9Licensing of Intellectual Property Rights and Trade
Secret Management in Connection with JapaneseCompanies’ Expansion to Emerging Countries (*)

To enhance Japan’s international competitiveness, it is vital to bring emerging countries’ growing markets
into the Japanese economic bloc. To that end, it is essential for Japanese companies to expand their presence insuch emerging countries with a sufficient understanding of the legal systems and commercial practices therein.
Particularly, in emerging countries, intellectual property systems and their operation are undeveloped incomparison to Japan. Accordingly, issues remain, such that information on the actual conditions of theoperation of intellectual property license agreements and trade secret protection, which is essential for businessexpansion, is unclear, and there are concerns about institutional and practical restrictions. Yet, the present
situation does not allow for the easy obtaining of sufficient and accurate information. Taking this situation into
account, in this research study, the actual conditions of and developments in the regulations on the intellectual
property license agreements and trade secret protection in emerging countries as well as the matters to be noted
in relation thereto were researched, organized and analyzed, and further studies were made to find theappropriate response in practice. Specifically, domestic questionnaire surveys, domestic interview surveys,
overseas interview surveys, as well as domestic and overseas surveys on literature including judicial precedents
were performed and studies were made by a committee based on the results thereof.

I

Introduction

1

Background and Objective of this Study

In order to enhance the international
competitiveness of Japan, it is vital to bring themarkets of emerging countries—which areexpanding rapidly and seen as growing markets,
i.e. Asian markets—into the Japanese economic
bloc. Accordingly, it is essential for Japanesecompanies to grasp the needs of these markets
and to advance business cooperation withcompanies in emerging countries and businessexpansion such as joint research anddevelopment
projects,
withasufficientunderstanding of the legal system and thecommercial practices therein.
The research conducted by Japan Bank forInternational Cooperation (JBIC), showed thatthe emerging markets were promising markets
for business expansions in the medium to longterm but mentioned the “uncertainty in theoperations of legal systems” as one of the priority
issues to be solved in these promising markets.
Hence, Japanese companies may face major
challenges in business expansion in relation to
the actual operations of the legal systems,
including intellectual property systems, inemerging countries.
A particularly important element to be taken

into consideration in expanding businessoverseas is the utilization of intellectual property.
However, as intellectual property systems andtheir operation in emerging countries areunderdeveloped in comparison to Japan, theactual conditions of the conclusion of intellectual
property license agreements and trade secretprotection, which are essential to businessexpansion, remain unclear, and there areconcerns about institutional and practicalregulations in cases of implementing joint
research and development projects. Moreover,
information related to such issues has neither
been sufficiently accumulated nor organized in asystematic manner for strategic use in Japan due
to the fact that Japanese companies have not been
active in conducting intellectual property related
activities in emerging countries.
Given this situation, this research study was
performed to carry out research, organization,
and analyses on the actual conditions of anddevelopments in regulations on intellectual
property license agreements and trade secretprotection in emerging countries, as well as thematters to be noted in relation thereto, studies tofind the appropriate response to be made inpractice by Japanese companies in expanding
their business to emerging countries, andeventually, to prepare basic data for studying
possible measures for Japan to take in relation to(*) This is an English translation of the summary of the FY2011 JPO-commissioned research ｓtudy report on theissues related to the industrial property rights system.
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1 ●the matters to be taken into consideration inthese emerging countries.

