Japanese Treatment of Intellectual Property 1

OFFICE OF TECHNOLOGY POLICY

The views expressed are those of the author and should not be construed as the official views of the U.S.

Department of Commerce or the U.S. Government. The United States Government, any other person acting on

behalf of the United States Government, or the author do not assume any liability resulting from the use of

information contained in this document. This guide does not constitute legal advice. Only a lawyer can give

such advice.

JAPANESE RESEARCH PROJECTS

AND INTELLECTUAL PROPERTY LAWS

By Gregory Rutchik, Esq.

for

Office of Technology Policy

Technology Administration

U.S. Department of Commerce
Japanese Treatment of Intellectual Property 3

OFFICE OF TECHNOLOGY POLICY

TABLE OF CONTENTS

FOREWORD .................................................................................................. 5

INTRODUCTION ............................................................................................ 7

PART I: THE HISTORY OF JAPANESE NATIONAL RESEARCH

PROJECTS/RESEARCH AND DEVELOPMENT OPPORTUNITIES OPEN

TO U.S. FIRMS

PAST PROJECTS AND PARTICIPANTS ........................................................... 11

OVERVIEW OF RESEARCH AND DEVELOPMENT PROGRAMS IN JAPAN ......... 13

A History of Japan’s Science and Research and Treatment of

Intellectual Property .............................................................................. 13

The Players .................................................................................................. 14

The Research Projects ................................................................................ 19

PART II: TREATMENT OF INTELLECTUAL PROPERTY RIGHTS IN JAPANESE

NATIONAL RESEARCH PROJECTS

EFFECT OF JAPAN’S TREATMENT OF JOINT PATENTS AND THE FOREIGN

CONTROL LAW..................................................................................... 27

Joint Patents and Consent ......................................................................... 27

Japan’s Foreign Exchange Control Law ................................................. 28

GENERAL INTELLECTUAL PROPERTY FRAMEWORK BETWEEN INDUSTRY

AND MITI: LICENSING INTELLECTUAL PROPERTY FROM THE

JAPANESE GOVERNMENT ...................................................................... 28

Jurisdiction .............................................................................................. 28

 A New Approach ................................................................................... 29

The Regulation of Intellectual Property ............................................. 31

Contract Provisions: NEDO’s Entrustment Contract ....................... 32

INTELLIGENT MANUFACTURING SYSTEM ................................................... 43

Treatment of Intellectual Property Under the IMS Provisions ............ 45

Provisions to Be Addressed by Parties ................................................... 46

THE REAL WORLD COMPUTER PARTNERSHIP ............................................ 46

Administration ........................................................................................... 47

Funding ....................................................................................................... 48

Intellectual Property .................................................................................. 48

Source of Law ............................................................................................. 48

Ownership and Distribution of Intellectual Property .......................... 49

Creator’s Rights.......................................................................................... 49

Non-creating Participant’s Rights ........................................................... 50

Broker’s Rights ........................................................................................... 50

JAPANESE RESEARCH PROJECTS AND

INTELLECTUAL PROPERTY LAWS
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PART III: DISPUTE RESOLUTION IN NATIONAL RESEARCH PROJECTS

THE ROLE OF LICENSING AND INFORMAL NEGOTIATION:

THE “HANASHIAI” .............................................................................. 51

Member-Appointed Board ....................................................................... 52

Side Agreements......................................................................................... 52

What to Do When Talking Fails: The Arbitration Clause .................... 53

CONCLUSIONS............................................................................................ 54

APPENDIX I: BASIC INTRODUCTION TO JAPANESE PATENT LAW................. 57

First to File Principle ................................................................................. 57

Multiple Claim System.............................................................................. 57

Amending the Application ....................................................................... 58

Patent Enforcement.................................................................................... 59

APPENDIX II: FOREIGN PARTICIPANTS IN JAPANESE NATIONAL

RESEARCH BY PROJECT ........................................................................ 61

Basic Technologies for Future Industries Program ............................... 61

Large-Scale Projects ................................................................................... 63

International Joint Research on Global Environment .......................... 64

Joint Research Program ............................................................................. 64
Japanese Treatment of Intellectual Property 5

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FOREWORD

J

apan has a long tradition of industry-government partnerships and

government-sponsored research projects to promote technological

innovation and economic growth. Japan is now making a concerted effort to

increase its basic research capability and to open its research and development system to international participation. While some major U.S.

corporations have successfully participated in these programs in the past,

American industry and government have concerns about differences in

the Japanese treatment of intellectual property.

Since 1987, the Office of Technology Policy’s Asia-Pacific Technology

Program has helped U.S. companies and researchers leverage Japanese

science and technology through the publication of high-quality technical

assessments and studies, and its many other activities. This study, “Japanese Research Projects and Intellectual Property Laws,” recognizes that

the treatment of intellectual property is a key element of any firm’s

assessment of foreign science and technology.

A thorough understanding of the differences in regimes and practices

becomes especially important as companies move from monitoring

foreign technical developments to actively accessing foreign science and

technology expertise through cooperative programs. This study lays out

the key administrative players as well as the legal and contractual issues

involved with the treatment of intellectual property in Japanese national

research projects. The author rightly admonishes that successful negotiation, not litigation, is the key to successful partnering. We hope that this

study, “Japanese Research Projects and Intellectual Property Laws,” will

provide information necessary to help you make a decision about possible participation in Japanese national research projects.

The views expressed are those of the authors and editors and not necessarily those of the Department of Commerce.

Graham R. Mitchell

Assistant Secretary of Commerce

for Technology Policy
Japanese Treatment of Intellectual Property 7

OFFICE OF TECHNOLOGY POLICY

JAPANESE RESEARCH PROJECTS AND

INTELLECTUAL PROPERTY LAWS1

INTRODUCTION

“There is no question of the need to make international contributions the basis of

policies governing future technological development at the Ministry of International Trade and Industry. This ideal will be passed on to all subsequent research

and development projects.”2

J

apan’s industrial complex has a long history of partnership with government to shape the course of technological innovation. National

government-sponsored research projects play a major role in this relationship. The Ministry of International Trade and Industry (MITI), through its

implementing agencies, supports an extensive program to foster international technological cooperation. Among the project themes, past and

present, are: Supersonic Jet Propulsion, the Very Large Scale Integrated

Circuit, semiconductors and related materials, the Intelligent Manufacturing System, the Fifth Generation Computer Project, and its successor, the

Real World Computer Partnership. MITI’s goal has been to create an

environment for collaboration between engineers of leading private

companies and experts in the university and government laboratory

communities.3

The rewards of MITI’s investment are often very clear. Economists have

argued that the government of Japan subsidized the development of its

electronics industry and is now attempting to “leapfrog” ahead in the

1

 Gregory Alan Rutchik, Esq., Fulbright Fellow, University of Tokyo, Graduate

School of Law, 1992-1993; Associate, Ostrolenk, Faber, Gerb & Soffen, New

York, New York. I am indebted to Dr. Phyllis Genther Yoshida, Director, Japan

Technology Program, for her support and assistance; to Mr. John Sargent, policy

advisor, Office of Technology Policy, U.S. Department of Commerce, for helping

me see this through; and to Mr. Katsuhiko Umehara, Director, General Planning

and Coordination Division, NEDO, Government of Japan. I would also like to

thank my colleague Adam Perlmutter and Dr. Jonathan Rutchik for assistance

on early drafts.

2

 Keynote Speech, Mr. Hideaki Kumano, Director General, Machinery and

Information Industries Bureau, MITI, at the International Conference on Fifth

Generation Computer Systems 1992, Tokyo Prince Hotel, June 1, 1992, 3.

3

 Dr. Hiroshi Kashiwagi, Director-General, Agency of Industrial Science and

Technology, Opening Remarks, “AIST 1993.”

The Ministry of

International Trade

and Industry

(MITI), through its

implementing agencies,

supports an extensive

program to foster

international

technological

cooperation.
8 Japanese Treatment of Intellectual Property

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information processing industry through government-sponsored consortia.4 Supporters of this industrial policy argue that technology diffuses

through an industry much faster when there is open access to information, shared resources, and low risk for participation.5 While participation

in most of the programs is restricted to domestic firms, some areas have

been open to foreign companies for many years. Several U.S. Fortune 500

firms—including Motorola, IBM, United Technologies and Pratt &

Whitney, General Electric, Crucible Materials, and the Stanford Research

Institute—have participated in joint research and development (R&D) to

pursue various Japanese national research objectives.6

However, international cooperative research is not without its pitfalls.

Specifically, American industry and the U.S. government have consistently raised concerns about the effect of differences in Japan’s treatment

of intellectual property, the structure and enforcement of its antitrust

provisions, and commercial groups known as keiretsu and their effect on

the competitiveness of U.S. industry.7 In addition, some companies

hesitate to participate because they feel their technological contribution

would exceed their benefit.8

This paper discusses and illustrates the major intellectual property issues

that arise when participating in a national research project in Japan. Three

major points regarding foreign participation in Japanese national research

projects will be addressed:

First, there are several opportunities for U.S. companies to participate in

significant R&D in various areas of technology. Participation improves

access to and an understanding of the Japanese marketplace. Part I, “The

History of Japanese National Research Projects/Research and Development Opportunities Open to U.S. Firms,” introduces Japan’s national

research projects that allow international participation.

Several U.S. Fortune 500

firms have participated

in joint research and

development (R&D) to

pursue various Japanese

national research

objectives.

Participation improves

access to and an

understanding of the

Japanese marketplace.

4

 Okamoto, Daniel I., Between MITI and the Market: Japanese Industrial Policy for

High Technology, (1989), 67, “National research projects gathering together talent

from the leading companies and government laboratories represent an ideal

way of leapfrogging ahead.”

5

 Interview with MITI Industrial Organization Policy Division, Sangyo Soshiki

Seisaku Shitsu, April 1993.

6

 See Appendix II detailing foreign participation.

7

 Okamoto, 69. The Semiconductor Industry Association has argued that there is

a “lack of openness and transparency and the asymmetrical advantages

conferred on Japanese companies.”

8

 Interview with ATT, Winter 1993.
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Second, the Japanese government regulates ownership and distribution of

intellectual property and management of the national research project.

Potential participants must be prepared to deal with the difficulties that

arise out of close government supervision. Part II, “Treatment of Intellectual Property Rights in Japanese National Research Projects,” explains the

intellectual property management and strategic issues through analysis of

the standard licensing agreement offered by MITI to all participants in

research it funds and supervises. Examples of sensitive issues affecting

U.S. participants illustrate the discussion.

The analysis often refers to the rights of the Japanese national government. These rights derive from ownership of a part or whole of intellectual property that resulted from a nationally sponsored research project.

The treatment of this “nationally” owned intellectual property is an

important aspect of consideration and will be discussed in depth.9

 The

general treatment of ownership and distribution of rights under Japanese

law is illustrated by the schemes provided in two on-going national

research projects, the Intelligent Manufacturing System and the Real

World Computer Partnership. This analysis is limited to a great extent to

patents and patentable subject matter. Although issues concerning copyright protection exist in the national research environment, most research

projects open to international participation focus mostly on the ownership and distribution of patent rights under Japanese law. Copyright

law has not been an issue.10 The treatment of reverse engineering

of software under Japanese copyright law is a hot topic in the

private sector.

Third, in order to maintain a constructive and cooperative environment,

the Japanese government attempts to prevent and resolve disputes that

arise from the treatment of intellectual property, from the management of

the research project, or between participants. Part III, “Dispute Resolution

in National Research Projects,” discusses the dynamics of dispute resolution in Japan with respect to collaboration in a national research project.

Understanding the mechanics of preventing and resolving intellectual

property disputes in general, and particularly when dealing with the

Potential participants

must be prepared to deal

with the difficulties that

arise out of close

government supervision.

9

 Japanese National Asset Law, Art. 2, Kokuyu zaisan Ho 2 jo.

10 Unlike the U.S. legal system, there are two legal standards for inventions in

Japan: a high standard for patents, and a lower standard for what are called

utility models. An invention that fails to meet the higher standard is considered

a utility model. Note that what the U.S. calls a utility patent only meets the

Japanese definition of “patent” if it fulfills the higher technological standard.

Understanding the

mechanics of preventing

and resolving

intellectual property

disputes in general, and

particularly when

dealing with the

Japanese government, is

essential to protecting

the participants’ rights

and technology.
10 Japanese Treatment of Intellectual Property

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Japanese government, is essential to protecting the participants’ rights

and technology.

This paper uses several terms that assume a basic familiarity with patents

and intellectual property. While not intended as a complete discussion of

the subject, this paper includes an appendix titled “Basic Introduction to

Japanese Patent Law” (see Appendix I).11

11 In addition to patents and copyrights, discussion will refer to a type of

intellectual property known as “know-how.” Know-how generally refers to

technical information that enables a party to use an invention or technology.

Licensing refers to a transfer of rights that are granted by the applicable laws of

intellectual property, including the right to use, make, sell, distribute, and

exploit.
Japanese Treatment of Intellectual Property 11

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PART I

THE HISTORY OF JAPANESE NATIONAL RESEARCH

PROJECTS/RESEARCH AND DEVELOPMENT

OPPORTUNITIES OPEN TO U.S. FIRMS

Past Projects and Participants

I

n 1995, the Japanese government, through the Ministry of International

Trade and Industry (MITI) (known as “Tsusho sangyo sho,” abbreviated as “Tsusan Sho”), will continue its commitment to research and

development (R&D) by spending in excess of $3 billion on science and

technology. Half of this funding is directed toward national research

projects. These projects include breakthrough attempts at the neural

computer, intelligent manufacturing, basic technologies for future industries, superconductivity, solutions to energy security, and improving the

quality of life with limited resources.12 These efforts represent the largest

commitment since the Electric Laboratory was formed in 1891, marking

Japan’s start in modern science and technology. In addition, Japan’s long

track record reveals an industrial policy that has overcome many of the

hurdles other developed nations cite for their inability to structure similar

national research programs.13

As shown in Table 1, other Japanese government ministries are also

committed to science and technology. MITI, however, takes the lead as a

supporter of R&D and international research cooperation.

