Who Cares About Japan?

Policy Changes in Japan

After Koizumi's speech in 2002, there were hundreds of policy changes. In 2005 alone, the Japanese government initiated the 'IP Promo-tion Plan,' which covered more than 250 changes under four categories to enhance the utilization of IP (see Table 1).

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These changes are clear examples of the government's serious bid to assertively transform Japan's political/economic position on IP. Four of these changes will be examined in more detail below, including the Basic Law on Intellectual Property, changes in the Japan Patent Office, the new Intellectual Property High Court, and various promotion strategies within Japan. Finally, recently U.S. policy changes may also assist Japan in its exploitation of IP.

Basic Law on Intellectual Property

To '[realize] a dynamic economy and society that is based on the creation of … new intellectual property,' the Basic Law on Intellectual Property (Law No. 122 of 2002) was established in Japan. The policy stipulates the responsibilities of the state, local governments, universities, etc., and business enterprises whereby these entities are to promote cooperation and collaboration to 'effectively achieve the creation, protection and exploitation of intellectual property.' The law requests all major players in the IP sphere to support each other in order to enhance their utility of IP. This attitude was exemplified in a recent report conducted by the government that surveyed 150 Japanese firms and from which more than 560 IP-related case studies regarding the problems and benefits from firms' experience were compiled. The purpose of the survey was to share and learn how corporations (and business sectors/industries) both mitigate risks and enhance their IP utilization. This unprecedented broad knowledge sharing has a potential to significantly improve IP management nationwide in Japan.

Japan Patent Office

Recently released statistics show that 60% of the time invalidity rulings are the result of invalidity due to obviousness or lack of an inventive step. This may indicate that the Japan Patent Office ('JPO') had failed to provide quality due diligence in determining the initial validity of the patents. Alternatively, Professor Tetsuya Obuchi, a former judge of the Tokyo High Court, opines that patents in current or recent litigations were granted when there were lower standards for patentability. In fact, Shinjiro Ono, a former deputy commissioner of the JPO, stated that currently, 'the rate of success at the IP High Court in challenging decisions issued by the JPO Appeal Department is quite low.' While Ono is referring to the Appeal Department of the JPO, one can reasonably assume that their initial patent application review has also become more scrupulous.

A recent effort of the JPO is the creation of the Patent Prosecution Highway ('PPH'). The PPH is a system between the JPO and the U.S. Patent and Trademark Office ('USPTO') that allows an applicant to fast track an application from one office to another if at least one claim in the application is patentable. It is important that both Japanese and U.S. firms be aware of changes in the patent validation process in Japan, especially in relation to the PPH. With the JPO now more stringent in validating patents, Japanese firms are expected to construct stronger applications over time. Those applications may make their way through the PPH and into the United States, thereby creating stronger U.S. patents issued to Japanese companies. Moreover, if U.S. patents owned by American firms meet the standards of the USPTO but fail to achieve validity in Japan, U.S. firms may find themselves at an IP disadvantage in Japan.

Intellectual Property High Court

The Intellectual Property High Court ('IPHC') was established 'for the purpose of ensuring more effective and expeditious trial proceedings … bearing in mind developments in the utilization of intellectual property.' In conjunction with the Grand Panel (a panel of five judges), the IPHC has become an architect for uniform judicial review for IP-related cases. This consolidation has helped create consistent court decisions, and various sources have noted that the IPHC is becoming more efficient through the use of technical experts and IP-savvy judges. It has also been noted that appeals have been minimized from clear-cut cases by having a strong and standardized system.

With Japan's government starting to warm up to IP litigations, one would expect Japanese firms to become more comfortable taking their disputes to court rather than pursuing private negotiations. Over time, Japanese firms may therefore become more aggressive in leveraging litigation not only in Japan but also in the United States.

Promotion of IP Strategies to Small/Medium-Sized Enterprises and Venture Companies

In a survey published in 2005, more than 7000 small/medium-sized enterprises ('SMEs') and venture companies were randomly selected to 'analyze the status of their engagement in IP activities and their problems related to IP.' The study results showed that the most requested government and public support was to have 'seminars on IP utilization' and 'more information on assessment of IP values and contract-related legal affairs.' When questioned about support for situations involving infringement cases, nearly half wanted 'an increase of consultation services concerning IP disputes.'

