JAPAN: An Introduction to Intellectual Property: Bengoshi
In light of recent developments in Japan’s intellectual property sphere, this article focuses on (i) a recent Intellectual Property High Court (“IP High Court”) ruling, (ii) emerging trends in the Patent Linkage System, and (iii) recent amendments to the Unfair Competition Prevention Act (UCPA).
Notable IP High Court Case
On 26 May 2023, the IP High Court Grand Panel issued an important decision relating to patent infringement and the principle of territoriality in Japan. The said Grand Panel decided the issue of whether a Japanese patent is enforceable against a system, the components of which are located partly in Japan and partly outside Japan.
Dwango Co., Ltd. (“Dwango”), a Japanese company that owns the Japanese Patent No 6526304 titled “Comment Delivery System” (the “Patent”), filed a patent infringement litigation against FC2, Inc. (“FC2”), a US. corporation, alleging that (i) FC2’s systems (the “Accused Systems”) for online video streaming services with commentary operated by FC2 (the “Service”) fall within the technical scope of the invention claimed in the Patent, and (ii) FC2’s acts of transmitting the files used for the Services from the servers (the “Servers”) located in the US. to the user terminals existing in Japan constitute an infringing act of “production” of the Accused Systems under Article 2(3)(i) of the Patent Act.
The Tokyo District Court dismissed Dwango’s claims entirely stating that under the territorial principle, in order for the “production” according to Article 2(3)(i) of the Patent Act to be applicable, a product that satisfies all constituent features of the patented invention must be newly created in Japan; however, the Servers in question exist in the US, and the user terminals in Japan alone do not satisfy all elements of the invention claimed.
The IP High Court overturned this decision and found infringement of the Patent by FC2. The Grand Panel pointed out that it is not reasonable to interpret that a network-type system invention uniformly does not constitute “working” of the patented invention under Article 2(3) of the Patent Act on the grounds that the server, which is a part of the elements constituting such system, exists outside Japan in strict compliance with the territorial principle.
The IP High Court stipulated that the “production” of a network-type system invention can be considered as having been performed in Japan even where the server, which is a part of the elements constituting said system, exists outside Japan by comprehensively taking into consideration the following factors:
- the specific manner of the act to create the system;
- the function and role played by the elements that exist in Japan, from among the elements constituting the system;
- the location where the effect of the invention can be obtained from the use of the system; and
- the effect of such use of the system on the economic interests of the patentee of the invention.
- the transmission and receipt are performed as a package and the Accused System is completed when the user terminals in Japan receive the files; as such, it can be recognised that the above transmission and receipt are performed in Japan;
- the user terminals existing in Japan perform the main functions of the patented invention, which is necessary to display the comments in a manner that does not overlap with each other;
- the effect of the patented invention, which is to use commentary in communication to make the invention more entertaining, is manifested in Japan; and
- the use of the Accused System in Japan may affect the economic interests that can be obtained by Dwango by using the system of the patented invention in Japan.
Patent Linkage System in Japan – Recent Trends in Life Sciences
There have been many intense patent disputes between brand manufacturers (BM) and generic product manufacturers (GE), underlining the necessity for effective utilisation of the patent linkage system for dispute resolution. To that end, we spotlight key insights from a recent IP High Court ruling and prevailing trends from the Ministry of Health, Labour and Welfare (MHLW).
Recent IP High Court decision (IP High Court Reiwa 4 Nen (Ne) 10093) – Nipro v Eisai
On 10 May 2023, the IP High Court dismissed an action brought by a GE against a patentee (as BM) to seek a declaratory judgment (DJ) stating that BM was not entitled to seek injunctive relief against GE’s product, which had been submitted for approval but had yet to receive it from the MHLW.
The IP High Court held that, at the pre-approval stage, GE’s legal interest was not sufficient or mature enough to seek DJ. The IP High Court stated that it cannot be said that there was a (i) dispute between the BM and GE regarding BM’s right to seek injunctive relief and (ii) an immediate risk or uncertainty regarding GE’s right or legal status. In light of this IP High case decision, it must be concluded that a GE is not entitled to seek DJ until it receives drug approval from the MHLW. Although a GE can file an invalidation trial action before the Japan Patent Office to seek an invalidation decision at any juncture, it currently lacks an effective legal mechanism for court proceedings – specifically, one for confirming non-infringement – at the pre-approval phase.
MHLW trends
The MHLW recently began to tackle the problem of dealing with the patent linkage system regarding negotiations of patent issues between BMs and GEs at the pre-approval stage. First, in one particular case, the MHLW sent an inquiry form to a BM, requesting a legal opinion on the patent infringement issue of a generic product that had been submitted for approval but had yet to receive it. Second, MHLW is currently considering a possible revision of its official notice to better address the complexities of the patent linkage system, particularly as it pertains to pre-approval negotiations between BMs and GEs. Given that such negotiations are an effective means for resolving patent disputes, the evolving policies of the MHLW in this area are certainly noteworthy.
Recent Amendments to the UCPA
In order to protect trade secrets more effectively, several revisions to UCPA passed in June 2023 and will be effective in the near future.
Such revisions include clauses (UCPA 19-2 and Article 19-3), which grant the Japanese courts relatively clear jurisdiction over trade secret infringements occurring outside Japan under certain conditions, and that the UCPA shall be applicable in such cases. The most important conditions are as follows:
- the trade secret shall be owned by a company conducting its business in Japan;
- the trade secret shall be controlled and administered in Japan; and
- the trade secret shall not be solely used for business outside Japan; even if a judgment on an infringement in a foreign country is rendered by a Japanese court, in order to enforce this judgment in the foreign country, there must be reciprocity between this foreign country and Japan.
Further, said revisions to the UCPA include clauses aimed at aiding trade secret holders in demonstrating suspected infringement. These provisions specifically pertain to the act of using a trade secret and the manufacture of goods based on such use. The current Article 5-2 of the UCPA stipulates that under certain circumstances, the use and/or manufacture are presumed. The recent revisions of the UCPA will broaden the scope of Article 5-2 to include cases where ex-employees with access to a trade secret copied the trade secret without authorisation, and cases where a person who was unaware of the unfair competition activity involving a trade secret becomes aware of that fact after obtaining the trade secret and does not dispose of it.