12Study on the Utilization of Intellectual Property Rights
in a Business Group

With such developments as the 1997 amendment of the Anti-Monopoly Law, business restructuring has
been accelerating in the industrial world, and more companies have changed their form to business groups
consisting of a parent company (holding company) and operating subsidiaries with separate legal entities. As
a result, group companies have come to face the need to divide or transfer their jointly-owned intellectual
property and to address various legal issues in utilizing such intellectual property.
This study has focused on the “allocation of the intellectual property management function” and the“ownership of the intellectual property rights” within a business group, and has particularly selected the“centrally-managed /centrally-owned model” and the “centrally-managed /individually-owned model.”Then, investigation and analyses have been made on the measures available under the current legal
system and the points to be improved in legal systems with regard to the following issues, which are
expected to arise when a business group utilizes intellectual property rights: (i) compensation for
employee’s inventions made in operating subsidiaries; (ii) which company enforces the right and themethod of enforcement; and (iii) the tax affairs related to the transfer of rights and licensing back withina business group. As a starting point for proposing an environment for Japanese business groups toenhance their competitiveness through the smooth utilization of their intellectual property rights, thisstudy has also suggested the possibility of applying the trust system to the utilization of intellectual property
rights.

Ⅰ Extraction of Issues Related to
the Utilization of Intellectual
Property Rights in a Business
Group
1

Modes of Intellectual Property Rights
Management in a Business Group

This study has presented four kinds of models
as the modes of intellectual property rights (IPR)
management assumed to be employed in a businessgroup. The IPR management models have been set
up by focusing on the allocation of the IPR
management function and the ownership of IPR
within a business group. (Figure 1)(1) Management Mode 1: IPR are both
centrally managed and owned
This mode would facilitate the development ofan optimum intellectual property (IP) strategy for
the whole group. In addition, the parent company
that has the management function is able to utilize
the IPR for the benefit of the whole group at its
own discretion. Further, this mode is also effective
in terms of operational efficiency and humanresources development.
(2) Management Mode 2: IPR are centrally
managed but individually owned
Like Management Mode 1, this mode would
also facilitates the development of an optimum IP
strategy for the whole group and is effective interms of operational efficiency and humanresources development. Further, since theindividual subsidiaries own their respective IPR,
they are likely to autonomously recognize the

IIP Bulletin 2002

importance of strategically developing IP andmaintain their incentive.
(3) Management Mode 3: IPR are bothindividually managed and owned
This mode would be adopted when therespective subsidiaries are engaged in considerably
different types of businesses from each other.
In this mode, each subsidiary manages andutilizes its IP in a way that suits its
circumstances.
(4) Management Mode 4: Combination of the“centralized” and “individual” modes
This mode combines Modes 1 and 3. It enables
the development of IP strategies for the wholebusiness group as well as allows each subsidiary to
conduct optimum IP activities that suit its
circumstances.
2

Issues in the Respective Management
Modes

Since a business group consists of a parent
company and subsidiaries with separate legal
entities, the following issues in conducting IP
activities of the whole group can be assumed in achronological order. (Figure 2)(1) Issues assumed when a single company
is restructured into a business group
When restructuring a company into a parent
company and its subsidiaries, the assets need to betransferred. The IPR are also transferred to thecompany managing them, so the tax affairs in
handling them must be made clear.

● 134 ●

Parent Co.

Parent Co.

IPR

R&D

Operating Co.

Subsid.

Operating Co.

Operating Co.
Operational Mode 1

IPRM* IPRM: IPR Management
Function

Subsid.

Subsid.

Management Mode 1

Parent Co.

Parent Co.
IPRM

Operating Co.

Operating Co.

R&D Co.

IPR

Operational Mode 2

Subsid.

IPR Subsid.

Management Mode 2

Parent Co.
R&D

Operating Co.
R&D

IPR Subsid.

Parent Co.

Operating Co.

Operating Co.

R&D

R&D

IPR Subsid.
IPRM

IPR Subsid.
IPRM

Management Mode 3

Operational Mode 3

IPR

Parent Co.
Operating Co.

Operating Co.

Operating Co.

R&D

R&D

R&D

IPR Subsid.
IPRM

IPR Subsid.
IPRM

Parent Co.
IPRM

IPR Subsid.
IPRM

IPR Subsid.
IPRM

Management Mode 4

Operational Mode 4

Figure 1: Location of the IPR Management Function and Ownership of IPR within a Business Group(1) Tax arises
whentransferring patents, etc.
Mng. (2) Registration fees andModes related tax arise when1transferring patents, etc.
2(3) Is the consent of the3
joint owner required when
4transferring rights, which
had been jointly owned
with a third party prior toforming a business group,
to a subsidiary after the
restructuring?

(4) The remuneration must be
assessed and tax arises whenMng. transferring a right to obtain aModes patent or a registered right.
(5) What kind of system satisfies
1
the “secrecy management system,”4
which is one of the threerequirements for the protection of“trade secrets” under the Unfair
Competition Prevention Law?
Mng.
Mode
2

(6) What kind of system satisfies
the “secrecy management system,”
which is one of the threerequirements for the protection of“trade secrets” under the Unfair
Competition Prevention Law?

Obtainmentof Right

Creation Cycle

Company

BusinessGroup

Creation

Utilizing IPR by working the inventions within the business
group

Mng.
Modes
1
4

Utilizing IPR through contestations/agreements with third
parties
Mng.
Modes
1
4
Mng.
Modes
2
4

Utilization

Figure 2: Problems Related to the Respective Management Modes● 135 ●

(7) Tax arises on the income from licensing
agreements(8) What tax problem arises concerning thelicense fee in connection to the remuneration
mentioned in (4), which was paid when the right
was transferred from the subsidiary?
(9) What tax problem arises when changing theamount of license fee according to the subsidiaryor the country in which the subsidiary is located?

Mng.
Modes
1
2
3
4

(10) The parent company may only be able toclaim an amount for damages that is equivalent
to the license fee when filing a suit against a
party that infringed its right.
(11) Is the parent company eligible to file a suit
on behalf of its subsidiary against a party that
infringed its subsidiary’s right?
(12) What would be the legal standing of theparent company (e.g. the eligibility for ancillaryintervention) when its subsidiary files a suitagainst a party that infringed the subsidiary’s
right?
(13) What would be the legal standing of theparent company (e.g. the eligibility for ancillaryintervention) and the points to note when its
subsidiary is involved in an infringement disputeof a third party’s right?
(14) What kind of “secrecy management system”
would be disadvantageous in a lawsuit?
(15) What kind of management system isrequired for circumventing non-application ofsuch privileges and protections as the“attorney-privilege,” “attorney work productprivilege,” and “protective order” particularly in
U.S. lawsuits?

