22 Civil Liability of Patent Owners for Inoperative Inventions― Due to a Technical Defect ―Research Fellow: Raita Imanishi

In order to make Japan more internationally competitive, we need to promote the proper use and protectionof intellectual property. Recently, the Japanese government announced the Strategic Program for the Creation,
Protection and Exploitation of Intellectual Property, which proposed “proactive” measures to enhance theenvironment for intellectual property exploitation including the introduction of TLOs and intellectual property
trusts. However, the operativeness of a patented invention is not necessarily guaranteed under the current patent
system. Thus, it is equally important to devise sufficient “reactive” measures in order to deal with such problems
as the “inoperativeness” of a patented invention.
In the case where a person concludes a patent license agreement (hereinafter “license agreement”), if that
person finds the patented invention inoperative, what civil liability must the patent owner assume? In practice,most license agreements have a warranty clause. Nonetheless, it is still difficult to create such a clause applicable
to all events that might happen in the future.
It is therefore necessary to establish general rules based on which the provisions of license agreements
should be created. Then, I will try to clarify the civil obligations of patent owners to licensees who find theinventions in question inoperative.

Ⅰ Purpose of This Study
1Issues to be addressed

In order to make Japan more internationallycompetitive, we need to promote the proper use
as well as protection of intellectual property.
Recently, the Japanese government issued the“Strategic Program for the Creation, Protection
and Exploitation of Intellectual Property (2004/
2005), which proposed “proactive” measures toenhance the environment for intellectual property
exploitation (for example, the reexamination of
the compulsory license system, establishment of
the system of license of right, and the use of
intellectual property trusts). This program,
however, failed to propose sufficient “reactive”
measures, which are equally important. “Reactive”
measures are necessary to solve such issues as
the “inoperativeness” of a patented invention.
In the case where a person concludes apatent license agreement (hereinafter “license
agreement”), if that person finds the patented
invention inoperative, what civil liability must thepatent owner assume? In practice, most license
agreements have a warranty clause. Nonetheless,
it is still difficult to create such a clause applicable
to all the events that might happen in the future.
It is also important to note who hold patents
nowadays. In the past, for example, most patent
owners were inventors themselves or experts in

IIP Bulletin 2006

the relevant technical fields who had obtained
patents from third parties. In such a situation, in
practice, even if a licensee finds the patented
invention inoperative due to some problems, thepatent owner could provide production know-how
or production personnel to solve those problems.
This situation has greatly changed since theenforcement of the “Law for the Promotion ofTechnology Transfer from Universities to thePrivate Sector” in 1998, which has led to therecent establishment of technology licensing
organizations (hereinafter “TLO”). A TLO
functions as an intermediary between inventors
and third parties as follows. First, the TLO
obtains a patent on an invention made by ascientist at a university or any other institution
who does not intend to exploit its patent on acommercial basis. Then, the TLO concludes alicense agreement with a third party.
In the case where the TLO is a patent owner,
even if a licensee is unable to put the patented
invention into production due to a problem, there
would be no one to solve the problem. Such aproblem could be solved if the patent owner were
the inventor or an expert in the relevant field. In
most cases, the TLO does not have experts onrelevant fields because it only serves as a bridge
between companies and universities or between
companies and scientists at nearby universities.
Sometimes, the TLO may have no knowledge
about the technical field in question. The TLO● 186 ●

itself will not or does not exploit patented
inventions for profit. Therefore, the TLO has no
production know-how to provide to licensees
even though it might be able to extend someother assistance. If a licensee is unable to exploit
a patented invention by himself due to unclear or
insufficient descriptions in the specification of theinvention, is it appropriate to assume that thelicensee has the right to demand technicalinformation as a remedy from the scientist who
had made that invention but transferred thepatent? This question could also be asked fromthe side of scientists at a university or any otherinstitution. Is any inventor who has transferred
the patent obliged to provide technicalinformation or any other assistance to a licensee
so that the invention can be exploited inpractice?
Moreover, the revision of the Trust Law lastyear allowed owners of an intellectual property
right such as a patent to place such right in a trust.
Consequently, more and more patents will be heldby financial institutions and other organizations
that have nothing to do with the manufacturingindustry.
It is therefore necessary to establish generalrules concerning license agreements. Even if
most agreements have a warranty clause, it will
be important to clarify underlying general rules
and the civil obligations of patent owners tolicensees who find the inventions in question
inoperative.
This paper will focus on a patented invention
that turns out to be inoperative due to a technicaldefect. For the purpose of simplification, thispaper will not address other cases where an
invention is found legally inoperative due to an
infringement on a right (Article 72 of the Patent
Law) or due to an administrative disposition.

