Procedural Approach on Incontestability Clause ∗Overseas Researcher: Yoichi OKADA ∗∗In the case of concluding a license agreement, the parties often have an incontestability
clause (no-challenge agreement). This has been argued to be a problem of competitive order in themarket due to the distribution of patents that should not be granted (competitive law approach).
This is the general theory. However, given this theory, the effect is that the licensee cannot file arequest for a trial for patent invalidation nor assert defense of patent invalidity in infringement
litigation. This is the effect on civil procedural law. Under the substantive law, it is thought that acontract between parties should be affirmed as much as possible from the principle of freedom ofcontract. But under the procedural law, prohibition of the conventional process by parties isgeneral applied. It is also essential to consider the legality of the incontestability clause todetermine whether it is recognized as an exception. Therefore, I attempted to researchincontestability of patents from the viewpoint of procedural law, while conducting a comparative
legal study of Japanese and German law (procedural law approach).

I. Background and purpose of this research
Traditionally, the validity of incontestability clauses in license agreements has been discussed
from the substantive law viewpoint of whether the incontestability clause should be restricted undercompetition law as an exception to the principle of freedom of contract. However, the parties usuallyintend that the effect of the incontestability is to prevent the filing of an opposition or invalidation
trial, or to prevent the assertion of a defense of invalidity in an infringement suit. Therefore, it isessential to consider the incontestability clause from the perspective of procedural law, as an issue ofprocedural law contract or similar contract in proceedings, which is the final stage of contesting thevalidity of a patent, and whether filings and assertions can be limited by agreement of the parties. In
particular, the effect of a licensee being barred from filing a lawsuit (filing of an opposition orinvalidation trial) not only means a prior abandonment of judicial remedies, but may even undermine
the significance of having a trial as a dispute resolution system.
∗ This is a summary of the report published under the 2020 Collaborative Research Project on Harmonization of Industrial Property

Right Systems under a commission from the Japan Patent Office.

∗∗ Meiji University, Faculty of Law, at Institute for German and Foreign Civil Procedural Law, Albert-Ludwigs-University, Freiburg.

- i -As an aside, procedural contracts in which the parties attempt to regulate litigation byagreement in writing are not uncommon, but when there is no such inclusion in writing, they havetraditionally been discussed as "unwritten procedural contracts." Since prohibition of theconventional process is appropriate here, in order for unwritten procedural contracts to berecognized as an exception to the prohibition, the agreement must be a matter within the free will ofthe parties. However, because revoking a defective patent is in the public interest, it is necessary toconsider from a procedural law viewpoint whether an incontestability clause that prohibits disputing
the validity of a patent is legal.

II. Incontestability in Japan
1. Ways to challenge the validity of a patent
The ways to challenge the validity of a patent can be roughly divided into administrative
disputes and civil litigation. The former are opposition proceedings and trial for invalidation
proceedings (Muko-Shinpan), and the latter are the defense of invalidity in infringement suits.
Opposition refers to administrative action to extinguish a defective patent right retroactively
to the time of patent application. It is similar to a trial for invalidation in that it extinguishes apatent that has already been granted retroactively and externally. However, the difference is that a
trial for invalidation is expected to function as dispute resolution between the patentee and a thirdparty, while opposition is expected to be a simple and swift review of the patent disposition by athird party from the perspective of public interest. As a result, an opposition can be instituted byany person without having any interest in the patentee. Although the proceedings are limited to theclaims alleged, the ex officio detection principle allows for proceedings on grounds not alleged by
the patentee, opponent or intervenor. An opposition cannot be withdrawn after a notice of reasons
for revocation has been given because there is a high probability that the patent was defective.
Trial for invalidation is procedure to extinguish a defective patent right retroactively, and isregarded as a request for re-examination made by a person who is disadvantaged by the existenceof a defective patent. In other words, a third party who has an interest in the matter files a request
for a trial in order to resolve a dispute with the patentee. In the trial proceedings, an adversary
system similar to that of civil litigation is adopted, and many provisions of the Civil Procedure Law
are applied mutatis mutandis. Evidence is examined upon the objections of the parties orintervenors. However, ex officio examination of evidence and preservation of evidence are also
possible, and confessions are not binding, but ex officio examination is possible, and reasons notpleaded by the parties can be heard.
Furthermore, as a defense, the invalidity of a patent right, which is an issue of first refusal in- ii -