IIP Bulletin 2002

(2) Issues assumed in the phase of creating
intellectual property
When implementing centralized management
like Management Modes 1 and 4 in a businessgroup after the restructuring, the rights to obtainpatents need to be transferred between the parent
company and the subsidiaries; so the tax affairs, asmentioned above, and the concept of legitimate
compensation for employees’ inventions in thesubsidiaries must be made clear. At the same time,
how the trade secrets and the like that would beexchanged between the parent company and thesubsidiaries should be managed and its system
must also be clarified.
(3) Issues assumed in the phase of utilizing
the IPR
When utilizing IPR within a business group,
licensing arrangement becomes necessary, and thetax affairs concerning the license fees must be
made clear. In the case of enforcing an IPR on athird party, the parent company is only able to claim
an amount of damages equivalent to the license fee
from the infringer in Management Mode 1. In
Management Mode 2, the parent company does not
own the right, so its legal standing must be clarified.
On the other hand, in the case of a third party
enforcing its right on the business group, the legal
standing of the parent company must be examinedwith respect to all of the management modes. The
above items can be categorized as follows according
to their nature:(i) the issue of compensation for employees’
inventions in the operating subsidiaries under thecentralized IP management modes;(ii) the eligibility to become a party with respect
to enforcement;(iii) the issue of the practice concerning secrecy
management; and(iv) the issue of tax concerning transfers of rights
and licensing back within the business group.
While Management Modes 1 and 2 have somecommon issues, they have different issues as well.
In Management Mode 3 where the individual
subsidiaries manage the IPR independently,
distinctive issues cannot be found in contrast to theconventional corporate form. Further, Management
Mode 4 combines Management Modes 1 and 3, so it
shares the same issues as Management Mode 1.
Therefore, this study has focused on Management
Modes 1 and 2 to discuss the concrete contents of
the above issues from (i) to (iv) and summarized
the measures available under the current legal
system. In addition, investigation has also been
made on the IP management modes of U.S.
companies, which are likely to be utilizing IPR
more freely and smoothly, as well as the related
legal systems in order to clarify their actual
conditions.

IIP Bulletin 2002

Ⅱ Issues Related to Compensation
for Employees’ Inventions Madein Operating SubsidiariesⅡ
1

Definition of the Problem

The assumable modes of utilizing IPR in
Management Mode 1 are: (A) working of theinventions by the respective subsidiaries; (B)working of the inventions within the businessgroup; and (C) working of the inventions outside
the business group. In some of these modes, thesubsidiaries cannot obtain monetary profits otherthan the compensation that the parent company
has paid for the transfer of the rights (e.g. Modes(B) and (C)). However, in the actual transfer of an
IPR from the subsidiary to the parent company,
the amount of compensation paid for the transfer
is often around the same as the amount necessary
for obtaining the right (application costs) or even
free; and the amount of compensation for thetransfer of the right to obtain a patent from a
subsidiary to its parent company is also expected
to be low. Thus, in Management Mode 1, thesubsidiaries may not be able to obtain profits fromthe utilization of the rights. However, this meansthat the subsidiaries cannot gain the funds forpaying the due “reasonable remuneration”(Section 35 of the Patent Law) to the inventors, so
how this remuneration should be paid presents a
problem.
2

Measures: Two Approaches to Paying the“Reasonable Remuneration”

The following two approaches can beconsidered as the methods for paying the“reasonable remuneration” to the inventor who is
employed by the subsidiary.
(1) Payment of “Reasonable Remuneration”
by Subsidiaries
If the subsidiary is to pay the “reasonable
remuneration,” it must secure the fund for thepayment, and the only fund available in such a caseis the compensation paid by the parent company forthe transfer of the right to obtain a patent.
Therefore, the amount of compensation for thetransfer must be decided by taking into
consideration the result of utilization of the right,that is, the profits the parent company gains fromthe right. Two methods can be considered for thepayment of such compensation.
(i) Lump-sum payment upon the transfer
The “reasonable remuneration” is calculated
at the time of the transfer based on the various
elements assumable at the time, and the amount ofcompensation for the transfer that has been decided
based on that remuneration is paid in a lump sum tothe subsidiary. In this case, the “reasonable
remuneration” paid by the subsidiary to the inventor● 136 ●

would also be in a lump sum.
(ii) Result-based compensation analogy
The compensation for the transfer is not paidin a lump sum at the time of the transfer, but ispaid in installments by deciding the amountaccording to the result of the utilization of theright. This applies the general method of paying
the remuneration to the inventor under theprovision on employees’ inventions (a filing-based
remuneration, registration-based remuneration, or
result-based remuneration) to the payment ofcompensation for the transfer. In this case, the“reasonable remuneration” paid by the subsidiary
to the inventor would also be in installments. Under
the method in the above (i), the value of the right toobtain a patent (the invention) must be calculated
on a monetary basis upon the transfer, but it isactually difficult to calculate such an amountby foreseeing the progress of technologicaldevelopment and the changes of economic
conditions that would take place by the time theinvention would be patented at a time when theinvention has merely been completed. Accordingly,
the method in the above (ii) is considered to be
more practical.
(2) Payment of “reasonable remuneration”
by The Parent Company
The parent company or the like calculates the“reasonable remuneration” according to the resultof its utilization of the right, and directly pays theamount to the inventor in its subsidiary. Thismethod applies the current payment method for the“reasonable remuneration” paid by a company to its
employee inventor, as is, to the relationshipbetween the parent company and the inventor. As
mentioned above, however, the parent company
takes over the payment obligation of its subsidiarythat has succeeded to its former operations in thiscase, so a right of indemnification arises on the partof the parent company under law. Considering that a
tax problem occurs when abandoning the right ofindemnification, it is considered difficult to adopt
this method in reality.

