8The Appropriate Protection ofIntellectual Property License Agreements
Although the economic trend in Japan started to show signs of improvement, listed companies, including
small and medium-sized companies continue to file for bankruptcy. In such an environment, intellectual
property licensing has come to play an increasingly important role in companies.
Therefore, this research examined specific proposed measures for legal protection of licensees in the eventthat a licensee in ongoing business faces the bankruptcy of a relevant licensor, or relevant intellectual property is
assigned to a third party, after conclusion of an intellectual property license agreement. This report summarizes
the results of multidirectional discussions in deference to the current legal system of Japan and with anunderstanding of the actual conditions and requests of the industry.
Individual proposed measures are expected to be examined to form the basis for future policymaking.

Ⅰ Actual Situation and Problems ofLicensing in the Industry
1

Position of License Agreements

Intellectual property licensing has come to play
an increasingly important role in corporate
management strategy. Especially in the electronics
industry, companies are now requested to conduct
research and development with a more efficient useof development costs due to shortening ofdevelopment time as required by the market andshorter product life cycles. In such circumstances,
the utilization of patents and other intellectual
property rights possessed by third parties throughlicensing has become one of the essential businessstrategies.
This chapter explains the actual situation oflicense agreements concluded in practical businesswhile comparing the industrial form of thepharmaceutical industry and that of the electronics
industry. It also introduces present and future issues
and raises problems existing in each of them.
2

Issues Concerning License Agreements
among Companies and Desirable System(1) Comprehensive Cross-License Agreements
Comprehensive cross-license agreements
concluded among companies (electronics/IT
industries) are explained below.
(i) Although there are license agreements
covering one or several patents, comprehensive
cross-license agreements covering many patents
are common and have the greatest significance inmanagement strategy in many cases.
(ii) Generally,
comprehensive
cross-license
agreements specify licensed products but do not
specify licensed patents. In other words, licensed
products are clearly defined in general even though

IIP Bulletin 2004

the scope of the products differs. For example, thedetails of a relevant product or system is defined bywords such as "digital camera" or "information
handling system," and relevant licensed patents are
not specified by patent numbers but specified as"patents that may be exploited for defined licensed
products." At any rate, specification by patent
numbers is not conducted due to the enormous
number of patents licensed extending from several
hundred to several thousand, although the number
differs for each case, and also because definedlicensed products vary. This method is difficult andnot practical. Needless to say, if a patent has notbeen established, it is impossible to specify thepatent number thereof.
(2) Problems in the Current System
In terms of management strategy, companies inthe same product field or the same technical field
are often mutual parties to a comprehensive
cross-license agreement. In such cases, the entire
industry can receive a heavy blow if one of thecompanies goes bankrupt and the relevant
agreement is thus terminated, and subject patentrights are assigned to a competing foreign company
and the foreign company exercises its rights against
existing licensees (design change is virtually
impossible). The strengthening of Japan's industrial
competitiveness cannot be expected at all if such an
uneasy state is left as it is.
(3) Desirable System
It is most desirable to introduce not a system
for setting up against a third party but a system
similar to the U.S. Bankruptcy Code. However,since the revision of the Bankruptcy Law has
already been presented, a system should bedesigned to enable the protection of non-exclusive
licenses based on comprehensive cross-license
agreements. As examples of such system design,
there are systems for setting up against a third party
as described in (i) and (ii) below.

● 58 ●

(i) System in which licensees are protected basedon a written license agreement
This is a desirable system from the viewpointof providing convenience for licensees and enabling
the unified protection of various intellectual
property rights. It should be sufficiently examinedfrom the standpoint of an intellectual property-based
nation.
(ii) System in which a written agreement isdeposited to a designated organization. The
designated organization discloses this agreement
only to interested parties, and this deposit enables
interested parties to set up against third parties.
This system is desirable from the standpointthat patent rights are specified in comprehensive
cross-license agreements.
(iii) Other systems
Proposed improvement of the registration
system may solve some problems in the current
registration system, but it is doubtful whether the
improved system will fit into comprehensive
cross-license agreements in which patent numbers
are not specified. If comprehensive cross-license
agreements are not protected, the improved system
is meaningless. In addition, it has been pointed out
as a problem that mere restriction on
administrator's right of rescission is not sufficient toguarantee continuous exploitation by relevant
licensees in the case that relevant patent right is
assigned to a third party at the time of liquidation. In
order to solve this problem, the system should
ensure that (a) the administrator assigns relevant
patent right on the condition that the assignee will
not affect continuous exploitation by existing
licensees, (b) the assignee is obliged not to exercise
the right against continuous exploitation by existing
licensees, or (c) statutory license is granted toexisting licensees when the administrator assigns
the patent right. In any case, the system should
ensure that the licensees' position under theagreement would not change in effect.
(4) Conclusion
In order to strengthen Japan's industrial
competitiveness, a system that is appropriate for an
intellectual property-based nation and is effective
for companies should be designed without
excessively adhering to the existing system of law.
3

Case Study of Responses in PracticalBusiness in terms of License Agreementswith Foreign Companies