infringement litigation, can be asserted (Article 104-3 of the Patent Act). It is called "defense ofrestriction on exercise of rights of patentee, etc."
2. Incontestability
The question is whether it would be against the rule of faith for a licensee to dispute thevalidity of a patent right, even though the licensee has benefited from the assumption that the patentright is valid from the licensor by contract. General theories and precedents deny this 1. Since alicensee concludes a contract in the belief that the patent right is valid in most cases, it would be
too severe to make him/her continue to pay the license fee on the assumption that the patent is valid
even when grounds for invalidation were found at a later date. Moreover, it cannot be said that theyexpressed their intention not to dispute the validity of the patent right simply by concluding thelicense agreement.
However, it is possible to establish an incontestability clause, and it is possible to imposeincontestability through this clause. Even if the licensee is prevented from requesting a trial forinvalidation, etc., that does not necessarily mean that the patent will no longer be attacked byanyone, and therefore, interpreting the incontestability clause as a valid clause does not
immediately damage the interests of the public. Although the principle of freedom of contract
requires a conflict with mandatory law to be denied its effect, imposing incontestability by contract
does not, in principle, constitute a conflict with public order and good morals strong enough toinvalidate it. This clause will have the effect of facilitating the conclusion of license agreements
and promoting the use of patent rights. "Guidelines for the Use of Intellectual Property under theAntimonopoly Law " (2007) is also positive in principle.

III. Incontestability in Germany
1. Ways to challenge the validity of a patent
In Germany, opposition to patent and action for revocation of a patent are ways to challenge
the validity of a patent 2.
An opposition to patent is filed with the German Patent and Trademark Office ("DasDeutsche Patent- und Markenamt") when a third party believes that a patent granted by the German
Patent and Trademark Office does not fulfill its requirements. This opposition can be filed byanyone. Since those proceedings are not court proceedings, but administrative proceedings
following the granting proceedings to review the validity of the granting of a patent, the opponent
12N. Nakayama, Patent Act [4 th. Ed.], 2019, pp.539.
Headicke/Timmann/Landy/Harbmeier, Handbuch des Patentrechts [2th. ed], 2020, pp.539.

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and the patentee are not parties to the proceedings, but merely stand in the status of participants.
Therefore, the purpose of an opposition is to provide a technical level that third parties may
consider as an obstacle to the granting of a patent with the German Patent and Trademark Office.
The scope of the proceedings is determined by the opponent, but the proceedings are based on theex officio detection principle. The Patent Division is not obliged to hear all possible grounds foropposition spontaneously, but may hear the grounds that it considers important, as well as the scope
pleaded in the opposition.
An action for revocation is heard by the invalidity division of the Federal Patent Court("Bundespatentgericht"), and is raised with the aim of obtaining a formative judgment that thepatent is retroactively and externally invalid. Since this action is a people's action, anyone can filean action against the patentee. In other words, the proceedings are based on an adversary system,
which is clearly separate from the opposition proceedings. The Federal Patent Court is also notbound by previous decisions in German or European opposition proceedings. Because of theprinciple of disposition ("Dispositionsmaxime"), the parties must determine the subject matter ofthe action for revocation. The Federal Patent Court hears the case on the basis of the ex officio
principle and clarifies the facts. It is not bound by the pleadings or offers of proof of the parties.
In Germany, the defense of invalidity in infringement litigation is not recognized.
2. Incontestability
In Germany, it is also possible to impose incontestability by contract, and this can beimposed even after an action for revocation has been filed 3. Incontestability prevents a plaintiff
who files an action for revocation from proceeding. It has been followed up by precedents. Whether
there is a clear agreement or not, when the contract existing between the parties establishes a
relationship of trust, an action for revocation as an illegal enforcement is illegally dismissed.
However, even though incontestability in license agreements was considered legal in the past,
it is now a violation of Article 101 of the Treaty on the Functioning of the European Union inprinciple. This has been approved and embodied by the "Technology Transfer Block Exemption
Regulation" and the guidelines of the Regulation. An incontestability clause in a license agreement
is not an exemption, and it is stipulated that it violates the anti-monopoly law. This is because it
would be in the public interest to avoid and revoke invalid patent rights.

3Mes, Patentgesetz (5th. ed.), 2020, §59 nr.33ff.

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IV. Procedural contract
In civil procedure, the principle of prohibition of the conventional process is appropriate, butin exceptional cases, "unwritten procedural contracts" are allowed 4. In the procedural law, the freedisposition of parties is allowed in matters where the principle of disposition and the pleadings
principle ("Verhandlungsmaxime") are appropriate. Since the decision on whether or not to take acertain action is left to the will of the parties, it is permissible for the parties to agree on a different
matter apart from the procedural provisions. If there is an agreement to exclude the right to sue, aparty may assert a procedural defense that the procedural action relating to it is illegal. On the other
hand, matters relating to the public interest are outside the scope of the disposal of the parties andare mandatory laws, so any agreement to change or exclude them is illegal and invalid.
In order to ensure freedom of decision-making with respect to a certain procedural act, theagreement must clearly state what the effect of the agreement will be and the limits to which theparties will be disadvantaged by the effect, if there are any.