While many reasons are given to justify this industrial policy, MITI states

that the financial risk faced by independent research prevents progress in

12 The Fiscal Budget for Industrial Technology in MITI:

1991 $1,904,328,358.20

1992 $2,129,039,104.47

1993 $2,380,265,718.80

1994 $2,661,137,073.62

13 Okamoto at 67. Okamoto lists five reasons: (1) difficulty in organizing; (2)

companies are not sufficiently competitive; (3) distrust is too deep seated to

overcome; (4) disincentives outweigh incentives to participate; and (5) antitrust

law is too strictly enforced.
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National research

provides a foundation

of basic knowledge

throughout industry,

which accelerates the

commercialization

process.

Table 1. Appropriations Related to Science and

Technology, by Ministry.

FISCAL YEAR 1995 (¥ in millions)

National S&T Budget 2,490,838

Ministry of Education 1,157,384

Science and Technology Agency 646,120

MITI 297,058

Defense Agency 154,499

Ministry of Agriculture, Forestry, and Fisheries 85,418

Ministry of Health and Welfare 70,813

Ministry of Posts and Telecommunications 36,916

Ministry of Transport 21,862

Environmental Affairs 14,733

Ministry of Foreign Affairs 10,271

Ministry of Construction 8,276

Source: Japanese Scientific Monthly, vol. 48, no. 7 (in Japanese).

14 Interview with MITI, Industrial Structural Policy Division, October 1993.

Times are changing rapidly. Japanese companies, having developed large

capital surpluses, are less dependent on government subsidies and guidance.

As a result, the Japanese government must provide attractive financial and tax

benefits to attract valued participants.

15 Interview with MITI, October 1993.

16 Ibid.

several significant areas.14 National research provides a foundation of

basic knowledge throughout industry, which accelerates the commercialization process.15 In addition, government sponsorship and guidance

provide an environment and opportunity for the pursuit of interdisciplinary projects necessary to solve long-term problems.16 Several U.S. and

European companies have participated and continue to participate in

projects established and funded by MITI and other Japanese government

ministries. Before examining specific projects and their terms, this paper

first introduces the institutions that play a major role in Japan’s national

research programs that are open to international participation.
Japanese Treatment of Intellectual Property 13

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Overview of Research and Development Programs in Japan

A History of Japan’s Science and Research and Treatment of Intellectual

Property

While institutions of science and research in post-Meiji Restoration17

Japan started with the Electric Laboratory in 1891 and the Industrial

Laboratory in 1900, the promotion of cooperative research and development between government and industry did not begin until 1951 with the

establishment of a program to finance enterprises for “New Technologies.”

Japan’s body of law regulating intellectual property had its beginning at

the same time. The Japanese legal system is a civil law system of codes

and regulations. Japan’s modern legal system began in 1868 after the

Meiji Restoration and derives in part from the German system and in part

from the American system. Japan’s patent law is almost identical to that

of the German system.

Japan’s legal tradition differs most significantly from the U.S. system in

the role of the bureaucracy. The regulatory power and jurisdiction of the

Japanese ministry is arguably broader than U.S. agencies in many areas.18

While U.S. agencies are subject to oversight by the legislature, Japan’s

ministries operate with substantially more autonomy.

Licenses with the Japanese government reveal the extent of this power.

Nationally owned intellectual property is centrally regulated. Specifically,

patent and know-how rights, owned in full or in part by the Japanese

government as a result of a government-sponsored project, must be

licensed and royalties set in conformance with the National Patent Licensing Contract Form, Revised, General Patent Regulation No. 88, last

revised in 1972.19 Copyrights are under the jurisdiction of the Ministry of

Education and regulated under a separate body of law.20 This regulatory

scheme will be explained at length in Part II.

While U.S. agencies are

subject to oversight by

the legislature, Japan’s

ministries operate with

substantially more

autonomy.

17 Beginning in 1868, the Meiji Restoration marked the foundation for

transforming feudal Japan into a modern state. See, e.g., Tanaka Hideo, The

Japanese Legal System, 621, (1976).

18 See, Chalmers Johnson, MITI and the Japanese Miracle: Growth of Industrial Policy

(1982).

19 See, General Patent Regulation No. 88, (1972), TokuSoDai No. 88, Showa 47.2.9.

20 However, if a copyright was licensed between a foreign entity and the Japanese

government or industry in conjunction with other intellectual property, the

agreement could fall under the jurisdiction of MITI and the Foreign Exchange

and Foreign Trade Control Laws.
14 Japanese Treatment of Intellectual Property

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The Players

Research open to international participation is conducted mainly by MITI.

The focus on MITI is essential because licensing between a foreign participant and the Japanese government falls under the jurisdiction of MITI

and the Japanese Foreign Exchange and Foreign Trade Control Laws,

regardless of the funding agency. The Japanese government does, however, conduct research under many other agencies. In addition to MITI,

the Ministry of Posts and Telecommunications, the Science and Technology Agency, and the Ministry of Agriculture, Forestry, and Fisheries also

sponsor projects open to international participation on a limited basis.

Figure 1 shows an overview of the Japanese government. This document

focuses on MITI-sponsored research because of its size in relation to other

programs, and because its policies and methodologies are referred to by

other bodies as instructive and guiding.

Ministry of International Trade and Industry. The Ministry of International

Trade and Industry (MITI) was established in 1952 to “promote the

production of export goods, and promoting, improving and regulating

the production, circulation and consumption of industrial goods.”21

MITI’s goal in the sciences is to bring “government research institutes,

industrial and academic organizations” together using government

funding.22 Generally, the projects last from five to ten years, with a total

cost of between ¥10 and ¥20 billion ($95–195 million). Projects are chosen

according to the following criteria: “1) pioneer large-scale industrial

technology essential and urgent for the national economy; 2) requires

considerable funds, long lead time and risks; and 3) R&D which is difficult to carry out in the private sector.” In addition, it was emphasized in

April 1989 that the project should “contribute to International Society by

addressing international problems...enrich life...[and] contribute to international society by the development of technology to satisfy people’s

expectations for increased...standards of living and should establish a

sound industrial society.”23

Agency of Industrial Science and Technology. The Agency of Industrial

Science and Technology (AIST; Kogyo Gijutsu in), not to be confused with

the Science and Technology Agency, is an agency under the control of the

Ministry of International Trade and Industry. Established in 1948 under a

different name, the agency became formally known as AIST in 1952 and

took its place under MITI. AIST has grown into an organization with

21 Organization of the Ministry of International Trade and Industry Act (Tsusho

Sangyo Sho Setchi Ho) (1952 c. 275) art. 3(i), (ii).

22 Interview with MITI Industrial Policy Division, October 1993.

23 AIST publication “Introduction to AIST,” 1993.

MITI’s goal in the

sciences is to bring

“government research

institutes, industrial and

academic organizations”

together using

government funding.
Japanese Treatment of Intellectual Property 15

OFFICE OF TECHNOLOGY POLICY

3,500 researchers, technologists, and administrators and more than 16

research and laboratory facilities. (See figure 2.)

In addition, AIST administers all of MITI’s research institutes and laboratories, representing more than 8,000 personnel, researchers, and administrators. In 1991, AIST’s budget accounted for 45 percent of MITI’s total

budget.24 In 1966, the National Research and Development Program, also

known as “the Large-Scale Projects Program,” was established. Since

1966, AIST has undertaken 29 projects; 16 projects have been completed.

Table 2 shows budgets for 1990–1995.

24 There are nine Kenkyujo (Research Facilities) and seven Laboratories. They are

differentiated by the level of research that they pursue.

Figure 1. Overview of the Japanese Government.

Naikaku (Cabinet)

Prime Minister’s

Office

— Cabinet Secretary

— Cabinet Leg. Bureau

— National Personnel Auth.

— Security Council of Japan

Legislative

Branch

Other:

— Labor

— Construction

— Home Affairs

— Transport

— Agri, Forestry,

 and Fisheries

— Education

Ministry of

Justice

Economic

Planning Agency

Defense

Agency

Science and

Tech. Agency

— Management Coord.

Agency

— Okinawa

— Environment Agency

— National Land Agency

— Imperial Household

Ministry of

Finance

Ministry of

Foreign Affairs

Ministry of

Posts & Telecom

Fair Trade

Commission

NEDO

AIST

MITI
16 Japanese Treatment of Intellectual Property

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25 The Innovation of New Technology, NEDO, October 1992, 3.

Figure 2. Agency of Industrial Science and Technology.

New Energy and Industrial Technology Consolidated Development Organization.

The New Energy and Industrial Technology Consolidated Development

Organization (NEDO; “Shin energi sangyo gijutsu sogou kaihatsu kiko”)

is a sub-agency of AIST and an implementing agency of MITI.25 In addition to conventional research programs conducted under the auspices of

the AIST, NEDO was created to develop new and existing research

facilities, and to sponsor international research programs. MITI controls

NEDO’s budget, gives and withholds approval for research projects, and

appoints the Senior Council members who run the organization. Although MITI’s presence in national research is pronounced, the research

participant will most likely deal with NEDO and its staff.

AIST STRUCTURE

MITI

AIST

General

Coordination

Department

Research

Labs and

Institutes

Standards

Department

General Coordination

Division

Personnel Affairs Division

Budget & Accounts

Division

Research Administration

Director Global Environment

Research Systems

Planning Division

Regional Technology

International R&D

Division

National Research Lab of

Meteorology

Mechanical Engineering Lab

National Chemical Lab

Fermentation Research Inst.

Research Inst. for Polymers

Geological Survey

Electro-Tech Lab

Indust. Products Research Inst.

National Research Inst.

Pollution

Govt. Industry Research Lab

 Hokkaido, Tohoku, Nagoya,

Osaka, Chugoku, Shigoku,

Kyushu

NEDO was created to

develop new and existing

research facilities, and to

sponsor international

research programs.
Japanese Treatment of Intellectual Property 17

OFFICE OF TECHNOLOGY POLICY

26 Under the “Law for Consolidating Research and Development System Relating

to Industrial Technology,” enacted in May 1988, the New Energy Development

Organization was expanded in October 1988.

27 These projects include the Super High Performance Electronic Computer, SeaWater Desalination and By-Product Recovery, Direct Steelmaking Process,

Resources Recovery Technology, Subsea Oil Production System. AIST Overview,

p. 8.; National Research and Development Program, Large-Scale Project, 1992,

published by the Japan Industrial Technology Association, March 1992, p. 1.

Following a reorganization in 1988,26 NEDO took over four areas of R&D

previously managed by AIST:

■ the Industrial Science and Frontier Program consisting of

❑ the Research and Development Program on Basic

Technologies for Future Industries, and

❑ the National Research and Development Program (LargeScale Project)27;

⊕ Project ended; NA Not Available

* Basic Technologies and Large-Scale Projects are combined under one budget after 1991 titled “Industrial Science

and Technology Frontier Program,” included above under “R&D Project on Basic Technologies” for 1992-95.

Sources: AIST Introduction (in Japanese), 1990-93; AIST 1994; Japanese Scientific Monthly, vol. 48, no. 7 (in Japanese).

(¥ in millions)

1990 1991 1992 1993 1994 1995

Intelligent Manufacturing 1.1 4.2 800 1,100 1,253 1,254

International Aircraft Development 69 94 8,100 8,200 8,595 9,102

Fifth Generation Computer Project 105 113 3,600 1,400 ⊕ ⊕

Real World Computing Partnership 4,986 6,007

Industrial Tech. Collaboration Program 12 28 1,000 1,800 1,716 3,363

R&D Project on Basic Technologies 115 129 23,600 28,000 23,584 24,860

Large-Scale Projects 243 253 ****

Superconductivity 96 117 NA NA 3,206 3,196

Research Facility Dev. Program 22 24 40 300 300 300

Japan Key Technology Center 260 280 28,500 28,000 28,000 28,100

Table 2. Budget for Industrial Technology at MITI.
18 Japanese Treatment of Intellectual Property

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■ the Research and Development Program on Medical and Welfare

Equipment Technology; and

■ the Research and Development of Important Regional

Technologies.

NEDO’s stated purpose is to:

■ promote coordinated development and commercialization of oilalternative energy sources for the purpose of reducing the

dependency of the Japanese economy on imported oil;

■ carry out basic and advanced research and development on industrial

technology; construction and operation of large-scale research and

development facilities; international joint research and to coordinate

these activities for the purpose of improving Japanese industrial

technology and making a contribution to the international community

through technological development and cooperation [emphasis added];

■ promote rationalization and stabilization of Japan’s coal mining

industry by providing financial and technical assistance for

investment required for the restructuring of the industry and the

modernization of coal mines; and

■ produce industrial alcohol for the purpose of ensuring a stable

domestic supply.28

An international researcher exchange program and an international

research cooperation program were added in April 1989.29

Science and Technology Agency/National Aerospace and Development Administration. The Science and Technology Agency (Kakaku Gijutsu Cho) was

established in 1956 as an agency of the national government responsible

for the “formulation, coordination and implementation of research and

development.”30 Its director-general is appointed by the Prime Minister

and serves as a member of the Cabinet. This agency includes:

■ the Japan Atomic Energy Research Institute;

■ the National Aerospace Laboratory;

28 The Innovation of New Technology, NEDO, October 1992, p. 3.

29 Ibid.

30 Ibid.
Japanese Treatment of Intellectual Property 19

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■ the National Space Development Agency of Japan; and

■ the Japanese Information Center for Science and Technology.