At present, there are allegedly about 1,500
bio-ventures in both the United States and Europe.
Many of these bio-ventures aim at research anddevelopment of pharmaceutical products. Japanesepharmaceutical companies has come to introduce
pharmaceutical products, which were developed
through research by bio-ventures in Europe and theUnited States, by obtaining licenses thereof for theJapanese market or overseas market.
Some of these license agreements set
provisions for protection of licensees in the eventthat the licensor goes into bankruptcy or liquidation
proceedings because the bankruptcy of licensors (i.e.
bio-ventures in Europe or the United States) is
sufficiently possible since their financial strength is
not always guaranteed.
Therefore, this chapter discusses problems
that will arise in the case of bankruptcy of a licensor
of a license agreement concluded by a Japanesepharmaceutical company with a U.S. bio-venture(the licensor) as well as responses to the problems,
while citing such provisions as Section 365(n) of the
U.S. Bankruptcy Code and showing specific wordingof an agreement.
4

Problems in License Agreements among
Semiconductor Companies-Problems of Concern-

This chapter discusses the characteristics oflicenseagreements
amongsemiconductor
companies and the problems of concern in the casethat a license agreement is rescinded due to thebankruptcy of the licensor, while including thewriter's personal views. It is inevitable to use third
parties' patents when putting forward thedevelopment of semiconductor products. Therefore,cross-license agreements are concluded in ordinary
business transactions. In cross-license agreements,
the parties concerned mutually grant licenses fortheir own patents related to products.
This chapter thus specifically shows theconditions of cross-license agreements and theconditions in the case of licensing specific subject
technology. It also raises problems related to alicensor going bankrupt in the case where aJapanese company has concluded a license
agreement for "IP" (intellectual property), which isnecessary to develop a system LSI, with a company
in Europe or the United States.
5

Problems
Concerning
RelationshipbetweenLicenseAgreements
andBankruptcy, etc. in the Electronics/IT
Industry(1) Requests Related to the Appropriate
Protection of License Agreements
According to the results of a questionnaire
survey targeting member companies of the Legaland Intellectual Property Rights Committee of theJapan Electronics and Information Technology
Industries Association (JEITA) (responses werereceived from 15 companies as of September 26,2003), measures for the appropriate protection oflicense agreements as requested by the industry can● 59 ●IIP Bulletin 2004

be briefly summarized as (i) and (ii) below.
(i) Measures in which a written agreement ismade a requirement for setting up against a third
party
Since the current registration system has many
problems,(*1) the industry does not desire an
improved registration system but a system in whichin the event that a patent has already been licensed
in writing before bankruptcy filing, the exercise of
the administrator's right of rescission is restrictedby the fact and the licensees can set up against theassignee of the patent right.
(ii) Measures through introduction of a system
similar to the U.S. Bankruptcy Code
Although this is an opinion that is difficult torealize at present after the direction of revision of
the Bankruptcy Law was presented, several
companies responded that it was desirable tointroduce not a system for setting up against a third
party, but a system similar to the U.S. Bankruptcy
Code.
(2) Consideration
In light of the results of the questionnaire
survey and subsequent discussions, the following
are cited as matters to be considered when
examining measures for the appropriate protectionof licensees in license agreements for intellectual
property rights (especially patents).
(i) Idea of making a written agreement a
requirement for setting up against a third party
With regard to measures (i) that are requestedby the relevant industry in the questionnaire survey,
the Legal and Intellectual Property Rights
Committee has pointed out various problems, suchas lack of public notice and loss of equality among
bankruptcy creditors. The measures are thus
considered to have many inherent problems related
to the basic structure of the legal system. Therefore,
when putting forward examination of the measuresin the future, it should be noted that sufficient
discussions are required on whether problems
related to the basic structure of the legal system asmentioned above can be overcome.
(ii) Introduction of a simple registration system
The introduction of a simple registration
system is under consideration. Under a simple
registration system, for example, the number of
items to be disclosed is reduced, registration costs
are reduced, and registration by licensees only ismade possible in light of the current registration
system. Such a simple registration system isregarded as a system worth considering given that it
has little trouble with the current system and that it
can solve some problems (*2) in the current system.
However, there are questions in terms of systemdesign: (1) Does the system fit into comprehensive
cross-license agreements that do not specify patent
numbers and include not only currently effective
rights but also rights to arise in the future, which
are common in practice in the relevant industry?;(2) The revelation of the existence of a license
agreement with a specific party concerned may
disrupt business activities, and both licensee andlicensor may request the avoidance of such
disturbance, but can the system respond to such
request? In addition, there seem to be many
problems to be considered, including a possible
structure of transitional provisions, since thenecessity of protection arises equally for many
patent license agreements that were concluded in
the past at the time of introducing a new system.
(iii) Protection of know-how license agreements
In the industry in question, know-how license
agreements also form an important category ofagreements. Therefore, it is considered necessary
to examine the issue with a view to a system that
protects licensees in such agreements.
(3) Conclusion
Flexible system design with sufficientconsideration given to compliance with the existing
system of law and from the viewpoint of minimizing
effects on corporate activities is desirable inexamining measures for the appropriate protectionof licensees in license agreements.
6