Ⅱ ResultsofQuestionnaire
Surveys1

theandDomestic
Interview

Domestic questionnaire surveys

The questionnaire survey was sent to 935
companies which were selected at random withpreference given to companies expanding tomultiple countries from among the 1700
companies which have expanded to emerging
countries (i.e. India, Brazil, Russia, Thailand,
Indonesia and Vietnam) (approximately 150
companies were selected from each country,
starting from the countries with the least
Japanese corporations), and was answered by 200
companies (response rate: 21%).
While most of the Japanese companies hadconcluded license agreements with companies
which they had funded, some companies hadconcluded
agreements
with
non-Japanesecompanies. Of the companies which answeredthat they had “concluded agreements,” 20%
stated that they faced problems in connection
with license registration. Among the countries
where the companies faced problems, Brazil
showed the largest number as well as the highest
rate of occurrence. Although no large bias wasfound in the characteristics of the parties
involved in the problem other than the companies,
more problems were found in relation to theagreements
concluded
betweenJapanesecompanies and non-Japanese companies in Brazil.
Regarding trade secret management, only one
company answered that it faced problems andtherefore, no significant results could be obtained
from this survey.
Further, approximately
37% ofthecompanies expressed their requests to the Stateand public bodies to collect and organize
intellectual property-related information. At thesame time, many of the companies stated theirdemands for practical tools to avoid problems
which may occur in the future, in the free spaceof the questionnaire.
2

entering into an agreement, many of thecompanies stated that they gave weight to thepreliminary
surveyconducted
bythecounterparty to the agreement and pointed out
the importance of collecting local information byreason the agreement was to be concluded in an
emerging country. Some of the companies wereusing external tools in addition to the research
they conducted themselves.
In almost every case, license agreements
were directly entered into by the companies
themselves. In some industries, the companies
needed a sales company, a joint venture company
incorporated in the relevant emerging country in
relation to such agreement, or a trading company
to participate in the agreement as the contracting
party, due to various reasons.
Regarding trade secret management, whilesome of the companies deliberately transferred
information, the leakage of which would be of no
problem, to the companies in emerging countries,
others had no specifically established criteria for
managing trade secrets or were leaving suchmanagement in the hands of the local businessdepartment.
Generally, many of the companies managed
trade secrets at the same level as the head officein Japan, but there were cases where excessive
management caused adverse effects. Some cases
showed that companies provided training as
appropriate to their employees who may haveaccess to trade secrets or placed the obligation ofconfidentiality or duty not to compete on
resignees. Nevertheless, the same amount ofcompanies had left the actual management oftrade secrets in the hands of the local businessdepartment and therefore, in many cases, thehead office of such companies lacked the correctunderstanding of the actual conditions of suchmanagement.

Ⅲ Results of Overseas Research(interviews and research on
literature)
1

Domestic interview surveys

Research was implemented on 29 companies
selected mainly from the abovementioned
respondents to the questionnaire survey.
As the matters taken into consideration in●

Legal system and practical operations
concerning licensing of intellectual
property rights and trade secretmanagement in India

India has no provisions that impose
restrictions on the designation of governing laws.
Accordingly, in cases where a license agreement
or confidentiality agreement is to be governed by
the laws of Japan, a judgment rendered in Japan

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may be enforced in India, under the letter of thelaws of India . However, a judgment rendered inJapan may not be enforced as it stands in India,
and an action must be filed with the court in India
to enforce such judgment. India is a member stateof the Convention on the Recognition and
Enforcement of Foreign Arbitral Awards(hereinafter referred to as the “New York
Convention”), and therefore, the place ofarbitration may be situated outside India and thearbitral award would be enforceable without any
problem so far as the place of arbitration is in themember state of the New York Convention.
While registration of a patent license is an
essential requirement, registration of a trademark
license is a requirement for perfection vis-à-vis
third parties. Although the registration of a
trademark license is not an essential requirement,
the use of trademarks by a registered user of a
trademark shall be deemed to be the use by the
proprietor thereof (Article 48 of the TrademarkAct). Regarding trade secret licenses, there is no
system of registration. The licensee shall submit
the prescribed forms and relevant agreement, andshall not be refused such license as long as the
documents submitted are in the correct format.
With the revision of the tax laws in 2010,
foreign companies are recommended to acquire a
Permanent Account Number (PAN) in relation to
the remittance of royalties. Only when a foreigncompany has obtained a PAN shall the reduction
or exemption from the taxes to be withheld fromlocal companies at the time of the remittance ofroyalties be allowed. Note that it takes one to twomonths to complete the procedures to obtain a
PAN and that the obtainment of a PAN gives riseto the obligation to file tax returns.
Although India has no statutes on theprotection of trade secrets, it is permitted to haveprotections
basedonagreements(e.g.
confidentiality
agreements,
employment
agreements, or technical knowhow agreements)
or on equity principles. Even if the parties havenot entered into any agreements, the obligation ofconfidentiality for trade secrets may find its
grounds in common law. The provisions of Article
27 of the Indian Contract Act 1872 prohibit theestablishment of a clause imposing the duty not
to compete, and a clause for keeping a former
employee from joining a competitor. The law has
no specific provisions regarding the limitation on
the period for the continuation of the obligation ofconfidentiality after retirement, and thus, such
period is to be decided by the parties under anagreement.
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2Legal system and practical operations
concerning licensing of intellectual
property rights and trade secretmanagement in Brazil

