13A Comparative Appraisal of Patent
Invalidation Processes in Japan(*1)
Jay P. Kesan (*)

The experience with a dual track invalidation system in Japan involving both the JPO and the district
courts demonstrates that both invalidation schemes are complementary and serve to increase the universe ofissued patents that are challenged by third parties. The specific differences between the two invalidation options
that are outlined in detail in this work indicate that while a patent may be challenged in both venues in the vast
majority of cases, there are sound economic and institutional reasons for maintaining (or creating) a patent
system with the ability to raise patent validity challenges in both the Patent Office and in the courts.

Ⅰ Introduction
It is a richly satisfying time to be studying
patent reform and patent institutional reform inboth the United States and in Japan. In the U.S., wehave the U.S. Patent and Trademark Office(USPTO)’s 21st century Strategic Plan proposing
various patent reform measures, and the Federal
Trade Commission (FTC) recently held extensive
hearings on Competition and Patent Law and Policyand produced a detailed report outlining many areasfor patent reform. Both efforts conclude that
serious consideration must be given to post-grant
administrative procedures in the USPTO tochallenge issued patents.
In Japan, there are efforts to embark on apro-patent policy, and we have the creation of aStrategic Program for the Creation, Protection andExploitation of Intellectual Property with a IP
Policy Headquarters which has outlined its set of
new initiatives. In addition, after the Kilby decisionby the Japanese Supreme Court in April 2000, wenow have a dual track invalidation system in Japan –invalidation of patents through invalidation trials inthe Japanese Patent Office (JPO) and invalidation by

the District Courts through the so-called “abuse ofpatent right” in cases where patents that are
obviously invalid are asserted in litigation.(*2) Finally,
we have the merger of oppositions and trials forinvalidation in the JPO starting from this year. In
short, invalidation procedures in Patent Offices orin the courts are a hot topic and worthy of carefulconsideration and our best efforts.
In the U.S., scholars and commentators havelong complained about the performance of the U.S.
Patent & Trademark Office.(*3) Much of thiscriticism is directed at the quality of the patents
that are granted by the Patent Office. It is widelysuggested that the Patent Office issues patents thatare either “facially” invalid or overbroad whencompared to the actual innovation disclosed in thepatent application. In other words, the Patent Officecannot accurately determine the scope ofinformation that is already in the public domain oris the subject of other patents, i.e., the relevant
prior art, when examining patent applications. Thisis particularly true in areas such as computersoftware where the relevant prior art is found, notin other patents, but rather in publications, such asindustry software handbooks and open source(*) Ph.D., J.D.Professor and Director, Program on Intellectual Property and Technology Law University of Illinois at
Urbana-Champaign, U.S.A.
(*1) I am very grateful to all the researchers and staff at the Institute of Intellectual Property (IIP) for being very helpful andenthusiastic in working with me thereby enabling me to complete this research project successfully and in a timelyfashion.
(*2) The term “abuse of patent right” is not similar or related to the patent misuse doctrine in the U.S. This term simply
refers to patent invalidation in the courts in Japan. In this context, the term “invalidation” is not used because patentvalidity is purely a matter for the JPO under Japanese Patent Law. Hence, the Japanese Supreme Court in the Kilby
decision chose to refer to patent invalidation by the courts as arising from an abuse of the patent right that required
correction by the courts.
(*3) See, e.g., Robert P. Merges, As Many As Six Impossible Patents Before Breakfast: Property Rights for Business Concepts
and Patent System Reform, 14 BERKELEY TECH. L.J. 577 (1999); Mark A. Lemley, Rational Ignorance at the PatentOffice, 95 NW. L. REV. 4, 1495 (2001); John R. Thomas, Collusion and Collective Action in the Patent System: A Proposal
for Patent Bounties, 2001 U. ILL. L. REV. 305, 316-22 (2001); Lawrence Lessig, The Problem with Patents, Industry
Standard, Apr. 23, 1999, available at http://www.thestandard.com/article/display/0,1151,4296,00.html; Gregory
Aharonian, Patenting the Internet, Electronic Commerce, Bioinformatics, at http://www.bustpatents.com/index.html; Carol
Pickering, Patently Absurd, Business2.com, May 29, 2001 at 28; James Gleick, Patently Absurd, N.Y. TIMES MAGAZINE,Mar. 12, 2000, at 44.

