intellectual property rights product into a foreign market.
Proponents of international exhaustion maintain that a patent holder in country A should not
be allowed to stop the importation of a patented product from country B once the holder introduces
the product into the market of country B.  It is believed that exhaustion of the patent should notdepend on whether the product was placed on the home market or abroad.  Since a patent becomes
exhausted when a product is sold in the domestic market, it should also be exhausted when a product
is sold in a foreign market, thus prohibition to the home country regarding its importation should be
denied.  It is also believed that a patent holder should not benefit from one patent twice, thus
maintaining that a patent holder, who has already benefited from the patent in a foreign marketthrough the sale of a patented product, should not be allowed to also benefit from the patent in the
home market.WT/WGTCP/W/106
Page 5
On the contrary, opponents of international exhaustion maintain that a patent holder in
country A should be allowed to stop the importation of a patented product from country B even after
the holder introduces the product into the market of country B.  It is believed that a patent should not
be exhausted as a result of an event that took place in a foreign country, since there is no global patent
system, each country having its own.  It is also maintained that international exhaustion will makepatent holders hesitant in licensing their patents as they will be afraid of the importation of patented
products manufactured abroad with licensed technology.
However, critics of these views say that international exhaustion does not affect the idea of
the independent patent system of each country, as a patent holder continues to be protected against the
patent infringement caused by the use of patented technology in manufacturing, even after
international exhaustion.  They also point out that technology transfer to developing countries will notbe affected by the international exhaustion of patents as it will principally only allow parallel imports
of products with famous brand names from developed countries.
Imports, including parallel imports, promote competition in the importing country, reduce
price differences among markets and enlarge consumer benefits in the importing country.  Ourexperience shows that parallel imports increase consumer interests through a decrease in prices in the
importing country.
Since the restraint of parallel imports could have an adverse impact on competition, while at
the same time being the enforcement of intellectu al property rights, parallel imports need to be
examined from the viewpoints of both the compet ition and intellectual property rights policies.
V. ISSUES TO BE EXAMINED
(a) Coordination between the Regulatory Principles for the Abuse of Intellectual Property Rights
There is no international consensus on the standards by which to judge the effect on
competition of the relevant markets or to judge the extent of the abuse of intellectual property rights.
Therefore, each competition authority regulates the abuse of intellectual property rights in accordance
with its domestic laws.  However, since the regulatory principles are based either on competition
standards or on development principles, they inevitably differ among countries.  Such a difference is
likely to put large legal costs on international enterprises.
However, the two standards are not inherently exclusive to each other, having co-existed so
far in the competition laws of developed economies, as well as in the technology transfer laws and
foreign capital laws of developing economies.  The results of applying the standards often have little
difference, therefore, such difference in the two standards is not one we cannot cope with.  In fact,
some developing economies regulated refusal to license through technology transfer laws and foreigncapital laws based on development standards, but now it is regulated through competition laws with
recognition that the former types of laws would impede the technology transfer against the original
expectation.  The WTO Member economies should, therefore, examine in which case the practice of a
licensor falls under the abuse of rights and should also harmonize the standards of judgement for the
abuse of rights.
(b) Review of the TRIPS Agreement
Since the WTO aims at the expansion of trade in goods and services through reducing trade
barriers, the relationship between intellectual property rights is one of the important issues that theWTO should examine.  There being significant differences among countries regarding views on the
parallel imports of products protected by intellectual property rights, it is desirable to introduce an
international rule on this issue.  In this respect,  the review of international trade rules and their
enforcement regarding intellectual property rights should include consideration of the characteristicsWT/WGTCP/W/106
Page 6
of the products to be protected by intellectual property rights, as well as development in an
international product market.  We also expect this  Working Group to further consider the issue of
parallel imports as part of its discussions on the relationship between intellectual property rights and
competition policy.
(c) Strengthening the International Co-operation on Competition Policy
The globalization of business activities has made it necessary for competition authorities to
cooperate on such problems as the abuse of intellectual property rights and international mergers and
acquisitions.  This cooperation would be useful in order to diminish the concerns of developing
economies towards international enterprises.  Strengthening such cooperation would be fruitful if one
country did not intervene unilaterally with the conditions or business environment of other countriesand if discussion was based on Article 40 of the TRIPS Agreement.WT/WGTCP/W/106
Page 7
ANNEX:  JAPANESE EXPERIENCE
1. Guidelines on competition related to intellectual property rights
In order to show to the public the interpre tation of the Antimonopoly Act (AMA) on issues of
intellectual property rights, the Japan Fair Trade Commission (JFTC) has published three kinds of
guidelines, namely "Guidelines Concerning Unfair Trade Practices with Regard to Patent and Know-
How Licensing Agreements", "Guidelines Concerning Joint Research and Development", and
"Guidelines Concerning Distribution Systems and Business Practices (including unreasonable
obstruction of parallel imports)".