There are no legal constraints in deciding
the governing law in license agreements or
confidentiality agreements, and it may be
determined by an agreement between the parties.
Moreover, no limitation shall be imposed inselecting Japan as the place of arbitration.
However, in cases where enforcing a judgment
rendered in Japan, the satisfaction of therequirement as to whether the judgment does notcontravene the public order of Brazil shall be
confirmed after completing certain procedures at
the Superior Court of Justice (SCJ) of Brazil. As
Brazil is a member state of the New York
Convention, no limitation shall be imposed on thedesignation of the place of arbitration.
Regarding the license contracts for patentrights, industrial designs, and trademarks, theprovisions of Articles 62, 121 and 140 of theIndustrial Property Law provide to the effect that
“The license contract must be recorded withINPI so that it becomes effective regarding third
parties.” Moreover, the registration of the license
contract with INPI is established as arequirement for remitting royalties (Foreign
Capital and Profit Remittance Law) and forincluding royalties in losses (Income Tax Law and
Ordinance of the Ministry of Finance). Thismeans that the license contract is effective even
if the license was not registered with INPI but
without such registration, no royalties may beremitted overseas nor any tax deductions areavailable. INPI does not consider knowhow as aproperty right, nor does it allow any trade secretlicense agreements where the licensee becomesunable to use the relevant technology upon thetermination of the agreement. Knowhow license
agreements are treated as technology transfer
agreements.
In Brazil, the requirements for including
royalties in losses are provided in tax laws in a
detailed manner, and further, it was confirmedthat limitations on the amounts of remittances
made between affiliated companies are still inexistence today. According to the interviews
made with the local law firms, as far as they knew,
there have not been any recent problems
regarding the registration of intellectual property
licenses. Their view was that problems were3 ●

avoided by utilizing experts familiar with thesystem.
Trade secrets and confidential information,
including knowhow, are protected under the
Industrial Property Law, Law 10.603/002 and the
Criminal Code. Although the concept of trade
secrets is not provided in any Brazilian domestic
law, the provisions of Article 195(XI) of theIndustrial Property Law prescribing that the
infringement of trade secrets constitutes a crimeof unfair competition may be regarded asproviding such concept. Article 209 of theIndustrial Property Law provides that the
aggrieved party has the right to recover damages
as compensation for losses caused by acts of
unfair competition. Concluding confidentiality
agreements placing on the employees acontinuing obligation of confidentiality after
retirement seems not to cause any problems, but
agreements providing the duty not to compete
may.
3

Legal system and practical operations
concerning licensing of intellectual
property rights and trade secretmanagement in Russia