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software.(*4)
Others note that the Patent Office is being
asked to perform miracles since it operates undersignificant budgetary constraints.(*5) In the patent
community, it is well-known that the amount oftime spent by the Patent Office in examining apatent application from initial examination toissuance is approximately the same amount of timethat an associate attorney may spent in the firstweek of a patent litigation digging up relevant priorart.(*6) As a result, even doubling the amount oftime spent by a typical patent examiner isinsignificant compared to the time devoted tostudying the prior art when the patent is enforced
through litigation, unless the quality of information
made available to the patent examiner from thirdparties is improved.
It is clear that information regarding therelevant prior art with respect to any patentapplication is most likely to be known only to thepatentee and his competitors. Hence, any Patent
Office is unlikely to be well informed about therelevant prior art, and therefore, there is anasymmetry between the Patent Office and thepatentee’s information. Consequently, in manycases, especially those areas with significant
non-patent prior art, it is simply not a matter ofgiving the Patent Office more resources to conduct
a more thorough prior art search.(*7) Indeed, thepatent examiner may not be aware of where to
discover the most relevant prior art, once she has
to go beyond traditional patent databases. Based on
the foregoing analyses emphasizing the localized
nature of relevant technical knowledge, it is not at
all surprising that the Patent Office grants invalid oroverly broad patents.
Moreover, the social costs of improvidently
granted patents are numerous.(*8) They include thefollowing: (a) opportunistic licensing royalties/fees(including cross-licensing) collected from licensors
who may rationally settle for a license instead ofresorting to protracted litigation; (b) thedisincentive to downstream innovation, i.e., thesocial cost of abandoned research activities by thepatentee’s competitors who may fear infringement;(c) the cost of wasteful designing-around activities
by competitors; (d) the cost of rent-seekers, suchas venture capital financiers, who may choose toinvest in start-up companies based on bad patents,
thereby taking away resources from genuine
entrepreneurs;(e)thesocial
cost
ofsupra-competitive pricing, in the absence ofnon-infringing product substitutes, based on badpatents; and (f) the filing and prosecution costs andthe subsequent cost of having the courts fix thePatent Office’s oversights.
Without significant empirical research,(*9) it isdifficult to quantify meaningfully the magnitude of
the total social costs of bad patents. Even the more
simple category of estimating unnecessary
licensing fees is difficult since the value of a license
is dependent on factors such as flat payments,
reasonable royalties for direct use and subsequent
derivative use of the patented technology, andgrant-back clauses.(*10) Nevertheless, momentarily
setting aside the diminution in public confidence
about the integrity of an administrative system thatissues bad patents, in a capitalist economy
grounded on efficient uses of resources and strong
property rights, improvidently granting extravagant
patent rights presents a real concern that is worthyof careful consideration. Moreover, the theoretical
approach to eliminating the social costs of badpatents is to set the marginal investment in
information gathering by the Patent Office to beequal to the marginal reduction in social cost from
granting better patents.
In this work, I focus on understanding how
third parties such as the patentees’ competitors andother improvers can be brought into the patent
process thereby reducing the informationalasymmetry between the patentee and the Patent(*4) The problem of identifying material prior art is particularly difficult in the area of computer software. See, e.g., Julie E.
Cohen, Reverse Engineering and the Rise of Electronic Vigilantism: Intellectual Property Implications of ‘Lock-Out’Technologies, 68 S. CAL. L. REV. 1091 (1995) (noting that “in the field of computers and computer programs, much that
qualifies as prior art lies outside the areas in which the PTO has traditionally looked – previously issued patents andprevious scholarly publications.”). For a good general discussion of the problem, see MERGES, MENELL & LEMLEY,INTELLECTUAL PROPERTY IN THE NEW TECHNOLOGICAL AGE, 1045-47 (2d ed. 2000).
(*5) Pickering, supra note 3, at 44; Arti K. Rai, Addressing the Patent Gold Rush: The Role of Deference to PTO Patent Denials, 2WASH. U. J.L. & POL’Y 199, 218 (2000) (noting that one straightforward patent reform proposal involves increasing thenumber and quality of patent examiners).
(*6) Lemley, supra note 3, at 1500 (noting that, depending on the art unit, a patent examiner may spend a total of eight tothirty-two hours on a patent application during its two to three year prosecution period).
(*7) Mark Lemley comes to the same conclusion but under a different rationale, see Lemley, supra note 3, at 1508-11.
(*8) See, e.g., Merges, supra note 3, at 595, for a list of the costs of bad patents.
(*9) There is a significant and burgeoning body of empirical work in the patent area. See, e.g., John R. Allison & Mark A. Lemley,
Who’s Patenting What? An Empirical Exploration of Patent Prosecution, 53 VAND. L. REV. 2099 (2000); Jean O. Lanjouw &Mark Schankerman, Characteristics of Patent Litigation: A Window on Competition, 32 RAND J. ECON. 129 (2001); JoshLerner, Patenting in the Shadow of Competition, 38 J.L. & ECON. 463 (1995); Kimberly A. Moore, Judges, Juries, andPatent Cases – An Empirical Peek Inside the Black Box, 99 MICH. L. REV. 365 (2000).
(*10) Mark Lemley attempts to tackle this issue and estimates the maximum social cost of licensing holdups to be $443 million,and hence, these social costs are smaller than the annual patent prosecution costs. See Lemley, supra note 3 at 1515-19.
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Office, and how the patent system can bere-engineered to enable effective third-party
challenges to issued patents. In addition, I criticallyexamine the patent invalidation systems in theJapanese Patent Office and the Japanese courts.