(1) On February 15, 1989, the FTC released the "Guidelines Concerning Unfair Trade Practices
with Regard to Patent and Know-H ow Licensing Agreements" (hereinafter referred to as "the Patent
and Know-How Guidelines").1  If certain types of restrictive conditions are imposed in technology
licensing agreements, they might cause an anti-competitive effect.  Thus, impacts on competition
should be evaluated individually when examining whether restrictions contained in technologylicensing agreements constitute unfair trade practices.  The impacts on competition, however, may
vary depending on the types of restrictive conditions.  Therefore, the Guidelines identify as much as
possible the following three types of outstanding restrictions which are contained in patent and know-
how licensing agreements.
2
(i) Restrictions which are considered, in principle, not to fall under unfair trade
practices;
(ii) Restrictions which may fall under unfair trade practices; and
(iii) Restrictions which are highly likely to fall under unfair trade practices.
As regards restrictions which are highly likely to fall under unfair trade practices, the Patent
and Know-How Guidelines show the following six categories:3
(a) Restricting resale prices of licensed goods in Japan.
(b) Restricting sales price of licensed goods by the licensee in Japan.
                                                     
1 The standards stipulated in the Patent and Kn ow-How Guidelines are applicable without any
discrimination to those patent and know-how licensing agreements among Japanese entities, as well as those
between Japanese and foreign entities.  The standards could also be applicable to reciprocal licensingagreements or licensing agreements among more than three parties such as cross-licensing agreements, patentpool, multiple licensing agreements and so forth.  Because the Guidelines are to clarif y standards for unfair trade
practices as to patent and know-how licensing agreements, it is a matter of course that Article 3 of the AMA(prohibition of private monopolizatio n or unreasonable restraint of trade) and other articles could also be
applicable to such cases where technology licensing agre ements are used as a means to effect an unreasonable
restraint of trade.
2 As regards restrictions which are described as  "may fall under unfair trade practices", such
determination will be made, in addition to the requirements stipulated in each paragraph of the Guidelines, afterthe position of a licensor and licensee in a relevant market, the conditions of a relevant market, the duration ofrestrictions imposed, etc., have been examined as a whole.   On the other hand, as regards restrictions which are
described as being "highly likely to fall under unfair  trade practices", such rest rictions are considered to
constitute unfair trade practices, unless specific justifiable reasons can be presented.
3 The know-how differs from the patents in that the know-how is secret, non-returnable or uncertain of
technical coverage.  Taking this into account, the Guidelin es have stipulated separately the standards for patents
and those for know-how.WT/WGTCP/W/106
Page 8
(c) Making it obligatory for the licensee not to handle competing goods, or not to employ
competing technology after the expiration or  termination of licensing agreements.
(d) Restricting the use of licensed technology in spite of the expiration of patent rights
(or even though the licensed know-how has become publicly known due to reasons
for which the licensee is not responsible), or making it obligatory for the licensee topay royalties for use after expiration of the patent rights (or after licensed know-how
has become publicly known).
(e) Restricting research and development activities by the licensee, or joint research and
development with a third party regarding licensed patent or its competing technology.
(f) Making it obligatory for the licensee to assign the licensor the right on an improved
or applied invention, or to grant the licensor an exclusive licence with respect to an
improved or applied invention, etc., by the licensee.
Among the three types of outstanding restrictions identified above, i.e., (i), (ii), and (iii), for
the latter two, the Patent and Know-How Guidelines show reason s why the restriction may, or is
highly likely to, fall under unfair trade practices.  For example, the restriction of the sales price of
licensed goods by the licensee is described as follows:
"This restriction, by restricting freedom of pricing by the licensee, will lead to a significant
limitation of competitive ability of the licensee, and could result in the reduction of price
competition in a patented goods market.  Further, this restriction cannot be justifiable by such
reason as securing royalty.  Therefore, it is highly likely to impede fair competition (possibly
falling under Article 13 (dealing on restrictive terms) of the "Unfair Trade Practices")."