The Research Projects

Fourteen non-Japanese companies, including eight American firms, have

participated in AIST-supervised R&D projects under the Industrial Science and Technology Frontier Program over the past two decades. This

section provides an overview of the National Research Program and

introduces the different research and development programs, their goals,

and their sponsors. Part II of the report discusses specific examples of

foreign participation and the intellectual property issues related to each

project. The titles used for each program are those given by the supervising agency, unless otherwise noted. As shown in Appendix II, “Foreign

Participants in Japanese National Research by Project,” most American

companies taking part in Japanese national research programs have

participated in projects organized under the Basic Technologies for Future

Industries program.

Financing and Structuring the Research Relationship

1. Funding. Originally, research and development projects sponsored by

the Japanese government were funded by way of “hojokin” or conditional

loans, repaid upon success. MITI would advance the funds as “seed

money” and the participants would finance the balance. All early research

projects were funded in this manner. Although economists were skeptical

of its success, 1982 data showed that 43.6 percent of AIST hojokin were

repaid.31 When the Fifth Generation Computer Project was first conceived

around 1985, MITI wanted to fund only 50 percent of the project. However, the participants, led by Fujitsu, persuaded MITI to play a larger role.

MITI agreed to fund 100 percent of the project for at least the first three

years.32 One explanation for this change in MITI policy is that Japanese

industry, having grown wealthy since the establishment of the national

research policy, required greater incentives to participate. Since then,

MITI’s financial role has been regulated by the new “Itaku Keiyaku,”

known as the “Entrustment Contract” research relationship.33 The Entrustment Contract will be discussed in detail in Part II.

MITI was determined to pursue “state-of-the-art projects which are costly,

risky, of uncertain success and longer gestation.”34 However, industry

31 Interview with MITI; Okamoto at 79.

32 Ibid. and Okamoto at 80.

33 Ibid.

34 Ibid.
20 Japanese Treatment of Intellectual Property

OFFICE OF TECHNOLOGY POLICY

would not follow in this direction unless it was provided a “free ride.”

The Itaku Keiyaku made this possible.

This free ride, however, did not result in a flood of participation. One

explanation might be found in the treatment of intellectual property

ownership and distribution, which, unlike the financial arrangements of

the projects, remained relatively unchanged. Another explanation is that

industry has grown less dependent on government-subsidized research.

Direct investment from Japanese Government. Occasionally funding is appropriated directly from a ministry. Usually, this is for smaller research

projects and studies. One example would be funding appropriated for a

foreign company or researcher to participate in a study conducted at a

national laboratory, such as the Electro-Technical Laboratory in Tsukuba.

There are four major direct financing methods available: (1) the Japan

Development Bank provides funding at an attractive interest rate;

(2) International Joint Research projects sponsored by NEDO gives grants;

(3) Conditional Loans for Development of Applied Energy exist through

AIST; and (4) the Program for Research in Mining and Manufacturing

Technology offers funding.35

2. The Structures: The Cooperative (Kumiai) and the Foundation

(Zaidanhojin). Projects supervised under NEDO, as outlined in Part I,

have generally taken two legal structures: the Cooperative and the Foundation. While significant differences in corporate law exist in the formation and dissolution of these two structures, the key distinction for intellectual property is the way in which ownership rights are distributed.

However, because the structure of the research project is established by

the supervising agency, few opportunities to negotiate the type of structure exist. While the structure of a project is usually determined by the

source of funds for the research, it has developed through the experience

of NEDO with national research. As a result, interested parties should be

aware of the differences to make adjustments in their strategy.

■ The Kumiai (Cooperative)

❑ Administration and organization. In the Japanese national

research environment, a research “Kumiai” or “Cooperative”

need not physically exist, say, in the form of a laboratory or

facility. Rather, it can exist as a forum for information

Projects supervised

under NEDO have

generally taken two

legal structures: the

Cooperative and the

Foundation.

35 AIST Introduction, 1993, 27. An explanation of these programs is beyond the

scope of this paper.
Japanese Treatment of Intellectual Property 21

OFFICE OF TECHNOLOGY POLICY

exchange taking place through computer networks and

meetings. In the Kumiai, each company is responsible for a

module of research that is combined with the results of the

other participants. This research method is often referred to

as “mochi kaeri kenkyu,” which literally means “research

that you take home.”36

❑ Benefits and risks of this structure. This structure permits the

members to determine distribution of intellectual property

rights and the general administration of the project. This

form poses little risk of exposing intellectual property to

potential competitors because the flow of information is

limited to the specific module under the responsibility of

each participant. The Kumiai is also beneficial from the

standpoint of dispute prevention and resolution. Because

each member owns an equal share of all intellectual property

that is created, it is in the mutual interests of the parties to

resolve disputes quickly.

In addition, because of its relatively informal legal form,37 it

is easy to dispose of property, including intellectual property.

The Cooperative can be dissolved with less difficulty than a

regular corporation. As a result, the Kumiai is the preferred

form for projects with limited purposes.

■ The Zaidanhojin (Foundation)

❑ Administration and organization. Recent projects under the

supervision of MITI have taken the form of a “Zaidanhojin”

or “Foundation.” The Foundation is rigorously structured

according to Japanese Civil Code (Minpo). Because of this

formal structure, the distribution of intellectual property

rights and general administration is defined in detail.

Intellectual property cannot simply be distributed among the

member companies as in a Cooperative.38 In the Zaidanhojin,

the members are bound by a more structured legal

relationship to each other. Specific licensing agreements must

be created to distribute intellectual property.

36 Interview with NEDO, April 22, 1993.

37 The Kumiai is formed through Japanese Civil Code.

38 Interview with NEDO, April 22, 1993.

This form poses little

risk of exposing

intellectual property to

potential competitors

because the flow of

information is limited

to the specific module

under the responsibility

of each participant.
22 Japanese Treatment of Intellectual Property

OFFICE OF TECHNOLOGY POLICY

Under this structure of research, a physical facility often

exists. As in the case of the Very Large Scale Integrated

Circuit project, representatives from each member company

conducted research at a facility built by NEC. The major

benefit of this structure is that while the members can work

together, the members’ own laboratory is not “invaded.”39

By isolating the research at a separate facility, the risk to a

company’s non-related proprietary information is reduced.

❑ Benefits and risks of this structure. While a Zaidanhojin, or

Foundation, is relatively simple to set up, it is very difficult

to dissolve.40 More importantly, the establishing law41

prohibits the distribution of assets to industry.

3. IBM and the Fifth Generation Computer. A good example of the

Foundation is found in the Fifth Generation project, led by the former

head of the Electro-Technical Laboratory. The purpose of this project was

to “chase the neural computer,”42 a goal far from commercialization. The

Japanese government established a legal body, the Institute for New

Generation Computer Technology (ICOT), as the headquarters of the

project. Although its capital funding came from MITI, the project appealed to foreign participants because the decision-making body consisted of member companies.43 As the Fifth Generation project ended and

the Real World Computer Partnership began, intellectual property concerns slowly developed.

Overview of the Project Groups44

1. Basic Technologies for Future Industries. Projects funded by Basic

Technologies for Future Industries have represented 5 to 6 percent of

MITI’s budget for industrial technology. Established in 1981, this program

seeks to develop innovative basic technologies “essential for establishing

new industries” in five fields: superconductivity, materials, biotechnology,

electronic devices, and software. In the materials area, R&D continues

until the new materials are “ready for practical application.”45

The major benefit of this

structure is that the risk

to a company’s nonrelated proprietary

information is reduced.

39 Ibid.

40 Japanese Civil Code, Minpo Article 33 et. seq. and Dissolution Article 68.

Dissolution can only occur if bankrupt; the corporate goal is frustrated; or the

certificate of incorporation is revoked, Art. 68.

41 Ibid.

42 Interview with MITI, Electronics Division, Winter 1993.

43 NEDO interview.

44 See Appendix II.

45 AIST Overview, at p. 7.
Japanese Treatment of Intellectual Property 23

OFFICE OF TECHNOLOGY POLICY

In 1981, the Research and Development Program on Basic Technologies for

Future Industries (JISEDAI) was established to research and develop

“innovative technologies necessary to establish future industries and to

upgrade present industries such as aerospace, information processing, and

biotechnology.”46 Since its inception, 22 projects have been undertaken, of

which 12 have been completed, including: Advanced Alloys with Controlled Crystalline, Advanced Composite Materials, Bioreactor Project,

Fortified Integrated Circuits for Extreme Conditions, and Three-dimensional Integrated Circuits.

2. The Large-Scale Project. Funding for the Large-Scale Project has represented more than 10 percent of MITI’s budget for research programs in

industrial technology. Research projects under this program are conducted

if they are “of particular importance and need to the nation.”47 Government funds are distributed by contract to participating private “enterprises” that work with national laboratories and academic organizations.

The goal is to create results that are available for use by the public.

3. The Japan Key Technology Center. The JKTC was established in 1985 in

response to a proposal by the private sector. It conducts activities directed

at the overall improvement of the environment for private research and

development in fundamental technologies. The center provides capital

investment for research carried out by companies established for joint

research purposes. Conditional interest-free loans are also available to aid

in reducing R&D-related risks and costs. In addition, the center conducts

mediation for private companies wishing to conduct joint research with

national research institutions. The center has also established a charitable

trust called the Japan Trust Fund to support foreign researchers in key

technologies to Japan.

MITI also spends significant sums on R&D related to superconductivity

and on the promotion of research at National Laboratories and Universities

and NEDO’s research facility development program.

46 Research and Development Program on Basic Technologies for Future Industries

(JISEDAI Program), Publication of Ministry of International Trade and Industry,

3, 1992. There are three major criteria for selecting an R&D project: (1) it must

involve highly innovative basic technology with a wide range of technical

applicability; (2) it must involve technology that is generally expected to

require ten or more years of R&D and investment risk; (3) it must involve basic

technology that appears to be applicable in the future.

47 Ibid.
24 Japanese Treatment of Intellectual Property

OFFICE OF TECHNOLOGY POLICY

4. Promotion of International Cooperation. MITI spent more than 15

percent of its research budget for Industrial Technology on projects for the

promotion of international cooperation.

■ The Human Frontier Science Program. This program, originated

at the Venice Summit in 1987, is a joint international project

promoting basic research in the areas of the brain and biological

function to elucidate superior functions of living organisms.

Research grants for periods of up to three years are available to

participating countries, including the United States. The size

of a grant is based on need, and the funding can be used for

equipment, materials, supplies, salaries for assistants, and travel.

Several fellowship programs and workshops are offered. In 1990,

its second year of operation, the program funded 32 research

grants, 90 long-term fellowships, and three workshops.

■ Intelligent Manufacturing Systems Project.48 The IMS Project is an

attempt to develop a next-generation manufacturing system in

which the entire manufacturing process—from order booking

through R&D, design, manufacturing, distribution, and

management—may be realized through an autonomous

production line comprised of equally autonomous components.

Established in 1991, this five- to ten-year project represents the

first collaborative effort by the U.S., Canadian, Australian, EFTA,

EU, and Japanese governments in the area of R&D. In 1993, MITI

committed more than $111 million toward the IMS International

Joint Research Program.49 There are 65 “core member” companies

and 19 “supporting member” companies participating in six

areas of development: (1) enterprise integration; (2) global

manufacturing; (3) system component technologies; (4) clean

manufacturing; (5) human and organizational aspects; and (6)

advanced materials processing. Part II examines the treatment of

intellectual property under IMS.

MITI spent more than

15 percent of its research

budget for Industrial

Technology on projects

for the promotion of

international

cooperation.

48 Interview with MITI, Industrial Organization Policy Planning Div., October

1993.

49 ¥11.6 Oku, up from ¥7.6 Oku in 1992. See “IMS Kankei,” MITI, unpublished

document, Winter 1994.
Japanese Treatment of Intellectual Property 25

OFFICE OF TECHNOLOGY POLICY

■ Fifth Generation Computer System.50 For 11 years, full-scale R&D

was undertaken to develop technology for a parallel processor.

IBM participated in this project, which was run ostensibly by

Fujitsu. Industry has given the project and its results mixed

reviews. After the project was completed in 1993, a new one

was begun called the Real World Computer Partnership (RWC).

MITI is attempting to transfer the software results of the Fifth

Generation project to the widely-used UNIX platform by offering

it to the public free of charge. MITI seeks to establish a foundation

for fifth-generation computer technology research and further its

efforts to develop applied technology. The treatment under the

RWC scheme is evaluated in Part II.

Joint Research Programs51

AIST conducts joint research programs in advanced technology with

developed countries and invites the participation of foreign researchers.

The programs are conducted through both the Institutes for Transfer of

Industrial Technology (ITIT) and NEDO.52

50 Outline of 1993 MITI R&D Budget, JITA News, pp. 4-13, March 1993, (in

Japanese).

51 AIST Introduction, 1993-4, International Joint Research on Global Environment

Research on Mechanisms for Release of Methane into the Atmosphere.

Foreign researchers can also be invited under the following programs:

a) The AIST accepts researchers from the EC through the Japan-EC Industrial

Cooperation Center;

b) Invitation by a charitable trust called the Japan Trust Fund administered by

the Japan Key Technology Center;

c) AIST has made a memorandum of understanding with the National

Science Foundation to accept up to thirty U.S. researchers a year to AIST

laboratories.

52 The following qualifications and guidelines apply:

a) The researcher must be under 35 years old, with a doctorate in science or

engineering;

b) Approximately 14 people are hosted by one of 16 institutes belonging to

AIST for one year;

c) The researcher is given round-trip airfare, living expenses, housing, and

family and relocation allowances;

d) A Japanese language course is given at the beginning of the researcher’s

stay.

AIST cooperates with

developed countries

through science and

technology cooperation

agreements, industrial

cooperation talks

concerning joint

research, and exchange

of researchers and

information.
26 Japanese Treatment of Intellectual Property

OFFICE OF TECHNOLOGY POLICY

Bilateral Cooperation

AIST cooperates with developed countries—including the United States,

Germany, France, Italy, and the United Kingdom—through science and

technology cooperation agreements, industrial cooperation talks concerning joint research, and exchange of researchers and information. The

United States has initiated several bilateral research agreements.53

53 1) The U.S.-Japan Conference on Natural Resources, initiated in 1964, for Fire

Research and Safety, Marine Mining, Marine Instrumentation and

Communications, Marine Geology, and others.