Ⅲ Issues Related to Who in
Business Group and How to
Enforcethe Right1(i)

Problems Posed
When Operating Company A transfers thepatent for its invention to the parent company
to have the parent company manage the patent(Management Mode 1)
In Management Mode 1, the patent right belongs

to the parent company. When an infringement
issue arises with regard to this patent right, theparent company owning the right can claim thepatent as its own right and enforce the right inthe judicial proceedings, since it is a justifiable
act of filing or being filed a suit concerning its
own right. That is a general form of litigation anddoes not have any particular problem underprocedural law. On the other hand, when asubsidiary enforces a right jointly with the parent
company or when an operating subsidiary, which
does not own the right but is given the permission
to work the patent, becomes involved in litigation,
there will be a problem under procedural law
pertaining to IPR management within a businessgroup.
c Institution of a joint action and intervention inlitigation
The following problems can be posed: (a)whether or not an operating subsidiary can
become a joint plaintiff from the beginning whenits parent company institutes an infringement action
as a plaintiff; and (b) whether or not an operating
subsidiary can intervene in an infringement
action that has been instituted by its parent
company.(*1)
d Intervention in litigation and taking over of
litigation by the parent company
The following problems can be posed when an
operating subsidiary, which had been working an
invention within the scope of a license obtained
from its parent company, is suddenly sued foralleged infringement of a third party’s right: (a)whether or not the parent company can intervenein the litigation; and (b) whether or not the parent
company can take over the litigation on behalf ofthe subsidiary as a defendant.
(ii) When the patent right for an operating
subsidiary’s invention is jointly owned by thesubsidiary and the parent company
Another assumable mode of maintaining an
IPR within a business group is where a subsidiarythat “created” and “works” the invention and theparent company managing the right for theinvention “jointly own” the IPR. In this case, thefollowing problems can be posed.
c Whether or not the parent company can jointly
institute an infringement action with thesubsidiary
The first problem is whether or not the parent
company can jointly institute an infringement action
with the subsidiary. The assumable modes ofinfringement actions in this case are: (a) an action
seeking confirmation of the patent right(infringement); (b) an action seeking an injunction(*1) Another important point to be noted when reviewing these problems is the distinction of whether the right granted to theoperating subsidiary by the parent company owning the patent is: (a) an exclusive license; (b) a monopolistic non-exclusive
license; (c) a non-monopolistic non-exclusive license; or (d) without license.
(*1)● 137 ●IIP Bulletin 2002

and (c) an action claiming for damages, as an action
to enforce a right.(*2)
d Whether or not the parent company can
independently institute an infringement action
The second problem is whether or not theparent company jointly owning the right can
independently institute an infringement action. The
parent company can justifiably institute an action in
relation to its own right alone, that is, its own shareof right, because that complies with the general
style of taking judicial proceedings with respect toone’s own right. Such institution of an action ispossible for any kind of infringement action (i.e., (a)an action seeking confirmation; (b) an action
seeking an injunction; or (c) an action claiming
damages).(*3) However, a point to be noted in the
IPR management of a whole business group,particularly in relation to the subsidiaries, is whatkind of effect the result of an action independently
instituted by the parent company has on its
subsidiaries. This point needs to be examined fromthe viewpoint of procedural law.
e Whether or not the parent company can also
independently institute an infringement action
in relation to the rights of its subsidiaries
Lastly, there is a problem of whether or not
the parent company can also independently
institute an infringement action in relation to therights of its subsidiaries. This means conducting
judicial proceedings on another party’s right under
its own name, so it involves the problem ofadmissibility of filing a representative suit as aconventional agent.
(iii) When the operating subsidiaries own their IPR
and the parent company is not entitled to thoserights (Management Mode 2)c Whether or not the parent company canintervene in an infringement action institutedby its operating subsidiary
The first problem that can be posed is whether
or not the parent company can intervene in an
infringement action instituted by its operating
subsidiary, which owns the IPR. The assumablemodes of infringement actions in this case areagain: (a) an action seeking confirmation of a patentright (infringement); (b) an action seeking an
injunction; and (c) an action claiming damages. The
sole point at issue with regard to the action would
be whether or not the parent company has aninterest in conducting ancillary intervention(Article 42 of the Code of Civil Procedure).
d Whether or not the parent company can
institute an action in the place of its operating
subsidiary
Next, there is the problem of whether or not
the parent company can institute an action ((a) an
action seeking confirmation of a patent right(infringement); (b) an action seeking an injunction;or (c) an action claiming damages) in the place of its
operating subsidiary. Since this is a situation where
the parent company, which is not entitled to the IPR,
files a suit in the place of its operating subsidiary,
which owns the IPR, it is a typical case of filing a
representative suit as a conventional agent undersubstantive law. Discussions can be made onwhether the relationship of forming a single
business group corresponds to the “common
interest” required for using the appointed party
system, which is a legitimate way of filing a
representative suit as a conventional agent, or
corresponds to a case where the filing of such a
representative suit is allowed.
e Whether or not the parent company canconduct ancillary intervention when an action
has been instituted against its operating
subsidiary; whether or not the parent company
can fully take over the action in the place of theoperating subsidiary
It is also necessary to assume problems
regarding the allowable conducts of the parent
company as part of the management of thecontested IPR when its subsidiary, which had been
operating on the premise of owning that IPR, isattacked by enforcement by another party. The
assumable means of intervention are ancillaryintervention and the taking over of litigation.
f Whether or not the parent company canintervene in the trial for invalidation that has
been demanded on a patent right of its
operating subsidiary
There is also a problem of whether or not theparent company can intervene in the trial forinvalidation of a patent that has been demanded
against its subsidiary.(*4) If the requirement of“having an interest” for becoming a demandant in atrial for the invalidation of a patent can beinterpreted broadly to include the parent companyof the business group to which the subsidiary(*2) For the kinds of infringement actions, see Yukio Nagasawa, “Chiteki Zaisanken Shingai Soshou No Shurui (Kinds of IPR
Infringement Actions),” <Shin> Saiban Jitsumu Taikei 4: Chiteki Zaisan Kankei Soshou Hou (<New Edition> Outline of Judicial
Practices 4: Intellectual Property Related Procedural Law), edited by Toshiaki Makino/Toshiki Iimura: p. 37 (Seirin Shoin, 2001).
Preservative proceedings could also be taken in a combined manner. Kazuhiko Yoshida, “Chiteki Zaisanken Ni Okeru
Karishobun/Hozen No Hitsuyou (Need for Provisional Dispositions and Preservative Measures for IPR),” Hanrei Times(The Law Times Report), No. 1062: p. 58 (2001).
(*3) Nobuhiro Nakayama, Kougyou Shoyuuken Hou <Jou> Tokkyo Hou [Dai Ni Han Zouho Ban] (Industrial Property Law <Vol.
1> Patent Law [Expanded Second Edition]): p. 303 et seq. (Koubundou, 2000).
(*4) If the right is jointly owned, the parent company becomes a joint defendant. Section 132 of the Patent Law.
(*2)(*5) See the Tokyo High Court decision of September 28, 1983, Hanrei Jihou (Court Decision Journal), No. 1105: p. 135.
(*3)
(*4)

IIP Bulletin 2002

● 138 ●

(patentee) belongs(*5), the parent company may
intervene (Section 148(1) of the Patent Law) in theinvalidation trial as one of the “demandants” under
Section 132 of the Patent Law.
2
(i)

