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Litigation / Foreign Patent Litigation / Japan

Patent Litigation in Japan

In Japan, questions of infringement and validity are decided by different tribunals. Proceedings in both infringement actions and nullity actions tend to involve a series of meetings with the judges. Discovery is virtually non-existent. Proceedings tend to be relatively expensive. Furthermore cultural pressures for settlement, rather than pursuing the litigation to a decision, are strong. In order to respond to criticisms of its litigation procedures, a new Code of Civil Procedure was passed by the Diet in 1966 and is will come into effect on January 1, 1998. The objectives of the new code are to try to speed up the course of civil litigation and to allow some more discovery than is permitted under the present code.

Scope of Protection Afforded by Patents

Article 68 of the Patent Law gives the patentee an exclusive right "to commercially work" a patented invention. [1] Additionally, Article 101 provides that certain acts of indirect infringement are deemed to be infringements of a patent right as follows:

(i) in the case of an invention of a product, acts of manufacturing, assigning (e.g. selling), leasing, importing or offering for assignment or lease of, in the course of trade, articles to be used exclusively for the manufacture of the patented product;

(ii) in the case of an invention of a process, acts of manufacturing, assigning, leasing importing or offering for assignment or lease of, in the course of trade an article to be used exclusively for the working of such invention. [2]

Article 69 of the law provides that certain specific acts are permitted even if they would otherwise be patent infringements. Such acts include acts carried out "for the purposes of experiment or research", vessels or aircraft passing through Japan, products "existing in Japan" prior to the filing of the patent application and making mixtures of medicines in accordance with a physician's prescription.
Article 70 of the law provides that the scope of protection is determined by the claims, the meaning of terms in which may be interpreted in the light of the specification.

Japanese courts have traditionally been strict in their interpretation of patent claims, limiting them closely to the literal wording. This point is emphasized by the advice often given by Japanese counsel before commencing an infringement action: the pleadings should point to the embodiment or example in the patent which is most closely related to the alleged infringement. However, this situation may now be changing.

In 1997 in Tsubakimoto Seiko Co. Ltd. v. THK K.K. the Japanese Supreme Court has for the first time accepted the role of the doctrine of equivalents in determining patent infringement. The court noted that it is extremely difficult for a patent applicant to anticipate future development at the time of originally drafting the claims and that patents should therefore be construed to cover alleged infringements that use "substantially the same elements" as the patent claims. It listed five factors to be considered in determining whether something falling outside the literal wording of the claims could be an infringement:

1) the differing element should not be an essential part of the patented invention;

2) the alleged infringement with the differing element should achieve the same object and effects as the patented invention;

3) at the time of production of the alleged infringement one skilled in the art would have been able to make the change easily (i.e. the change was an obvious variant);

4) the alleged infringement is not itself part of the prior art or obvious in view of it; and

5) no special circumstances preclude a finding of infringement, such as the applicants having excluded the alleged infringement from its scope of protection during prosecution of the application giving rise to the patent in suit.

In Fujitsu v. Texas Instruments, [3] the Tokyo High Court suggested that the relevant date for determining whether there was difficulty in making the interchange was the date of infringement.

Importation into Japan of the product of a patented process is a patent infringement.[4]

However, as was shown in the case of Jap Auto Products, K.K. v. BBS Kraftfahrzeug Technique AG (commonly referred to as the Aluminum Wheel Case) the doctrine of exhaustion of rights may apply. In that case in 1997 the Japanese Supreme Court upheld a decision of the Tokyo High Court held that importation into Japan of a wheel purchased from the owner of the corresponding patents in Germany and Japan did not infringe the Japanese patent on the product. The Supreme Court concluded that the patentee's rights had been limited by an implied license which accompanied the sale of the product in Germany The idea of domestic exhaustion of rights is well established in Japanese law. The High Court decision, however, seems to have been the first time that the Japanese courts have adopted the concept of international exhaustion of patent rights. However, the Supreme Court's decision was on a theory of there being an implied license in the original sale rather than total exhaustion of the right. If the original contract of sale had specifically excluded the right to resell into Japan and had the goods born a statement to this effect so that no third party might be misled into believing that a license existed, the court would have barred the import. The court further indicated that similar provisions would apply to sales by subsidiary or "related" companies (without defining what it meant by "related") and that it was irrelevant whether a patent existed in the country of first sale. [5]