 2) Cooperation in Research and Development in Energy and Related Fields,

initiated in 1979, covering Fusion, Coal Energy, Solar Energy, High-energy

Physics, other energy and energy-related research and development areas,

as may be mutually selected.

 3) Cooperation in the field of Environmental Protection, initiated in 1975,

including Stationary Source Pollution Control Technology, Management of

Bottom Sediment Containing Toxic Substances, Air Pollution-related

Meteorology.

 4) Cooperation in research and development in science and technology,

initiated in 1988, including life sciences, such as biotechnology; information

science and technology; manufacturing technology; automation and

process control; global geoscience and environment; joint database

development; and advanced materials, including superconductors.
Japanese Treatment of Intellectual Property 27

OFFICE OF TECHNOLOGY POLICY

PART II

TREATMENT OF INTELLECTUAL PROPERTY RIGHTS

IN JAPANESE NATIONAL RESEARCH PROJECTS

This section discusses the legal and strategic issues concerning intellectual property rights (IPR) and licensing particular to national research

in Japan. It begins with an introduction to the major issues of Japanese

patent law and Japanese trade law. This is followed by an explanation of

the general intellectual property and licensing framework that regulates

the relationship between private industry and the Japanese government.

These issues are illustrated by the specific approaches taken in the Intelligent Manufacturing Systems and the Real World Computer projects. Part

II concludes with a brief examination of the treatment of other intellectual

property, including copyright and trade secrets under a licensing relationship with the Japanese government.

Effect of Japan’s Treatment of Joint Patents and the Foreign

Control Law

Joint Patents and Consent

The treatment of joint patents under Japanese national patent law is a

major issue affecting the ownership of intellectual property created under

a Japanese national research project. The issue of jointly-owned patents

arises when: intellectual property is not created solely by the participant

at his or her own facility; it is created with the participation of other

project members; or it is created with the benefit of funding, information,

or synergy generated by the project.54 The effect of a jointly owned patent

is clear: Japanese patent law requires “the consent of all parties before

jointly owned rights can be exchanged.”55

This provision affects the ability of an owner to sub-license the intellectual property and creates obligations to other rights owners, including

employee inventors.56 The justification for this provision, which excludes

transfers as a result of the distribution of an estate, is that licensing by one

54 See Article 72, Japan’s Patent Law and The “Entrustment Contract” (Itaku

Keiyaku).

55 Articles 72.2, 73.1, 74.1, 74.3 of the Patent Law; Article 2.2 of the Utility Model

Law; and Article 33.2 of the Design Law.

56 For example, IBM enumerates what are called “future” rights—rights held by

the employee after the license expires.

Japanese patent law

requires “the consent of

all parties before jointly

owned rights can be

exchanged.”
28 Japanese Treatment of Intellectual Property

OFFICE OF TECHNOLOGY POLICY

user cannot impinge on the right to use held by the other joint owner.

“Consent is essential because the economic value of the intellectual

property could be affected depending on the new joint rights holder.”57

For example, economic value could be affected by a joint owner’s capital

strength, technical capability, and trustworthiness.58 Similar provisions

exist in the laws of England, France, and Germany.59 U.S. participants in

Japanese research projects are often unaware of this issue and unprepared

to proceed.

Japan’s Foreign Exchange Control Law

The second issue relates to Japan’s general regulation of international

licensing. An international licensing agreement concerning the import of

technology in Japan is subject to the Revised Foreign Exchange and

Foreign Trade Control Act.60 Prior notice of the intention to enter an

intellectual property know-how licensing agreement must be submitted

to both the Ministry of Finance and the ministry having jurisdiction over

the industry or project involved. Additional regulations were issued in

1980 setting out the procedural process.61

General Intellectual Property Framework Between Industry and

MITI: Licensing Intellectual Property from the Japanese

Government

Jurisdiction

As in the United States, patents and copyrights in Japan fall under the

jurisdiction of different government bodies. Patents are under the juris57 Yoshida Kosaku, Tokkyo Ho Gaisetsu, (Treatise on Patent Law), 458, note 1, 1992.

58 Ibid.

59 Consent is not necessary in Germany to share one’s interests. However, consent

is necessary to license your interest to a third party. Kakoku Tokkyo Seito Ni Okeru

Kyoyusha no Koui ni Taisuru Doi no Hitsuyousei ni Tuite, AIST publication, p. 24.

Consent might have been at the heart of the problem that William Dick, IBM,

presented to the American Chamber of Commerce Japan’s Licensing Patents

and Technology Committee, Tokyo, January 26, 1993. Specifically, IBM was

concerned with the treatment of “futures” and the effect on the right to the

invention held by the employee. Futures relate to rights based on patents taken

on the original patent, and thus extend rights past the term of the patent. The

problem was stated that “contracts made with the government violate existing

licenses if the invention is made by the employee.”

60 Revisions went into effect on December 1, 1980; Foreign Exchange and Foreign

Trade Control Act Gaikoku Kawase Oyobi Gaikoku Boeki Kanri Ho, Law No. 228,

1949.

61 Ibid., Articles 29-30. See also Japanese Fair Trade Commissions Regulations on

Registration of International Licensing Agreements.

Originally all patents

and utility models

resulting from an

international joint

research project

supervised by the

national government

were owned entirely by

the Japanese government.
Japanese Treatment of Intellectual Property 29

OFFICE OF TECHNOLOGY POLICY

diction of MITI. As previously mentioned, MITI established the Agency of

Industrial Science and Technology as the supervising agency of R&D and

intellectual property relationships, in coordination with NEDO. Copyrights are under the jurisdiction of the Ministry of Education.62

MITI’s jurisdiction over patents derives from Japanese Patent Law and

the Horei, a codification of Japanese private international laws.63 The

body of law called MITI’s Codified Laws64 defines the scope and breadth

of MITI’s jurisdiction.

Although the national law is regulated by different ministries, the results

of international research projects sponsored by the Japanese government,

either patent or copyright, are said to be subject to the same regulatory

scheme. This paper, however, focuses only on patent-related inventions.

A New Approach

Originally all patents and utility models resulting from an international

joint research project supervised by the national government were owned

entirely by the Japanese government, as provided in the Law Governing

the Smooth Flow of Basic Research (Kipan Gijutsu Kenkyu Enpatsuka

Ho).65 AIST granted licenses through a special organization called the

Japan Industrial Technology Association (JITA), which was established in

1969 to be the national licensing agent.

Today, when a patentable invention results from contracted research

projects supervised by AIST and NEDO, it is half-owned by NEDO and

half-owned by the participants. NEDO has the right to license it to others.

The JITA has a limited role as a clearinghouse for national intellectual

property. This system of ownership and distribution is regulated by the

Entrustment Contract (Itaku Keiyaku Sho), provided by NEDO to all

researchers or national research participants.

Under this structure—created in 1988 to encourage international cooperation and increase the transfer of technology to private industry—owner62 Referred to as Monbusho, in Japanese.

63 Horei Law No. 89, 1898, Act Concerning the Applications of Laws, Art. 7, Para.

1.

64 Tsusansho Roppo, MITI Code of Law, a collection of relevant law and provisions.

65 Kipan Gijutsu Kenkyu Enpatsuka Ho, (The Law Governing the Smooth Flow of

Basic Research), June 15, 1985, Law 65, which regulates basic electronics and

telecommunications–related research and results and states that all patents

must be given free or at a low fee. Article 4; Pursuant to Minpo 44 and 45, a

Basic Technology Research Promotion Center is formed. See Article 14 of Law

Governing the Smooth Flow of Basic Research.

Today, when a patentable

invention results from

contracted research

projects supervised by

AIST and NEDO, it is

half-owned by NEDO

and half-owned by the

participants.
30 Japanese Treatment of Intellectual Property

OFFICE OF TECHNOLOGY POLICY

ship of the intellectual property is split between the participating company and the Japanese government.66 NEDO was created at this time to

“carry out basic and advanced research and development, facilitate

international joint research and to coordinate these activities for the

purpose of improving Japanese industrial technology and making a

contribution to the international community through technological

development and cooperation.”67 As of March 1992, the AIST and the 16

National Research Institutes and National Projects produced 15,241

patents, utility models, and trademarks in Japan, and 2,346 abroad.68 As a

result, more than 660 patents have been licensed to private and semiprivate enterprises resulting in an annual revenue of more than ¥200 million

($20 million) for the Japanese government.

Intellectual property rights owned by the Japanese government are

available for licensing to “anyone in accordance with the following three

principles:”69

■ First, all licenses are nonexclusive. Since the intellectual property

resulted from government funding, they are subject to equal use

by everyone and protected as public property.

■ Second, any enterprise can get a license, irrespective of size and

nationality of the recipient industry, under the same terms and

conditions; and

■ Third, since national patents are state-owned property, their use

requires payments of a reasonable royalty, calculated in

66 Ibid. 4. Pursuant to Sangyo Gijutsu ni kansuru Kenkyu Kaihatsu Taisei no Seibi nado

ni Kansuru Horitsu, (Law Governing the Research Organization of Industrial

Technology), Showa 63.5.6 Law 33. In the U.S., France, Germany, and England,

the private ownership of intellectual property resulting from governmentsponsored research or projects is permitted for little or no fee.

67 Ibid. As well as “to promote coordinated development and commercialization

of oil-alternative energy sources...and to produce industrial alcohol for the

purpose of ensuring a stable domestic supply.” In 1990, the goal of global

protection was also added.

68 Guidance to Use of National Research Results, published by the Agency of

Industrial Science and Technology, MITI, 1993. The 16 National Research

Institutes and Laboratories yielded 9,650 patents and the National Projects

yielded the remaining 5,591 patents. Regarding foreign patents: 16 National

Research Institutes yielded 1,900 and the National Projects yielded 446. These

represent intellectual property registered or pending.

69 See note 26, Article 3, pursuant to Japanese Civil Code (“Minpo”) Articles 44

and 45.
Japanese Treatment of Intellectual Property 31

OFFICE OF TECHNOLOGY POLICY

accordance with the notification of Director-General of the

Japanese Patent Office.70

The Regulation of Intellectual Property

The basic rule is that all intellectual property, including patents and

copyrights, which results from a nationally sponsored research project,

except for work done completely independent of the research project, is

first owned by the Japanese government.71 Some of the rights are then

licensed to interested participants. The ownership proportion of copyrights is different from that of patents. The Japanese government retains

full ownership of all copyrights created under a direct-sponsored research

project; patents are jointly owned.

All U.S. companies participating in National Research projects and licensing with the Japanese government will enter into an agreement similar to

the “Entrustment Contract.” Thus, all patents resulting from nationally

sponsored research projects are subject to the regulations of the Japanese

Patent Law.

Analysis of the Entrustment Contract focuses on patentable technology.

Although other types of intellectual property, specifically copyrights, are

the subject of nationally sponsored research projects, they will not be

explained in depth here for two reasons: (1) copyrights created as a result

of a nationally sponsored research project are subject to 100 percent

ownership by the Japanese government,72 and (2) the research projects

tend to focus on patentable subject matter.

Following are the basic principles for the ownership of intellectual property resulting from national research projects. Intellectual property created under the auspices of a national research project is owned half by the

Japanese government, through its supervising agency, and half by the

research participant. If the intellectual property is created by several

participants, half is owned by the Japanese government and each participant gains a percentage of the remaining half in proportion to his or her

contribution.

70 National Patent Royalty Form, explained below. Referring to Japanese national

Asset Law, Kokuyu Zaisan Ho.

71 Kenkyu Koryu Sokushin Ho: Kuni no okonau kokusaikyodo kenkyu ni keru

Tokkyohatsumei nado no jishi, (Law for the Promotion of Research Exchange

Regarding the Patentable Inventions and Licensing of Results from Nationally

Sponsored International Cooperative Research Efforts) Article 8.

72 AIST Information, July 1994.

The basic rule is that all

intellectual property

which results from a

nationally sponsored

research project is first

owned by the Japanese

government.
32 Japanese Treatment of Intellectual Property

OFFICE OF TECHNOLOGY POLICY

Contract Provisions: NEDO’s Entrustment Contract

NEDO, as explained in Part I, plays a dominant role in regulating R&D

projects that are open to international participation. These include: (1) The

Research and Development Program on Basic Technologies for Future

Industries; (2) The National Research and Development Program (LargeScale Project)73; (3) the Research and Development Program on Medical

and Welfare Equipment Technology; and (4) Research and Development

of Important Regional Technologies or similar projects. Although MITI is

the leader in international joint research, participants in projects sponsored by other ministries face a similar regulatory scheme.

The Entrustment Contract (Itaku Keiyaku sho as it is called) is long and

detailed, and requires close scrutiny and discussion. This contract applies

to at least two types of intellectual property transactions: (1) the ownership of intellectual property rights generated from a research project, and

(2) the licensing of existing intellectual property held by NEDO. The

beginning of the contract usually identifies the participant and the

project. The specifics of the project, including the term and goals, are

outlined in the announcement of the project.

Participants may find problems with this type of agreement in the following areas: (1) the Japanese government’s regulations governing the administration of the project and the right of the Japanese government to

inspect the project and audit the books of the participants; (2) the ownership and distribution of intellectual property; (3) the consent requirement

of joint patent owners in advance of third-party licensing; and (4) the

general supervisory nature of the provisions.

The following discussion examines portions of the contract and explains

their implications:

Project Administration

 NEDO exercises control over the participant through several provisions

that explicitly set forth the obligations of the participant. Although each

of the provisions will not be explained in this paper, the major issues will

be highlighted. These provisions illustrate the hands-on role of NEDO

and the Japanese government.