Problems under Adjective Law

Interest in seeking confirmation
An action for confirmation is an effective
method of IPR management utilizing the court.
However, the preliminary requirement for using theaction for confirmation is whether or not the party
has an interest in the confirmation. Generally, theeligibility of the subject matter of confirmation andthe interest in immediately obtaining a final andconclusive decision are examined as interest in theconfirmation under the Code of Civil Procedure.
Recently, courts and scholars have tended tointerpret this interest in the confirmation relatively
broadly for the cases relating to the Code of Civil
Procedure. They tend to find an interest in an
action seeking confirmation of a question of fact orconfirmationoffuturelegal
relations.(*6)
Considering this point in relation to IP disputes, thefollowing problems have been pointed out: if thesubject matter of confirmation in an action for
negative confirmation is merely a “fact,” it probably
should not be eligible as the subject matter; and if
the alleged act of patent infringement conducted by
the defendant belongs to the future legal relations,
it should not be eligible as the subject matter either.
(ii) Intervention in an action
c The significance of ancillary intervention in
IPR management
The possibility of the parent company
conducting ancillary intervention for its subsidiaryhas been assumed in many of the problems posed
earlier. In civil litigation, an ancillary intervener canfreely conduct acts of procedure in almost the same
way as a concerned party, unless the act conflicts
with the act of procedure of the original party(Article 45 of the Code of Civil Procedure).
Therefore, if the parent company in a businessgroup can intervene as an ancillary intervener in allof the cases involving the IPR management within
the group, it can attain the objective of conducting
unified and centralized IPR management even
without instituting or taking over an action in theplace of the subsidiary.
d Discussion on the interest in the ancillaryintervention
First of all, it must be made clear whether or
not the parent company corresponds to “a third
party interested in the result of a suit” (Article 42of the Code of Civil Procedure) with regard to an
action instituted by its subsidiary. That is thequestion of whether or not the parent company isfound to have the interest in the ancillaryintervention. The prevalent theory in recent years
is to also allow ancillary intervention when theintervener receives a de facto influence from thedeterminations (main points at issue) in the reasonsfor the judgment. The recent trend of the practiceseems to be to find an interest in the ancillaryintervention in a quite flexible manner.
(iii) Representative action as a conventional agent
The issue of the acceptability of filing a
representative action as a conventional agent is oneof the traditional controversial points of the Code ofCivil Procedure. As long as the parent company andits subsidiaries within a business group are
separate legal entities and have a capacity to
conduct juristic acts and procedural acts
independently, the parent company would often
have no other choice but to rely on the
representative action as a conventional agent inorder to manage the IPR of the subsidiaries throughlitigation.
c Discussion on the eligibility to become a party
in a suit
In Management Mode 1, the parent company
that owns the patent is justifiably eligible to becomea party in all kinds of infringement actions
concerning the patent. Further, even in
Management Mode 1, the subsidiary is also eligible
to become a party as long as it has an exclusive
license for the patent. However, if the subsidiary
only has a non-exclusive license for the patent, it isunable to seek an injunction or claim damages
based on the patent under procedural law. In
Management Mode 2, if the parent company
institutes an infringement action in the place of its
subsidiary, the parent company is not entitled to theright at all, so it also becomes subject to the issueof filing a representative suit as a conventional
agent. When the IPR are jointly owned, the parent
company and the subsidiaries could basicallyinstitute an infringement action under their own
names or be instituted an infringement action only
for their own shares of the rights.
d Acceptability of filing a representative suit as aconventional agent
The system of filing a representative suit as aconventional agent is where the right holder, who isbasically the person eligible to become a party,
authorizes a third party to carry out the legal
proceedings under the third party’s name at his/herown discretion (free intent). However, the legalityof this system is generally not clear apart from suchexceptions as the appointed party system. The
present court decisions and academic theories
take the same view to make the following therequirements for allowing the filing of arepresentative suit as a conventional agent: (a) the(*6)
Sadaichirou Nakano, “Kakunin Soshou No Taishou (Subject Matter of Actions for Confirmation),” Minji Soshou Hou No(*5)
Ronten II (Controversial Points of the Code of Civil Procedure): p. 41 et seq. (Hanrei Times Co., 2001).
(*6)● 139 ●IIP Bulletin 2002

party has been authorized by the right holder (theperson entitled to manage and dispose of the right)
to carry out the legal proceedings; and (b) the
conventional agent has an interest that does not
circumvent the purports of the principle ofrepresentation by lawyers(*7) and the prohibition of
entrusting a suit, which are restrictive regulations.
If the exercise of another party’s right in litigation
is deemed to be a continuous duty carried out by
gaining remunerations, it is necessary to take into
consideration the prohibition of activities by
non-lawyers (Article 72 of the Lawyers Law) and,in the case of IP-related cases, the prohibition ofactivities by non-patent-attorneys (Article 22 of the
Patent Attorneys Law), as provisions prohibiting a
representative action by a conventional agent.(*8)

Ⅳ Investigation of the Actual
Conditions of the Centralized IPRManagement Modes in U.S.
Companies (IP Holding Companies)
The IPR management modes of U.S.
companies that are considered to be using IPR
freely and smoothly, as well as the related legal
systems, have been investigated and analyzed as
below. This study has also covered therequirements for establishing a holding company inDelaware (hereinafter “DHC”), the state tax
privilege applicable to a DHC, the restrictions on
the operations of a DHC deriving from state tax law
and federal tax law, and the general legal problems
pertaining to establishing an IP holding company(hereinafter “IPHC”) and having it manage the IPR.
1

Delaware Holding Companies (DHC)(1) Purpose of Establishment
The main purpose for establishing a DHC is tosave state tax (tax avoidance).
(2) Mechanism of Tax Avoidance by a DHC
The tax system in the United States basicallyconsists of federal tax law and state tax law. In
other words, a taxpayer must pay taxes to both thefederal government and the state government forthe same piece of income.
(i) Delaware Tax Code 1902(b)(8)The Delaware Tax Code 1902(b)(8) stipulates
that a DHC is exempt from state tax. When acompany established in Delaware meets thisprovision, it is recognized as a DHC and is
exempted from all state taxes on its corporate
income.