2

Judicial precedents,
related issues

theories,

andThere was a judicial precedent(*1) in which alicensee was unable to put a patented invention to
production due to unclear and insufficientdescriptions given in the specification. The court
did not review the patent system itself but
provided the licensee with a legal remedy on thebasis of the fact that an essential element of thelicense agreement was null and void derived froma mistake (Article 95 of the Civil Code). Somepeople support this remedy, saying it is naturalfor a patent owner to assume civil liability for the
inoperativeness of its patented invention.(*2)
Other people have adopted the same standpoint asshown in this precedent.(*3) These people, however,seem to have reached their conclusions without
thoroughly studying the Patent Law, the Civil
Code, and the issue of initiative expected oflicensees. Unfortunately, no studies have been
conducted in recent years to question theappropriateness of these standpoints. It will bemeaningful to reexamine these viewpoints as thegroundwork for the creation of a better
environment for intellectual property exploitation
through “reactive” measures.
This study has reached the following
conclusion. Under the Japanese patent system,
the examiners are not obliged to check whether
the invention described in a patent application is
operative. It means that a patent could be granted
on an inoperative invention. Article 69 (1) of the
Patent Law is considered to be a provision thatallows any party to conduct some testing or
research on an invention to supplement theexamination carried out by the Patent Office.
Despite the existence of this provision, if alicensee fails to check the operativeness of a(*1) Ruling given by the Tokyo Appeal Court, October 27, 1938: Houritsu Shimbun (Newspaper on laws), no. 4359-8,
Tokkyo Hanrei Hyakusen (Dai2han)) (100 patent cases (Second edition)), (Yuhikaku, 1986), page 147, no. 3, page 260(*2) Shigeaki Mitsuda, the said Tokkyo Hanrei Hyakusen (Dai2han) (100 patent cases (Second edition)), page 147(*3) Yoshinobu Someno, “Tokkyo Jisshi Keiyaku” (Patent license agreement), “Keiyaku Hou Taikei IV (2)” (Overview ofcontract laws), (Yuhikaku, 1963), page 381; Kenichirou Oosumi, “Tokkyo Jisshi Keiyaku Ni Okeru Jisshi Kyodakusha
No Sekinin” (Obligations of the licensor under a patent license agreement), Hougaku Ronzen, vol. 78, no. 1 and no. 2(1965), page 150; Yoshimitsu Noguchi, “Gijyutsu Jisshi Kanousei No Kekkan Ni Taisuru Tokkyo Jisshi Kyodakusha No
Tampo Sekinin I, II” (Defect liability of the licensor under a patent license agreement for an inoperative invention due
to a technical defect); Kougyou Shoyuuken Hou Kenkyu, (Hanabusa Kougyou Shoyu Ken Kenkyujyo Shuppambu), vol.
13, no. 3, (1967), page 14 and no. 4 (1967), page 27; the said “Tokkyo Jisshi Keiyaku” (Patent license agreement), Hara
Masuji Hanji Taikan Kinen, Kougyou shoyuken No Kihonteki Kadai Ge (Commemoration of the retirement of Judge
Masuji Hara, basic issues of intellectual property, vol. 2), (Yuhikaku, 1972), page 1013; Shiro Mitsuishi, Tokkyo Hou
Shousetsu, (Detailed explanation on the Patent Law), (Teikoku Chihou Gyosei Gakkai, 1967), page 396; Tatsuki
Shibuya, “Tokkyo Jisshi Keiyaku Ni Okeru Jisshikenjya No Jisshi Gimu To Keiyaku No Houritsuteki Seishitsu”(Obligatoins of the licensee of a patent license agreement and the legal characteristics of the agreement), Hougaku
Kyoukai Zasshi, vol. 85, no. 2, (1968), page 191; Tadahiko Amamiya, Tokkyo Jisshi Keiyaku Ron (Patent license
agreement outline), (Nihon Kougyou Shimbunsha, 1985), page 89, page 97 onward● 187 ●IIP Bulletin 2006