RelationshipbetweenLicenseAgreements and Bankruptcy in the
Biotechnology/PharmaceuticalIndustry-Results of a Questionnaire
Survey and Considerations

It takes a period of more than 10 years anddevelopment costs exceeding several tens ofbillions of yen to bring a pharmaceutical product tothe market through search, research, development,
and approval. Furthermore, the pharmaceuticalbusiness cannot survive unless a company has bothdata unique to the relevant pharmaceutical productthat guarantees the effectiveness and safety of thepharmaceutical product and a patent right or licensethat assures market monopoly. On the other hand,with the development of biotechnology, there are(*1) Especially, in the case of comprehensive cross-license agreements, a great number of patent rights arecovered by one agreement, and not only existing rights but also rights to arise in the future are included.
Thus, in some cases, the scope of an agreement has yet to be defined at the time of concluding anagreement. If all patent rights, including less important ones, are carefully examined and registered interms of such an agreement, there will be the issue of the enormous burden of registration costs andlicense management.
(*2) Some examples are the problem of costs for registration fees under the current registration system, thesituation where details of a license agreement are made public, and the point that licensees alone cannot
register.
IIP Bulletin 2004

● 60 ●

increasingly more companies specialized in researchand development that are called bio-ventures. In
manycases,
such
bio-ventures
providepharmaceutical development/sales companies withmaterials such as genes as well as experimental
techniques (devices) used for research anddevelopment. In the event of concluding a license
agreement with a bio-venture, the provision of suchmaterials or devices (corporeal things) is
accompanied in general. In light of the structure ofpharmaceuticalbusiness,
especiallybio-pharmaceutical business, and the form of license,
as well as problems, a questionnaire survey was
conducted through a related private body and theresults thereof are reported here.
In particular, from the position in relation tobankruptcy, the rescission of license agreements is a
special circumstance and is different from therescission of other kinds of agreements. Also, there
is no solution without solving problems such as thehandling of data unique to the relevant
pharmaceutical product obtained by licensees. In
other words, many respondents answered that it isnecessary to create a mechanism in which thelicensee's position is protected even if requirements
for setting up against a third party under the current
Bankruptcy Law are not fulfilled. Respondents had astrong awareness that the protection of rights fordata unique to pharmaceutical product, know-how,and corporeal things, as well as copyrights, must be
examined in such a mechanism. In the event that alicense is rescinded due to bankruptcy, not only
protection of patent licenses, but also special
measures to ensure access to know-how, copyrights,
and corporeal things or to enable the assessment ofcorporeal things, are considered necessary.

Ⅱ Response to the Bankruptcy of a
Licensor in Practical Business
7Intellectual
Property
RightsandBankruptcy Proceedings-Some SpecificExamples-As for case examples in which intellectual
property rights become a problem in the bankruptcy
proceedings, this chapter introduces several
examples (from (1) to (4) below) that the writer
experienced in the past.
(1) Lynx case: A court case among a company thathas taken over golf business-related assets,
including a trademark in Japan, from a U.S.
corporation, Lynx, which went bankrupt in the
United States, a subsidiary of Lynx in Japan, and acompany that has obtained the right of sublicensing.
(2) Camera joint patent ownership case: A casein which a co-owner of a U.S. patent possessed by acompany that was declared bankrupt in Japan gave awarning on patent infringement to several Japanesecompanies by using the relevant patent.
(3) Card issuance system case: A case in which acompany that possesses a patent for a card issuancesystem instituted a patent infringement suit inquestion against another company on the basis of
the patent in question, but subsequently filed apetition for civil rehabilitation proceedings.
(4) Maruko case: A case in which regarding hotels
possessed by Maruko, which was under bankruptcy
proceedings in the United States, a management
consignment agreement was revised in cooperation
with a U.S. hotel management company that was
entrusted to manage these hotels by using the rightof rescinding a bilateral agreement.
Finally, the present situation of practices inliquidation-based bankruptcy proceedings andreconstruction-based bankruptcy proceedings are
discussed including the writer's personal views.
8

Registration
Proceduresfor
Establishment of Non-Exclusive Licenses

This chapter points out the actual situation andproblems of the current registration procedures for
non-exclusive licenses.
Starting from the conclusion, the current
registration procedures are not considered suitable
for the practices of license agreements because
expensive registration costs and cumbersome
registration application procedures are required in
the
case
of
comprehensive
cross-license
agreements and license agreements covering many
patents.