73 These projects include the Super High Performance Electronic Computer, SeaWater Desalination and By-Product Recovery, Direct Steelmaking Process,

Resources Recovery Technology, Subsea Oil Production System. AIST Overview,

p. 8; National Research and Development Program, Large-Scale Project, 1992,

Published by the Japan Industrial Technology Association, March 1992, 1.

NEDO plays a dominant

role in regulating R&D

projects that are open to

international

participation.
Japanese Treatment of Intellectual Property 33

OFFICE OF TECHNOLOGY POLICY

■ Regulating the participating researchers. NEDO requires advance

approval of all “numbers, names, and/or titles of researchers, the

department to which the said person belongs...the name and/or

title of the person responsible for accounting,” and their effect

on the “Contract Work.”74 In addition, NEDO requires advance

approval of all purchases and manufacturing of property for the

purpose of “performing the Contract Work.”75

Under the terms of the Entrustment Contract, the participant

cannot subcontract any portion of the contract work unless

NEDO “recognizes the need” and “provides for such.”76 In

addition, if the need arises for “joint research” with a third

party, the participant will “bear total responsibility to NEDO

for the activities of the said third party derived from such”

participation.77 Also, the participant cannot transfer or convey

rights or obligations that result from the contract to any party

without advance notice to and consent by NEDO.78

■ Accounting requirements. Participants must keep documents and

documentation of “expenditures, specifications, cost estimates

(including cost estimates by competing vendors), contracts,

certificates for delivery of goods, documents certifying that

delivered goods provides acceptable, invoices, receipts, bank

transfer documents, payroll ledgers for employees engaged in

contract work, vouchers for business trip expenditures and the

like.”79 Documents must be kept for five years from the day

following the closing date of the project.80

Inspection and Reporting81

 Inspection and reporting provisions are considered among the most

problematic aspects of the Entrustment Contract.

74 Itaku Keiyaku, Entrustment Contract, Article 6.1-4, Contract Work being the

scope of the participants responsibilities in the project.

75 Ibid. at Article 7.

76 Ibid. at Article 8.2.

77 Ibid. at Article 9.2.

78 Ibid. at Article 10.

79 Ibid. at Article 16.

80 Ibid. at Article 16.5.

81 Ibid. at Article 17.
34 Japanese Treatment of Intellectual Property

OFFICE OF TECHNOLOGY POLICY

■ Right to inspect. Under Japanese law governing national research

projects, the supervising Japanese agency, or ministry, reserves

the right to inspect the research program to determine “how their

money is being spent by dispatching government employees.”82

Often this is expressly stated in the contract as well. Participants

must understand their rights under such a provision and devise a

strategy to protect important technology while operating under

the provision. This provision may be the most invasive of the

administrative requirements. It has caused substantial concern

among participants.

Until recently, all research sponsored by MITI required inspection

of the research organization by MITI employees. Presently, in

order to alleviate the concerns of participants, a third party is

appointed. Some credit the foreign members of the Supersonic Jet

Project for this change. The foreign participants in that project

persuaded NEDO to enter into a side agreement to ensure that a

third, non-related party would conduct the inspection and audits,

as required.83

Inspection rights and the scope of authority of the inspectors are

serious issues requiring close examination. Even the most recent

version of the Entrustment Contract states that “when NEDO

deems it necessary, it may have personnel of MITI, which is

NEDO’s competent authority, present at an inspection and [the

participant] shall accept such presence.” NEDO agrees to notify

the participating company of their intent to inspect.84

■ Reporting. The participant is subject to a tremendous amount of

paperwork. Each participant is required to submit to NEDO an

interim report after the first six months and at year’s end, as well

as a performance report upon the completion of the project. In

addition, there is a lengthy provision for inspections in the

Entrustment Contract. NEDO reserves the right to conduct an

82 Ibid. at Article 10; Kokuyu Tokkyoken Jishi Keiyaku Sho, National Patent Licensing

Agreement and Explanation, (Hereinafter “Explanation”), in Japanese, Article

10, [Shokunin wo haken]; Stating the importance of cooperation from the

licensee to ensure this occurs.

83 The use of “side agreements” will be discussed in Part III. The side agreement

is a means by which NEDO enters into an agreement with a participant. It is a

letter of understanding, but its legal authority is unclear.

84 Draft Entrustment Contract, April 1993, Article 17.7.

Under Japanese law

governing national

research projects, the

supervising Japanese

agency, or ministry,

reserves the right to

inspect the research

program to determine

“how their money

is being spent

by dispatching

government

employees.”
Japanese Treatment of Intellectual Property 35

OFFICE OF TECHNOLOGY POLICY

inspection of: (a) the status of expenses and accounting books

and procedures; (b) the performance and required reports and

documents to be used for reference in the case of conducting such

an inspection; (c) the status concerning the construction of a

plant, production of machinery, and the like; and (d) other

matters in connection with the Contract Work and Contract

expenses “whose inspection is deemed necessary by NEDO.”

NEDO reserves the right to inspect the factories, offices, or other

facilities of the participant, and shall notify the participant “in

advance, of the location, time, date, inspection staff and other

such information as is necessary for conducting such an

inspection.”85

“Upon such notification, the participant shall prepare an

Inspection Confirmation Record, an Incurred Amount Breakdown

for each month and item designated by NEDO, and make

available, at the participant’s expense, personnel who can

explain the contents of the Contract Work and details concerning

expenses at an inspection site designated by NEDO.”86 In

addition, when NEDO deems it necessary, MITI personnel may

be present at an inspection and the participant shall accept their

presence.87

Intellectual Property Rights

■ Ownership of intellectual property. A potential problem for

participation may exist in the determination of ownership of

intellectual property rights88 during the course of the project.

Under the contract, ownership of industrial property rights is set

forth in the following way: “when the participant produces

inventions, etc., which may be the objects of industrial property

rights through the performance of the contract work, the rights to

obtain industrial property rights and industrial property rights

for such inventions, and know-how notified by NEDO, shall be

jointly and equally owned by NEDO and the participant”89 [emphasis

85 Ibid. at Article 17.5.

86 Ibid. at Article 17.6.

87 Ibid. at Article 17.7.

88 The terms “intellectual property rights” and “industrial property rights” will

be used interchangeably.

89 Draft Entrustment Contract, April 1993, Article 30.

When the participant

produces inventions,

the rights to obtain

industrial property

rights and industrial

property rights for such

inventions shall be

jointly and equally

owned by NEDO and

the participant.
36 Japanese Treatment of Intellectual Property

OFFICE OF TECHNOLOGY POLICY

added].

NEDO may, “without any charge, obtain the succession of a

part of the rights to obtain industrial property rights from the

participant, and the timing of the succession shall be determined

by NEDO.”90 Either party may waive its share of the intellectual

property with prior notice.

Intellectual property, which is discovered or invented

independent of the research project by researchers not involved

in the project, in areas not related to the project’s goals would be

considered solely owned by the participant. However, certain

safeguards, including a physical separation of work areas must

be implemented to prevent unrelated discovery from being

considered “jointly owned.” In addition, intellectual property

managers should analyze their patent portfolios to determine

which researchers and which work must be separated. The

participant might also identify in a memorandum, prior to

participation, those areas where intellectual property overlap

might occur. This memorandum could be attached to the

Entrustment Contract.

■ Collateral rights and joint patents. Equally significant is the

participant’s obligation to obtain the consent of a joint owner

prior to any third-party licensing. The Entrustment Contract

states that the participating company “shall not establish pledges

or other collateral rights on the Acquired Property set forth

[therein].”91 Under Japanese law, consent is required from a joint

owner of intellectual property when a co-owner seeks to license

the intellectual property to a third party.92 Similarly, an exclusive

licensee under a patent cannot grant a non-exclusive sub-license

unless the licensee obtains the consent of the licensor.93 NEDO

ensures however, that “there will be no chance of a problem

90 Ibid. at Article 30.2.

91 Ibid. at Article 10.

92 Japanese Patent Act, Article 73.3; Utility Model Act, Article 26; Design Act,

Article 36; Trademark Act, Article 35.

93 Japanese Patent Act, Article 77.4; Utility Model Act, Article 18.3; Design Act,

Article 27.3; Trademark Act, Article 30.4. U.S. patent law does not have this

restriction, and is thus seen as unique in comparison to both Europe and Japan.

94 In response to the question, “Is it possible for NEDO to obtain the approval of

the co-owner of the IPR?” NEDO’s IPR Licensing System, publication by

NEDO.
Japanese Treatment of Intellectual Property 37

OFFICE OF TECHNOLOGY POLICY

arising with our co-owner concerning exercise of the IPR.”94

In the Entrustment Contract, NEDO clearly provides for a consent

requirement stating that: “[i]n accordance with the law, the

licensee must notify the government without delay, in the event

of a transfer of the license or any other change of events.”95 This

article reiterates the requirement that “approval, and consent” are

necessary as a general requirement of Japanese patent and other

intellectual property laws. An exception states that “so long as in

accordance with the law, no notification is necessary if the

primary business of the license changes due to legal or business

reasons.”96

■ Know-how. NEDO is required to instruct the participant when it

determines that some of the results are considered “know-how”

“(of the properties that cannot be objects of Intellectual Property

Rights of Japan, those which can be kept secret and at the same

time have asset value; they include the copyright for a computer

program).” Secrecy will be maintained for ten years from the date

such designation is made.97

■ Employee inventions. The treatment of intellectual property rights

retained by the employee who invents the intellectual property is

a significant issue. The Entrustment Contract requires that all

intellectual property produced by the employee be “transferred to

the participating company,” unless an agreement to so transfer

the intellectual property already exists.98 This term is identical in

effect to the procedure in Japanese private industry. Employees in

private industry must transfer all ownership to their employer

when intellectual property is invented during the scope of their

employment.99

■ Exercising intellectual property rights. While the participant’s ability

to license and transfer jointly owned IPR is restricted with little

95 Article 8. See also “The Revised Entrustment Contract,” April 1993, Article 10.

See e.g., Explanation Article 8.

96 Ibid. at Article 8.

97 Ibid. at Article 29.

98 Ibid. at Article 27.

99 Nakayama, Nobuhiro, A Study of the Inventor’s Rights, Hatsumeishaken no

Kenkyu, 1987.

Employees in private

industry must transfer

all ownership to their

employer when

intellectual property is

invented during the

scope of their

employment.
38 Japanese Treatment of Intellectual Property

OFFICE OF TECHNOLOGY POLICY

exception, the provisions grant NEDO considerably more

flexibility to license and transfer its portion of jointly owned IPR.

For example, the participant must notify NEDO in advance of

exercising intellectual property rights by submitting a

“Notification for Exercising of Intellectual Property Rights/

Know-how.” In such a case, the participant shall pay a royalty for

exercising such industrial property, unless waived.100 NEDO,

however, may grant to a third party a non-exclusive license for

intellectual property rights and a license based on the rights to

obtain industrial property rights and know-how jointly owned

with the participant, and the participant shall agree to such

licensing. NEDO will have the licensee report the status of its

exercising the industrial property to the participant.101 In addition,

if NEDO grants a license to a third party, the participant “shall

strive to cooperate with the third party concerned in the technical

aspect.”102

In the case of a participant licensing intellectual property rights

jointly owned by NEDO to a third party, the participant shall

submit to NEDO in advance an “Application for Consent and

Approval Regarding the Licensing of Industrial Property Rights/

Know-how.”103 In addition, the terms of the “Foreign Exchange

and Foreign Trade Control Law” must be met, and the participant

must ensure the licensee reports their exercising activity to

NEDO.104

■ Indemnification.105 Provisions on indemnification are similar to

those normally found in commercial contracts and those related

to IPR transactions. Under them, neither NEDO nor the

participant would be liable for any of the following:

❑ any damage, losses, claims, or demands, including

consequential or indirect, occurring to an exercising party,

100 Entrustment Contract at Article 37.

101 Ibid. at Article 37.2.

102 Ibid. at Article 37.

103 Ibid. at Article 37.4.

104 Ibid. at Article 37.4(1)-(2).

105 Ibid. at Article 37.

NEDO may grant to

a third party a nonexclusive license for

intellectual property

rights, and the

participant shall agree

to such licensing.
Japanese Treatment of Intellectual Property 39

OFFICE OF TECHNOLOGY POLICY

whether it is the participant or a third party, or a customer

hereof under an agreement between NEDO and the

participant concerning the participant’s own exercise of

industrial property rights, or between NEDO or the

participant and a third party concerning the third party’s

exercise of industrial property rights;

❑ breach of any warranties of non-infringement of industrial

property rights owned by a third party; and

❑ defending the exercising party from or settling any claims

made due to the infringement of industrial property rights

owned by a third party.

The Treatment of Royalties

The National Patent Licensing Agreement provides for royalties on

Japanese national patents.106 Originally, licensing of intellectual property

created under the national scheme required a fee for Japanese companies

and was free to a foreign licensee.107 However, the law was changed in

1991 to allow for free licensing regardless of the nationality of the licensee

to “smooth implementation of international joint research and development projects...and to make Japan’s treatment of patent rights similar to

that of other advanced nations.”108 This revision applies to all “national”

intellectual property.109 However, since no projects have been conducted

since the revision, it has not yet been applied.

This new royalty arrangement will make it possible for any participating

corporation to exercise patent rights free of charge or at a minimal cost.110

It is interesting to note that this revision was brought about by pressure

exerted by the foreign participants—General Electric, Pratt & Whitney,

Rolls Royce, SNECMA (France)—which joined Japan’s Ishikawa Heavy,

Mitsubishi Heavy, and Kawasaki Steel in the Supersonic Jet project.111 This

106 This document, referred to earlier, modified Japanese Patent Law. Japanese

Title: Kokuyu Tokkyo Ken Jishi Keiyaku Sho. Revised, February 1972, General

Patent Provision No. 88.