To that end, however, the activities of thecompany are “confined to the maintenance andmanagement of intangible investments” within
Delaware, as stated in Section 1902(b)(8).
Delaware’s tax authorities interpret “confined”
very narrowly, so if the company has an income
from any other activity, it cannot be exempted fromthe state tax.
(3) Transfer of IPR (Internal Revenue Code351(a))The IPR maintained and managed by a DHC
are created by the parent company and aretransferred to the DHC. According to Internal
Revenue Code (I.R.C.) 351(a), the transfer is notdeemed to have an economic effect if the IPR is
exchanged for stock in DHC, and no gain or loss isrecognized from the transfer. Specifically, even if
property is transferred from one company toanother company that is virtually under control of
the former, no economic effect is deemed to haveoccurred in reality, similar to a case where property
is transferred from one division to another within
the same company. In this case, the DHC must be
under control of the parent company.
(4) Licensing Back
After the IPR have been transferred, the DHC
grants licenses for the transferred rights to theparent company, and the parent company pays
license fees to the DHC for the licenses it has
obtained. The license fees are calculated according
to I.R.C. 482. A license fee in this case must be an“arm’s-length rate,” that is, it must be as close as
possible to a licensee fee that results from formaltransaction negotiations by deeming the parent
company an unrelated third party.
(5) Tax Treatment of License Fees
The parent company can enjoy tax deduction
for the license fees paid to the DHC by deeming
them as necessary business expenses and the DHC
can enjoy exemption from state tax for the license
fees it has received.
(6) Return of Profits
The license fee income is used by the DHC as
its operating funds. The profits earned by the DHC
can be returned to the parent company in two ways.
One is to return the profits to the parent company
in the form of dividends, in which case the parent
company can enjoy tax deduction for them under
I.R.C. 243(a)(3) and does not need to pay thefederal tax for them. The other way is to return the
profits by extending loans to the parent company, inwhich case the parent company can deduct the loaninterests, which it has paid, from its income. Theinterests would be an income for the DHC, but the(*7) The fact that this provision is established for protecting the interest of the party rather than for a prohibitive purpose is
explained in detail in Tetsuichirou Ueda, Toujisha Byoudou Gensoku No Tenkai (Development of the Principle of Equality of
the Parties): p. 115 et seq. (Yuhikaku, 1997).
(*8) Toukyou Daigaku Houritsu Purofesshonaru Seminaa (Professional Seminar of Law, the University of Tokyo), Mochikabu
Gaisha No Riron To Jitsumu (Theories and Practices of Holding Companies), <Bessatsu> Shouji Houmu (<Supplementary
(*7)
(*8)
Volume> Commercial Legal Affairs), No. 231: p. 115 (2000).

IIP Bulletin 2002

● 140 ●

interest income does not make the DHC lose its
state tax deduction privilege, and the state tax on
the interest income is deducted.
2

Establishment
Operations

of

an

IPHC

and

Its

(1) Conditions for the Establishment
In establishing an IPHC, one must first choose
the state in which the IPHC will be established.
Such a state is restricted to a state in which the
IPHC will be exempted from state tax on its income(e.g. Delaware).
(i) Maintenance of the deduction privilege in thestate in which the IPHC is established
In order to enjoy the privilege of state tax
deduction, the IPHC must limit the scope of its
operations within the scope specified by the tax
code of the state. Meanwhile, if the services it has
provided to the parent company are within thescope that is recognized as maintenance andmanagement of IPR, the IPHC can claim
compensation for the services from the parent
company as well as be exempted from state tax onthat income.
(ii) The relationship with the state in which theparent company is located (1)The parent company is able to save state tax
by establishing an IPHC, but it also means that thestate tax revenue of the state in which the parent
company is located will decrease. Therefore, thetax authorities of the state in which the parent
company is located monitor for any illicit intent inestablishing the IPHC, and if they find that the
IPHC is a dummy company that has merely been
established for the sake of saving state tax, they do
not allow the parent company to enjoy tax
deduction for the license fees.
(iii) The relationship with the state in which theparent company is located (2)While the IPHC must exist in reality in thestate in which it has been established, it must limit
its operations as much as possible in the state inwhich the parent company is located. Generally,
when a state imposes tax on a company that has
been established in another state, the former statemust have a relationship with that company. In
principle, if a company has an office in the state,that state is allowed to impose the tax on thecompany.
3

Granting
Company

Licensestothe

Parent(1) Viewpoints in Relation to Tax CodeAs mentioned above, an IPHC is established
for the purpose of tax avoidance, so there is nosense in establishing an IPHC without a tax-saving

effect. According to this purport, the licenses
granted to the parent company should be
non-exclusive, but as earlier-mentioned, a condition
for establishing an IPHC is to have the IPHC
operate as a substantive company. If it were foundto have been established only for the purpose of tax
avoidance, the parent company would not beallowed to enjoy the tax deduction for the license
fees in the state in which it is located. Therefore, if
the licenses granted to the parent company were
exclusive, the IPHC’s control over the parent
company would be too strong, and it may beconsidered to have been established as an
attachment to the parent company (for the purposeof tax avoidance).
(2) Viewpoints in Relation to the Patent Law
c Remedies for patent infringement
The remedies available for patent infringement
are an injunction (including an injunction issued by
the United States International Trade Commission)and a claim for damages; an IPHC can enjoy both ofthese remedies as a patentee. The damages can becompensated in the form of either lost profits or areasonable royalty, and the patentee can choose
either one. However, since the recovery of lost
profits requires the patentee to have been actuallyworking the patented invention, an IPHC cannot
claim lost profits, but only a reasonable royalty, in
an infringement action.
As discussed later on, a non-exclusive licensee
lacks standing to sue for infringement, so theparent company cannot claim damages if its license
is non-exclusive. Since an exclusive licensee
generally has standing to sue, if the parent company
has an exclusive license, it can institute a patent
infringement action and claim lost profits.
d Reasonable royalty
A reasonable royalty is derived by assuming
what would have been an agreeable license fee if awilling licensor and a willing licensee were to hold ahypothetical negotiation (a hypothetical license).
The elements that must be considered in deciding thelicense fee have been defined by a court decision.(*9)
e Standing to sue
Under the U.S. patent law, only the patentee ora person who has been assigned the patent from thepatentee can file an infringement action. However,the “successor in title to the patentee” in 35 U.S.C.
Section 100(d) is interpreted broadly, so when it isvirtually the same as having transferred the patentright, the person can institute an infringement
action without being a patentee. Such practice issometimes applied to an exclusive licensee as well.
Basically, a licensee cannot have standing to sue
because a license is merely an agreement that the“patentee will not sue the licensee for working theinvention.” In order to have standing to sue, onemust own the patent right.