It remains to be seen what the full impact of the case may be. The case has caused considerable discussion in interested circles and suggestions have been made that legislation may be appropriate to reverse the decision. In view of the current political state in Japan, however, this seems unlikely and the uncertainty caused by this decision is likely to be with us for a while.

At least one earlier case had held that the exhaustion of rights theory does not apply in Japanese patent law so that the owner of a Japanese patent may obtain an injunction to prevent importation into Japan of products made by a licensee in some other country. [6]

The effect of the provisions of Article 69 of the law excusing certain experimental work from patent infringement has also been the subject of recent decisions reaching different decisions in different district courts. However, in Ono Pharmaceutical Co. Ltd. v. Kyoto Pharmaceutical Co. Ltd. [7]

the Japanese Supreme Court has held that it is not an infringement of a patent for a new chemical compound or a medicine for a third party to carry out any necessary testing that will be required to obtain approval to market a medicine containing the same active ingredient after the patent on it has expired. The court reasoned that to read the excusal of Article 69 narrowly so as to allow patentees to prevent experiments required to allow others to market a medicine that had been the subject of patent protection until after the patent had expired would have the effect of extending the effective life of the patent. (Japanese Law already provides for an extension of the patent term for pharmaceutical inventions to compensate the patentee for the delay it has suffered in bringing its product to market as a result of the need to obtain marketing approval.) On the other hand the Supreme Court reaffirmed that any use beyond that strictly required for the purpose of securing marketing approval would be an infringement.

Infringement Suits

Enforcement of patents in Japan is hampered by lack of discovery procedures and until recently the lack of judges with significant patent experience outside Tokyo and Osaka. However, for those with patience satisfactory results may be obtained.

In principal patents may be enforced in Japan by both civil and criminal actions. The use of criminal proceedings is, however, rare. If this route is chosen the patentee makes a complaint to the public persecutor but is thereafter unlikely to be heavily involved in the case.

It seems that there are typically 100 to 150 patent or utility model infringement actions brought in Japan each year with about 25 to 30% proceeding as far as a first instance decision. About 50% of the cases are brought in the Tokyo District Court and 30% in Osaka, although patent chambers have now also been set up in the district courts in Ngoya, Kyoto, Kobe and Yokohama. Under the new Code of Civil Procedure, the patentee will have a choice as to where to bring an action for patent infringement: either in the district court having ordinary jurisdiction over the matter or in the Tokyo or Osaka District Courts, which are to have specialized intellectual property divisions. [8]

In Japan infringement actions are brought before the District Court having jurisdiction over the defendant or of the district where infringement occurred. The vast majority of such cases are in fact brought in the Tokyo or Osaka District Courts. These courts have judges experienced in patent matters. They also have technical advisers to assist the judges if necessary. Proceedings must be brought using a general lawyer (Bengoshi) although he will typically be assisted by a patent agent (Benrishi) in the technical aspects of the case.

Typically an action in Japan is started by a warning letter (although this is not required) and followed by a complaint. If desired, a separate suit may be started for provisional disposition of the case (equivalent to an interlocutory proceeding). Such proceedings may result in a temporary injunction (Karishobun) in about a year but the defendant must pay a security into court. It is necessary to satisfy the judge of the likelihood that plaintiff will succeed in establishing infringement in the main action and that the plaintiff will suffer "irreparable harm" if it has to wait for resolution of the main suit before it is given a remedy. Interlocutory proceedings can be brought at any time while infringement continues. A security deposit (in cash) is required from the plaintiff.

