9Practical Issues Arising from the Introduction of theTrust System for Intellectual Property

As one of the methods for centralized management of intellectual property rights (IPRs) in business groups
and Technology Licensing Organizations (TLOs) or one of the schemes for financing secured by intellectual
property (IP) or IP securitization, the trust system has attracted attention for its usability. Meanwhile, a clear
direction of the revision of the Trust Business Law has been indicated toward enabling IP to be accepted as trust
property on business.
With the establishment of IP trust business having become a real possibility, this research focused on trustand considered practical issues upon the introduction of IP trust business following the research in FY 2002
titled “Legal Issues Concerning the Use of Trusts for Intellectual Property.”. More specifically, this research
discussed: the acceptability of each IP as trust property; the applicability of requirements for IP trust
establishment and setting it up against a third party; duties of the trustee focusing on license contracts and theallocation of revenues; settlement of IP-related trust disputes; taxation and accounting treatments related to IP
trust. This research also compiled the Guidelines for IP Trust Operation Manuals including draft model
contracts.

Ⅰ Introduction
As one of the methods for centralized
management of intellectual property rights (IPRs) inbusiness groups and TLOs, or one of the schemes forfinancing secured by intellectual property (IP) or IP
securitization, the trust system has attracted attention
for its usability. In “Strategic Program for the Creation,
Protection and Exploitation of Intellectual Property”(by Intellectual Property Policy Headquarters) and“Interim Report on a Desirable Form of TrustBusiness” (by Financial Service Agency) bothpublished in July, 2003, a clear direction of the revisionof the Trust Business Law was indicated toward
enabling IP to be trusted on business, and theintroduction of the IP trust system has become a realpossibility. In light of such a situation, this research
was conducted with the objective of identifying
practical issues and suggesting solutions to such
issues.

Ⅱ Trust Property
Issues concerning trust property in relation to IP
trust include: (i) whether IP is acceptable at all as trust
property; and (ii) if it is acceptable as trust property,
what procedures should be required for establishing avalid trust (requirements for an IP trust to take effectand to set up against a third party). This chapter
discusses these issues and other related issues

focusing on a patent right, and also considers thevalidity of a comprehensive trust, which is desired for
IP management trust within business groups.
1

Acceptability of IP as Trust Property

The existing Trust Business Law restrictively
lists several types of property that are acceptable astrust property. IP has been excluded from the list, but
the law is expected to be revised to expand the scopeof trust property and include IP in its scope. According
to the interpretation of the Trust Law, trust property
must satisfy following four requirements: (1) be
convertible into money; (2) be positive property; (3) betransferable and disposable; and (4) be in existence
and specific in nature.(*1)
The study on such acceptability of a patentright/right to obtain a patent, an IPR under a foreignlaw, trade secrets/know-how, and a copyright hasreached the conclusion that all these types of property,
except for trade secrets/know-how, can basically be
accepted as trust property. However, the extent of aright to obtain a patent, and in particular a right toobtain a patent before the filing of a patentapplication,(*2) cannot be clearly defined and such rights
might not satisfy the requirement of being specific innature; therefore, due consideration is required to
sufficiently specify the contents of the right whenconcluding a trust contract for such rights.
Trade secrets/know-how are mere information(*1) Makoto Arai, Shintakuhō (Trust Law) (Yūhikaku, 2002), 193(*2) A right to obtain a patent after the filing of a patent application can be identified by the application number, and the contentsof the right can also be specified to some degree based on the description of the specification attached to the applicationmaterials.

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that has not been established as a statutory right(*3)
and might not satisfy the requirement of beingtransferable.(*4) For this reason, the acceptability oftrade secrets/know-how as trust property is disputable.
However, even if such acceptability is denied, it would
be possible to entrust an IP management company
with the management of trade secrets/know-how by
establishing a trust for the license for trade
secrets/know-how or concluding a mandate contract
on the management of such license.

without specifying patent numbers, and whether it ispossible to comprehensively include in the scope oftrust, in advance, any inventions to be made after theconclusion of the trust contract. These practices might
be possible if some measures are taken to satisfy therequirement of being specific in nature. Provided,
however, a trust for a patent right shall not be effectiveat all unless it is registered with the specified patent
number, because a registration is construed as
effective requirement for such trust .