Ⅱ Patent Invalidation Processes inthe JPO and the Japanese Courts
In this section, I will present a comparative
assessment of the patent invalidation procedures
adopted by the JPO and the “abuse of patent right”
process in the Japanese District Courts. Table I
below summarizes the key differences andhighlights the similarities as well.

Table I: A Comparison of Patent Invalidation Procedures in the Japanese Patent Office (JPO) andthe District Courts in Japan
Trial for Invalidationin JPO“Abuse of Patent Right”in District
Court

Who Can Raise Invalidation Claims

Anyone and at anytime

Only in a infringement action or
declaratory judgment action

Grounds for Invalidation

JPO seen to be better at dealing withpatentability standards that arefamiliar to them

All grounds available

Standard for Invalidation

Basic patentability standards

The invalidation standard may betheoretically higher requiring “obviousinvalidity,” but practically, the standard
may not be very different from theJPO

Cost of Invalidation Process

Relatively low

Significantly higher

Duration for Invalidation Process

About one year

About 15-16 months, but the time
period is going down

Evidence Considered

Evidence presented by the parties,
but Trial Examiner can uncover theirown evidence by conducting own
searchWhat is presented by the parties

Effect of Judgment

Judgment is effective against thepublic at large, and the scope ofprotection can be made narrower by
issuing newer claimsJudgment binding on the parties only,
and narrower claims are not issued bythe court

Decision-Maker

3 Trial Examiner panel or 5 Trial
Examiner panel

District Court Judge with TechnicalAssistants

Appeal of Judgment

Can appeal to the High Court

Can appeal to the High Court

DamagesCannot award damages

Can award damages

There are several points in the comparison
table shown above that are worthy of carefulconsideration and emphasis. The JPO trial forinvalidation is relatively low cost process and theJapan Patent Attorneys Association’s survey in2003 reports an average cost of ¥377,534 (about$3,500) on a per claim basis for a trial forinvalidation in the JPO with over 75% of those
responding to the survey reporting an average feein the range from ¥360,000 to ¥420,000. One canget some insight into what a patent trial is likely tocost in Japan based on the Civil Litigation Lawyers’
Fees Guidelines that are put forth by the Japan
Federation of Bar Associations (Nichibenren). Theysuggest that, if the plaintiff’s demand for damages

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is in the ¥30-300 million range, then the startingfee is [3% + ¥690,000] and the success fee is [6%+ ¥1,380,000], which amounts to about $325,000 inlawyers’ fees for a successful patent lawsuit
involving about $3,000,000 in damages. In sum, thetypical cost for a patent trial in Japanese costs canbe as much as hundred times more expensive thana trial for invalidation in the JPO.
The JPO trial for invalidation is open to anyone
at anytime as compared to a court process whichcomes about in the context of a infringement trial
or declaratory judgment action. With respect to thegrounds for challenging an issued patent, there ismuch greater confidence in the JPO’s ability tohandle issues related to patentability such as● 102 ●