Invalidity of the patent being sued upon is not in itself a defense to an infringement action. However, the defendant may commence a nullity suit in the Patent Office. [9] The court hearing the infringement action is not required to stay the infringement action pending the Patent Office's decision. [10] The nullity action will proceed totally independently of the infringement action and is itself subject to the possibility of an appeal to the Tokyo High Court. The nullity action may result in the patent's being revoked or in its scope being limited. In this context, it should be noted that only local use, rather than use anywhere in the world, can be pleaded to invalidate a Japanese patent. Japanese law has a further provision for patents granted before June 1, 1987, foreign publications (unless actually received in Japan) can only be relied upon in Japanese nullity actions for five years after grant. For patents granted later than June 1, 1987 this five year limitation period will not apply. [11]

The court hearing the infringement action can make orders for preservation of evidence. [12] However, there is no discovery procedure as we know it. Although procedures exist for ordering preservation of evidence or inspection, even if the court makes an order for inspection of the defendant's premises, the defendant can refuse entry if there is a risk of trade secrets being divulged. As a practical matter, little help can be expected from the Japanese system or the judge in developing evidence of infringement. It is hoped that when it comes into effect the new Civil Procedure Code will result in some improvement since it permits the parties to ask questions of each other direct, although there is no compulsion for the receiving party to reply, and also broadens the definition of the documents that a judge can order to be disclosed to the other side to include many additional documents unless they are covered by a secrecy provision or were written "solely for the use of the holder thereof". It remains to be seen what the effect of these changes will be.

Traditional Confucian philosophy holds that it is better to resolve a dispute than fight over it to the end. This philosophy exhibits itself in Japanese civil procedure. Proceedings in both a main action and one for a preliminary injunction typically involve a series of meetings with the judge to narrow the issues and hopefully result in a settlement. Typically such hearings take place every one or two months. The new Code of Civil Procedure will when it comes into effect contain provisions aimed at focussing such meetings more precisely on the issues involved and speeding up the course of this procedure.

If these meetings do not result in a settlement, proceedings culminate in a formal hearing at which evidence is presented, not by witnesses, but by the parties. Evidence may be written documents, persons or witnesses and/or expert witnesses. Witnesses may be subjected to cross examination by the parties in front of a judge but in practice most questioning comes from the judge himself. The probative value of evidence is left to the free discretion of judges and the use of technical experts to assist the judge and give their own views is common. The burden of proof is to a high standard. Merely showing infringement is probable does not suffice nor shift the burden to the defendant, although the law does provide for reversal of burden of proof in cases of a patented process for producing a novel product. [13] So far as the latter point is concerned, despite some doubts by academic writers, the courts seem to be prepared to give the plaintiff the benefits of this provision if the product was novel as of its priority date and not only as of the date of filing in Japan. [14] A consequence of the fact that the court cannot declare the patent invalid can lead to the court's giving the claim a very limited interpretation if the defendant can show that a broad interpretation would cover the prior art. This can lead to findings of non-infringement even when the alleged infringement clearly falls within the literal scope of the claims.

Possible remedies in an infringement action are an injunction, destruction of the offending products and damages. Hitherto damages have normally been calculated as the profits made by the infringer or on a reasonable royalty basis. [15] However, an amendment to the law was passed on April 24, 1998 which has the objective of increasing the damages payable, in particular by placing the burden on the defendant to show why the defendant would not have made the sales that were in fact made by the infringer. [16] Technically the patentee must show the defendant's negligence before damages can be recovered. However, this is normally presumed by the court in view of the publication of Japanese patents in the Patent Gazette.

In order to recover damages, an action must be started within 3 years of the plaintiffs knowledge of the infringement. In addition to damages, the winning party may be entitled to the costs of the action to cover disbursements and a daily allowance for an attorney and an expert. On the question of costs, it is worth noting that attorney fees are often based on the value of the suit (together with a success fee at he end if one is successful) so that substantial fees may be incurred even if a dispute is settled at a relatively early stage.

An appeal from the District Court may be made to the Regional High Court and possibly from the Regional High Court to the Japanese Supreme Court.