2

Ⅲ Duties of the Trustee

Requirements for a Trust to Take Effectand to Set Up against a Third Party

A trust for a patent right takes effect when it isregistered as trust property at the Patent Office,(*5) andat the same time it set up against a third party. A trust
for a right to obtain a patent before the patent filingtakes effect under a trust contract between the parties
concerned, and sets up against a third party upon thefiling of the application. (There are some dissenting
opinions). A trust for a right to obtain a patent after thefiling of a patent takes effect when it is notified to theCommissioner of the Patent Office,(*6) and at the sametime it sets up against a third party.
Where a trust is established for a right to obtain apatent before the patent filing, the matters relating to
the trust should be described in the request for
application (Article 26(1) of the Regulations under the
Patent Law), and where a trust is established for aright to obtain a patent after the patent filing, thematters relating to the trust should be described in the
notification of transfer of the right to obtain a patent(Article 26(2) of the Regulations). If these proceduresare performed satisfactorily, upon the registration of
the establishment of the patent right, the trust for thepatent right shall be registered automatically without
going through any additional procedures.
Article 3 of the Trust Law provides that a trust
for a property right, which is required to be registered,shall not set up against a third party unless it is thus
registered or otherwise made public. Accordingly, therequirement of an IP trust for setting up against a third
party under a foreign law might be affected by whether
the foreign law requires registration of a trust.
It may be allowable to establish a comprehensive
trust for several patent rights under a single trust
contract. The questions in this respect are whether it
is possible to establish a comprehensive trust for all
patent rights that pertain to a certain technical field,

1

Characteristic Features of IP Trust andPractical Needs

When establishing a trust for IP, dueconsideration should be given to characteristicfeatures of IP: (1) it is considerably difficult to assess
economic value of the IP; (2) the IP can never prove
its worth sufficiently unless it is utilized appropriately,
and therefore the trustee is required to promote active
and appropriate use of the IP; (3) IP is more vulnerable
to an infringement by a third party than traditional
types of trust property such as real property, money,
and money claims and it is also unstable due to trials
for invalidation and lawsuits for injunctions. For thesereasons, the trustee is also required to takeappropriate measures to cope with such disputes.
These characteristic features of IP impact significantly
on the duties of the trustee under the Trust Law, suchas duty of care, duty of loyalty, duty of impartiality
between beneficiaries, duty of segregation of trust
property from his own property or other property, andduty not to delegate trust services.
Due consideration should also be given to thediffering nature of beneficiaries depending on thepractical forms of IP trusts, including: (1) a trust in abusiness group mainly for centralized management ofIP; (2) a trust for commercial management of third
party’s IP; and (3) a trust as a special purpose vehicle
for financing secured by IP.
2Duties of the Trustee

The duties of the trustee of an IP trust werestudied while focusing on a license contract and theallocation of royalty revenues.
A problem could arise as to the duty of care in thecase of licensing and cross-licensing without charge(*3) Under the Unfair Competition Prevention Law, a trade secret is defined as “technical or business information useful incommercial activities, such as manufacturing or marketing methods, which is kept secret and not publicly known.” It shallbe protected under the law but shall not be established as an exclusive right.
(*4) Trade secrets are not compatible with the concept of “transfer” because: (1) Information that is once licensed or disclosed
cannot be recovered even though the license contract can be cancelled; (2) Even after the transfer, the information will
substantially be in the possession of not only the trustee, but also the trustor; (3) information is not exclusive property.
(*5) Patent Office, Application Support Division, Registration Office, Kaitei shinban kōgyōshoyūken tōroku no jitsumu(Practice of registration of intellectual property rights: revised new edition) (Keizaisangyō chosakai, 2002), 537.
(*6) Section 34(4) of the Patent Law● 69 ●IIP Bulletin 2004