patented invention before the conclusion of alicense agreement, such failure should beconsidered to be negligence, to say the least, on
the part of the licensee as a merchant. For thesereasons, it is not appropriate to expect patent
owners to assume defect liability (Civil Code 559
and 570) or allow licensees to claim the license
agreement to be null and void due to the existenceof a mistake (Civil Code 95). Nevertheless, any
licensee who finds the patented invention
inoperative should be allowed to cancel the license
agreement because it would be unreasonable
under the principle of fairness and equity to keep
the licensee bound by the license agreement.
3

Method used in this study

In Japan, there are almost no judicial
precedents and studies with regard to this issue.
Therefore, it is useful to overview and study thesituations in foreign countries to obtain insights.
As a subject of this study, French laws are chosen
for the reasons described below.
This issue will be clearly tangible in nations
that have adopted the first to file principle.
Under the principle, the date to file will be oneof the most important things to grant a patent.
Therefore applicants may describe premature
specifications voluntarily or involuntarily toapply.
On the other hand, in the United States(which should be referred as comparison from the
aspect of practice), it has adopted the priorinvention system. Applicants can apply after aninvention has got matured. Therefore, I hesitate
to select the Act of the United States ascomparison but to select French Law which has
adopted the first to file principle.
It is inevitable that some people regard
patent examination under French laws as
unreliable because the French patent system has
adopted the principle of non-substantive
examination. Ironically, thanks to the low
reliability, many fruitful study results have been
publicized on the legal obligations of a patent
owner whose invention fails to operate properly,
which is, as mentioned earlier, the very subject of
this paper. These study results must be very
insightful for us who have admittedly largely
ignored this issue.
There is another reason for selecting Frenchlaws. In consideration of the tremendous waste oftime and money that would be caused by an
inoperative invention, it would be desirable if acompany that is going to conclude a license

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agreement for a patented invention is allowed toreexamine whether the invention is operative
before the conclusion of the agreement. In Japan,such prior checking is considered to be allowed
under Article 69 (1) of the Patent Law, which
specifies “the effect of a patent shall not extend
to any exploitation of the patented invention thatis conducted for the purpose of testing or
research.” This provision, however, is unclear
about to what extent such testing and research
are allowed in terms of purpose and subject under
Article 69 (1) of the Patent Law. The ruling of theSupreme Court on April 16, 1999, did not clarify
the general rules either.
On the other hand, in France, since theestablishment of the relevant law in 1968, it has
been specified that “the effect of a patent shallnot extend to any act that is conducted for “apersonal purpose or an uncommercial purpose”(L.613-5 (a): Article 30, Law of 1968). According
to this provision, any company exploiting apatented invention is considered to be infringing apatent. However, L.613-5 (b) sets forth that “theeffect of a patent shall not extend to any testing of
the object of a patented invention” (underlined by
the author). In sum, any testing conducted by acompany in order to ensure the patentability of an
invention does not constitute a patent
infringement.
As mentioned above, this paper is based on
the assumption that Article 69 (1) of the Japanese
Patent Law allows any party to check an invention
to supplement the examination carried out by the
Patent Office.
Furthermore, a reexamination of Frenchlaws would be very beneficial because somepeople refer to French laws to defend theiropinion that it is natural for a patent owner toassume civil liability for the inoperativeness of its
patented invention.
In this study, I will review what has been
agreed or disagreed in Japan (II), then outline andexamine the issues under discussion in France(III), and finally, based on the findings discussed in
the preceding chapters (IV), reconsider the civil
obligations of a patent owner whose invention
fails to operate properly.