Ⅲ Position of the Bankruptcy Law
and License Agreements
9Intellectual Property License Agreements
and the Revision of the Bankruptcy Law

In the case that a licensor that is the party to an
intellectual property license agreement has gonebankrupt, relevant licensees will suffer a serious
loss if a bankruptcy administrator rescinds theagreement in accordance with Article 59(2) of the
Bankruptcy Law.
There are the following two majorinterpretations of protection of licensees under thecurrent Bankruptcy Law. (1) The first interpretationis that if a license, etc. for the subject intellectual
property right has been registered, the bankruptcy
administrator's right of rescission will not be
admitted. Against this interpretation, there is a
criticism that this is not an appropriate method toprotect licensees because real estate leaseagreements and intellectual property license
agreements are different. However, there is acounterargument against the criticism that the● 61 ●IIP Bulletin 2004

problems pointed out in the criticism should be
solved by measures under substantive law, such as
admitting the obligation of licensors to cooperate inregistering non-exclusive licenses. Although being
registered is used as a standard, it is not regarded asa problem related to setting up against a third party
in a strict sense. Being registered is used as astandard on the basis of the judgment that it isbasically an appropriate standard for demarcatingrights that are worth being protected under the
Bankruptcy Law and is also substantially reasonable.
(2) The second interpretation is that bankruptcy
administrator's right of rescission is restricted insome cases due to limitations under Article 59 of
the Bankruptcy Law and such restriction also
extends to license agreements.
The revision of the Bankruptcy Law is now inprogress. The Bankruptcy Law Taskforce and theSectional Meeting on the Bankruptcy Law in theLegislative Council of the Ministry of Justicediscussed the protection of licensees in the case oflicensor's bankruptcy. Discussions were divided
reflecting opinions mentioned in (1) above. However,it was determined that the rule that the provisionsof Article 59 of the Bankruptcy Law shall not beapplied to a case where a party to a lease agreement,
etc. fulfils the requirements for setting up against athird party shall extend to the case of bankruptcy of
a licensor in a license agreement for a rightsufficient to set up against a third party, such as a
non-exclusive patent license. The General Meetingof the Legislative Council of the Ministry of Justiceresolved the "Outline of the Review of the
Bankruptcy Law, etc." to such effect in September
2003, and the outline was submitted to the Ministerof Justice. In response to this, the Cabinet Officesubmitted a bill for the revision of the Bankruptcy
Law to the 159th Session of the Diet in February
2004.
As for the desirable protection of licensees in
intellectual property license agreements under the
new Bankruptcy Law, there are the following
possible directions: (1) direction toward making
laws to facilitate registration of licensees, and (2)direction toward specifying cases where bankruptcy
administrator's right of rescission is restricted in thearea of license agreements. On the other hand, (3)direction toward protecting unregistered licensees(not admitting bankruptcy administrator's right ofrescission) despite the existence of the registration
system for non-exclusive licenses involves
problems related to the basics of legal system andhas many problems. Even if direction (1) or (2) istaken, it is necessary to clarify the scope ofprotection and grounds for protection.
10 Disposition of License Agreements by
Bankruptcy
Administrators
andConsequences Thereof

IIP Bulletin 2004

This chapter organizes and analyzes thedisposition of contractual relationship at the time oflicensor's bankruptcy and consequences thereof on
the basis of types of agreements such as
cross-license agreements and comprehensive
cross-license agreements. In doing so, Section (3)discusses a simple form of agreement in which alicensor grants a license to a licensee in a one-sided
manner, and overviews the disposition ofcontractual relationship and consequences thereof
from the standpoint of determining the applicationof Article 59 of the Bankruptcy Law on the basis ofwhether the requirements for setting up against athird party are fulfilled. Next, Section (4) discusses
cross-license agreements and comprehensive
cross-license agreements, and individually considers
the application of Article 59 of the Bankruptcy Law
after dividing agreements into three types on thebasis of whether or not royalty is paid for the partfor which a party grants a license and the part for
which the party obtains a license-(1) both areroyalty-free, (2) one is royalty-paying while theother is royalty-free, and (3) both are royalty-paying((4)(i), (ii) and (iii)). Moreover, Section (4)(iv)
discusses a question of whether a position ofreceiving licenses for intellectual property rights
possessed by other parties to the agreement is alsotransferred to a assignee in the case that intellectual
property rights licensed in a cross-license
agreement are assigned by a bankruptcy
administrator to a third party, and states that aposition of the licensee will not be transferred to theassignee without the approval of the other parties tothe agreement (licensors) and then considers theconsequences of contractual relationship in
accordance with the above-mentioned types. In
addition, Section (2) considers relationship between
discussions over the nature of bankruptcy
administrators as third parties and the rule for
Article 59 of the Bankruptcy Law, and concludes
that there is no need to bring up the issue of setting
up against a third party (the nature of bankruptcy
administrators as third parties) in relation to thedisposition of license agreements and that it issufficient to consider the issue in relationship to therule for Article 59 of the Bankruptcy Law.
11 Intellectual Property Rights, License
Agreements, and the Bankruptcy Law inInternational Cases
This chapter first confirms the relationshipbetween intellectual property rights and license
agreements from the position of privateinternational law, and then considers the issue ofprotection of licensees in the case that a licensor oran administrator has assigned relevant intellectual
property right to a third party. Subsequently, it
confirms current discussions under private● 62 ●