(or under advantageous terms). However, as the dutyof care is not a mandatory requirement,(*7) a breach of
the duty will not occur if it is allowed under a trust
contract to grant a license to a third party. In the caseof cross-licensing, a problem could also arise as to theduty of impartiality or duty of loyalty where therevenues from a license granted by a third party as
consideration for the licensing are not provided to theentire trust property but only to some beneficiaries.
However, this problem could be avoided if approval is
obtained from each beneficiary or by a trust deed.
Problems that might be raised as to the duty ofloyalty are whether the trustee is able to obtain alicense for the IP in trust and how the trustee shouldcope with any possible conflict of interest between
several trusted IPs. According to the dominant view,the trustee who has obtained a license for the trusted
IP is deemed to have “obtained a right” for the trust
property, which is prohibited under Article 22 of theTrust Law.(*8) As this provision is mandatory, thetrustee shall not be allowed to obtain a license, with orwithout the beneficiary’s approval. Recently, somescholars are negative about construing Article 22 of
the Trust Law as a mandatory provision; they suggestthat the trustee’s duty of loyalty be broadly construed
as meaning the “prohibition of acts causing a conflict ofinterest” and this duty or restriction be lifted if certain
requirements are satisfied, such as obtaining thebeneficiary’s approval.(*9)
An act causing a conflict of interest between thebeneficiary and a third party and an act causing a
conflict of interest between beneficiaries or between
trusted IPs are also deemed to be breach of the duty ofloyalty, though it is not directly provided by the Trust
Law. As typical cases of a conflict of interest, where
the trustee receives patent rights in trust from several
trustors, (1) a dispute could occur between thebeneficiaries with respect to the trusted patent rights,
or (2) a third party would not need a license for one of
the trusted patent rights if the party could obtain alicense for another one of them. As the duty of loyalty
in relation to acts causing such conflicts of interest is
not construed as a mandatory requirement, the trustee
is construed as being allowed, with the beneficiary’s
approval, even to act causing a conflict of interest.
However, it is difficult for the trustee to obtain thebeneficiary’s approval while assuming, in advance, allspecific cases at the time of establishing a trust deed,
and therefore there would be no option but tocomprehensively provide for the handling of a conflictof interest in the initial stage.

The duty of impartiality, which means the duty to
impartially treat several beneficiaries of a single trust,is generally recognized, though it is not expressly
provided by the Trust Law. Because of this duty,
revenues should, in principle, be allocated equally
among the beneficiaries of a single trust. However, it
is construed as being allowable to expressly exempt
the trustee, with a trust deed, from the duty of
impartiality to the beneficiaries.(*10)
The duty of segregation includes (1) the duty tosegregate trust property from the trustee’s own
property, and (2) the duty to segregate trust property
from other trust property. According to the common
view, the former is construed as a mandatory
requirement whereas the latter is construed as adiscretionary requirement; therefore, the trustee canbe exempted, by a special agreement, from the duty ofsegregation of several trusted IPs.(*11) Revenues from alicense of the trusted patent right also form part oftrust property. A particular problem in this respect
would be how to allocate revenues from acomprehensive license, under a single contract, of theIPs that belongs to several trusts. Article 28 of theTrust Law provides, as an exception, that money aspart of the trust property may be segregated byclarifying individual accountings, but it is practicallydifficult to clarify accountings. When receiving IPs intrust, the trustee should, while assuming to grant acomprehensive license of the IPs, obtain prior approval
from the beneficiaries for the exception to the duty ofsegregation.
The trustee is required not to delegate but topersonally conduct trust services. However, it ispossible for the trustee to use a third party under aspecial agreement, for example, use a patent attorneyas its representative in carrying out the procedures for
obtaining an IPR.