V. Incontestability as procedural contract
Regarding the incontestability clause for filing an opposition to grant of patent and filing arequest for a trial for invalidation in Japan, Germany has a similar administrative dispute procedure,
and the discussion here is useful. In Germany, an incontestability clause is considered legal, butsome critical views can be found 5. The criticisms are as follows. First, oppositions and actions forrevocation may be initiated by anyone acting "on behalf of the public" in order to remove illegallygranted patents as quickly as possible. As a result, their procedural rights in ordinary civil litigation
are also limited. Second, the proceedings are governed by the ex officio principle, so the court
investigates the substantive relationship ex officio and is not bound by the parties' assertions oroffers of evidence. In the case of an action for revocation, the parties are formally the plaintiff andthe patentee, but what is at issue here is the revocation of the administrative act of the Federal
Patent Office in granting the patent, and the principle of legality of procedural contracts in theordinary civil procedure law cannot be reflected in an action for revocation in the Patent Law. As aresult, the plaintiff's eligibility cannot be affected by an incontestability clause in the contract
between the two parties. However, such criticism has been re-criticized as exaggerating therestrictions on private autonomy by patent law 6. In an action of invalidity, a legislator replaces theY. Aoyama, "Contract in procedural law "(Basic Law 4 - Contracts), 1983, pp.241.
Kuhbier, GRUR 1954, pp.187; Schwerdtner, GRUR 1968, p.9, p.11.
6 Wagner, Prozeßverträge, 1988, pp. 104.
45- iv -pleadings principle, a procedural principle in civil litigation, with the ex officio principle, but does
not eliminate the principle of disposition. Here, the full ex officio principle has not been adopted.
The point about anyone being able to initiate proceedings is not a matter of classical popular
procedure, but of procedure relating to private interests by interested parties. In other words, they
are not acting on behalf of the public, but on their own rights. Each individual is completely free tobring, abandon, or waive an action, and has the right to sue as a personal authority, the enforcementof which can be disposed of by contract. Therefore, in Germany, an incontestability clause isconsidered to be legal as a procedural contract. These matters basically apply to oppositions andtrials for invalidation in Japan in almost the same way. When a licensee initiates proceedings due toviolation of an incontestability clause, and the licensor alleges violation of the agreement, theproceedings are directly rejected as being illegal from the beginning as an effect of theincontestability clause. On the other hand, if the licensor does not assert the existence of the clauseand the licensor complies with the procedure, the clause is deemed to have been implicitly canceled,
and any subsequent assertion should be considered impermissible.
It is in civil disputes, either formally or substantively, that the defense of invalidity ininfringement litigation is asserted. Here, the validity of a patent right is treated as a preclusive issueof infringement. If the incontestability clause is interpreted as legal, the patent right is considered to
be valid and the issue of infringement is determined. In this case, it will be interpreted as a contractsimilar to the agreement of the parties regarding the confession of right (confession contract),
which recognizes the patent right as the precondition of the subject matter of the litigation. Aconfession contract is understood as a type of evidentiary contract, and is valid as long as it does
not prejudice the free mind of the judge, and confessions of right are also understood in theaffirmative. However, even if such an agreement is made on the date of oral argument, theincontestability agreement is usually made outside the trial, and in this case, the confession is not atrial confession but an out-of-court confession.
As mentioned above, incontestability can be recognized as legal in a procedural sense. However,since this would close the way to judicial and quasi-judicial remedies, the subject matter should bespecifically stated in writing in order to clarify the intention of the parties (see Article 32 of theJapanese Constitution): the subject patent rights and ways to challenge the validity of the patent rights.
Furthermore, when a license contract is concluded between a company and a consumer,
especially when it is concluded through General Terms and Conditions, it should be interpreted as
invalid in principle from the viewpoint of consumer protection (Article 10 of the Consumer
Contract Act).

- v -VI. Conclusion
In view of the effect of an inconsistency clause, it can be assessed that the parties areagreeing for the purpose of a judicial or quasi-judicial effect. In Germany, an incontestability clauseis regarded as a procedural contract, and there is a discussion on whether it satisfies the legality
requirements. In this report, I have examined the legality of incontestability in Japan with reference
to such discussions, and have clarified that it can be tolerated from the viewpoint of procedural law,along with its procedural treatment.

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