international law and foreign judicial precedents
affecting these discussions in terms of the questionof which country's law is applied to the situation ofinternational bankruptcy in relation to the authority
to change agreements (denial is a representative
example but the right of rescinding a bilateralagreement is also included) that is specially granted
to administrators under the Bankruptcy Law, andthen considers the issues of administrator's right ofrescinding a license agreement and protection oflicensees in the situation of international
bankruptcy.
As a result of consideration, the following was
confirmed. In an international case in which
intellectual property rights established in several
countries are licensed by one agreement, it is
impossible to find an answer to the question ofwhether licensees are protected when relevant
intellectual property rights are assigned by alicensor or administrator, without considering
legislation for each intellectual property rightestablished in each country, regardless of theexistence of law applicable to the relevant license
agreement. There may thus be phenomena thatlicensees are protected for intellectual property
rights in some countries but are not protected for
those in other countries despite that all intellectual
properties are licensed under the same license
agreement.
On the other hand, the following was also
confirmed. With respect to the administrator's rightto rescind a bilateral agreement fulfilled by neither
party under the Bankruptcy Law in the case ofinternational bankruptcy in which other party to theagreement is located in a foreign country or a law
applicable to the agreement is a foreign law, it is apossible consequence, depending on the way of
thinking about the international bankruptcy law, thata license agreement that is not protected in Japan isprotected due to a foreign law becoming anapplicable law. In other words, it is impossible tofind an answer on the question of whether licensees
are protected without examining problems under
the international bankruptcy law in relation to thisissue.

Ⅳ Proposed Measures for theProtection of Licensees inLicense Agreements
12 Protection of Licensee's Position at theTime of Licensor's Bankruptcy-Responseby Establishing Rules for Patent
Transactions
In order to protect licensees, it is appropriate
to prepare the following two measures.
First of all, for cases where a patent right isdisposed of by a third party, in general, anon-exclusive right based on a license agreement
shall be capable of setting up against an obtainer ofthe patent right after establishment of the license
without taking any measures, including registration.
The form of disposition of the patent right(voluntary disposition or compulsory disposition)
does not matter. As far as requirements for setting
up against a third party are concerned, anon-compulsory license based on an agreement
shall be treated the same as a statutory license(Section 99(2) of the Patent Law). This measure isconsidered to be appropriate for the reasons that (1)a balance can be achieved between the promotion ofpatent license transactions and the safety of sales
transactions (2) in line with the actual conditions ofsales transactions of patent rights subject tolicensing and the present situation where
non-exclusive licenses are scarcely registered, and(3) dispute settlement costs can be minimized.
Next, although a bankruptcy administrator may
rescind a license agreement in the case that a
relevant licensor has gone bankrupt, a license
granted to a licensee shall not lapse due to therescission. Bankruptcy administrator's right ofrescission is limited to the extent that is necessary
for bankruptcy liquidation, i.e. release from theobligations other than the obligation to allow theexistence of the license (non-exercise of the patentright against licensees). This is considered to be an
appropriate measure in the point that (1) the
purpose of the system of rescission by a bankruptcy
administrator, i.e. smooth bankruptcy disposition,
can be achieved (2) while avoiding the consequencethat is also unreasonable in terms of national
economy, that is, licensees lose licenses due tolicensor's bankruptcy, which is a situation not
attributable to licensees.
13 Revision of Article 59 of the Bankruptcy
Law and Protection of Licensees in theCase of Licensor's Bankruptcy
This chapter examines the protection oflicensees in the case of licensor's bankruptcy,
including legislation theories, from the viewpoint of
seeking possible measures while pursuing
harmonization with the system and philosophy of
the Bankruptcy Law. The results of examination canbe first summarized by the idea of requiring thedirection toward appropriate protection of licensees
on the basis of the approach based on therequirements for setting up against a third party, inwhich the fulfillment of the said requirements isused as a standard for deciding exemption from theapplication of Article 59 of the Bankruptcy Law.
However, it is not always sufficient to leave theprotection of licensees, which cannot be protectedby the approach based on requirements for setting
up against a third party, to the interpretation of law.