Ⅳ Sales Restriction of Beneficial
Interests and Compensation for
Employees’ Inventions
The act of enabling a person to obtain beneficial
interests in trust is regarded as sale of a financial
instrument and the right to the share of revenues fromthe trust is regarded as beneficial interests incommodity funds, each of which shall be regulated
under the Financial Instruments Sales Law or the
Commodity Fund Law. The Special Credit Law shallapply to beneficial interests in trust for special credits
set forth under the law. However, the Securities(*7) Kazuo Shinomiya, Shintakuhō (Trust Law) (Yūhikaku, new edition, 1989), 247(*8) Shinomiya, supra note 7, 233(*9) Article 22(2) of the 4th draft of the revised Trust Law provides as follows: The trustee shall not own or obtain a right for
the trust property, or otherwise act in conflict with the interests of the beneficiary unless the trustee has obtained thebeneficiary’s approval or obtained a court’s permission because of unavoidable circumstances. Article 434(2) of the Outlineof the Commercial Trust Law provides as follows: The trustee shall not act in conflict with the interests of the beneficiary
unless (1) the act is done as provided under the trust contract, (2) the trustee has disclosed important facts concerning theact and obtained the beneficiary’s approval, or (3) the act is justifiable.
(*10) Yoshihisa Nomi, “Gendai shintakuhō kōgi (Contemporary study on the Trust Law) (4),” Shintaku 203 (2000), 4-5(*11) Shinomiya, supra note 7, 220-221
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Exchange Law shall not apply to most beneficial
interests because they do not fall under the category of
securities set forth under the law.
Regarding an issue of providing compensationfor employees’ inventions, the trust company may
directly pay a reasonable remuneration to an inventor
who is employed by the trustor/beneficiary, on behalfof the beneficiary, from part of the dividends to be paid
to the beneficiary. In such case, no particular taxation
problem would be raised.
In the case of a trust for the benefit of the trustor,
the amount of profits obtained by the employer fromthe exclusive use of the invented technology, which isthe basis for the calculation of a reasonable
remuneration for an employee’s invention to be paid to
the inventor, should be the amount of dividends basedon the beneficial interests. However, if the amount oflicense fee applicable to member companies within abusiness group is set at a lower price than the normal
economic value of the license, the amount of profit
obtained by the beneficiary might be calculated as thepossible amount of license fee as if the license was
granted to an outside company other than the businessgroup.

Ⅴ Settlement of Disputes over Trust
Property
Disputes over IP in trust may occur between thetrustee and a third party. The issue of disputesettlement was studied in relation to: (1) the casewhere the trustee stands as plaintiff; (2) the casewhere the trustee stands as defendant; (3) the case ofa securitization trust; and (4) the relationship with thePracticing Attorney Law and the Patent Attorney Law.
1

Trustee Standing as Plaintiff

The trustee who has received a patent right intrust may, in the capacity of the patentee, file alawsuit for injunction against an infringer. The
patentee, registered exclusive licensee under
Section 77 of the Patent Law, and non-registeredexclusive licensee may claim damages against the
infringer(*12) whereas non-exclusive licensees may
not claim damages.(*13) Lost profits as prescribed in
Section 102(1), estimated profits gained by the
infringer as prescribed in Section 102(2), or money

equivalent to the reasonable license fee asprescribed in Section 102(3) of the Patent Law may
be claimed as damages, provides, however, theclaimant must be working the patented invention inorder to claim damages under Section 102(1) or (2).
Consequently, the trustee may claim damages in thecapacity of the patentee, but may not claim damages
under Section 102(1) or (2) if the trustee is notworking the patented invention by itself.
When the trustee intends to claim damages as
the plaintiff on behalf of the operating company thathas a registered or non-registered exclusive license,
the trustee may act as an representing party under
the Code of Civil Procedure.(*14) Several parties
having a mutual interest may appoint from among
themselves one or more parties who will pursue thelawsuit under the Code. The trustee may act asplaintiff for a mutual interest of the beneficiaries
who have the right to claim damages for money
equivalent to the license fee and of the registered or
non-registered exclusive licensee who has the rightto claim damages for lost profits or for estimatedprofits gained by the infringer.
2

Trustee Standing as Defendant

An Issue arises as to whether the trustee isallowed to intervene in the lawsuit as defendant anddefend the operating company from which thetrustee has received a number of patent rights intrust where the company is sued for having
infringed another company’s patent right. The
trustee might be able to intervene in the lawsuit as
an assistant participant or a conventional agent.
However, there must be a legal interest in theformer case, whereas there must be reasonablerationality in the latter case;(*15) therefore, thetrustee might not be able to intervene in the lawsuit
just because the trustee has a trust relationshipwith the party concerned or the trustee is capable ofcross-licensing with its own related patents.
Parties other than the patentee may not
demand a trial for correction, stand against a
demand for a trial for invalidation, or stand asplaintiff or defendant in a lawsuit against a
trial/appeal decision; therefore, the trustee shall act
as the party concerned in these cases.

