IP As Property / IP Rights Licensing / International Licensing

7.2 The Intellectual Property/Antitrust Interface in Japan

In Japan unfair trade guidelines were adopted in 1989 and under these guidelines the following types of clauses are regarded as being highly likely to be deemed to be an unfair trade practice, although it should be noted that in many cases there is an official comment indicating certain circumstances which might permit exceptions to this general rule:

1) restricting the price or resale price in Japan of goods covered by the licensed patent or produced in accordance the licensed know-how;

2) denying the licensee the right to handle competing goods or to employ competing technology after the expiration of the agreement;

3) restricting use of the licensed technology after arty relevant patents have expired or In the case of a know-how license, the technology has become publicly known without fault of the licensee or imposing royalties for continued use after these events have occurred;

4) Imposing limitations on the research and development programs of the licensee or its ability to enter into joint research and development with a third party;

5) imposing exclusive grant-back of rights In respect of Improvements made by the licensee (a comment on this, however, indicates that in the case of reciprocal obligations in cases where the licensor is not dominant in the market such a provision could conceivably be justified).

Clauses that are regarded as being potentially unfair include the following:

1) non-competition clauses that are in effect throughout the life of the agreement;

2) restricting the right of the licensee to sell products of the licensed technology to persons other than those designated by the licensor;

3) a non.reciprocal obligation on the licensee to keep the licensor advised about the market conditions relating to the product of the licensed technology;

4) a nonexclusive grant-back of rights in improvements made by the licensee unless the licensor has a similar obligation imposed upon it;

5) imposing a trademark use requirement on the licensee since this could restrict the licensee's freedom to select a trademark "which is one of the means of competition";

6) imposition of quality controls in respect of the licensed product except to the extent that this is necessary "for guaranteeing the effectiveness of the licensed patent or for maintaining the goodwill of a trademark, etc.";

7) tying the grant of the license to the supply of raw materials, components, etc. from the licensor or some person designated by the licensor unless such requirements are necessary to ensure the effectiveness of the licensed technology or for maintaining the goodwill of the trademark, etc. in cases where quality restrictions on the raw materials and components used etc. would be insufficient to guarantee this;

8) export restrictions except to the extent that these prevent the licensee from exporting to countries in which the licensor has patent rights, countries wherein the licensor has been "conducting continuous marketing activity" In respect of the licensed goods or countries wherein the licensor has assigned an exclusive sales right to a third party;

9) except to the extent permitted in accordance with paragraph 8, imposing volume limitations on the export of products of the licensed technology;

10) making it obligatory for the licensee to pay a royalty based on something other than the licensed products unless in order to facilitate calculation where the licensed product is a component, etc. it is more convenient to base the royalty calculation on the finished products (in other cases where it is inconvenient to do otherwise, royalties may also be based on consumption of raw materials);

11) package licensing of additional patents or know-how which is not necessary in order to guarantee the effectiveness of the basic licensed subject matter;

12) the imposition of arbitrary termination provisions in favor of the licensor;

13) Imposing on the licensee an obligation not to contest the validity of a licensed patent or the secrecy of any licensed know-how.

The following clauses are indicated as likely to be acceptable:

1) restricting the grant of a license for a limited period within the terms of the patent rights;

2) field of use restrictions;

3) minimum production or sales requirements;

4) royalties continuing to be paid after the expiration of the agreement as long as this payment is for activities which occurred during the validity of the agreement;

5) clauses permitting termination of the agreement if there is a challenge to validity of a Patent or the secrecy of the know-how license, and clauses obliging the licensee to use its best efforts to exploit the licensed technology.

In general anything which falls within the list of specific prohibitions in the EU group exemption or is in the first listing of the Japanese unfair competition guidelines should be regarded as being suspect whatever country of the world one is concerned with. There are few countries which permit tie-ins whereby the licensor can demand that the licensee purchases unpatented materials from him. Similarly it is rare for a country to permit an absolute grant back to the licensor of any improvements made by the licensee. The best that one can probably hope for is a nonexclusive royalty free license forever. Nevertheless, there are often ways around such prohibitions, for example, basing a royalty for use of a process on the amount of use for that process (for example, so much per day) rather than on trying simply to secure an additional income by supply of raw material for use in the process.