(*9) Georgia Pacific Corp. v. United States Playwood Corp., 166 USPQ
235 (S.D. N.Y. 1970).
(*9)● 141 ●IIP Bulletin 2002

Ｖ The Possibility of Applying theTrust System to the Utilization ofIPR
1

The Aspect of the Trust System as aProperty Management System

The distinctive features of the trust system
could be effectively understood by comparing thetrust system with the representation system under
the Civil Code. Trust property is given
independence according to the purpose of the trust
set by the trustor. The specific forms of
independence under the principle of trust include:
independence of the trustee from the trustor’s rightto order and right to cancel; exclusivity of thetrustee’s right of management of property, right ofdisposal, and right to impose an obligation;
independence of the trust property from thetrustee’s individual creditor and inheritance; andlimitation of the trustee’s responsibilities arisingfrom the act of management of property to the trust
property. Such independence of the trust securespersistence and stability that allow long-term
distribution of the profits from the trust property to
the beneficiaries as well as the security in the casewhere a conflict of interests arises with regard to
the management of the trust property. In addition, it
makes it easier for one to seek a decision
concerning the management of the trust property.
At the same time, the trustee would also be able tomanage the trust property outside the control of
the trustor, so strict obligations are imposed on thetrustee as a matter of course. The specificobligations are: the good manager’s duty of due carein which one must process the trust affairs with due
care of a good manager according to the true aim of
the trust (Article 20 of the Trust Law); prohibition
to make the trust property one’s individual property(Article 22 of the Trust Law); obligation to manage
the individual property and the trust property
separately (Article 28 of the Trust Law); obligation
to carry out the trust affairs on one’s own (Article
26 of the Trust Law); and obligation to compensate
for losses or recover the trust property upon breachof trust (Articles 27 and 29 of the Trust Law).
2Intellectual Property and the Trust
SystemWhen considering use of the trust system for
IP, it is necessary to pay attention to the conversion
functions of the trust system. By effectively utilizing
the trust system according to needs, IPR can have:c a long-term management function;d a collective management function;e a function to convert private-interest property
into public-interest property; andf a bankruptcy remoteness function.
The significance of introducing the trust
system in the IP management in a business group

IIP Bulletin 2002

is in utilizing the conversion functions of the trust
system. For instance, when a company owns an IPR,
but does not have the know-how to make use of it,
it can transfer the IPR to a trustee who has
know-how of use in order to raise the value of theright. In addition, when an IPR is likely to be
infringed, the IPR can be protected from
infringement by using the trust system. Further, it
may be possible to centralize dispersed IPR or
disperse centralized IPR by using the trust system
as the medium. There is also a method to secure
the IPR of a nearly bankrupt company by using thebankruptcy remoteness function. All of theconversion functions of the trust system areapplicable to IP, and new additional conversion
functions could even be created according to theneeds of the IP. In any case, it would be possible toreplace the centralized and dispersed management
methods that have been mentioned as the IPR
management modes in a business group with ones
based on the trust system.

Ⅵ Tax Problems and Measures
Concerning Transfers of Rights
and Licensing-Back Within a
Business Group
1

Assessment of Patent Rights or the Like

The following methods can be considered forassessing patent rights or the like: (1) a cost
approach; (2) an income approach; and (3) a market
approach.
2

Transfer of Patents Between Domestic
Companies upon Shifting the Structureof the Parent Company(1) Compensation for the General Transfer ofPatents between the Parent Company
and its Subsidiaries or between theSubsidiaries
The amounts to be included in the grossrevenue when calculating the income subject tocorporate tax are basically the current values of thetransferred assets. Regardless of whether thetransfer was made between the parent company
and its subsidiaries, between the subsidiaries, orwith a third party, the compensation for the transfer
must fundamentally be the current value under the
Corporation Tax Law.
(2) Tax Problem when the Compensation for
a Transfer is Inappropriate
When the compensation for the transfer of anasset is different from the current value of thetransferred asset, the difference is basically treatedas a contribution or a donation income.
(3) Taxation Related to the Transfer of Patents
upon a Shift to a Holding Company● 142 ●

The possible methods of shifting to a holding
company are by exchange of shares, transfer ofshares, corporate separation, investment in kind,and subsequent incorporation. The taxation on thetransfer of patents differs according to the methodof establishing the affiliate relationship (the holding
company).
(4) Consolidated Return System and theTransfer of Patents“Renketsu Nouzei Seido No Kihonteki
Kangaekata (Basic Concept of the Consolidated
Return System),” released by the subcommittee on
corporate taxes of the Tax Commission on October
9, 2001, outlines the consolidated return system asfollows:c the corporations to which the consolidated
return system is applicable are the parent company(a domestic company) and its wholly-owned
subsidiaries (domestic companies);d the consolidated income amount is calculated
for the consolidated group as a whole and theconsolidated tax amount is calculated by deducting
taxes from the amount obtained by multiplying theconsolidated income amount by the tax rate;e transactions of assets between companies
within a consolidated group are to be conductedbased on the current values, and the profits andlosses from such transfers of assets are chiefly
deferred;
f when the compensation paid for the transfer ofan asset between companies within a consolidated
group is different from the current value of theasset, the whole sum of the difference is to betreated as a nondeductible contribution;g when starting the application for the consolidated
return system or adding a subsidiary to a
consolidated return group, the valuation profit orloss concerning the assets of the consolidated or
added subsidiary is to be added up except in certain
cases; andh the consolidated surtax is to be adopted as ameasure against lower tax revenues pertaining to
the establishment of the consolidated returnsystem.
3

Tax Treatment Concerning Utilization of
Rights for Employees’ Inventions ofOperating Subsidiaries in Management
Mode 1(1) When the Invention is Commercialized by
the Operating Subsidiary(i) Taxation on the operating subsidiary
In principle, the royalty for the patent paid by
the operating subsidiary to the parent company isincluded in the operating subsidiary’s expenses onan accrual basis. The compensation for obtaining
the license for the patent is depreciated in fixedinstallments over the shorter period of either eight
years or the term of the license according to thepatent right, both in the case of a non-exclusive
license and an exclusive license.
(ii) Taxation on the parent company
In principle, the royalty for the patent that theparent company has received from the operating
subsidiary is included in the parent company’s
gross revenue on an accrual basis. The
compensation received by granting the license forthe patent is chiefly added to the gross revenue ina lump sum in the fiscal year in which the license
has been granted. When the current value of thepatent royalty or the license is found to exceed theactual amount of patent royalty or the amount ofcompensation for the grant of license paid by theoperating subsidiary, the portion of the excess
amount that is recognized to have been donated in
effect is treated as a donation to the operating
subsidiary.
(2) When the Invention is Commercialized byAnother Domestic Operating Subsidiary(i) Taxation on the other domestic operating
subsidiary
The taxation is the same as that on theoperating subsidiary in (1) above.
(ii) Taxation on the parent company
The taxation is the same as that on the parent
company in (1) above.
(3) When the Invention is Commercialized bya Third party(i) Taxation on the third party
The taxation is the same as that on theoperating subsidiary in (1) above, but the problemof donation does not occur in principle. This isbecause, the difference of opinions between the
persons with conflicting interests can be adjusted
through negotiation, and the value of the transaction
is expected to be decided when the value comes toa level that is agreeable to both parties.
(ii) Taxation on the parent company
The taxation is the same as that on the parent
company in (1) above, but the problem of donation
does not occur in principle due to the abovementioned reason.
(4) When the Invention is Commercialized byMultiple Operating Subsidiaries andThird Parties
When the operating subsidiaries and the third
parties have obtained the license for the patent
under different conditions, and the differences of
the conditions are not reasonably accountable, theoperating subsidiaries or the parent company
would need to recognize the differences as
donations.
4