(*12) The eligibility of the patentee and registered exclusive licensee to claim damages is provided in Section 102 of the Patent
Law. The eligibility of the non-registered exclusive licensee is based on the judicial precedents: 1977(Wa)No. 2236 and1977(Wa)No. 3461, judgment of the Osaka District Court of February 28, 1979, Mutaisaishu Vol. 11, No. 1, at 92 (hairimplantation device); 1984(Ne)No. 2594 and 1984(Ne)No. 2648, judgment of the Osaka High Court of June 20, 1986,
Mutaisaishu Vol. 18, No. 2, at 210 (design for hair brush); 1982(Wa)No. 7035, judgment of the Osaka District Court ofDecember 20, 1984, Hanji No. 1138, at 137; 1993(Wa)No. 11876, judgment of the Tokyo District Court of October 12, 1998,
Chisaishu Vol. 30, No. 4, at 709 (patent for cimetidine)(*13) 1983 (Wa)No. 3453, judgment of the Osaka District Court of April 26, 1984, Mutaisaishu Vol. 16, No. 1, at 271 (utility
model for structure materials)(*14) Article 30 of the Code of Civil Procedure(*15) 1967 (O) No. 1032, Judgment of the Grand Bench of the Supreme Court of November 11, 1970, Minshu Vol. 24, No. 12, at
1854● 71 ●IIP Bulletin 2004

3

Securitization Trust

In the case of a securitization trust, on theother hand, the trustee may request the trustor,
beneficiary, or licensee to respond to a lawsuit.
To respond to a lawsuit, the trustor and thebeneficiary may: (1) terminate the trust to have thepatent right concerned returned to the trustor or
beneficiary; (2) intervene in the lawsuit as an
assistant participant ; and (3) intervene as aconventional agent. However, in the case where thetrustor is requested to respond to a lawsuit, if it isagreed in advance that the patent right shall be
returned to the trustor in the event of a dispute, anissue would be raised as to “true sales,” e.g.
whether the patent right can be regarded as having
been completely transferred to the trustor at thetime of the establishment of the trust. On the other
hand, in the case of the beneficiary, any of themeasures from (1) to (3) may be applicable because
the beneficiary seems to have an interest in thelawsuit as the person entitled to revenues from thetrust property. As for licensees, the registered or
non-registeredexclusive
licenseemay
independently claim damages as the party to alawsuit. Such exclusive licensee may also claim
damages on behalf of the trustee if represented as
party to the lawsuit with the trustee’s approval.
However, a non-exclusive licensee may not directly
claim damages but may only be allowed to intervenein the lawsuit as an assistant participant or aconventional agent.
4

Relationship with the Attorney Laws

Article 72 of the Practicing Attorney Law and
Article 75 of the Patent Attorney Law prohibit
relevant legal affairs from being handled by thoseother than attorneys or patent attorneys. However,no problem will be raised when the trustee handles
IP-related affairs because the trustee is the owner of
the trusted IP and is eligible to handle legal affairs
and application procedures for its own property. The
trustee will not be deemed to be in violation of theprovision of Article 73 of the Practicing Attorney
Law that prohibits any person from commerciallyenforcing another person’s property that has beentransferred to him, if the IP trust is included in thescope of justifiable affairs from a social andeconomic perspective.
The trustee will also not be deemed to be in
violation of the provision of Article 11 of the Trust
Law that prohibits a trust from being established forthe primary purpose of conducting acts of procedure,

except for the case where an IPR is being infringed
and a trust is established for the claim for damages
with the intention or objective of deviating from theprovision of Article 72 of the Practicing Attorney
Law or otherwise violating public order and morals.