Ⅱ Remaining Issues in Japan
1

Legal characteristics of a license

Under the Japanese Patent Law, either of thetwo types of license, exclusive license (Senyo
Jisshi Ken ; Article 77 of the Patent Law) or● 188 ●

non-exclusive license (Tsujo Jisshi Ken ; Article
78 of the said Law), is granted to any person
other than the patent owner as a title that allows
the licensee to exploit the patented invention. An
exclusive license is similar to a patent in terms oflegal characteristics as far as the scope specified
in the license agreement is concerned. On theother hand, according to judicial precedents andprevailing theories, a license is the right to request
omission. In other words, a license prohibits thepatent owner from taking legal action against any
exploitation of the patented invention within thescope of the license agreement on the grounds ofa patent infringement. Neither exclusive license
nor non-exclusive license obliges the patent
owner to assist the licensee to exploit thepatented invention.
2

Legal characteristic
agreementofalicensementioned earlier, a patented invention isdisclosed in the patent gazette to such an extent
that a party in the relevant field can exploit it.
Therefore, when a license agreement is concluded,
the patent owner is not obliged to provide thelicensee with written information about thepatented invention. A license agreement can beconcluded between a patent owner and a licensee
solely on their consent.
With respect to (4) payment, the Patent Law
does not have any provisions that require alicense agreement to be onerous. Therefore, theconclusion of a gratuitous license agreement ispossible.
Finally, about (5) term, it should be noted thata license agreement is concluded on thepresumption that an underlying patent exists. As
a result, the term of a license agreement can not
be longer than the term of the patent.
3

Even if we study the legal characteristics of alicense itself, it is impossible to find legal grounds
for obliging the patent owner to assist thelicensee to exploit the patented invention.
Therefore, it would be a good idea to discuss thelegal characteristics of an agreement under whicha license is granted (hereinafter “license
agreement”). This section will examine eachelement of a license agreement, which is (1) typeof organization, (2) purpose, (3) consensual
nature, (4) payment, and (5) term.
Let me start with (1) type of organization. In
most cases, a patent owner is a company engaging
in exploiting a patented invention on acommercial basis. In some cases, a patent owneris an individual, researcher, or, these days, theTLO. Needless to say, a company is a merchant.
Also, a licensee can be regarded as a merchantbecause a licensee intends to pursue financial
benefits through the exploitation of a patented
invention under license from the patent owner.
Therefore, a license agreement is an agreement
concluded between merchants.
Regarding (2) purpose, it can be said that apatented invention is disclosed in the patentgazette to such an extent that a party in therelevant field can exploit it. Based on the disclosed
information, any party can exploit the patented
invention without obtaining a license from thepatent owner. However, a license is necessary to
prevent the patent owner from taking legal action
against such exploitation on the grounds of apatent infringement.
The next one is (3) consensual nature. As

Issues related to legal remedies
provided through Civil Code approaches

Based on the above-described overview ofthe legal characteristics of a license and a license
agreement, it is safe to conclude that the grant of
a license does not oblige the patent owner toassist the licensee to exploit the patented
invention. However, it would be unreasonable if alicensee is given no legal remedy when he finds
the patented invention inoperative after theconclusion of a license agreement.
According to judicial precedents and previous
studies, three approaches were proposed toprovide legal remedy to a licensee who has founda patented invention inoperative: (1) agreement
unimplementable since before its conclusion, (2)defect liability, and (3) null and void derived frommistake in a license agreement.
These approaches, however, are not in linewith the legal characteristics of a license or alicense agreement and seem inappropriate in thefollowing ways. With regard to the Approach (1),which tries to provide legal remedy on the grounds
that the agreement in question has been
unimplementable since before its conclusion, theagreement can not be regarded as unimplementablesince before its conclusion because the patent
owner can be considered as satisfying its
obligations by not taking legal action against thelicensee on the grounds of a patent infringement.
About the Approach (2), which tries to provide
legal remedy on the grounds of defect liability, thepatent owner is not obliged to assume defectliability because Article 570 of the Civil Code,● 189 ●IIP Bulletin 2006