Tax Treatment of the Damages or the Like
Recovered by Patent Enforcement(1) Taxation of the Damages(i) Corporate tax
The recovered damages is included in the● 143 ●IIP Bulletin 2002

gross revenue.
(ii) Income tax
The recovered damages relating to patent
infringement does not correspond to the damages
relating to “mental or physical injury or damages toassets due to an unforeseen accident” under Article
9(1)(xvi) of the Income Tax Law. Therefore, theamount of the damages is deemed to be part ofbusiness income. The damages that has the natureof revenue is deemed to be a royalty.
(iii) Consumption tax
The damages relating to patent infringement
corresponds to the transfer of assets.
(2) When the Right is Jointly Owned by the
Parent Company and the Subsidiary or
by Multiple Operating Subsidiaries
The recovered damages would be distributed
and the damages to be paid would be borne
generally in proportion to the respective shares of
the jointly owned right. However, the distribution
or bearing according to a reasonable rule that has
been agreed upon in advance by the joint owners
would also be acceptable in respect to tax.
(3) When the Damages was Recovered in an
Operating Subsidiary’s Litigation that Has
Been Represented by the Parent Company
When the damages was recovered in an
operating subsidiary’s litigation that has been
represented by the parent company, the damages
externally belongs to the subsidiary (principal).
However, if the substantial ownership of the rightdoes not fully belong to the operating subsidiary
due to a reasonable agreement in advance, therecovered damages is deemed to belong to thesubsidiary according to its substantial share ofownership of the right also in terms of tax.
5

Tax Treatment in Utilizing the Trust
System for Patents

According to the principle of taxation on a real
income earner, a trust asset is deemed to beowned by the beneficiaries, and any income or
expense concerning the trust asset is basicallytreated as belonging to the beneficiaries in respect
to tax. The tax law stipulates that revenues
arising from assets or businesses are treated as
belonging to the parties who benefit from them,and basically imposes tax by deeming that any
income or expense related to a trust asset belongs
to the beneficiaries. If an operating subsidiary’s
entrustment of patent rights to another company
within the group causes no legal problems, itwould be possible to eliminate tax problems
concerning the transfer of patents within a businessgroup.
The matters on tax treatment are dealt in aquestion-and-answer format in the report of thisstudy.

IIP Bulletin 2002

Ⅶ Other Problems and Measures inPractice
1

Secrecy Management System within a
Business Group

Should the parent company manage and utilize
the IPR of the operating subsidiaries, the IPR
management function of the parent company isassumed to be assigned such IPR as the right toobtain a patent from the operating subsidiaries, takethe procedure for obtaining the patent or the like(such as filing applications), and utilize the rights
based on the business strategy of the wholebusiness group. By conducting these operations,the parent company would directly learn about theinventions, devices, and other trade secrets of theoperating subsidiaries. On the other hand, theoperating subsidiaries may also gain knowledge ofthe business strategy of the parent company or thebusiness group, or the trade secrets of the parent
company or other operating subsidiaries from theparent company. Therefore, problems may arise in
how the system for managing the trade secrets ofthe parent company and the operating subsidiaries
should be established. Specifically, the following
three issues will be discussed here:(1) whether or not the secrecy of a trade secretwould be lost if an operating subsidiary disclosed
the trade secret to the parent company or theparent company disclosed the trade secret to an
operating subsidiary;(2) whether or not there is a need to haveseparate patent attorneys’ offices or patent
attorneys take charge of such procedures as thefiling of applications for the parent company and theoperating subsidiaries from the viewpoint of thesecrecy management of trade secrets; and(3) whether or not the parent company is also
eligible to seek an injunction or claim for damages
when a trade secret of its subsidiary has been
infringed.
The example cases of (1) are:(i) where the parent company releases
information that has been disclosed by its operating
subsidiary to another operating subsidiary; and(ii) where the result of joint development by theparent company and a third party is disclosed to its
operating subsidiary.
One of the requirements for a “trade secret”
under the Unfair Competition Prevention Law, thatis, the requirement that the information must be“managed as a secret” (the requirement of being
managed as a secret), specifically requires thefollowing:c a person who has accessed the informationmust be able to recognize that the information is atrade secret (e.g., “confidential,” “strict secret,”or “for internal use only”);
d there must be a restriction on persons who● 144 ●

have access to the information (e.g., take measures
to disable access from outside the company, or
require authorization to access the information).
Even when disclosing the information to a third
party by licensing or the like, as long as aconfidentiality agreement is concluded and secrecy
management is adequately conducted, theinformation is considered to meet c and d above,and continue to satisfy the requirement of being
managed as a secret. Therefore, if such anindication as “confidential,” “strict secret,” or “forinternal use only” is attached to the information, aconfidentiality agreement is concluded, and such amanagement system as a physical access restriction
is established, the information would continue tomeet the requirement of being managed as a secret
even in the cases of (i) and (ii) above.
With regard to the problem in (2), first, thepatent attorney takes on a secrecy obligation to theclient under the Patent Attorneys Law (Article 22).
Then, even if the companies were a parent
company and its subsidiary, the patent attorney has
an obligation not to release a trade secret that has
been disclosed from either one of them to the other,as long as the companies are separate legal entities.
Therefore, from a legal point of view, there is noneed to have separate patent attorneys’ offices orpatent attorneys for the parent company and thesubsidiaries.
As for the problem in (3), first, the Unfair
Competition Prevention Law provides for a person
having the right to seek an injunction as “a person
whose business interests are infringed or are likely
to be infringed by unfair competition” (Article 3)
and a person having the right to claim for damages
as a third person whose “business interests havebeen infringed” (Article 4). A person whose“business interests have been infringed” isregarded to refer to a person who owns theinformation, including anyone who manages theinformation.(*10) Even if a trade secret weredisclosed by such an agreement as licensing, aperson possessing the authority to use or authority
to disclose the information would be regarded tocorrespond to a person whose “business interests
have been infringed.” Therefore, the parent
company would be eligible to claim for damages.
2