107 Revised on March 1, 1991. AIST publication.

108 Concerning a law to revise a part of the “Law for Consolidating Research and

Development Systems Relating to Industrial Technology,” MITI, April 1, 1991.

109 Referring to Japanese national Asset Law, Kokuyu zaisan Ho.

110 Ibid. pg. 2.

111 Patent and Licensing Magazine, December 1990.
40 Japanese Treatment of Intellectual Property

OFFICE OF TECHNOLOGY POLICY

eight-year project seeks to develop a prototype engine capable of reaching

a speed of Mach 5 and may cost around ¥28 billion.

In addition, these companies sought further relaxation of the equal

ownership rule. While further revisions seem unlikely for a while,

MITI clearly realizes the risk of losing foreign manufacturers as core

participants.

■ Proportioning intellectual property: the 50 percent rule: Licensing

agreements between private industry and the national

government are governed by the Form for Licensing Agreements

Regarding National Patents.112 This Form covers the licensing of

any invention created by national research or otherwise obtained

by the Japanese government. Its purpose is to ensure the smooth

transfer of technology from the government to industry, and to

avoid common disputes.113

Flexibility is built into the contract in order to address the unique

situations of the parties and the marketplace. In addition, the

112 Kokuyu Tokyo Ken Jishi Keiyaku Sho, Director General Japanese Patent Office

Notification, 1940, Showa 25.2.27 Tokuso Dai 58. Revised 1967, Showa 42.5.26

Tokuso Dai 533, and again in 1972 Showa 47.2.9 Tokuso Dai 88, Tokkyo Cho

Kan Tsu cho.

113 Ibid. at Preamble.

114 Explanation, Article 5.3. In the event that the respective patent right becomes or

is determined invalid, royalties already received cannot be returned. Id. In the

absence of this provision, the government would have to pay back royalties as

a result of the invalidation, which in effect, voids the existence of the patent

right.

Article 5.4. In the event that a Suit for Invalidation is filed, the Government

will notify the Licensee.

Article 6. Royalties will be paid for X time according to the previously

calculated royalty.

Article 7. If the license extends for less than one year, in order to calculate

royalties, the licensee will notify the Government of the number of

manufactured goods, sales quantity, sales amount and profits within a certain

amount of days after the conclusion of this period.

Article 9. The licensee shall make efforts to display the presence of this license

agreement on manufactured goods.

Article 11. The Government requires the licensee to inform the Government of

infringement without delay.

Article 13. The licensee must continue to pay royalties until the end of the

term, regardless of production stops, unless the licensee agreement is

cancelled.
Japanese Treatment of Intellectual Property 41

OFFICE OF TECHNOLOGY POLICY

contract contains many provisions commonly used in

international licensing.114

Generally, all patent licenses are non-exclusive.115 The royalty fee

can be paid according to any of the following standards116:

1) percentage of sales amount

2) x yen times production amount

3) x yen times sales number (quantity)

4) x yen times number of uses referred to as “Shiyo Kensu.”

5) percentage of profits

Generally, the royalty fee falls between 1 and 4 percent of total

sales117 using the following calculation:

Royalty = basic ratio x use ratio x adjustment factor x research

factor

The “basic ratio” represents a percent of sales price ranging from

2 to 4 percent. This ratio reflects an expected profit margin. The

“use ratio” reflects the proportional significance of the patent

relative to the whole product. The “adjustment factor” is

generally set at 100 percent. Finally, the “research factor,” reflects

a recognition of the research expenditures of participating

companies.

General Contract Provisions

The Entrustment Contract also contains several important contract law

provisions that affect the participants rights:

■ Remedy of defects.118 If NEDO finds that the contents of a report of

115 Ibid., Article 3. “Cho ha Kono tokkyo hatsumei no jishi wo onore igai no sha ni

mo kyosho suru koto ga aru.” [Emphasis added to highlight non-exclusive

language]. However, an exclusive license can be created. See Article 3,

Explanation of Form Governing License Agreement of National Patent, 6.

116 Ibid., Article 5.1-5.5.

117 Figuring Royalty fees, see NEDO, form 4-17.

118 Entrustment Contract at Article 39.
42 Japanese Treatment of Intellectual Property

OFFICE OF TECHNOLOGY POLICY

acquired property are “significantly different” from the Execution

Plan, then NEDO may request that the participant repair, replace,

or modify such defective parts. NEDO must make this request

within one year from the day following the submission of the

final report. However, “with respect to a latent defect,” the period

shall be one year from the day NEDO became aware or could

have become aware of said defect.

■ Cancellation rights.119 NEDO may cancel or terminate the contract

in the event of any one of the following events: (1) The participant

breaches the terms and conditions of the contract or any

instruction of NEDO due to a reason attributable to the

participant; (2) The contract work becomes impossible or

significantly difficult to perform due to a reason attributable to

the participant; or (3) The participant makes improper or false

statements concerning the contract.

The participant may cancel the contract “in whole or part” if

NEDO breaches the terms and conditions stated in the contract

due to reasons attributable to NEDO and, as a result, has made

the contract work impossible or significantly difficult to

perform.120

■ Force majeure. The contract shall be canceled after consultation

between the parties in the event of: (1) a major change in the

budget or the policy of the Government of Japan; (2) a major

change in the policy of the country to which the participant

belongs; and/or (3) any other event unforeseeable at the time of

the execution of this contract and attributable to neither NEDO

nor the participant.

■ Damages for breach of contract. When NEDO cancels the contract

because of the participant, the participant shall pay to NEDO an

amount equivalent to ten-hundredths of the contract amount or

the part of the work that cannot be completed. Similarly, when

the participant is forced to cancel, NEDO shall pay to the

participant as damages an amount equal to ten-hundredths of the

contract amount. When either party fails to pay, the other party

shall add to the unpaid amount a penalty charge of 10.95 percent

119 Entrustment Contract at Article 41.

120 Entrustment Contract at Article 43.
Japanese Treatment of Intellectual Property 43

OFFICE OF TECHNOLOGY POLICY

per year for the period from the due date until the day of actual

payment.

■ Mutual cooperation.121 The participant shall cooperate with NEDO

in the following matters: (1) preparing materials concerning

technical results; (2) attending committee meetings; (3) preparing

materials and responding to any hearings related to the budget

of the Government of Japan concerning the contract work; (4)

preparing data concerning an evaluation; (5) giving presentations

and preparing materials for a business meeting; or (6) submitting

a “Report of Custody Status” concerning NEDO’s property

managed by the participant at any time when the contract work

is completed or the contract is canceled, and to assist NEDO in

its efforts to dispose of the property. NEDO shall bear expenses

incurred by the participant in attending committee meetings, and

making presentations at business report meetings organized by

NEDO.

■ Japanese language.122 Japanese will usually be the official language

of the project. The participant shall take all necessary measures to

ensure that any communication between NEDO and the

participant can be carried out in Japanese.

■ Jurisdiction.123 The participant and NEDO agree that the Tokyo

District Court shall have exclusive jurisdiction in regard to any

lawsuit or litigation in connection with this contract.

■ Other matters. In the event that mutual consultation cannot

resolve problems, the parties should determine a time after which

the contract becomes void.124

Intelligent Manufacturing System

The specific provisions of the recently commenced Intelligent Manufacturing Systems (IMS) and the Real World Computer (RWC) projects,

121 Entrustment Contract at Article 50.

122 Entrustment Contract at Article 51.

123 Entrustment Contract at Article 54.

124 Explanation, Article 5, p. 7,8. See, e.g., Entrustment Contract at Article 57.
44 Japanese Treatment of Intellectual Property

OFFICE OF TECHNOLOGY POLICY

which follow, illustrate two applications of the general principles explained above. These provisions will be considered in comparison to the

general scheme set forth by the Entrustment Contract. However, at this

time, since both schemes have not been tested, it is unclear how the

particular provisions will be applied in light of the general Entrustment

Contract provisions.

The Intelligent Manufacturing Systems project sponsored by the Machinery and Information Bureau of MITI initiated a unique international

collaboration with respect to intellectual property. In January, 1994, the

International Steering and Intellectual Property committees of the IMS

completed the “Intellectual Property Right Provisions for Research and

Development Projects.”125 These provisions set forth “mandatory requirements as well recommended principles for” participants in order to

provide “adequate protection for intellectual property rights used in and

generated during joint research and development projects” under IMS.126

While the provisions break new ground, they have yet to be tested by

industry or the broader Japanese government regulatory process, although some experience was obtained as the provisions were based on

the IPR Guidelines used in the IMS test cases.

The IMS Provisions address some of the problems previously identified

when dealing with the Japanese government. For example, foreground

inventions are to be owned by the partner or partners creating it.127 Thus a

government may not acquire ownership merely by providing funding.

The sole owner may license the invention to third parties non-exclusively

without accounting to any other partner.128 A joint owner may license the

invention to third parties without the consent of and without accounting

to any other partner unless otherwise agreed.129 In addition, partners are

required to provide advance notice to other partners of any government

requirements that would affect rights under the agreement and to ensure

that ownership and licensing of foreground inventions will comply with

all mandatory provisions, including the above three.130 This would prevent a partner from accepting funding from a government that imposes

contrary provisions.

125 IMS Document, IMS/ISC/610/A5 Final (hereinafter “IMS Provisions”).

126 Ibid. at 1.

127 Ibid. at Paragraph 2.2.

128 Ibid. at Paragraph 2.3.

129 Ibid. at Paragraph 2.4.

130 Ibid. at Article 2, second paragraph.
Japanese Treatment of Intellectual Property 45

OFFICE OF TECHNOLOGY POLICY

Partners are permitted to use foreground inventions royalty-free for R&D

or commercial exploitation although they may agree to pay royalties to

partners that are nonprofit institutions.131 This should encourage participation by U.S. universities. However, the IMS Provisions do not address

the situation of a government charging a partner royalties because of its

funding of the invention.132

The IMS Provisions contain other disclosure or notification requirements.

When bringing together several participants representing conglomerates

or groups of entities, U.S. participants are often concerned that the intellectual property expressly licensed to one entity may be transferred to an

affiliate of that entity, thereby inadvertently helping a competitor.

Partners must disclose, at the beginning of the project, all affiliates that

may participate.133 This would address the above concern, enabling the

participants to know whether certain affiliates of large corporations are

participating. Specifically, if A company’s affiliate Aa is participating, A

must disclose Aa’s participation. Then company B, a competitor of Aa,

may exclude Aa from receiving any rights.134

Although the notification and disclosure requirements impose various

burdens, it is not clear from the IMS Provisions what would happen if a

partner fails to meet those obligations.

Also, other issues that may be problematic for the participants remain.

The IPR provisions may conflict with Japanese national law and the MITI

rules that govern the treatment of intellectual property, including the

provisions that require consent relating to the licensing of joint patents.

However, the provisions permit the cooperation agreement to override.135

Treatment of Intellectual Property Under the IMS Provisions

There may be a problem if a partner has had prior projects in the same

area as IMS. For example, when participant A does independent research

in areas related to a short-term goal of the project, it may be difficult for

the participant to prove that the intellectual property claimed as indepen131 Ibid. at Paragraph 2.8(a) and (b).

132 The cooperation agreement could provide that any government receiving

royalties on foreground inventions it owns would have to pay the fees

necessary for a partner to be able to give the “free” license in the inventions

required under the provisions for other partners.

133 IMS Provisions, Article 2, third paragraph.

134 Ibid.

135 Ibid.at Article 2.4.

U.S. participants are

often concerned that the

intellectual property

expressly licensed to one

entity may be transferred

to an affiliate of that

entity, thereby

inadvertently helping a

competitor.
46 Japanese Treatment of Intellectual Property

OFFICE OF TECHNOLOGY POLICY

dent was in fact “created, conceived, invented and developed independent of the project.” This is the standard to avoid—joint patent status.

Provisions to Be Addressed by Parties

While the IMS IPR Provisions deal with methods of determining substantive rights, two regimes vital to the determination of rights are left without any stated requirements: the method of dispute resolution and the

choice of applicable law.136

An explicit mechanism to resolve disputes between the participants and

the Japanese government must be provided. Because negotiations may

not resolve disputes, the issue of applicable law becomes an important

issue, especially since the laws vary from country to country.

The Real World Computer Partnership

Like the IMS Project, the Real World Computer Partnership sets forth

another scheme for the ownership and distribution of intellectual property rights. This scheme also leaves many questions unanswered.

The RWC international collaboration focuses on R&D in the areas of

“speed and throughput in advanced computer systems.”137 Like IMS, this

project is sponsored by MITI’s Machinery and Information Industries

Bureau. Optoelectronics technology, including the use of fiber optics,138

envisioned to increase the rate of data transfer within the central processing unit, is an “integral” component of the RWC project. In 1990, the U.S.

government held discussions to begin U.S. industry participation. In

March 1993, the Joint Management Committee of the U.S. government

and MITI entered into a bilateral implementation plan to “provide a

136 Ibid. at Article 3.3.

137 U.S.- Japan Optoelectronics Project, March 25, 1993, Preamble.

138 Among the technologies and services envisioned include the following

materials, devices, circuits and modules: photorefractives and III-V epi wafers;

self-electro-optic devices; one- and two-dimensional arrays of microlenslets

and spatial light modulators, or light receivers; smart pixels and perhaps a

laser array and an array of light receivers; and some hybrid assembly of the

aforementioned devices and circuits. U.S.- Japan Optoelectronics Project, March

25, 1993, Article 5, “Scope of Technologies Involved.”

139 The Implementation Plan, Preamble. This plan was entered into pursuant to the

Toronto Agreement between the United States and Japan on “Cooperation in

Research and Development in Science and Technology” on June 20, 1988.

