Better courts for better protection

Japanese intellectual property market still important on the global stage

Text by Martin Foster

“Japan remains a key and highly regarded intellectual property [IP] jurisdiction worldwide that IP lawyers and practitioners watch very closely. It also remains a driver of legal development in the IP field,” says Richard Bird, partner and head of the Intellectual Property Practice Group in Asia for Freshfields Bruckhaus Deringer, which is based in Hong Kong. “Look at where the smartphone patent wars were fought out: in the US, Europe, Japan and South Korea.”

However, in spite of this, the number of patent applications has been falling. The filing budgets of many international companies have been reduced since the financial crisis in 2008, and a proportionately greater share of these financial resources is now being allocated to protecting innovations against infringements taking place in China.

The prolonged economic downturn in Japan may be a further contributing factor for the drop in patent applications being made. Data from the Japan Patent Office (JPO) reveals that there were approximately 326,000 patent applications in total during 2014, down from just over 427,000 in 2005.

To put this in context, the European Patent Office (EPO) reports that it received 274,000 applications in 2014, a year-on-year rise of 3.1%. Bird also points out that the largest Japanese companies remain among the largest filers of patents internationally.

At the same time, there is no denying that patent-seeking companies are shifting their focus away from Japan.

For example, in 2008, German companies made 8,068 patent applications to the JPO, only slightly more than the 8,066 applications they submitted to China’s State Intellectual Property Office (SIPO), according to figures from the Japan Institute for Promoting Invention and Innovation.

By 2014, however, their positions had been significantly reversed, with the SIPO enjoying revenue from 13,597 applications from German firms, while applications to the JPO slipped to 6,615. In Japan, applications from French, Dutch and UK firms also declined over the same period.

The question of where to submit a patent depends on the size of the market, the presence of competitors and the existence of manufacturing bases.

With most manufacturing now being done in China, European companies are more motivated to first submit there, says Ayato Susaki, chief consultant and group leader of the Innovation and Industrial Strategy Group for the Science and Safety Policy Research Division at Mitsubishi Research Institute in Tokyo.

“It also makes sense to submit patents in jurisdictions with many pirated goods, in order to protect against [pirating],” he says.

Felix R. Einsel of Sonderhoff & Einsel Law and Patent Office in Tokyo is a patent attorney with a licence to jointly litigate cases with other attorneys at law in Japan. He points to inadequacies with the court system in Japan as one of the main reasons those European companies that file frequently in Europe choose not to do so in Japan.

IP protection is supposed to be enforced when an infringement occurs, as lawsuits can be filed with the possibility of damages being awarded by the courts. But in Japan, damages are relatively low, sometimes making court cases little more than a costly exercise.

In Germany, on the other hand, the party that loses the case is required to pay the legal fees of the winning party. Doing so ensures that the patent owner can recover any damages in a true sense.

In Japan, patent infringement cases normally cost between ¥20 million (€162,000) and ¥40 million (€325,000), and each party pays their own legal fees.

“If you don’t recover damages in that amount or higher, you basically lose — unless the primary purpose of the litigation is an injunction, or has other purposes,” Einsel says.

Japanese companies also often prefer to reach a settlement before going to court. Einsel highlights the cultural aspects of such a move, especially since companies that sue each other may have a working relationship in other fields that are just as important to them.

“This is still a society where people believe everyone should be allowed to survive, so you do not administer the coup de grâce,” he says.

Einsel has observed some improvements in the JPO examination process making it easier for European companies to apply for patents. There is more unofficial contact possible between applicants and officials, and the reasons given for the refusal of an application provide more details and are more understandable than previously, he says.

But many European companies make the decision not to file for patents in Japan in the belief that their Japanese competitors will not file infringement cases against them. “So, that is why I am saying the court system is not really functioning,” he explains.

And it is the effectiveness of the courts that matter most to Einsel, who believes that if the use of IP courts were to become more widespread, then European applicants would be amongst the major beneficiaries.

Japan established an Intellectual Property High Court in 2005, based on a model set by the US Court of Appeals for the Federal Circuit.

Toshiaki Iimura, attorney at law at Yuasa and Hara in Tokyo and a former Chief Judge, insists that if Japan is to improve the quality of its IP litigation, it is necessary for the IP High Court to continue to boost its powers in communicating with academics, practitioners and company representatives in a timely and accurate manner.

Between 2006 and 2014, under Iimura, the IP High Court participated in some landmark decisions, including those concerning Apple and Samsung.

The Apple and Samsung case helped establish, for the first time in Japanese courts, the use of written opinions from third parties not directly connected with the case.

Known as amicus curiae briefs in the US and other jurisdictions, these opinions are statements of public interest that help raise court cases beyond pure legal analysis, and bring them closer to the general public. Iimura notes that some 58 opinions were accepted from Japan and overseas, underscoring the high level of public interest in the case.

Japanese IP authorities are gradually making patent application procedures and legal processes more user-friendly by moving to create a more communicative role for the courts. The issue for European companies is how important Japan remains to their global IP strategy. That, and whether allocating financial resources to seek protection in Japan outweighs the pressing needs in other jurisdictions such as China.