In Russia, parties to a contract may selectthe governing law, which does not have to be a
Russian law (Article 1210 of the Civil Code of theRussian Federation [hereinafter referred to as the“Civil Code”]). At the same time, the parties may
also select jurisdiction outside Russia. However,as Russia and Japan have not concluded any
agreement on mutual recognition of foreign
judgments, so far, no judgments rendered in Japan
have been recognized in Russia. Yet, Russia is amember state of the New York Convention, andtherefore, any arbitration award is enforceable inRussia so far as it has been awarded in any of themember states of the New York Convention.
The provisions of Articles 1235 through1238 of the Civil Code cover the range of mattersrelated to license agreements. The Civil Codeprovides that a trade secret itself shall not betreated as a subject matter in civil transactions
and instead, exclusive rights on such trade secret
may be transferred or licensed in suchtransactions (Article 1468, paragraph (1) of the
Civil Code). While intellectual property license
agreements are required to be registered with theRussian Patent Office, knowhow license
agreements require no registrations and shall beeffective between the parties from the day theagreement was signed.
●

In making a remittance of license fees toforeign countries, the remitter must submit tothe bank any evidence that serves as the grounds
for such remittance. In cases where a license
agreement based on a patent right or trademark
right has been entered into, a copy of the original
agreement or agreement on which a sealcertifying the registration of the license is affixedshall be submitted to demonstrate the basis forthe foreign remittance. In cases where theremittance of license fees is based on a trade
secret license, e.g. a knowhow license, such
remittance shall be allowed if a copy of theagreement with no certification of registration is
submitted. However, in cases where the amountof foreign remittance exceeds USD50,000, a
resident is required to open an account for atransaction passport at the bank.
“Part 4 of the Civil Code of the RussianFederation” and the “Federal Law on Commercial
Secrets” are the main laws dealing with theprotection of trade secrets. The definition of
trade secrets prescribed in Article 1465 of the
Civil Code contains requirements such that trade
secrets are managed. As the law does not provide
for imposing the duty not to compete on
employees after their retirement, it seems
difficult to prohibit such employees from joining
rival companies. On the other hand, an obligation
to maintain the confidentiality of the secret
information which the employee came to know inthe course of his/her duties may be continuously
imposed on such employee after his/her
retirement, by concluding an agreement.
In the event of a dispute involving
infringement of the exclusive right based on trade
secrets or breach of the license agreement,
settlement through commercial arbitration isavailable in addition to relief available under civil
law, administrative law or criminal law.
4

Legal system and practical operations
concerning licensing of intellectual
property rights and trade secretmanagement in Thailand

The governing law in general agreements
may, in principle, be determined by an agreementof the parties. As no treaty concerning court
proceedings has been entered into between Japanand Thailand, the judgments rendered in Japanare not enforceable in Thailand. However, license
agreements may contain arbitral clauses
concerning disputes, and the arbitral awards arerecognized even if a third-country body is

4 ●IIP Bulletin 2012 Vol.21

designated as the arbitral body, as Thailand is amember state of the New York Convention.
A license contract of a patent must be inwriting and registered with the government ofThailand (Article 41 of the Patent Act) and suchregistration is a requirement for the license
contract to take effect. If a patentee licenses
another person to use the rights contrary to the
obligation of registration, there is a risk ofcancellation of patent rights (Article 55,
paragraph (2) of the Patent Act). Trademark
license agreements shall be in writing andregistered with the government of Thailand(Article 68 of the Trademark Act), and suchregistration is a requirement for the license
agreement to take effect. No requirements forregistration are provided in the Trade Secrets Act
for trade secret license agreements. In filing anapplication for license registration, a written
application and written license agreement shallbe submitted to the Department of Intellectual
Property (DIP). Information on registration is notdisclosed on websites or an official gazette, but
any person may inspect the examined items at
the Department of Intellectual Property (DIP)
upon application.
Upon remitting royalties, the remitter shallfill in the application form for remittance at acommercial bank and shall be required to submit
the written agreement and any proof for thereasons for the remittance (the same shall apply
in the case of purchase of goods or provision ofservice). However, in practice, such confirmation
is limited to checks on invoices. In cases of aforeign remittance, the branch office of the
Revenue Department confirms whether or not
the remitter must pay value-added tax based on
the tax identification number stored in the database of the Revenue Department.
The Trade Secrets Act provides thedefinition of a trade secret and the protection
measures therefor (i.e. Infringement of Trade
Secrets provided in Article 6 of that Act,
Injunctions provided in Article 8, and Penalties
provided in Articles 33 through 36). From theresults of the interviews, trade secrets seemed tobe managed properly, but it remains unclear
whether it is a general practice among Thaicompanies.
Duty not to compete and obligations ofconfidentiality after retirement may be imposed.
As there are no provisions in laws that limit theconfidentiality period, it will be decided based on
the agreement between the parties, in principle.
Moreover, no guidelines setting a reasonable●