An explicit mechanism

to resolve disputes

between the participants

and the Japanese

government must be

provided.
Japanese Treatment of Intellectual Property 47

OFFICE OF TECHNOLOGY POLICY

prototyping service for experimental devices and modules in Optoelectronics.”139 The goal of the plan is to “establish a...joint Optoelectronics

Project...to: (1) improve the availability of novel prototype optoelectronic

devices, etc.; (2) stimulate R&D activity in optoelectronics for computing

in both the United States and Japan and encourage effective commercialization; (3) implement the successful results of a resolution...associated

with the January, 1992 Global Partnership agreement between the United

States and Japan; and (4) develop a model for U.S.-Japan cooperative

research.”140

While the RWC Optoelectronics Implementation Plan does not address all

of the technologies at issue in the project, it demonstrates the regulatory

structure of the RWC project regarding intellectual property. The Plan

included provisions related to: government responsibility; accounting and

funding; the methods for selecting participating companies, designated as

“Users, Brokers and Suppliers” in the agreement; and the technology

involved. The Plan also articulates an important scheme for the protection

and distribution of intellectual property rights.

This analysis focuses on those provisions that affect the ownership and

distribution of intellectual property.

A close reading of the provisions indicated that the ownership scheme for

the RWC and the Optoelectronics Project is very similar to the provisions

of the Intelligent Manufacturing Systems, as set forth above. Two unique

differences exist. The provisions designate the rights of three parties, the

“creator,” “non-creating participants,” and the “broker.” In addition, these

provisions make an explicit attempt to limit the rights of the sponsoring

agency and that agent’s access to ownership of intellectual property.

While this structure is beneficial to the participant users, defined above,

its ability to overcome the treatment of national intellectual property in

Japan, specifically the architecture implemented by NEDO, is unknown at

this time.

Administration

MITI’s Machinery and Information Industries Bureau has the primary

decision-making power over the RWC. The U.S. government is responsible for “determin[ing] the conditions under which the American community can fruitfully participate in the program and to establish the

support structure needed to make participation a success.”141 A Joint

140 Ibid. at Article 1 - “Goals of the Project.”

141 Ibid. at Article 2.
48 Japanese Treatment of Intellectual Property

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Management Committee was created for the Optoelectronics Project to

include five government members each from the United States and Japan.

Funding

The Optoelectronics Plan and the RWC are supported by MITI in both

countries. The United States will pay for U.S. participant’s administrative

expenses other than those paid by MITI.142

Intellectual Property

The Optoelectronics Plan creates a “Broker” to act as the facilitator between the “User,” who has a novel design to be fabricated, and the “Suppliers,” who perform the actual fabrication. “Users” may be universities,

not-for-profit research labs, industrial companies, and government laboratories.143 “Suppliers” may be universities, not-for-profit research labs,

industrial companies, and government laboratories.144 The “Broker” in

Japan is designated as the Optoelectronic Industry and Technology

Development Association (OITDA). The U.S. “Broker” has yet to be

chosen.

The Broker, for the purposes of intellectual property protection, has

several responsibilities including: (1) facilitating exchange of information

between the User and the Supplier; (2) providing protection of intellectual

property rights by ensuring that Users and Suppliers take adequate steps

to protect their respective IPR and enter into an agreement as to the

ownership of IPR and the rights to their use specific to the individual

cooperative, including the provision of a dispute resolution mechanism;

and (3) obtaining licenses required for export and import as required by

the laws and regulations of both countries. Due to the regulatory schemes

that exist, this last portion of the Broker’s task appears to be the most

difficult.

The Plan states that “the Project will provide for the adequate and effective protection and distribution of intellectual property rights and other

rights of a proprietary nature created or disclosed in the course of the

cooperative activities under this agreement.”145

142 Ibid. at Article 4.

143 Government labs in the United States include Federally Funded Research and

Development Centers (FFRDCs). Ibid. at Article 7.

144 Ibid. at Article 8.

145 Ibid. at Article 11.
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Source of Law

The IPR scheme states that protection of IPR will be in accordance with

the laws and regulations of the participants’ respective countries. Intellectual property, under this scheme includes, but is not limited to: businessconfidential information; inventions; computer software/programs; and

semiconductor chip layout designs, which are or may be protectable

under the laws of the United States, Japan, or any third country.146

Ownership and Distribution

of Intellectual Property

Unlike the general Entrustment Contract, and the IMS scheme, these

provisions set forth the rights of specific parties in more detail.

Creator’s Rights

Like all of the schemes discussed above, intellectual property made in the

course of an “individual cooperative activity” will be owned solely by the

party creating that intellectual property.147

The creator has the obligation to disclose enabling information and

documentation and may require other parties to delay publication or

disclosure to provide time to prepare and file a patent application.

In addition, the confidentiality of certain know-how; technical data; or

technical, commercial, or financial information, referred to as “businessconfidential information”; is given full protection under the laws and

regulations of their respective countries.148 The burden rests with the

holder to “appropriately identify” the information before it is furnished in

the course of the cooperative activities. Unidentified information will be

assumed to be information not protected, unless the other parties are

notified otherwise in writing within a reasonable time. This confidentiality “obligation” will not expire unless the parties agree to the contrary.149

The creator has the right to protect his or her intellectual property in any

country. If the creating party does not seek protection in any country,

however, any other party may seek protection. Then, the creating party

The creator has the

obligation to disclose

enabling information

and documentation and

may require other parties

to delay publication or

disclosure to provide

time to prepare and file

a patent application.

146 Ibid. at Annex, I. 3.A: “Intellectual Property Rights.”

147 Ibid. at Annex, I. 3. Intellectual Property Rights. A-G.

148 The information must meet all of the following conditions: (i) it is of a type

customarily held in confidence for commercial reasons; (ii) it is not generally

known or publicly available from other sources; (iii) it has not been previously

disclosed.

149 The Implementation Plan, Annex, I. 1. Business-Confidential Information.
50 Japanese Treatment of Intellectual Property

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has the right to a royalty-free license to use the intellectual property for

non-commercial purposes.

Non-creating Participant’s Rights

Similar to the treatment of joint patents under the IMS scheme, intellectual property created jointly will be jointly owned. Joint owners may

practice and assign their interest without the consent of or an accounting—

defined commonly as a royalty payment—to the other owner(s), unless

otherwise agreed.150 As is true of the provisions dealing with joint patents

both here and in the IMS scheme, it is unclear how they will be applied in

light of the treatment of joint patents and the consent requirement under

Japanese patent law.

Broker’s Rights

These provisions take a unique approach in dealing with the supervising

agency. These provisions provide that, if a Broker or Supplier creates

intellectual property “as a result of” actions by the User, and if this intellectual property is essential to practice any design submitted by the User,

the User may use this intellectual property solely for R&D without any

charge, or for commercial exploitation by paying a reasonable fee to the

owner of the intellectual property.151 If however, the Broker acts as a

“liaison,” the Broker acquires no right to ownership of the intellectual

property unless the Broker is a party to the creation of the new intellectual property.

150 Ibid. at B.

151 Ibid. at E.
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PART III

DISPUTE RESOLUTION IN NATIONAL RESEARCH

PROJECTS

The Role of Licensing and Informal Negotiation:

The “Hanashiai”

A participant in a national research project must prepare to prevent and

resolve disputes that may arise with the other participants or with the

supervising agency. While the disputes in Japan cannot be foreseen, the

approach to dispute resolution in Japan can be evaluated and a strategy

can be prepared. Because successful completion of a research project

depends on the cooperation of competitors in industry and regulators in

government, an effective dispute resolution program is vital. Adequate

preparation will ultimately depend on the personal relationships that

develop. However, a specific procedure to handle disputes must be

developed by the participants prior to commencement.

Disputes in Japan, and in particular, intellectual property related disputes

are generally resolved through informal negotiations called “hanashiai.”

Although the tides are changing, litigation is almost unheard of in Japan.

The notion that the “party that understands the importance of compromise can solve any problem”152 explains the innermost mechanics of

dispute resolution in Japan. This is particularly relevant in disputes that

arise from international research collaborative efforts because of the

magnitude of the undertaking and the diversity of the participants. Thus,

the U.S. practitioner must approach every problem by focusing on his or

her client’s bottom line and developing a reasonable position.

In projects directly under its supervision, and often as the result of the

delegation of responsibility, MITI has the final word. MITI and NEDO

representatives drive the dispute resolution mechanism through an

explicit presence, as moderators, when the managing board of a project

assembles. As in all disputes in Japan, when disputes cannot be resolved

by the immediate parties themselves, they look for a third party whom

152 Kosho Hoho, The Art of Negotiation, 1993.

Because successful

completion of a research

project depends on

the cooperation of

competitors in industry

and regulators in

government, an effective

dispute resolution

program is vital.

The U.S. practitioner

must approach every

problem by focusing on

his or her client’s bottom

line and developing a

reasonable position.
52 Japanese Treatment of Intellectual Property

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both can trust but who also has an interest in the outcome. NEDO representatives, and sometimes those in MITI, play this role quite well. Although it is difficult to conceive of the government agency as neutral, it is

in NEDO’s best interest to be objective to avoid the appearance of conflict.

This illustrates a significant difference between practice in the United

States, where courts are seen as the only neutral arbiter, and Japan, where

the government is seen as a participant. In fact, this notion derives from

feudal times when Japan’s leaders were thought to descend from God.

NEDO can ensure that the dispute is settled in line with the specific goals

of the project.

The role of NEDO, through its managing official, seeks to accomplish

what Ohmae Kennichi argues is essential in all efficient and effective

organizations: “rapport between companies is people-based, not contractual- or equity issue-based. Corporate relations must focus on the people

by organizing frequent, rapport building meetings with top management,

staff and line management.”153

Member-Appointed Board

In the case of the Fifth Generation Computer Project, a board was created

to represent each company.154 MITI played the role of the promoter and

the neutral decision-maker.155

In the Real World Computer Partnership, the project members created a

development room where researchers met to discuss problems. Because

this project contains a mix of public and private research at various stages

of commercialization, it was envisioned that relationships would become

very intense.156 A computer network was created to enable messages to be

effectively distributed, and to ensure that the administrators can watch

over the actions of the parties.

Side Agreements

During the Supersonic Jet Propulsion project, the seven participants

created a forum to deal with several problems that developed. One of the

greatest problems developed as a result of MITI’s intention to inspect the

project. As previously stated, MITI reserves the right to inspect and audit

the project participants in contract. The participants were able to per153 Ohmae Kennichi, The Borderless Economy, p. 136.

154 Interview with MITI, October 1993.

155 Interview with MITI, January 19, 1994.

156 Ibid.

157 Interview with NEDO, April 22, 1993.

Rapport between

companies is peoplebased, not contractualor equity issue-based.
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suade MITI and NEDO, by way of a Japanese intermediary, to appoint an

independent industry specialist to carry out the inspections so that trade

secrets would not be compromised.157 The purpose of the inspections was

to determine whether money was being spent properly. By entering into a

side agreement with industry, NEDO was able to circumvent the inspection regulation.158

MITI does not usually physically participate in the supervision of the

research project directly unless there is a problem. In such a case, a MITI

bureaucrat will appear. The foreign participant usually deals only with

the NEDO director or department head, known as the “bucho” or “shitsu

cho” level of bureaucrat.159 This director level has the authority to enter

into a side agreement with the foreign participant, without going through

the normal “ringi” or approval process.160 The decision is usually discussed and considered by the necessary decision-makers.161 However, it

should be understood that by avoiding ringi, NEDO has a way out of the

agreement, if necessary.162 Therefore, the foreign participant is warned to

gain MITI approval or sufficient approval from NEDO superiors before

proceeding with the agreement. A NEDO official commented, “of course,

such a side agreement would be proof at trial.” However, the participant

is warned that litigation would be a rare and non-beneficial route to

resolution.

What to Do When Talking Fails: The Arbitration Clause

It is inevitable that talking will not resolve all disputes that arise. An

arbitration clause should be drafted to enter into arbitration. Several

recognized schemes exist upon which to base this clause, including the

newly introduced provisions of the World Industrial Property Organization (WIPO), and the GATT Trade-Related Intellectual Property and

Services (TRIPS) general provisions for arbitration. While an analysis of

the pros and cons of these provisions is beyond this article, it should be

stated that neither process has been tested sufficiently.

The participant should include in the arbitration clause specific language

that focuses on jurisdiction and applicable laws. It is significant that the

participant select a forum that has the power to and will enforce a remedy

to bind the necessary parties. 158 Ibid.

159 Ibid.

160 Interview with NEDO, April 22, 1994.

161 “Nemawashii”—translated as root binding—is a method of gaining preapproval of decisions by the necessary decision-makers prior to completing

the deal.

162 Interview with NEDO, April 22, 1994.
54 Japanese Treatment of Intellectual Property

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CONCLUSIONS

The most obvious benefit gained by participating in Japan’s National

Research Project program is the experience of doing business in Japan

with successful Japanese counterparts. The advantages gained by “getting to know” a domestic partner and learning about the Japanese market

are significant enough to be influential factors in deciding whether to

participate in a project. Risk is also an important factor. By sharing the

expense, the resources, and the time across an industry or with a Japanese

competitor, the risk of bearing all or part of the investment in a new

application or basic research can be substantially reduced.

However, significant issues exist when working with the Japanese government. The new participant will confront the broad jurisdiction of the

Japanese supervisory agency. Generally, U.S. participants will be exposed

to MITI. However, other supervisory agencies are also known to administer research projects with a visible hand. Participation will require close

attention to the particular rules of the agency or ministry. A close examination of the Entrustment Contract, required when licensing with the

Japanese government, reveals several important procedural and substantive issues that require preparation.

Joint patents under Japanese law are treated differently than under U.S.

law. Under Japanese law, the joint owner is required to obtain the consent

from the other owner or owners prior to transfer or third-party licensing.

This issue is dealt with extensively in the Entrustment Contract, and

practical applications are illustrated in the provisions of the IMS and

RWC projects. Because it is unclear how these provisions will be reconciled with the requirement in Japanese patent law, the participant must

obtain further clarification from the supervising agency. For example, it is

unclear whether the Japanese government will readily consent to thirdparty licensing without unreasonable restrictions.