Possible Conflict of Centralized IPRManagement with Article 72 of thePracticing Attorney Law(1) Modes of Involvement of the Parent
Company
The assumable modes of the parent company’s
involvement in utilization of the IPR belonging to
the business group are as follows:－ the parent company provides advice on thecontent of the agreement, the negotiation method,
and the like with regard to an IPR-relatedtransaction or negotiation between a company inthe business group and a third party;－ the parent company negotiates with a third
party together with a company in the businessgroup (or on behalf of that company) with regard to
an IPR-related transaction or negotiation between
the company in the business group and the third
party;－ the parent company prepares such necessary
documents as the contract document on behalf of acompany in the business group with regard to an
IPR-related agreement between the company in thebusiness group and a third party; and－ the parent company receives or pays a royalty
on behalf of a company in the business group withregard to an IPR-related agreement between thecompany in the business group and a third party.
(2) Detailed Study
The constituent elements of Article 72 of thePracticing Attorney Law can be summarized asfollows:c a person other than a lawyer;d conducts legal affairs concerning law cases onbehalf of the client;e has a purpose of gaining remuneration; andf conducts the act as business.
Of the above, “legal affairs” in (2) has been
deemed in court decisions to be processing ofmatters that would bring about or change a legal
effect (generally in a case where there is conflict or
doubt concerning a legal right or obligation orwhere a new right or obligation arises). The specificacts that have been found to be “legal affairs” bycourts include acts of claiming debts as proxy,
accepting performance, and releasing a debtor fromdebts, as well as acts of claiming and receiving
automobile liability insurance money. Such acts as
preparing a contract document for finalized matters,
which are the processing of matters that do notbring about or change a legal effect, but preserve or
clarify a legal effect, are also regarded to be
included in the “legal affairs.” According to thisview, the respective acts of (1) to (4) above, which
can be assumed to be conducted by the parent
company, would all be included in the “legal affairs.”
Nevertheless, even when the parent company
conducts “legal affairs” concerning the IPR of thebusiness group, the acts do not violate Article 72 of
the Practicing Attorney Law if the parent company
does not have “the purpose to gain remuneration.”
Therefore, in order to avoid violation of Article 72,
the parent company could be involved in utilizationof the IPR of the business group without gaining
remuneration, that is, free of charge. The(*10) Yoshiyuki Tamura, Fusei Kyousou Hou Gaisetsu (Outline of the Unfair Competition Prevention Law): p. 259 (Yuhikaku,(*10) 1994).
● 145 ●IIP Bulletin 2002

“remuneration” here refers to compensation forhandling the legal affairs, particularly for the mental
effort involved, with regard to a specific law case. It
is regarded as not only being limited to the form ofcash, but also including gifts or dinner. The problem
would be the parent company’s act of receiving areimbursement of the actual spent expenses for theutilization of the right (e.g., personnel expenses,
travel expenses and communication expenses) froma company in the business group. However, it isreasonable to consider such actual expenses to beborne by the company in the business group in lightof the purpose of the spending. In addition, theparent company merely gains reimbursement of theactual spent expenses, and not profits. Therefore, it
should not be deemed as a “remuneration.”
Although no court decision is found to haverendered a judgment on this point, there is a viewthat the “remuneration should be carefully
determined in regard to the portion of expenses
necessary for processing the entrusted affairs
which can be reimbursed under Article 650 of the
Civil Code (the actual expenses).”(*11)
Meanwhile, courts have considered that “asbusiness” in (4) “should refer to cases where one
handles the above legal affairs repeatedly or with anintent to repeat and continue, and the act has cometo take on the character of business,”(*12) and that“as long as an intent to repeat and continue is found,the amount of the concretely conducted acts do notmatter.”(*13) According to such viewpoint of courts,
it would have to be interpreted that the parent
company’s act would correspond to “as a business”
even when utilizing the IPR of such a specificcompany as a company in the same business group.

equivalent to the license fee. According to thecurrent case law, however, the amount would be
calculated based on a flat market rate, which makes
it difficult for the business group to sufficiently
cover the loss. Considered solely from theviewpoint of damages, the only desirable method inManagement Mode 1 would be to grantmonopolistic licenses to the operating subsidiaries;
the options for the business group are thus limited.
(3) When applying the presumptive provision in
Section 102(2) of the Patent Law to a case where aright is jointly owned by a parent company that
does not engage in the manufacture and sale of the
product relating to the patent and an operating
subsidiary that engages in such business within thesame business group, it is difficult for the operating
subsidiary that has suffered the operating losses tocompensate the losses sufficiently. This is because,
according to the current case law, the infringer’s
amount of profits would be presumed as the amountof damages for the whole patent right and thedamages awarded to the operating subsidiary would
be the amount of presumed damages multiplied by
the share of ownership of the right.
(4) In Management Mode 2, the legal standing of
the company in which the IPR management
function is allocated (parent company) should be
sufficiently considered upon enforcement andlicensing activities; the specific aspects to beconsidered include the company’s right to sue, itseligibility to conduct ancillary intervention, and theissue of its conflict with Article 72 of the Lawyers
Law.
(Senior Researcher: Seiichi Ban)

Ⅷ Closing(1) As the method of compensation for an
employee’s invention of an operating subsidiary inManagement Mode 1, the parent company needs toreturn a part of the profits gained by utilization of
the right to the operating subsidiary. Since it is theoperating subsidiary company, which is the“employer,” that has the obligation to pay the“reasonable remuneration,” it is necessary tocreate a rule where the subsidiary can secure funds
for paying the “reasonable remuneration” within
the business group.
(2) When the parent company claims fordamages from an infringer of a right in Management
Mode 1, the claimable amount would be an amount(*11) Edited and written by the Research Office of the Japan Federation of Bar Associations, Joukai Bengoshi Hou <Dai Ni Han
Hosei Ban> (Explanation of Articles of the Lawyers Law <Revised Second Edition>): p. 529 (Koubundou, 1998).
(*12) Supreme Court Decision of April 4, 1975, Saikou Saibansho Minji Hanrei Shuu (Supreme Court Report <Civil Cases>),(*11) Vol. 29, No. 4: p. 317 and others.
(*13)(*12) Supreme Court Decision of December 5, 1959, Saikou Saibansho Keiji Hanrei Shuu (Supreme Court Report <Criminal
Cases>), Vol. 13, No. 12: p. 3174 and others.
(*13)

IIP Bulletin 2002

● 146 ●