● 63 ●IIP Bulletin 2004

Therefore, in addition to adoption of an approachbased on requirements for setting up against a third
party, from the viewpoint of legislation, (1) thescope of licensees protected by such approach shallbe substantially expanded by improving the systemof requirements for setting up against a third party
under current intellectual property laws to make its
use easier. In addition, (2) a system applicable tobilateral agreements fulfilled by neither party ingeneral shall be newly established. In the system,
although a case where a licensee does not fulfill therequirements for setting up against a third party is
subject to the application of Article 59 of the
Bankruptcy Law, other party may file a petition ofdisapproval of the rescission of an agreement by abankruptcy administrator. If such a petition is filed,the exercise of the right of rescission is entrusted toa permission of the court. If the rescission causes
significant disadvantage to other party to theagreement, the exercise of the right of rescission
will not be permitted. Also, (3) another proposed
measure is to establish the legislation that admits
statutory licenses under given requirements in each
intellectual property law in order to guarantee
licensees' licenses even if intellectual property
rights subject to licensing were converted intomoney by a bankruptcy administrator. This chapter
concludes that only by taking the above
comprehensive measures, it is possible to achieve
the appropriate protection of licensees in the case of
the licensor's bankruptcy while keeping compliancewith the system and philosophy of the Bankruptcy
Law.
14 Protection of Patent License Agreements
and Utilization of the Notary System
This chapter explains the legal nature of patent
license agreements, the mechanism of the current
notary system, the registration system as arequirement for non-exclusive licenses setting up
against a third party, and then give specific proposals
concerning the utilization of the notary system as arequirement for restricting the exercise of the rightof rescission by bankruptcy administrators.
More specifically, it seems appropriate to set a
provision that restricts the exercise of theadministrator's right of rescinding a patent license
agreement under the provisions of Article 59 of the
Bankruptcy Law under given requirements.
However, balancing with the benefit of bankruptcy
administrators in general, it is considered
impropriate to provide that the mere existence of awritten agreement can prove the existence of thelicense agreement before a bankruptcy declaration.
Therefore, a solution that is considered most
reasonable from the nature of the notary system isto determine that administrators cannot exercise
justifiably the right of rescission against license

IIP Bulletin 2004

agreements to which a fixed date was given before
filing of a petition in bankruptcy. A private deed with
fixed date given does not authenticate the contentsof an agreement, but the existence of the agreementon the date when the fixed date was given is
publicly proven. In addition, there is no possibility at
all that the contents of the agreement are madepublic. Only a ledger of fixed dates exists at thenotary public office, and there are also no legal
grounds for a third party to ask for inspection of theledger. Therefore, license agreements are kept
confidential.
The restriction of the exercise of thebankruptcy administrator's right of rescission isconsidered to be sufficiently reasonable if it isunderstood as part of national intellectual property
strategy in line with the purpose of the Basic Law
on Intellectual Property, i.e. to prevent thevitalization of industrial society through use of
intellectual property rights from being inhibited due
to licensees' suffering serious damage in the case oflicensor's bankruptcy.
15 Notary System and Requirements for
Setting up against a Third Party regarding
Patent Licenses
This chapter considers the possibility of using
the notary system as a means of fulfilling therequirements for setting up against a third party
regarding non-exclusive licenses. The examination
focuses on the actual impact of the system rather
than theoretical points, and concludes that alicensee can subsequently set up against third
parties in the case that a document specifying
patent rights subject to non-exclusive license has
been notarized or that a certification of private
signature or a fixed date has been obtained for such
document.
The first point of argument is whether the
power of setting up against a third party without
public notice should be approved in relation to theadoption of a system that is originally not planned tobe made public, such as the notary system. This
point is examined from the standpoint of safety inthe exploitation of a patented invention by a third
party and the effects of patent rights as property
rights on the economic value. To conclude, thepublic notice of non-exclusive licenses is notnecessary from the viewpoint of safe exploitation,
and although it is difficult to deny the necessity of
public notice from the viewpoint of the value ofpatent rights as property rights, it is not impossible
in terms of industrial policy to admit the power ofsetting up against a third party without public noticeand promote license transactions in consideration of
the characteristics of patent rights.
Next, regarding desirable systems in the future,
the advantage of a system using the notary system● 64 ●

is demonstrated through comparison with theregistration system and the U.S. approach.
Specifically, the following points are examined: (1)the convenience of dispute settlement and thepredictability of costs should be emphasized as longas a system without public notice is adopted, (2)efficient property administration should be madepossible, and (3) from the viewpoint of equality, theusers of patent licenses should bear basic costs for
dispute prevention and such costs should not beascribed to the public through use of the court, etc.
The examination of these points reaches theconclusion mentioned at the beginning that asystem should be adopted in which a licensee cansubsequently set up against third parties in the casethat a document specifying patent rights subject tonon-exclusive license has been notarized or that acertification of private signature or a fixed date has
been obtained for such document.
16 Possibility of Restricting the Bankruptcy
Administrator's Right of Rescission in theCase of Licensor's Bankruptcy and
Limitation of Such Right
On the premise of protection of licensees basedon the fulfillment of the requirements for setting up
against a third party, it is necessary to examine thepossibility of restricting administrator's right ofrescinding unfulfilled bilateral agreements in
respect to licensees who cannot fulfill therequirements or who can fulfill them but lack them.
In the first place, Article 59(1) of the Bankruptcy
Law stipulates that a bankruptcy administrator may
choose to rescind or perform an unfulfilled bilateralagreement, but it does not set any specific standards
for cases where the agreement should be rescinded
or performed.
Regarding the case in which an administrator
for a bankrupt member of a deposit-based golf
membershipagreement(requiring
annualmembership fees) chose to rescind the agreement
to receive the return of deposits, the Supreme
Court made a decision on February 29, 2000 that theexercise of the right of rescission shall not be
admitted because it is significantly inequitable to theother party. According to the decision, whether the
exercise of administrator's right of rescission is"significantly inequitable" to the other party shouldbedeterminedthroughcomprehensive
consideration of various circumstances, such as (1)whether the contents of benefits, which both parties
to the agreement should regard as restoration, arebalanced, (2) to what extent the other party's
disbenefit is restored by the provisions of Article 60of the Bankruptcy Law, and (3) whether outstanding
debts on the bankrupt side are essential/central in,
or incidental to, the relevant bilateral agreement.
In order to generalize this Supreme Court