There are numerous organizations ready to help SMEs and venture companies capitalize with exploiting IP in Japan today. Table 2 lists some of the organizations and the type of services offered.

[IMGCAP(2)]

This support system helps SMEs and venture companies effectively exploit their IP and protect their regional territories, and may embolden these firms to compete internationally due to having confidence and experience in handling IP. While U.S. firms can closely monitor large international firms and properly mitigate potential risks, SMEs are difficult to track due to the lack of publicly available information. If Japanese SMEs have strong IP portfolios along with the knowledge to effectively leverage those portfolios, U.S. firms may be hindered or at worst prevented from entering new or existing markets by Japanese SMEs.

Policy Changes in the U.S.

In 2006, the USPTO granted 196,436 patents, of which roughly 20% were issued to Japanese firms. Japanese firms are actively filing for U.S. patents, and policy changes within the United States have the potential to be exploited by Japanese firms. Two such policy changes that could significantly affect U.S. firms are the accelerated patent examination (under which a Japanese firm was first to receive a patent) and the possible shift from a first-to-invent to a first-to-file system, with which Japanese firms are very familiar. Both are utilized by Japanese firms, giving Japan an increasing familiarity with the U.S. patent system.

Conclusion

Japan is aggressively modernizing its approach in handling IP, making it an even greater threat to U.S. firms. If U.S. firms fail to adapt to these changes, they may find themselves at a severe business and economic disadvantage.

The authors are employees of Ocean Tomo, an Intellectual Property Merchant Banc specializing in the monetization of Intellectual Property assets. Andrew Carter co-founded the firm and serves as its chief operating officer and managing director of the Expert Services practice. Suzue Fujimori is the director of Ocean Tomo's Japan Services practice. Mark Rollins is an analyst in the firm's Expert Services practice in the Chicago Office.

Part One of a Three-Part Series

Since 2002, when then-Prime Minister Junichiro Koizumi stated he intended to transform Japan into a 'nation that is built on the platform of intellectual properties,' the Japanese government has shifted its focus on Intellectual Property ('IP'), bringing about numerous policy changes empowering Japanese firms to actively pursue both defensive and offensive corporate strategies to further discover the inherent value of their intellectual capital. These changes included not only new laws and agencies, but also the establishment of an Intellectual Property High Court ('IPHC') that handles only IP-related cases. For the United States, this signals that Japan is determined to become more competitive in both domestic and international markets using IP.

This is the first of three articles that examine the changes in Japan related to IP and its effect on U.S. firms. This first installment will explore Japan's exploitation of national and international policy changes; the second will analyze corporate strategies including the increasing retention of foreign services; and the last will focus on Japan's international role in connection with IP.

Policy Changes in Japan

After Koizumi's speech in 2002, there were hundreds of policy changes. In 2005 alone, the Japanese government initiated the 'IP Promo-tion Plan,' which covered more than 250 changes under four categories to enhance the utilization of IP (see Table 1).

[IMGCAP(1)]

These changes are clear examples of the government's serious bid to assertively transform Japan's political/economic position on IP. Four of these changes will be examined in more detail below, including the Basic Law on Intellectual Property, changes in the Japan Patent Office, the new Intellectual Property High Court, and various promotion strategies within Japan. Finally, recently U.S. policy changes may also assist Japan in its exploitation of IP.

Basic Law on Intellectual Property

To '[realize] a dynamic economy and society that is based on the creation of … new intellectual property,' the Basic Law on Intellectual Property (Law No. 122 of 2002) was established in Japan. The policy stipulates the responsibilities of the state, local governments, universities, etc., and business enterprises whereby these entities are to promote cooperation and collaboration to 'effectively achieve the creation, protection and exploitation of intellectual property.' The law requests all major players in the IP sphere to support each other in order to enhance their utility of IP. This attitude was exemplified in a recent report conducted by the government that surveyed 150 Japanese firms and from which more than 560 IP-related case studies regarding the problems and benefits from firms' experience were compiled. The purpose of the survey was to share and learn how corporations (and business sectors/industries) both mitigate risks and enhance their IP utilization. This unprecedented broad knowledge sharing has a potential to significantly improve IP management nationwide in Japan.