The Patent and Know-How Guidelines stipulate 15 types of restrictions considered, in
principle, as those which do not fall under unfair trade practices.  These are, for example:
- Granting a licence for a limited period within the life of patent rights (or insofar as
licensed know-how remains secret);
- Granting a licence for a limited area within the whole area covered by patent rights.
(2) "Guidelines Concerning Joint Research and Development"
On 20 April, 1993, the FTC published "Guidelines Concerning Joint Research and
Development" (hereinafter referred to as "the Joint R&D Guidelines") and showed the general view ofthe JFTC on arrangements for joint R&D projects and their implementation.
4
Under the Joint R&D Guidelines, the decision as to whether an individual specific joint R&D
project or the arrangement regarding its implemen tation may substantially restrain trade in the
relevant technology or product market under the AMA shall be made on a case-by-case basis, bearing
                                                     
4 The background to release of a set of Joint R&D Guidelines is as follows: A joint R&D project
stimulates and improves the efficiency of R&D activities and encourages technological innovations by:  (a)helping reduce the costs, distribute the risks or shorten the required time for R&D;  and (b) facilitating mutualcomplementing of technologies and so forth, among firms in different lines of business and, accordingly, areregarded as having pro-competitive effects in many cases.  On the other hand, since joint R&D projects are
conducted by multiple firms, it is conceivable that they sometimes cause a substantial restraint of competition in
the market.  Even where a joint R&D undertaking involves no problem in itself, an arrangement accompanyingthe implementation of the joint R&D project may unreasonably restrain business activities of the participantsand impede fair competition in the technology market.  Therefore, the JFTC examines a given R&D project inlight of the AMA where it may exert an anti-competitive effect.WT/WGTCP/W/106
Page 9
in mind the pro-competitive effects.  During the course of this, a comprehensive examination of
various factors shall be made.  These factors include:  (i) the number of participants and their market
shares;  (ii) the characteristics of the research;  ( iii) the need for a joint undertaking;  and (iv) the
range of objects, duration and so forth.  Moreover, the Joint R&D Guidelines classify certain types of
arrangements for the Joint R&D projects into:  (i) those which are considered, in principle, not to fallunder unfair trade practices;  (ii) those which may fall under unfair trade practices;  and (iii) those
which are highly likely to fall under unfair trade practices.
The restriction on the participation of other entities in a joint R&D project, including refusal
to license, would not itself be a problem in light of the AMA.  However, it could be an offence for the
AMA under certain conditions and, as an exception, if a firm finds difficulty in carrying on its
business activities and has a risk to be excluded from the market.  Such a case would occur if the totalmarket share of the participants is fairly high or if the joint R&D project aims to develop
indispensable technology for the business that leads to  unification of standards.  However, even in the
case mentioned above, if the firm is ensured to make access to the results, such an R&D project would
not pose a problem under the AMA.
(3) Guidelines Concerning Distribution Systems and Business Practices (including unreasonable
obstruction of parallel imports)
"Parallel imports" assume the importation of genuine products, which does not infringe any
trademark right.  Parallel imports are considered to promote price competition in a market and,accordingly, obstruction of parallel imports presents a problem under the AMA if it is conducted to
maintain the price level of the product covered by the contract.
5
On 11 July 1991, the JFTC published the "Guidelines Concerning Distribution Systems and
Business Practices" where it clarified types of conduct by a sole distributor that had a problem underthe AMA.  These are as follows:
(a) Preventing any parallel importer from purchasing genuine products in the overseas
market.
(b) Restricting distributors' handling of parallel-imported goods.
(c) Restricting wholesalers who sell the product covered by the contract to retailers
handling parallel-imported goods.
(d) Interfering with the marketing of parallel-imported goods by alleging them as
counterfeit.
(e) Cornering parallel-imported goods.
                                                     
5 In cases where products sold as parallel-imported goods are not genuine products but counterfeit
products, owners of trademarks may request to cease and desist from selling such products, on the ground of
trademark infringements.  In addition, necessary measures to maintain the credit of trademarks under the
following situations present, in principle, no problem:
(a) In the case where consumers may misunderstand that parallel-imported goods with a different
specification or quality are identical to the product handle d by a sole distributor because of false representations
of origin or other reasons;  or
(b) In the case of parallel imports of trademarked goods which were legitimately sold in foreign
markets, if the credit of the product handled by a sole distributor is likely to be damaged because of such reasons
as threats to consumers' health or safety caused by the deterioration of the parallel-imported goods.
In the case of domestic products, if the same or similar conduct as that of parallel-imported goods is
carried out, the viewpoint is basically the same as stated above.WT/WGTCP/W/106
Page 10
(f) Refusing to conduct repairs or the like on parallel-imported goods.