Ⅵ Accounting
Issues1

Treatments

andAccounting Policy

Key points for designing an accounting policy
are for whom, and for what, the accounting is to beprocessed. According to the current trust practices,
the accounting is processed as if the beneficiary
substantially owned the trust property.(*16) For thisreason, the trustee’s accounting should beprocessed and disclosed in accordance with thebeneficiary’s objective for the trust.
The trustee, under the Trust Law, should
process its accounting by segregating the trust
property from its own property,(*17) and should store
books, record the details and calculate the resultsfor each trust contract, and report the consequenceof the management of the trust property.(*18) The
accounting may be processed under the principle ofaccountability, and accounting rules that arereasonable and suitable for the purpose may bechosen by an agreement between the beneficiaryand the trustee.
Where the beneficiary is a company, its
accounting shall be processed under the “accounting
rules that are generally considered fair andappropriate,” namely, the Commercial Code(including the Regulations under the Commercial
Code) and the Securities Exchange Law (including
the regulations concerning the terms and formats offinancial statements and methods for preparingthem). Where the beneficiary is an individual, its
accounting shall be processed under the Income Tax
Law. The beneficiary’s accounting may be processedand disclosed under the gross amount principle(reporting the contents of the balance sheet andprofit-and-loss statement as reported by thetrustee) or under the net amount principle(reporting in the balance sheet the difference
between assets and liabilities from trust business as
beneficiary interests in trust while reporting in the
profit-and-loss statement the profits and losses fromtrust business as profits in trust or losses in trust).

(*16) The accounting is processed based on the recognition that a trust is nothing but a pipe for allocating income to thebeneficiary who is deemed to directly own the trust property, and therefore income arising from the trust property shall be
attributed to the beneficiary.
(*17) Article 28 of the Trust Law(*18) Article39 (1) of the Trust Law

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Figure 1

Outline of IP Trust

Beneficiary(Trustor)

Trustee
Trust

Beneficial
interests in
IP trust

Beneficial
interests in trust

Revenues
from trust

Beneficiary’s (trustor’s)
accounting

2

Licenserevenues

Users

Costs formaintaining IP

PatentOfficeIP(patent)

Trust service fees
(management costs)

Trustee’s accounting

Accounting Treatments and Issues

Accounting treatments and issues in relation to
IP trust were studied separately for: (1) the casewhere a trust is used for centralized management of
IP within a business group; (2) the case where atrust is used for IP management within a TLO; (3)the case where a trust is used for IP securitization
for the purpose of financing; and (4) common issues
concerning these three cases.
In the case of centralized management of IP
within a business group, consideration should begiven to the same treatment as consolidated
accounting and the disposal of the beneficial
interests in trust. In the case of IP management by a
TLO, consideration should be given separately tothe case where the inventor establishes a trust andthe case where a university or other corporation
establishes a trust. In the former case, theaccounting should be processed under the Income
Tax Law while in the latter case, the accounting
should be processed according to the rule that thetrustee should report to the corporation.
In the case of IP securitization, if beneficial
interests in trust are divided into fractions, therelationship between the beneficiaries and the trust
property becomes weak. In such cases, theaccounting may be processed while regarding thetrust property as an independent entity andattributing profits and losses arising from the trust
property to the trust property.(*19) More specifically,
this accounting procedure may apply to a joint
operation trust, a group trust (e.g. investment trust),
and a special purpose trust which are treated as
types of trust listed in the provisos of tax laws.
Common issues include how to decide theamount of trust service fees and how to handle thecase where the trust property becomes deficit.
Issues concerning the accounting for IP trust do not
only include lack of study on the accounting systemon the part of the trustee but also issues specific to
IP. Further consideration should be required for
effective use of IP trust.

Ⅶ Taxation Treatments of Patent
Rights1

Taxation for Trust

One of the major general principles under tax
laws is the “principle of taxation on the actual
beneficiary.” Under the trust system, trust property
formally belongs to the trustee but it substantiallybelongs to the beneficiary. For this reason, under tax
laws, trust property is in principle recognized as
belonging to the beneficiary and taxes are imposedon the beneficiary with respect to incomes, etc.
arising from the trust property.(*20) Under tax laws(*19) The principle of regarding a trust as an independent entity under tax laws(*20) Article 12 of the Corporation Tax Law, Article 13 of the Income Tax Law, Article 14 of the Consumption Tax Law, Article 4of the Inheritance Tax Law, Article 9 of the Land Price Tax Law, Article 24-3 (prefectural tax), Article 72-3 (business tax),
Article 72-8 (local consumption tax), Article 73-7 (real estate acquisition tax), Article 294-3 (municipal tax), and Article 587(special landholding tax) of the Local Tax Law, and Article 7 of the Registration and License Tax Law● 73 ●IIP Bulletin 2004

such as the Corporation Tax Law and the Income
Tax Law, the transfer of trust property from thetrustor to the trustee shall not be regarded astransfer or obtainment of assets whereas thetransfer or obtainment of beneficial interests intrust shall be, in principle, treated as transfer or
obtainment of the trust property concerned.
However, different taxation treatments shall apply
to exceptional trusts as prescribed in the provisos
under the Corporation Tax Law and the Income Tax