which defines “latent defect,” is not applicable tothis case where the patented invention has been
publicized through the patent gazette. The
Approach (3), which tries to provide legal
remedy on the grounds of the existence of
mistake, seems also unreasonable for thefollowing reasons. Article 95 of the Civil Codeprohibits any declarant (licensee) who hascommitted gross negligence from claiming thenullification of any act of law. A licensee who has
found the patented invention inoperative can beconsidered grossly negligent in consideration of
the fact that he is a merchant who intends to
exploit a patented invention on a commercial
basis and also that he could have reexamined
before the conclusion of the license agreement
what technical idea the patented invention wasmade from. Furthermore, such reexamination ispossible because the patented invention has
been publicized by the patent gazette. Moreover,the “testing or research” on the patented
invention is allowed under Article 69(1) of the
Patent Law.
Previous studies point out that the patent
owner is obliged to assist the licensee to exploit
the patented invention in practice. There are,however, few legal grounds that support this view.
Despite this lack of reliable legal grounds, theseprevious studies have remained unchallenged fora long time. As these previous studies are basedon French laws, we are going to shed light on thesituations in France in the next chapter.

Ⅲ French Laws
1

Characteristics of the French patent
systemreason, some people consider a patent granted
under the French system unreliable because it has
been grated without substantive examination. To
make it more reliable, the French patent system
has been reformed in many ways. For instance,
two documents are attached to a patent when it isgranted: a prior art search report prepared by
Search Division of the European Patent Office andan opinion paper, which is prepared to carry
opinions of the applicant and third parties about
the novelty and inventive activity. In the casewhere a prior art is pointed out in a report aboutnovelty, the Industrial Property Office is allowed toreject the application if the applicant fails to submit
a written amendment or opinion.
2(1) First of all, a license is a right for alicensee to be exempt from being considered ascommitting a patent infringement (interpretationof L.613-8 of the Intellectual Property Code
(Code de la Propriété intellectuelle) from thecontrary). (2) Second, an exclusive licensee isallowed to institute a lawsuit against a patent
infringement under his own name if the patent
owner fails to do so (L. 615-2). (3) Third, any
licensee is allowed to intervene in a patentinfringement lawsuit instituted by the patent
owner in order to obtain compensation fordamage he has personally sustained (L. 615-2).
These characteristics under the Intellectual
Property Code, however, do not give a licensee
the right to demand assistance from the patent
owner for the exploitation of the patented
invention.
3

The French patent system has adopted thenon-substantive examination principle since theestablishment of the Patent Law in 1791. Under
this system, no substantive examination isconducted by any administrative agency. For thisLegal characteristics of a license

Legal characteristics
agreementofalicenseWith regard to the legal characteristics of alicense agreement, both judicial precedents(*4) andprevailing theories(*5) have concluded that a license(*4) Trib.comm.Seine,18 janvier 1888: Ann.propr.ind.,1893.p.173; Civ.29 juillet 1891,D.P.1892..150; Orléans 13 juillet
1892:D.P.1893,2,p.329 ;Tribunal civil de Seine 20 octobre 1922: Ann.propr.ind., 1923.p.288Paris; Tr.comm.Seine, 2
mai 1928: Ann.propr.ind., 1929.p.186; Paris 21 oct.1999:D.2002.Somm.1195,obs. Schmidt-Szalewski: PIBD 2000,
Ⅲ,p.181(*5) H. Allart, Traité théorique et pratique des brevets d’invention, Paris, 1911, 3e édition, p.229, E.Pouillet, Traitéthéorique et pratique des brevets d’invention et des secrets de fabrique, Paris, 1915 6e édition, par A. Taillefer etC.Claro p.355, Paul Roubier,Le droit de la proriété industrielle, Recueil Sirey, tomeⅡ,1954, p.260; Jean-Jaques Burst,
Libraiｒes Techniques 1970, P.17; A.Casalonga,Traité technique et pratique des brevets d’invention,1949, tomeⅠ,
p.432; J.M.Mousseron, Encyclopédia Dalloz, n°452; R.Joiet, Le contrat de licence en droit belge et français, Revuetrimestrielle de droit commercial 1982, p.167; Albert Chavanne & Jean-Jaques Burst, Droit de la proriété
industrielle, 3me édition, 1990, p.215; Jean Foyer &Michel Vivant, Le droit des brevets, Presses Universitaires deFrance, 1991, p.432; Joanna Schmidt-Szalewski& Jean-Luc Pierre, Droit de la proriété industrielle 3e édition, Litec,
2003, p.110

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● 190 ●

agreement is similar to a lease agreement(*6).

license agreement.