Patent infringement actions in Japan typically take three to five years to obtain a first instance decision, although it is hoped that the 1996 revision to the Civil Procedure Code will result in delays being reduced.

If the patentee wishes to limit his patent after grant to avoid prior art of which he becomes aware, this is possible by means of a "correction" proceeding in the Patent Office. [17] Such amendments are allowed only if they find clear support in the specification. It is therefore possible for four actions to proceed simultaneously in Japan: a main infringement action, an action for preliminary relief, a nullity action brought by the defendant and an action for correction brought by the plaintiff.

Footnotes:

[1] The definition of "working" is set out in Article 2 as being:

(i) in the case of an invention of a product, acts of manufacturing, using, assigning, leasing or offering for assignment or lease (including displaying for the purpose of assignment or lease (...) of, the product;

(ii) in the case of an invention of a process, acts of using the process;

(iii) in the case of an invention of a process of manufacturing a product, acts of using, assigning, leasing importing or offering for assignment or lease (including displaying for the purpose of assignment or lease (...) of, the product manufactured by the process, in addition to the acts mentioned in the previous paragraph.

[2] Article 69 bis provides that if the term of a patent has been extended to compensate for delays in first marketing a product covered by the patent caused by the need to obtain governmental approval before the product could be put on the market, as is possible for patents relating to pharmaceuticals and agrochemicals, the patent rights during the extended period apply only to the product for which such approval was required.

[3] Tokyo High Court 10 September, 1997.

[4] Patent Law Article 68 when read in conjunction with Article 2(3)(iii).

[5] The Tokyo high Court's reasoning had been rather different. That court's reasoning was that sale of a patented product by the patentee extinguished any patent rights relating to that product because the patentee in the price charged for the product include additional compensation for disclosure of the invention. The patentee should, however, be given only one such chance to obtain such additional compensation. The court commented that if there were some constraints on the price that the patentee could charge (for example, national price control or compulsory licensing then, of course, the right would not be exhausted by such a sale. The court noted that the purpose of the Japanese patent law was to encourage both inventions and their utilization, and that a balance had to be struck between the public interest and the proprietor's interest in such situations.

[6] Brunswick Corp. v. Orion Kogyo KK 3 Kokusaitorikiki Hanneishu 387 (Osaka District Court 1969).

[7] Decision dated April 16, 1999.

[8] In general if the court normally having jurisdiction is north of Nagoya, the plaintiff will have the additional right to bring the action before the Tokyo District Court and if the district is south of this the additional right to bring the action in the Osaka District Court.

[9] Japanese Patent Law, Article 123.

[10] Although Article 168 gives it a discretion to do so.

[11] Japanese Patent Law, Article 124.

[12] Japanese Patent Law, Article 150.

[13] Japanese Patent Law, Article 124.

[14] See, for example, the discussion of this issue in Terio Doi's "The Intellectual Property Law of Japan" pages 44-47.

[15] Patent Law Article 102 provides that in general the infringer's profits shall be presumed to be the damage suffered by the patentee, but this presumption does not preclude the patentee from claiming a greater amount when appropriate.

[16] The decision of the Tokyo District Court in SmithKline Beecham Co. Ltd v. Fujimoto Pharmaceuticals K.K.

relating to infringement of SmithKline Beecham’s patent on the production of compounds such as cimetidine (sold widely under the trademark T AGAMET) resulted in a damage award of $27 million (the largest damages award ever made in an intellectual property case in Japan). The Court awarded damages based not only on lost profits calculated at 15% of the lost sales (which were taken to be all of the defendants' sales for the three-year statute of limitation period) but also on unjust enrichment (for which the limitation period is ten years) awarding the plaintiffs further royalty-based damages calculated at a rate of 5% of sales for the entire period that the defendants had sold their product in Japan. In support of its damages calculations, the Court relied on Article 248 of the new Code of Civil Procedure which provides that when damages are found to have occurred but they are difficult to quantify the court can find a reasonable amount based on the trial hearings and the evidence submitted.

[17] This is what is sometimes referred to as an "amendment trial".

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