Patent right
3,000 yen
2

Utility model
right
3,000 yenTaxation for Centralized
within a Business Group

Design right
3,000 yenManagement

Even in the case where a patent right istransferred between member companies within abusiness group, the transfer is regarded as atransaction between different corporations andtherefore the principle of corporation tax, themarket price principle, shall apply. Consequently, if
the transfer price is not appropriate, the difference
shall be treated as contribution in the taxation
procedures.
On the other hand, if a patent right istransferred by establishing a trust for the benefit of
the trustor while designating the trustor as thebeneficiary, the patent right shall be deemed neverto have been transferred under tax laws and theissue of taxation on contribution will not arise,because trust-related taxes are, in principle,
imposed on the beneficiary. In this respect, the trust
system may be useful for IP management within abusiness group from a taxation perspective.
Trust service fees to be paid to the trustee
shall be, under the Corporation Tax Law, recognizedin accordance with the accounting rules that are
generally considered fair and appropriate. If theamount of trust service fees is not appropriate, thedifferential from an appropriate amount may be
regarded as contribution in the taxation process.
3

Taxation for Securitization of a Patent
Right

There are three types of securitization of an
IPR such as a patent right: (1) using a special
purpose company (SPC); (2) having the investors
directly holding beneficial interests in trust; and (3)through asset management. Among them, thesecuritization by using a SPC will raise relatively
few problems because taxation matters will bedecided as if the trust relationship were a “pipe,”
and therefore taxes will be, in principle, imposed on

IIP Bulletin 2004

Law, such as a joint operation trust, investment
trust, and special purpose trust.
The Registration and License Tax Law andother related laws provide for registration andlicense taxes applicable to registration procedures
relating to trust such as the registration of trust
property. Major registration/license taxes applicablefor the registration of IP trust are as follows (Exhibit
I of the Registration and License Tax Law).

Trademarkright
9,000 yen(per case)
Copyright
3,000 yen

the beneficiary.
In the case of the securitization by having theinvestors directly holding beneficial interests intrust, securities are sold for beneficial interests in a
special purpose trust or for beneficial interests in atrust other than a special purpose trust. In the latter
case, taxation matters will be decided as if the trust
relationship were as a “pipe,” as in the case with theuse of a SPC. On the other hand, taxation for a
special purpose trust will be treated under the
principle of regarding a trust as an independent
entity, because exceptional taxation treatments shallapply to a special purpose trust, which is one of thetypes of trusts listed in the provisos of tax laws.
Procedures for establishing and handling an
investment trust, a type of securitization throughasset management, are regulated not only by theTrust Law and the Trust Business Law but also by
the Law Concerning Securities Investment Trusts
and Securities Investment Corporations. Taxation
for an investment trust will also be treated under
the principle of regarding a trust as an independent
entity, because exceptional taxation treatments
shall apply to an investment trust, which is also
one of the types of trusts listed in the provisos oftax laws.

Ⅷ Guidelines for Developing
Trust Operation Manuals
1

IP

Nature of the Guidelines

The Guidelines for Developing IP Trust
Operational Manuals have been formulated to givesuggestions on practical problems that may arise
from handling an IP trust as the trustee. An IP trust
is used for various purposes, such as centralized
management of IP within a business group or TLO,
as means for investment or financing secured by
IPRs, and as means for effective management of
IPRs owned by small and medium-sized● 74 ●

corporations.(*21) In light of this, companies that
intend to handle IP trusts as trustees should
establish practices that are most suitable forindividual purposes depending on their own position,
beyond the limits of precedents and references(including the Guidelines).
When establishing an IP trust for any of these
purposes, measures should be particularly
considered in advance to cope with major common
issues, such as the confirmation of the specificity
and perfect existence (or imperfect existence
recognized consciously) of trust property, thehandling of a conflict of interest, and the sharing ofvarious risks or costs between the trustor or
beneficiary and the trustee.
2