theory, this chapter presents a method ofdetermining
motivation(incentive)ofadministrators and other parties for choosing either
rescission or performance of an agreement by usingmeans of legal and economic analysis.
The restriction of an administrator's right ofrescission is unstable as a means of protecting
licensees at present when no judicial precedents
have been accumulated. In addition, there is no clear
anticipation that judicial precedents related tolicense agreements will accumulate in the future.
However, this theory covers the rescission ofbilateral agreements fulfilled by neither party ingeneral, so it is sufficiently expected to be clarified
as a general theory. In addition, there are a hugevariety of license agreements, and individual license
agreements have to be disposed of in thebankruptcy proceedings. Therefore, this theory is
proposed as a standard for determining the
propriety of the rescission of an agreement by anadministrator in specific cases.
17 Modification and Utilization
Registration System

of

the

This chapter especially examines the idea ofmodifying or newly establishing the license
registration system, out of positions of requiring
licensees to fulfill requirements similar to therequirements for setting up against a third party
under a license agreement as the requirements forprotecting licensees (eligibility requirements forprotection of rights) by keeping contractual
relationship through restriction of bankruptcy
administrators exercising the right of rescinding abilateral agreement fulfilled by neither party (Article
59 of the Bankruptcy Law) in the case of licensor's
bankruptcy. As a result, the following conclusion
was drawn.
First of all, the eligibility requirements forprotection of licensee's rights at the time oflicensor's bankruptcy and the requirements forsetting up against a third party on ordinary times
under a license agreement should be the same fromthe following three viewpoints-"vertical balance"
between ordinary times and the time of bankruptcy,"horizontal balance" with agreements that establish
rights to be used for profits other than intellectual
property rights, and the "effectiveness of protectionof licensees" at the time when an administrator
converts intellectual property rights into money.
Secondly, in order to make parties to one of thetwo incompatible legal relations acknowledge that
their relation holds a subordinate position to theother relation, either of the following is strongly
required: (1) Parties in the subordinate relation
could avoid entering the subordinate legal relation
throughpreliminary
researchsince
thesuperordinate legal relation had been perceivable in● 65 ●IIP Bulletin 2004

advance by some means; or (2) A subsequent
remedy system be available if the parties in thesubordinate legal relation could not avoid enteringsuch a legal relation in advance. Therefore, therequirements for setting up against a third party andthe eligibility requirements for protection of rights
should include public notice to third parties in one
way or another.
Thirdly, in using the registration system as arequirement for setting up against a third party oran eligibility requirement for protection of rights,
the four problems-(1) confidentiality of theexistence and contents of a license, (2) labor andcosts required for registration, (3) applicant forregistration, and (4) the possibility of anunestablished
right
being
registered-arise
depending on the nature of rights. In many cases,
these problems can be resolved by devising thedetails of the registration system, such as bylimiting contents to be made public and those who
receive such public notice or by reducing
registration costs.
18 Examination of Requirements for Setting
up against a Third Party
The correct direction of discussions on theprotection of license agreements is probably
oriented toward examining requirements for setting
up against a third party regarding intellectual
property rights in general without limiting theexamination to protection at the time of bankruptcy
based on the idea that the right of rescission of
bankruptcy administrator, etc. is restricted only
when the requirements for setting up against a third
party are fulfilled as long as the system of therequirements for setting up against a third party ispresumed.
In addition, the theories of abolishing therequirements for setting up against a third
party/considering the requirements to beunnecessary are untenable due to consistency withthe system of the requirements for setting up
against a third party regarding other kinds of rights
and for the reason that problems pointed out inthese theories seem to be resolvable throughsystem design. Therefore, system design for therequirements for setting up against a third party
should be examined.
Reviewing requirements for setting up against
a third party regarding rights other than intellectual
property rights, the degree of public notice isdiversified. It thus seems possible to design asystem as appropriate without restraint when
considering the requirements for setting up against
a third party regarding license agreements.
In addition, given the situation where therequirements for setting up against a third party
become an issue in terms of license agreements as