(g) Obstructing advertising activities for parallel-imported goods.
2. Cases
(1) Intellectual property rights and Parallel Imports - BBS Case
BBS, the German manufacturer of aluminum wheels for automobiles, possesses its patents
both in Germany and in Japan.  BBS (the "plaintiff") brought an action to the Japanese court against
two parallel importers in Japan (the "appellants"), alleging that the parallel imports to Japan
constituted an infringement of the patent rights held in Japan and seeking a ban on sales conducted by
the appellants.  On 1 July 1997, the Supreme Court held a judgment on the case as follows:6
"When a patent holder in Japan, or a person who has the rights equivalent to those of a patentholder, sells patented products outside the country, the patent holder cannot exercise its patent
rights with respect to the products (a) to a transferee, unless the patent holder and the
transferee agreed to exclude Japan from the territory of sale or use of the products;  and (b) toa third party transferee who purchased the products from the first transferee or any subsequent
transferee, unless the patent holder and the transferee agreed to exclude Japan from the
territory of sale or use of the products and such an agreement is explicitly indicated on the
products, [because] in cases where a patent holder sells patented products outside of the
country, it is naturally assumed that a transferee or a third party, a subsequent transferee,would import these products to Japan for its business, or use or sell these products to another
party in Japan."
This judgment addresses the fact that, given international trade practices, a patent holder
cannot suspend parallel imports or claim compensation for damages caused by parallel imports basedon the infringement of patent rights in such cases as stated in the judgment, although the judgment
also holds that patent rights are not always immedi ately exhausted if a patent holder transfers patented
products outside of the country.
(2) Refusal to license - Case involving Pachinko (pinball) machine manufactures
Ten Pachinko machine manufacturers held a large number of patent rights relevant to
Pachinko (pinball) machines and manufactured a pproximately 90% of all the Pachinko machines
supplied in Japan.  They pooled their intellectual property rights (i.e., patent rights and patent utility
model rights) and entrusted the management to a company ("management company") that had been
established by amusement device manufacturers.  However, the ten manufacturers substantially made
a decision on the approval to grant licenses of these rights.
Due to the expansion of the Pachinko machine market and to the decrease in the number of
patent rights owned by the management company, large manufacturers began actively to enter the
market.  It became likely that the interests of the incumbent manufacturers were to be severely
damaged.  Thus, the ten manufacturers and the management company refused to grant non-exclusivelicenses of the patent and utility model rights, therefore rejecting any potential entrants from
manufacturing Pachinko machines.
The JFTC judged that the conducts substantially restricted competition in the field of
Pachinko machine manufacturing and was contrary to the public interest, thus this could not be
                                                     
6 Prior to the judgment of the Supreme Court, the Tokyo District Court had endorsed the plaintiff's
allegation, but the Tokyo High Court overruled the previous holding on appeal, endorsing the appellants'allegations.WT/WGTCP/W/106
Page 11
recognized as a proper exercise of rights under the Patent Act or the Utility Model Act.  On
20 June 1997, The FTC determined that the conducts violated Article 3 of the AMA (unreasonable
restraint of trade) and issued a cease and desist order against the conducts.
(3) Case involving the Japan Radish Seedling Association
The Japan Radish Seedling Association (the "Association") is a trade association consisting of
57 producers of edible white radish sprouts.  The Association stipulated that membership could be
given to those who consented to the Association's objectives and who executed a contract with the
Association for a non-exclusive licence to the patents for containers used in the cultivation of
seedlings.  There arose the following suspicions on the conducts of the Association:
The Association aimed to stabilize the market of white radish sprouts by restricting
production by its members and by controlling the supply and demand of products.  To realize this
intention, the Association first acquired, in the name of the chairperson, an exclusive licence of
patents for plant cultivation methods and cultivation equipment, which were jointly owned by four
companies, including a chemicals manufacturer.  The Association then made agreements with the
members that, (i) the production amount should be determined and approved at each district-meeting
and at a meeting of the board of directors, and (ii) if a licensee produced in excess of the permitted
quantity, the Association could terminate the licensing  with an appropriate period of time after the
termination notice.  In this way, the Association attempted to set maximum limits on the production of
white radish sprouts.
On 17 February 1994 the FTC judged that the conducts might violate the AMA.  The JFTC
demanded that necessary measures be taken and subsequently issued a warning that similar conduct
must not be taken in the future.
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