Points in Handling Trust Services

As it is impossible to completely check the
specificity and perfect existence of trust property, towhat extent the trustee should check it and to what
extent the trustor’s declaration and guarantee canbe relied upon should be determined. The trustee
should also consider in advance to what degree thetrustee should undertake the imperfectness inexistence of trust property according to the purposeof the trust and whether the trustee is capable ofperforming trust services for such imperfect trust
property.
A conflict of interest in an IP trust, in particulara trust for a patent right, would become asubstantive problem that cannot be disregarded.
Therefore, deliberate consideration is required tochoose whether a trust will be established by taking
possible measures to avoid any conflict of interest or
by specifically providing exemptions in anagreement based on the recognition that a conflict ofinterest is unavoidable. It should not be disregarded
that, in the case of a trust within a business group, aconflict of interest might suddenly turn into a
serious and outstanding problem when the trustor
breaks away from the group.
Decisions should also be made in advancewhen concerning the sharing of various risks or
costs for lawsuits and trials, such as whether thetrustee is capable of undertaking such risks,
whether the trustee should undertake the risks inlight of the purpose of the trust, and how to sharethe costs between the trustor/beneficiary and thetrustee in the case where the trustee undertakes
the risks.

3

Points in Drafting Trust Contracts

The Guidelines provide samples of three typesof trust contracts: trust contract for patent
management; trust contract for patent management(securitization); and trust contract for copyright
management. These samples only suggest theminimum provisions of relevant trust contracts, andneedless to say, actual contract provisions will
inevitably be more complicated (except, however,provisions could be simplified on purpose).
Where a trust is established for rights to obtaina patent, patent applications filed based on suchrights might conflict with one another (as aninvention claimed in one of these applications affects
the novelty or inventive step of another invention
claimed in another application). There is no option
but to take measures, depending on individual
purposes of trust, to avoid such conflict or exempt
the trustee from the responsibility for such conflict.
For this reason, the Guidelines do not specify suchmeasures but just make reference to this issue.
When a trust is established for a trademark
right, attention should be paid to the designatedgoods or services. Furthermore, it is often the casethat the reputation of a product that has been
secured by a patent right is embodied in a
trademark and the trademark right maintains theadvantage of the product even after the invalidation
or expiration of the patent right. In light of this, it
should be remembered that it is desirable toestablish a trust for a patent right together with arelevant trademark right when making investment
or financing secured by IPRs.

Ⅸ Conclusion
Concluding the discussion at the committee,
the following major issues are presented concerning
institutional arrangements for active use of the IP
trust system:(1) Methods for specifying trust property so as toestablish a valid comprehensive trust whileassuming IP that will be generated in the future;(2) Simplified requirements for an IPR under aforeign law such as a foreign patent right to set up
against a third party;(3) Legislative measures to enable the trustee toobtain an exploitation right for the IP in trust;(4) Measures to be taken by the trustee to avoid
being deemed to be in breach of the duty of loyalty(*21) There could be a significant difference between a trust within a business group and a trust handled by an outside trust
company or trust bank as trustee, with respect to the functions entrusted by the trustor to the trustee and risk to be
assumed by the trustee. Even in the case of a trust within a business group, the trustee may play an active role inperforming the management of IPRs owned by the member groups including coping with disputes and selecting licenses,
or may receive IPRs in trust for the purpose of reducing IPR management costs incurred by the trustor and follow
instructions of the trustor for the licensing. On the other hand, in the case where a party outside the business group is thetrustee, the trustee may often fail to play an active role whereas the trust company with know-how in IPR management
may voluntarily cope with disputes or select licenses with the aim of obtaining a large amount in service fees.

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in the event of a conflict of interests between IPs intrust;(5) Methods for allocating license fees from acomprehensive license so that the trustee will not
be deemed to be in breach the duty of loyalty (acting
in conflict with interests) and to have received
contribution under tax laws;(6) Legislative measures to allow the trustee ortrustor to claim damages for lost profits.
It is hoped that the discussion will be further
developed toward promoting active use of the IP
trust system while the industries become aware of
the issues, the practices are legally rationalized, andpeople engaging in IP trust services suggest
solutions.
(Senior Researcher: Yukihiro Misaka)

IIP Bulletin 2004

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