IIP Bulletin 2012 Vol.21

period have been established.
5

Legal system and practical operations
concerning licensing of intellectual
property rights and trade secretmanagement in Indonesia

The parties to license agreements, etc.
generally have the option to select the applicablelaw from any country for the agreement. However,attention should be paid to the fact that, inpractice, Indonesia has no regulations todomestically enforce judgments rendered in othercountries, and therefore, such enforcement may
technically be impossible. Yet, Indonesia is amember state of the New York Convention andtherefore, the arbitration award will berecognized even if a third country body isdesignated as the arbitral body.
License agreements shall be regarded as a
general agreement complying with the provisionsof the Indonesian Civil Code unless duly
registered with the Directorate General ofIntellectual Property Rights (DGIPR) and suchlicense agreement shall have legal effects only on
the parties bound (Article 72 of the Patent Law).
Although Article 73 of that Law provides thatfurther provisions concerning license agreements
shall be regulated by a Governmental Regulation,
no regulations have been enacted under thepresent circumstances and therefore, none of thepractices including the receipt of applications,
examination for registration and publication ofregistered patents have been conducted. The
same is true for industrial designs, trademarks,
and trade secrets.
At present, there are no regulations
concerning the royalty amount or royalty rate. If
the licensee submits the Certificate of Domicile
of Non Resident for Indonesian Tax Withholding(COD) before paying royalties, and the payment
is approved as a royalty, the withholding tax rate
at the time of remittance of the royalty shall be
reduced or exempted. At one time, theIndonesian government made a strict applicationof transfer pricing taxation on priority industries
and as a result, no royalty was approved.
However, Regulations (PER) No. 43 and 48
issued by the Tax Office of the Ministry of
Finance specifically provided for the rules for
implementation of such taxation and relaxed thecriterion for approval of royalties.
The Law of the Republic of Indonesia
Number 30 of Year 2000 Regarding Trade Secrets

5 ●provides the definition of trade secrets (Article 1),
scope of protection (Article 2), requirements forprotection (Article 3), license (Articles 6 through9), settlement of dispute (Articles 11 and 12),infringement(Articles
13
through15),
investigations (Article 16) and criminal
provisions (Article 17). It is important for the
person managing trade secrets to properly
restrict access to trade secrets and maintain suchtrade secrets by appropriately telling the users ofconfidential information about its nature andhaving them report their compliance with theconfidentiality obligation on a regular basis.
6

Legal system and practical operations
concerning licensing of intellectual
property rights and trade secretmanagement in Vietnam