IIP Bulletin 2004

well as the functions requested in such situations, it
must be at least ensured that an assignee or apledger confirms the existence of license
agreements in advance in the case of assignment orpledging as security. On the other hand, in the caseof seizure and legal bankruptcy, it seems sufficient if
relevant license agreements are subsequently
clarified to a seizing creditor or a bankruptcy
administrator.
Various proposals have been made with respect
to requirements for setting up against a third party,
but the idea of requiring documentation is untenablebecause it is basically equivalent to the idea of
unconditional protection (the theories of abolishingrequirements for setting up against a third
party/considering the requirements to beunnecessary). Therefore, the improvement of theregistration system should be considered.
As a result of the above consideration, various
proposals regarding improvement of the registration
system have been made with respect to registration
methods, matters to be registered, the scope ofcapability of setting up against a third party, thenecessity of public notice, the contents to be madepublic, registration of comprehensive licenses, andfees, on the basis of criticisms against the current
registration system and by using the registration
system for assignment of claim as reference.
19 Requirements for Setting up against a
Third Party and Public Notice
The draft revision of Article 59 of the
Bankruptcy Law stipulates that a bankruptcy
administrator's right of rescission shall not arise foragreements that fulfill requirements for setting up
against a third party. In relation to this, it has been
proposed to make it easier to fulfill therequirements in order to protect license agreements.
This report examines the purpose of the system of"requirements for setting up against a third party"
from the viewpoint of the Civil Code, as basic workfor examining the propriety of simplifying therequirements for setting up against a third party
regarding license agreements.
Rights under a license agreement are likecredits. However, since their protection is strongly
required, the power of setting up against a third
party is admitted for them. In the case of admitting
such power for rights that are like credits, thefulfillment of the requirements for setting up against
a third party accompanied by public notice isrequired in many cases in order to ensure safe
transactions. However, some legislation stipulates
that the fulfillment of a requirement for setting up
against a third party without public notice, such as afixed date, shall suffice. There are also examples inwhich parties concerned are allowed to set up
against a third party without fulfilling any● 66 ●

requirements.
In terms of the draft revision of Article 59 of
the Bankruptcy Law, there are following twoquestions: (1) The propriety of rescission bybankruptcy administrators is questioned, and isn't
this question directly related to the existence of thepower of setting up against a third party?; (2) Since
the function as an "eligibility requirement forprotection of right" is questioned out of various
functions of the requirements for setting up against
a third party, isn't a requirement for setting up
against a third party without public noticeacceptable? There is no point in these questions if
voluntary disposition by an administrator cannot set
up against a patentee, etc. Taking into account thebalance with the case of compulsory auction, it isafter all considered to be desirable to make thefulfillment of original requirements for setting up
against a third party as a requirement for restrictionof the right of rescission.
However, regarding rights under license
agreements, it is possible in terms of legal
technique (1) to make such rights be based on asimple system of requirements for setting up
against a third party, such as a filing system, (2) tomake the creation of a notarial document or theobtainment of a fixed date be a requirement for suchrights setting up against a third party, and (3) tomake such rights be capable of setting up against athird party without fulfillment of any requirements.
Rather, the effect and necessity thereof have to befurther considered from the viewpoint of industrial
policy.
20 ProtectionofLicenseAgreements
through U.S. Bankruptcy Code-based
Approach
As for measures to protect license agreements
at the time of licensor's bankruptcy, there is the U.S.
Bankruptcy Code-based approach separate from theapproach based on requirements for setting up
against a third party (including complementarymeasures thereof) in which licensees that fulfill therequirements are protected after licensor's
bankruptcy. The U.S. Bankruptcy Code-based
approach respects the intentions of parties to alicense agreement in disposing of the agreement at
the time of licensor's bankruptcy. Specifically, (1) if
an administrator chooses to perform the agreement,
the agreement will be kept valid. (2) If an
administrator refuses to perform the agreement anda licensee agrees to the refusal, the agreement will
be terminated. (3) If an administrator refuses toperform the agreement but a licensee does notagree to the refusal, the scope of licensee's rights tobe protected will be limited and an eclectic solution
in deference to both parties will be prepared.
Japan is now in a situation very similar to thesituation of the United States immediately after the
Lubrizol case in which the court admitted thecancellation of a license agreement at the time oflicensor's bankruptcy, given that Japan is facing thenecessity of ensuring the legal security of license
agreements. This report introduces the backgroundto legal revision in the United States that solved theabove-mentioned problem by revising the Federal
Bankruptcy Code in 1988, as well as the details of
its legal system, on the basis of the idea that Japan
has to sufficiently take such experience of theUnited States into account when seeking measures
to protect license agreements.
The following are the advantages of the U.S.
Bankruptcy Code-based approach, which is based ona different idea of system design from that for theapproach based on requirements for setting up
against a third party: (1) the approach focuses on
harmonization between the purpose of theprotection of license agreements and that ofbankruptcy proceedings, (2) the approach enables
the more appropriate disposition of license
agreements, which are of complicated forms ofagreements, by emphasizing the intentions ofparties to agreements and promoting negotiations
among parties concerned on an equal footing, (3)existing license agreements are easily protected
since licensees are not required to bear any
additional burden to receive protection, and (4) the
approach contributes to prompt bankruptcy
proceedingssinceitreleases
licensors(administrators) from debts concerning specificperformance.
This report recommends that Japan shouldseek a legal system that can achieve theabove-mentioned advantages when examining
measures to protect license agreements.
This summary was created by the secretariat
by editing the summaries prepared by thecommittee members who wrote each chapter.

● 67 ●(Senior Researcher: Fumio Ishikawa)

IIP Bulletin 2004