4

Ⅳ

Review of the “Liability of a
Patent Owner for His Inoperative
Invention”

1Comparison with French laws

Rights and obligations of the parties
concerned

The fact that a license agreement is similar
to a lease contract suggests that the patent owner
is obliged to assist the licensee to exploit thepatented invention in practice. Therefore, if thespecification of the patented invention is not clear
and sufficient enough for the licensee to exploit it,
the patent owner needs to provide the licensee
with necessary information such as know-how. In
the case of a patented invention that has amaterial defect, the licensee is allowed to cancel
the license agreement (Article 1183 of the French
Civil Code). If a license agreement is cancelled,
the licensee has the right to demand from thepatent owner damages for the lost expectationinterest (Article 1184 (2) of the French Civil
Code)5

Exploitation of a patented invention toconfirm patentability

As long as a license agreement is regarded
as similar to a lease contract, the licensee who
has found the patented invention inoperative canbe given legal remedy. However, even if such
remedy is provided, the licensee will have alreadysuffered great damage to its actual business
operation by the time the remedy is provided. It
is therefore too late for a licensee to find thepatented invention inoperative and request a legal
remedy after the conclusion of a license
agreement. It would be desirable if a licensee isallowed to check whether the patented invention
is operative before the conclusion of a license
agreement. This prior checking is especially
important under French laws, which has adopted
the non-substantive examination principle.
Under French laws, it is specified that theeffect of a patent does not extend to any testing of
the object of a patented invention (L.613-5 (b)).
Under this provision, a licensee is given an
opportunity to check the operativeness of thepatented invention before the conclusion of aBoth under Japanese laws and French laws,
the examination of the legal characteristics of alicense itself has revealed that a licensee has noright to demand from the patent owner assistance
to exploit the patented invention.
However, Japanese laws and French laws aredifferent in the legal characteristics of a license
agreement. Under Japanese laws, a license
agreement is defined as a contract that isconcluded between a patent owner and a licensee
for the establishment or grant of a license.
According to this definition, it is difficult todetermine the rights and obligations of the patent
owner and licensee with regard to the
exploitation of the patented invention. On theother hand, under French laws, a license
agreement is regarded as similar to a lease
contract in terms of its structure. By analogy, therights and obligations of the parties to a lease
contract are considered the same as those
imposed on a patent owner and a licensee under alicense agreement. If a patented invention turns
out to be inoperative, the patent owner is obliged
to provide assistance such as know-how to thelicensee so that the patented invention can be
exploited in practice. In the case of a patented
invention with a material defect, the licensee isallowed to cancel the license agreement.
Some people might doubt the meaning ofstudying French laws if they are so different fromJapanese laws in the legal characteristics of alicense agreement as described above. It would
be meaningful, however, to learn from Frenchlaws as to what measures should be allowed toconfirm patentability before the conclusion of alicense agreement.
Under French laws, it is explicitly specified
that “the effect of a patent does not extend to any
testing of the object of a patented invention.”(*6) There was a theory regarding the legal characteristics of a license agreement that argued that a license agreement
gives the licensee the right to request the patent owner not to take legal action against the licensee . This approachis the same as the one taken by the precedent of the Japanese Supreme Court and the prevailing theory. （M.Planiol,
note sous Orléans 13 juillet 1892:D.P.1893,2, p.329; J.Morel,De la licence d’exploitation en matière de brevetsd’invention, thèse Lyon, 1926, p.11）This theory, however, did not receive much support.
According to Mathély’s theory, on the other hand, a license agreement is not similar to a lease contract while it isbelieved so in prevailing theories. He argues that a license agreement is an atypical contract.（Paul Mathély, Le
Nouveau Droit Français Des Brevets D’invention., Libraire du Journal des Notaires et des Avocats, 1991.p.322）● 191 ●IIP Bulletin 2006