As Vietnamese laws have no provisions
restricting the designation of governing laws andjurisdiction, under the letter of laws, any country
may be designated. Arbitral clauses may becontained in agreements without any limitation.
Vietnam is a member state of the New York
Convention and therefore the place of arbitration
may be situated outside Vietnam. However, notethat enforcement of the arbitral award is accepted
to the extent that it is not contrary to Vietnameselaw, as in the case of judgments.
Licenseagreementsforregisteredintellectual property rights such as patent rights,
utility model rights, industrial design rights, andtrademark rights shall be registered with the
National Office of Intellectual Property ofVietnam (NOIP) and technology transfer
agreements for knowhow shall be governed by
the Ministry of Science and Technology (MOST).
Registration of license of intellectual
property rights and technology transfer ofknowhow are provided in the Intellectual
Property Law and Law on Technology Transfer,respectively. Industrial property object license
contract (e.g. patent rights and trademark rights)
shall be valid as agreed upon by the involved
parties and by establishing it in the form of
written contracts (Article 141(2) of theIntellectual Property Law). Moreover, license
contracts shall be legally effective to a third party
upon registration with NOIP (Article 148, Clause
2 of that Law). Registration of technology
transfer only has the effect of perfection against
third parties. Prior to the enforcement of Decree
133/2008/ND-CP, the period of a technology
transfer contract was limited to a maximum of●seven years in principle, but today, this limit has
been removed and the period may be decided byan agreement between the parties. In remitting
royalties, submission of copies of invoices andcontracts shall be required to confirm the actual
demand.
Regarding trade secrets, the Intellectual
Property Law provides the definition (Article
4(23) of that Law), establishment of rights(Article 6(3)(c) of that Law), conditions forprotection (Article 84 of that Law) and acts of
infringing (Article 127(1) of that Law). Duty not
to compete may not be imposed, but continuing
confidentiality obligation after retirement may becontained in labor-management agreements. No
limitation is imposed for deciding the period ofcontracts.
No past cases were found in which
confidentiality was in dispute. At present, it isunlikely that an action filed with the court shallbe fully understood and that an appropriate
judgment shall be rendered. Under the present
conditions, the Vietnamese Labor Code provides
stronger protection on employees and it isdifficult for employers to receive relief even if
they are suffering a disadvantage.

Ⅳ Conclusion
The results of the domestic questionnaire
and interview surveys carried out for thisresearch study showed some cases of problems
related to license agreements and trade secrets inthe emerging countries surveyed (i.e. India,
Brazil, Russia, Thailand, Indonesia and Vietnam),but most of the problems had been resolved andcurrently, no big issues exist.
One of the reasons for this result may be
drawn from the answers obtained in theinterviews, which stated that the deficiencies
found in the emerging countries’ legal systems
more than 10 years ago have been corrected andtheir legal systems as well as the operations
thereof have been much improved. Particularly,
there were cases where the problems concerning
the remittance of royalties were eased by theamendment of the legal system and cases where
the limitation on the period for technology
transfer agreements had been removed.
Moreover, in terms of protection of trade
secrets, there were some cases where material
technical information leaked due to theinsufficient protection of trade secrets at the local
business office in the past. However, no cases ofleakage of trade secrets were heard in this

6 ●IIP Bulletin 2012 Vol.21

research survey as a result of the rise in theawareness of protection of trade secrets in thecompanies expanding their businesses into
emerging countries.
However, although the actual conditions of
the legal system, the operations thereof and thetrade secret management in emerging countries
may be insignificant for companies with richexperience in expanding their business overseas,
companies with less or no experience in overseas
expansion may face difficulty in grasping theactual conditions and taking appropriate measures.
To avoid such difficulties, the following are
possible measures:
1) Creation of a Data Base that collects anddispatches information held by the public andprivate sectors in a uniform and systematicmanner.
2) Refraining from entering into license
agreementsortechnology
transfer
agreements, without due consideration, withlocal companies with no capital relationships
in emerging countries.
Finally, attention should be paid to the factthat the actual conditions of the system ofregistration of license agreements and thesystem of trade secret protection in emerging
countries, as reported by this research study, arebased on current information obtained from thesources set forth in the method of
implementation of this research study. As the
economies and legal systems of emerging
countries see rapid development advancing fromday to day, information on any changes in thesecountries should be collected and analyzed on an
ongoing basis, and studies should continuously bemade on future appropriate reactions to be taken
by Japan from the standpoint of operations ofsystems and practices.
(Senior Research: Haruto SHIMAKURA)●

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