The definition of joint patents under the Entrustment Contract and the

specific project provisions also require attention. The participant must

establish clear guidelines to prevent any confusion resulting from intellectual property conceived independently from project participation.

In addition to several issues that arise out of substantive law, Japanese

National Research projects pose several procedural and administrative

issues which require attention. Japanese law and the national licensing

provisions provide for the ability of the supervising agency to audit and

inspect the project. Inspection by the Japanese government could put

The advantages gained

by “getting to know” a

domestic partner and

learning about the

Japanese market are

significant enough to be

influential factors in

deciding whether to

participate in a project.
Japanese Treatment of Intellectual Property 55

OFFICE OF TECHNOLOGY POLICY

intellectual property or trade secrets at risk. Specifically, the most recent

version of the Entrustment Contract contains a provision that allows MITI

to inspect the project and its participants, if necessary. Although MITI has

assured participants in the Supersonic Jet project, for example, that an

independent party will conduct inspections, the participant should obtain

reasonable assurances that an independent agent will carry out all inspections.

Finally, the participant must understand the Japanese dispute resolution

mechanism and adopt a strategy to resolve intellectual property and

administrative disputes with this perspective. Because litigation still

plays a minor role in solving problems between individuals and between

corporations in Japan, the participant must engage a reliable agent to

intermediate with the Japanese government and the other participants.
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APPENDIX I

BASIC INTRODUCTION TO JAPANESE PATENT LAW163

First to File Principle

A patent application in Japan gains priority over another based on when

it was filed in Japan.164 As a result of this requirement, many applications

are filed in order to gain priority although they may never in fact be

pursued.165 Because this process encourages filing, the argument is that

the sheer number of applications overwhelms the few patent examiners

employed by the Japanese Patent Office.166 However, delay will continue

until significantly more examiners are hired.

Multiple Claim System

The Japanese Patent System was amended167 to allow, not require, applicants to apply for protection of more than one aspect of their invention.168

This is called a multiple claim. The claim169 is the technical term for what

163 See Kosaku Yoshifuji, Tokkyotto Gaisetsu (9th ed., 1992).

164 Tokkyo Ho (Patent Act), Law No. 121 of 1959; see e.g., JETRO at 5. An

exception to this rule exists and preferential examination may be requested if

the invention claimed is being infringed. Pat. Law, Art. 48-6.

165 J. Cunard, Esq., How to Protect Technology That’s Transferred to Japan: Key Issues

Involving Patents, INTERNATIONAL EXECUTIVE REPORTS, LTD., EAST ASIA, EXECUTIVE

REPORTS, v. 11 No. 11, November 15, 1989.

166 More than 2.5 million applications are filed each year, and only 850 examiners

are employed, with plans to hire only 30 more each year. The United States

saw 550,000 patent applications in 1989 with more than 1400 examiners.

167 This system came into operation only recently. Pat. Law, Art. 37 (amended

effective January 1, 1988). The old system of single claims may still continue

however. The multiple claim system was adopted in the amended Patent Law

not only for the convenience of the applicants, but also for third parties

because the technological range of an invention must be stated in definite

terms. In 1976, Japan adopted this system, in part, in order to participate in the

Patent Cooperation Treaty.

168 The previous single claim system allowed only one claim per invention.

169 Yoshifuji at p. 187. The claim is a complex statement that must be carefully

written to the specifications of the Patent Office. Article 36 ¶ 5 requires that

the claim “shall state only the indispensable constituent features of the

inventions as described in detailed explanation.” Since the “technical scope”

of the patented invention will be based on the statement of claims, the claims

must be supported by a detailed explanation of the invention in the

specification. Thus, the inventor may include several claims for which

protection is sought.
58 Japanese Treatment of Intellectual Property

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the inventor seeks to protect.170 Inventors are encouraged to file as soon as

they come up with an invention in order to get priority.

Amending the Application

Parties may amend their claim with arguments showing the distinction

between their claim and the prior art.171

The Japanese justify this system as an opportunity to improve the original

patent application. They argue that this system of disclosure and amendment of the application may lead to technological innovation. By striving

to articulate the innovative step in the invention, the inventor is forced to

review prior inventions and propose a true innovation. They also argue

that U.S. firms have the opportunity to amend their patent applications

under U.S. law. However, the real danger lies in timing, which creates the

ability of another inventor to copy inventions not yet patented. Under

Japanese law, the application is disclosed to the public. Therefore, the

A “detailed explanation” contains a purpose, the constitution of the invention,

and the meritorious effects of the invention. Article 36 ¶ 4. The constitution

must illustrate that the invention is “capable of bringing about the best

results.” It should be supported by practical numerical representation.

More attention and time is required to prepare the section on meritorious

effects. Meritorious effects are said to be the special effects produced by the

invention.

The invention must be “sufficiently disclosed that those skilled in the art

can...accurately understand and easily put the invention into practice...” Article

36 , ¶ 4. Otherwise the application will be returned incomplete. The application

must fully disclose the technical means in which the invention is embodied.

The description of meritorious effects or “Koka,” requires an explanation of

not only the structure or differences of method in the invention over prior art

but also in technical superiority over prior art due to such differences. “The

mere presentation of examples is not enough...need to show some sort of

comparison...but it need not have to be a quantitative difference.” Id.

However, the examiner often requires experimental data to support any

alleged facts so some qualitative difference is suggested. In fact, it is suggested

that the inventor rely on governmental or public research institutions of Japan

for experimental data as these lend credence to the meritorious effect section.

Yoshifuji, at 260.

170 Yoshifuji, at 199.

171 Amendments are normally allowed if “they are to add an explanation which

makes the invention more easily understood; and allowed even if they relate

to the invention itself so long as they do not change the features of the

invention.” Amendment rules have been recently revised. See Guide to

Industrial Property in Japan, Japanese PTO, 1994.
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burden is on changing one’s invention before another inventor files an

application.

Patent Enforcement

Full Disclosure

This discussion may seem repetitive since it addresses the invention

before it has gained patent status. The intent is to examine the implication

of the Japanese patent system at various stages of the process. Once the

application has been made, Japanese patent law requires that the invention be fully disclosed to the public.172 The application for the patent must

be “laid open” to public inspection automatically for 18 months after the

filing date, or claimed foreign priority date.173 The invention is published

in the Official Gazette. Unlike the United States, most countries publish

all applications filed. Japan’s reason for requiring full disclosure can also

be explained by the Japanese preference for sharing technology. Accordingly, many U.S. inventors are concerned that competitors can view their

invention before it is patented.

The U.S. position should be that the Japanese Patent Office should require

inventors to also disclose all prior art, on which their invention relies.

Bills have been introduced in the U.S. Congress to require publication.

The public has been invited to comment on rules proposed by the U.S.

Patent and Trademark Office in spring 1995.174 This would address the

largest problem of “laying open” an application. That is, while the invention is disclosed, others can apply for and do often receive patents for an

“improvement on the original invention.” The Japanese argue that nondisclosure of inventions may discourage the “sharing” of technology.

In addition, they argue that other countries have pre-grant disclosure

provision.

Before the invention moves from application to patent status, it must be

examined by the Japanese Patent Office. During the examination the

Patent Office determines whether the invention has met all formal requirements. This process does not happen automatically, but rather by

172 Pat. Law, Article 36. Disclosure includes title of the invention, the claim, a

detailed explanation of the invention, and a brief explanation of any drawing.

173 Pat. Law, Article 65-2 with the exception of those inventions that have already

been published as a result of the opposition system.

174 BNA’s Patent, Trademark and Copyright Journal, Vol. 50, pp. 114, 129-132 (June 1,

1995); H.R. 1733 introduced on May 25, 1995 by Rep. Carlos Moorhead.
60 Japanese Treatment of Intellectual Property

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request.175 If no request is made within seven years of the filing, the

“application is deemed to be withdrawn.”176

Since the processes of application, amending (commonly referred to as

“prosecution”), disclosure and examination are all conducted and published in Japanese, U.S. firms should use trained Japanese-speaking

counsel.

175 The Japanese Patent Office will not examine “an application until it receives a

request to do so from the applicant or an agent.” Pat. Law, Article 8. A request

for examination may be filed at the time of filing an application, or at any time

within seven years “from the date of filing in the case of a patent application.”

Pat. Law, Article 48-3.

176 Ibid., Article 48-3(4). See Akira Aoki, Japanese Patent and Trademark Law, BNA,

Washington, D.C. 1976. 56.
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APPENDIX II

FOREIGN PARTICIPANTS IN JAPANESE NATIONAL RESEARCH BY PROJECT

Quantum

Functional

Devices

1991–2000 ¥44 million Motorola

Project Name Description Dates Budget Participants

Development of control technology of new

device functions based

on such quantum

effects as wave properties for the purpose of

developing ultra-high

speed, multi-function

electronic devices

The in vivo and in

vitro and chemical

synthesis, and the

application of sugar

chains, which combine

with proteins and fats,

and play an important

role in improving their

function

Production and 1991–2000 ¥50 million

Utilization

Technology of

Complex

Carbohydrates

Pharmacia LKB

Biotechnology AB

(Sweden)

High-Performance

Materials for

Severe

Environments

Development of carbon/carbon composites, intermetallic compounds and fiberreinforced intermetallic

compounds, which can

be used to develop a

space place and SST/

HST

1989–1996

Preliminary

results: SiC

fiber, modified

by the electron

beam method

was developed

to stand high

temperatures

of (+1500°C)

¥1,699 million Crucible Materials

Corp.

Table A1. Basic Technologies for Future Industries Program
62 Japanese Treatment of Intellectual Property

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Non-Linear

Photonics

Materials

Development of photonic materials that

exhibit high nonlinear

optical susceptibilities

and short-response

times for application

of optical information

systems

1989–1998

Preliminary results:

Conjugated polymers and CuCl dispersed glasses having the highest susceptibility reported

so far have been

developed

¥523 million BASF

Aktiengesellschaft

(Germany)

Table A1. Basic Technologies for Future Industries Program (Continued)

Project Name Description Dates Budget Participants

Molecular

Assemblies for a

Functional Protein

System

Development of molecular assemblies of

functional proteins for

reactors with sophisticated functions such

as production and

conversion of complex

biomaterials coupled

with selective transport and recognition

1989–1998

Preliminary results:

Photosynthesis protein complexes were

extracted from photosynthetic bacteria,

adsorbed to the

surface membrane

with orientation of

the molecule and

evaluated. Phycobiliprotein isolated from

thermophilic cyanobacteria was analyzed and evaluated

¥507 million GBF (Gesellschaft

fur Biotechnologische Forshung

mbH) (Germany)

New Models

for Software

Architecture

Development of innovative models for

flexible software architecture so that

software can function

according to the surrounding situation

1990–1997

Preliminary results:

Key components for

computational

model for cooperation in the area of

situational reasoning, self reorganization and semantic

adaptation are

identified

¥270 million SRI

International
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Table A2. Large-Scale Projects

Micromachine

Technology

Manufacturing technology to perform

precise operations

such as inspection,

diagnosis, and repair

(or treatment) in

restricted spaces

through equipment,

in vivo, etc.

Launched 1991 ¥29 million IS Robotics

Corporation;

SRI International;

Royal Melbourne

Institute of Technology (Australia)

Advanced Chemical

Processing

Technology

Producing new functional materials such

as functionally gradient materials, pure

metals, polymers with

fine alignment of

molecules

1990–1996

Preliminary results:

Elementary techniques for the high

power excimer laser,

the high current

density ion beam and

the ultra precision

machining have been

developed. Interim

evaluation was done

to promote the

project

¥1,161 million SRI International

Super/Hyper Sonic

Transportation

Propulsion System

Combined cycle engine of the “ramjet”

and “high performance turbojet,” and

provide high reliability and efficiency at

both the subsonic and

the hypersonic level.

MITI will steadily

promote the next

generation civil transport development

program (B777) and

the next generation

medium-sized civil

transport development program (YXX).

In addition, it will

add a Hypersonic

Transport Propulsion

System under the

Large-Scale Projects

System.177

1989–1996

Preliminary results:

Component research

on Ramjet, High

performance Turbojet, Measuring and

Control system and

Total System have

started; Manufacture

of experimental models and Conceptual

design of Combine

Cycle Engine were

conducted

¥3,001 million Rolls-Royce plc

(United Kingdom);

SNECMA (France);

United Technologies

Corp/Pratt &

Whitney;

GE Corp.

Project Name Description Dates Budget Participants

177 Outline of 1993 MITI R&D Budget, JITA News, March 1993, pp. 4–13 (in Japanese).
64 Japanese Treatment of Intellectual Property

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Project Name AIST Counterpart Country Duration

Research Institute Research Institute

Table A4. Joint Research Program

Electro-Technical

Laboratory

Research on

precision

evaluation of new

superconductors

and development of

precision measurement devices

Government Industrial Research Institute, NagoyaResearch on

synthesis of

fluorine containing

heterocyclic

compounds and

evaluation of their

biological activities

Fermentation

Research

Research on

mechanism for

release of methane

into the

atmosphere

National Research

Institute for Pollution

and Resources;

Government Industrial

Research Institute,

Nagoya

Research on Acid

Rain Mechanism by

the advanced

observation and

modeling

Project Name Description Dates Foreign Participants

Table A3. International Joint Research on Global Environment

Research on Acid

Rain Mechanism by

the advanced

observation and

modeling

Precision analysis of USA

the acid rain components and creation of

a simulation model

based on in-situ observation of generation, long distance

transport, and transformation process of

acid rain components

1990–93

1988–1992

1989–1992

1990–1993

1990–1993

USA

USA

USA;

Germany

USA

National Institute of

Standards and Technology

National Institutes

of Health

Ohio State Univ.;

Tubingen

Universitat;

U.S. Geological

Survey

National Center for

Atmospheric Research, Iowa State

Univ.