Japan Patent Office

Recently released statistics show that 60% of the time invalidity rulings are the result of invalidity due to obviousness or lack of an inventive step. This may indicate that the Japan Patent Office ('JPO') had failed to provide quality due diligence in determining the initial validity of the patents. Alternatively, Professor Tetsuya Obuchi, a former judge of the Tokyo High Court, opines that patents in current or recent litigations were granted when there were lower standards for patentability. In fact, Shinjiro Ono, a former deputy commissioner of the JPO, stated that currently, 'the rate of success at the IP High Court in challenging decisions issued by the JPO Appeal Department is quite low.' While Ono is referring to the Appeal Department of the JPO, one can reasonably assume that their initial patent application review has also become more scrupulous.

A recent effort of the JPO is the creation of the Patent Prosecution Highway ('PPH'). The PPH is a system between the JPO and the U.S. Patent and Trademark Office ('USPTO') that allows an applicant to fast track an application from one office to another if at least one claim in the application is patentable. It is important that both Japanese and U.S. firms be aware of changes in the patent validation process in Japan, especially in relation to the PPH. With the JPO now more stringent in validating patents, Japanese firms are expected to construct stronger applications over time. Those applications may make their way through the PPH and into the United States, thereby creating stronger U.S. patents issued to Japanese companies. Moreover, if U.S. patents owned by American firms meet the standards of the USPTO but fail to achieve validity in Japan, U.S. firms may find themselves at an IP disadvantage in Japan.

Intellectual Property High Court

The Intellectual Property High Court ('IPHC') was established 'for the purpose of ensuring more effective and expeditious trial proceedings … bearing in mind developments in the utilization of intellectual property.' In conjunction with the Grand Panel (a panel of five judges), the IPHC has become an architect for uniform judicial review for IP-related cases. This consolidation has helped create consistent court decisions, and various sources have noted that the IPHC is becoming more efficient through the use of technical experts and IP-savvy judges. It has also been noted that appeals have been minimized from clear-cut cases by having a strong and standardized system.

With Japan's government starting to warm up to IP litigations, one would expect Japanese firms to become more comfortable taking their disputes to court rather than pursuing private negotiations. Over time, Japanese firms may therefore become more aggressive in leveraging litigation not only in Japan but also in the United States.

Promotion of IP Strategies to Small/Medium-Sized Enterprises and Venture Companies

In a survey published in 2005, more than 7000 small/medium-sized enterprises ('SMEs') and venture companies were randomly selected to 'analyze the status of their engagement in IP activities and their problems related to IP.' The study results showed that the most requested government and public support was to have 'seminars on IP utilization' and 'more information on assessment of IP values and contract-related legal affairs.' When questioned about support for situations involving infringement cases, nearly half wanted 'an increase of consultation services concerning IP disputes.'

There are numerous organizations ready to help SMEs and venture companies capitalize with exploiting IP in Japan today. Table 2 lists some of the organizations and the type of services offered.

[IMGCAP(2)]

This support system helps SMEs and venture companies effectively exploit their IP and protect their regional territories, and may embolden these firms to compete internationally due to having confidence and experience in handling IP. While U.S. firms can closely monitor large international firms and properly mitigate potential risks, SMEs are difficult to track due to the lack of publicly available information. If Japanese SMEs have strong IP portfolios along with the knowledge to effectively leverage those portfolios, U.S. firms may be hindered or at worst prevented from entering new or existing markets by Japanese SMEs.

Policy Changes in the U.S.

In 2006, the USPTO granted 196,436 patents, of which roughly 20% were issued to Japanese firms. Japanese firms are actively filing for U.S. patents, and policy changes within the United States have the potential to be exploited by Japanese firms. Two such policy changes that could significantly affect U.S. firms are the accelerated patent examination (under which a Japanese firm was first to receive a patent) and the possible shift from a first-to-invent to a first-to-file system, with which Japanese firms are very familiar. Both are utilized by Japanese firms, giving Japan an increasing familiarity with the U.S. patent system.

Conclusion

Japan is aggressively modernizing its approach in handling IP, making it an even greater threat to U.S. firms. If U.S. firms fail to adapt to these changes, they may find themselves at a severe business and economic disadvantage.

The authors are employees of Ocean Tomo, an Intellectual Property Merchant Banc specializing in the monetization of Intellectual Property assets. Andrew Carter co-founded the firm and serves as its chief operating officer and managing director of the Expert Services practice. Suzue Fujimori is the director of Ocean Tomo's Japan Services practice. Mark Rollins is an analyst in the firm's Expert Services practice in the Chicago Office.