This provision allows a licensee to check theoperativeness of the patented invention before
the conclusion of a license agreement,
contributing to increasing the reliability of apatent, which is said to be low due to thenon-substantive examination principle adopted by
French laws.
On the other hand, Article 69(1) of theJapanese Patent Law sets forth that “The effectof a patent shall not extend to any exploitation ofa patented invention that is conducted for the
purpose of testing or research.” The language ofthis provision is unclear about what kind of
testing or research is allowed under this Article
69(1). The Supreme Court also failed to clarify
the general principles applicable to Article 69(1)of the Patent Law. Prevailing theories argue thatany testing or research conducted for the
purpose of checking the patentability should beallowed under Article 69(1) as long as thetesting or research contributes to “technicalprogress.”
We need to examine the appropriateness ofrequiring “technical progress” as a prerequisite
for “testing or research.” Let me start with an
overview of the Japanese patent system.
The Japanese patent system has adopted thesubstantive examination principle, which requires
each invention to go through an examination by
an administrative agency before patented. Unlike
the case of the Seed and Seedlings Law, thesubstantive examination principle, however, does
not oblige the examiners to try out each invention
based on the specification to check whether it isoperative in practice. Therefore, the establishmentof a patent does not guarantee the operativenessof the patented invention in reality.
This lack of guarantee should be regarded as asufficient reason to allow the exploitation of apatented invention even if it does not contribute to“technical progress.” It does not mean, however,to automatically allow any exploitation of apatented invention as long as it is conducted under
the name of “testing or research.” Theapplicability of Article 69(1) should be determined
depending on whether the products produced as aresult of the “testing or research” are distributed
in a market. This is because the purpose of thisprovision is to protect the patent owner’s financial
interest in the patent, which will not be damagedby the mere production of the patented invention.
2

Review of the liability of a patent owner
As far as the interpretation shown by judicial

IIP Bulletin 2006

precedents and prevailing theories are applied,
the above-described overview of the legal
characteristics of a license and a license
agreement under Japanese laws has led to theconclusion that a licensee does not have the rightto demand assistance from the patent owner forthe exploitation of the patented invention. Under
the Japanese laws, the patent owner is considered
to be fulfilling its obligations by taking no legal
action against the licensee as long as it exploits
within the scope of the license. Therefore, nolegal remedy may be provided to a licensee who
has found the patented invention inoperative.
However, it would be unreasonable if a licensee
has to remain bound by a license agreement evenafter finding the patented invention inoperative.
Thus, legal remedy should be provided to thelicensee under the doctrine of good faith (Article
1(2) of the Civil Code).
Under this doctrine, any licensee who has
found the patented invention inoperative isallowed to cancel the license agreement. Uponcancellation, the patent owner is obliged to refund
to the licensee the already paid royalty.
According to Article 545(3) of the Civil Code,any person who has exercised the right ofcancellation is not precluded from demanding
damages. This means that a licensee who has
exercised the right of cancellation is notprecluded from demanding damages from thepatent owner under laws. However, it remains
unclear whether a licensee should be allowed todemand damages as well.
It would be useful to examine the legal
characteristics of damages under Article 545(3) ofthe Civil Code. Judicial precedents and prevailingtheories argue that damages should be paid tocompensate the lost expectation interest caused
by nonperformance. As shown by the above
examination of the legal characteristics of alicense, the patent owner can be considered as
performing its obligations by not taking legal
action against the licensee on the grounds of apatent infringement. Therefore, nonperformancedoes not exist on the part of the patent owner. It
should be concluded that a licensee who has
found the patented invention inoperative is notallowed to demand damages from the patent
owner on the grounds of nonperformance.
It is certain that the inoperative invention
has caused the licensee to suffer such financial
damage as a raw material cost. A careful study isnecessary to determine whether the patent
owner should be obliged to compensate suchdamage.

● 192 ●

In the case of a license agreement, unlike asales agreement, the patented invention, which isan essential element of the license agreement,
has been publicized by the patent gazette.
Moreover, the licensee could have conducted“testing or research” on the invention because, in
my opinion, such “testing or research” is allowed
under Article 69 (1) of the Patent Law even if it
does not contributes to “technical progress.”
Therefore, it would be safe to conclude that thegross negligence exists on the part of thelicensee as a merchant who is expected to be
vigilant enough to carry out such “testing or
research” in advance. As a result, the patent
owner is not obliged to compensate the licensee
for the damage in principle.

● 193 ●IIP Bulletin 2006