novelty, lack of inventive step and industrial
applicability—matters that are routinely dealt withby patent examiners, as opposed to otherinvalidation based on prior sales or public use andthe like involving forms of evidence different fromprior art patents or publications. In addition, theJPO panel is not limited to evidence that ispresented to it by the parties as the trial examiners
could conduct their own prior art search, if they
deem it necessary.
The duration of a typical patent trial in Japan iscurrently about 15-16 months, but the durations are
decreasing are heading towards one year, and hence,these times are comparable to the one year
duration for a trial for invalidation in the JPO.
There are also other procedural differencessuch the effect of the judgment being different in
the two cases since the court decision is binding onjust the parties whereas patent invalidation in theJPO is effective against the public at large. Inaddition, the decision maker in the JPO may be apanel of trial examiners instead of a single district
court judge. The District Court judge is assisted in
his evaluations by a technical assistant who istypically a former trial examiner in the JPO andwho has been sent to the courts by the JPO for aperiod of about three years. This practice does notappear to pose any separation of powers concerns
in Japan since the distinction between the public
servant versus private attorney in Japan seems to
be more important to preserve than any
institutional separation between the governmental
agencies and the courts. Finally, judgments fromboth the JPO and the District Court can be appealed
to the High Court for appellate review.
There does not appear to be a mechanism inplace to prevent repeated filings of trials forinvalidation in the JPO by challengers who wish tosimply present repeated claims in the hope of
successfully invalidating one or more claims in apatent. In the future, it may be worthwhile toconsider mechanisms or schemes to create an
incentive for a challenger to present all his claims
in one trial for invalidation and to avoid repeatedchallenges based on “new” prior art that is merely
cumulative compared to what was presented in anearlier challenge.
Tables II and III summarize the empirical datafrom having a dual invalidation system in the JPO
and the district courts since April 2000 to thepresent day. We can see that in 69% of all patent
lawsuits in district court, invalidity was an issue
raised in either the JPO or the district court or inboth forums. Of this 69%, only in 7% of the cases,
patent invalidation was raised only at the district
court. Therefore, in (62/69)%, i.e., in about 90% ofall cases involving patent invalidity, a trial forinvalidation was initiated in the JPO. In addition, inabout 48% of all cases involving patent invalidity
claims, the invalidity issues were presented to both

the JPO and the district court. As noted above, inonly about 10% (7/69) of all the cases involving
patent invalidity, was the invalidation challenge
presented exclusively to the District Court. The
data demonstrates that even with the more recent
possibility of court invalidation challenges, the trialfor invalidation is seen to be reliable and efficient
way to challenge patents in Japan.
Table III examines the consistency inoutcomes when the same patents are challenged inboth the JPO and the District Court over a threeyear period from April 2000 to November 2003. In
the vast majority of cases (about 80%), both theJPO and the District Court are in agreement. In
about 19.7% of the cases, the JPO and the District
Court reach different outcomes on judgments
regarding the validity of the same patent claims.
While this difference of judgment and opinion may
be significant, both decisions can be appealed to theHigh Court, and hence, the two outcomes can bereconciled at the appellate level. In addition, thisdifference of opinion in about 20% of the cases isroughly comparable to the percentage of reversalsof the JPO in appeals to the High Court (about18.2%). In short, the different outcomes in about
20% of the cases is understandable and may be
attributable to the structural and institutional
differences between the Patent Office and a court inexamining the evidence that is presented. This
result also suggests that both institutions are acting
quite prudently in resolving patent validity issues.
Table II: The Different Categories of Actions
taken in 270 District Court Patent
Cases with respect to Invalidation
Trials in the JPO from April 2000 toNovember 2002
31 % (84 cases) – Infringement action only in District
Court
33% – Invalidation Trial in JPO & “Abuse of Patent
Right” claim in District Court
29% – Invalidation Trial only in JPO
7% – “Abuse of Patent Right” only in District Court● 103 ●

Table III: Comparison of 71 JPO and District
Court Decisions Regarding Patent
Invalidity from April 2000 toNovember 2003
District Court

JPO

ValidInvalid

Valid185Invalid

939

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Ⅲ Summary
The experience with a dual track invalidation
system in Japan involving both the JPO and thedistrict courts demonstrates that both invalidation
schemes are complementary and serve to increase
the universe of issued patents that are challenged
by third parties. The specific differences between
the two invalidation options that are outlined indetail in this work indicate that while a patent may
be challenged in both venues in the vast majority ofcases, there are sound economic and institutional
reasons for maintaining (or creating) a patent
system with the ability to raise patent validity
challenges in both the Patent Office and in thecourts.

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