Kei Iida Attorney at Law & Patent Attorney NAKAMURA & PARTNERS

1. Employee’s Invention Case in JapanAIPLA MWI IP Practice in Japan Committee Pre-MeetingTuesday, January 29, 2013 Kei Iida Attorney at Law & Patent Attorney NAKAMURA & PARTNERS

2. Topics • Previous Act • Present Act • Application of Acts • Employer’s Argument in Employee’s Invention Case under Previous Act

3. Previous Act • Not an employer but an employee originally obtains a right to obtain a patent for an employee’s invention. • An employer obtains a non-exclusive license to work an employee’s invention free of charge without any limitation. • An employer may execute a contract with an employee or provide a regulation in advance for the right for an employee’s invention to be generally transferred, while an employer may not execute a contract with an employee nor provide a regulation in advance for the right for a non-employee’s invention to be generally transferred. • If the right for an employee’s invention is transferred, an employee may demand reasonable value therefor to an employer.

4. Present Act • The same. • The same. • The same. • If the right for an employee’s invention is transferred, the value therefor under the contract or regulation is affirmed, unless the way to determine the value is unreasonable in light of (i)the discussion between an employer and employees to set up the standards for the determination, (ii) the disclosure of the standards to the employee, (iii) the discussion between the employer and the employee to determine the value under the standards, (iv) the amount of value, (v) etc.

5. Application of Acts • The present Act is applicable to a case where the right for an employee’s invention is transferred on or after April 1, 2009, while the previous Act is applicable to a case where the right for an employee’s invention is transferred before April 1, 2009. • There has been no decision by the court under the present Act. • In recent years, still not a few cases under the previous Act have been litigated before the court, and, in 2012, the court rendered around 10 decisions for those cases. • Among those decisions, in the Astellas Pharma case, on April 27, 2012, and in the Mitsubishi Chemical case, on Februaly 17, 2013, the Tokyo District Court awarded 165, 380,000 JPY (around 1.82 million US$) and 59,000,000 JPY (around 0.65 million US$) to each Plaintiff respectively. • The decisions by the court under the previous Act may be influential on a case under the present Act.

6. Employer’s Argument in Employee’s Invention Case under Previous Act • Against Employee’s Argument for Ownership for Non-Employee’s Invention • Scope of Duty of Employee • Time of Invention • Against Employee’s Argument for Reasonable Value • Payment under Contract or Regulation • Inventorship of Employee • Employer’s Profit for Exclusivity • Employer’s Profit to be Obtained • Employer’s Contribution • Employer’s Risk • Treatment of Employee • Transfer of Foreign Right • Extinctive Prescription

7. Scope of Duty of Employee • It is provided under the previous and present Acts that an employee’s invention must be an invention made by an act to belong to the present or previous duty of an employee. • In some cases, the court found the objectively expected duty of an employee in light of the position, type, etc. of an employee, the use of employer’s facilities, working hours, etc. without employer’s directions for an invention.

8. Time of Invention • It is provided under the previous and present Acts that an employee’s invention must be an invention made by an act to belong to the present or previous duty of an employee. • In the case where an employee made an employee’s invention during the employment but resigned from the employment without disclosing the invention to the employer, the court found that the invention is an employee’s invention for a former employer • In the case where an employee started R&D for an invention during the employment but resigned from the employment and made the invention during the new employment, the court found that the invention is an employee’s invention not for a former employer but for a new employer.

9. Payment under Contract or Regulation • In previous practices, many companies had provided regulationsin advance not only for the transfer of the right for an employee’s invention but also for the determination and payment of compensation for the transfer, although the amount of compensationdetermined and paid thereunder had been small in general. • In the Olympus case, on April 22, 2007, the Supreme Court affirmed the decisions by the lower courts, and ruled that an employee who received the compensation may still demand to an employer the difference from reasonable value for the transfer determined under the previous Act. • After the successive decisions by the lower courts in the Nichia, Hitachi, and Ajinomoto cases in 2008, where the big amount of difference was awarded, many companies have revised regulations to raise the amount of compensation, while the previous Act has been amended to the present Act.

10. Inventorshipof Employee • In previous practices in companies, a true inventor for an employee’s invention had not necessarily been correctly named in a patent application therefor by an employer for various reasons. • In many cases, the court had found that the Plaintiff, named (co-) inventor, did not actually make an employee’s invention, and thus was not a true (co-) inventor therefor. • In the Toyota Central R&D Labs case, on March 29, 2011, the IP High Court ruled based on the doctrine of estoppel that in general an employer who filed a patent application naming an employee as an inventor for an employee’s invention before the JPO may not assert in an employee’s invention case that a named inventor was not a true inventor therefor.

11. Employer’s Profit for Exclusivity- In General - • It is provided under the previous Act that the amount of reasonable value for the transfer shall be determined in light of (i) the amount of profit to be obtained by an employer for an employee’s invention, and (ii) contribution by an employer to an employee’s invention. • In many cases including the Astellas Pharma case and the Mitsubishi Chemical case, the court generally considered the profit as profitfor the exclusivity over an employee’s invention since an employer has a non-exclusive license without the transfer.

12. Employer’s Profit for Exclusivity- Invalidation Ground of Patent - • In a few cases where a patent for an employee’s invention clearly had the ground for invalidation, the court had denied or reduced profit for the exclusivity. • In a few cases where a patent for an employee’s invention likely had the ground for invalidation, the court had reduced but affirmed profit for the exclusivity. • In the Brother Industries case, on June 25, 2009, the IP High Court ruled based on the doctrine of estoppel that in general an employer who filed an application and obtained a patent for an employee’s invention before the JPO may reduce but may not deny profit for the exclusivity based on the invalidation ground of the patent in an employee’s invention case.

13. Employer’s Profit for Exclusivity- Before Patent - • In some cases where reasonable value was demanded for the period from a laying open publication to a patent, the court reduced but affirmed profit for the de-fact exclusivity since it is provided under the previous and present Acts that a patentee may claim compensation for the period against an infringer. • In the old case where reasonable value was demanded for know-how, the court took know-how into consideration.

14. Employer’s Profit to be Obtained • It is provided under the previous Act that the amount of reasonable value for the transfer shall be determined in light of (i) the amount of profit to be obtained by an employer for an employee’s invention, and (ii) contribution by an employer to an employee’s invention. • In some cases including the Mitsubishi Chemical case, the court generally considered the profit as profitobjectively obtainable by an employer at the time of the transfer. • In a few cases where future royalty payment by a licensee was considered to calculate profit to be obtained by an employer, the court adapted gradually decreasing royalty rate. • In a few cases where a patentee abandoned a patent, the court took the abandonment into consideration to calculate profit to be obtained by an employer after the abandonment.

15. Employer’s Contribution • It is provided under the previous Act that the amount of reasonable value for the transfer shall be determined in light of (i) the amount of profit to be obtained by an employer for an employee’s invention, and (ii) contribution by an employer to an employee’s invention. • In a few cases including the Astellas Pharma case, the court ruled that contribution by an employer after an employee’s invention including contribution for an application, an allowance, official fees, licensing, commercialization, etc. may also be considered to determine the amount of reasonable value for the transfer. • In the Toshiba case, on February 21, 2009, the IP High Court ruled and reasoned that any factors for profit by an employer should be considered in light of fairness.

16. Treatment of Employee • It is provided under the previous Act that the amount of reasonable value for the transfer shall be determined in light of (i) the amount of profit to be obtained by an employer for an employee’s invention, and (ii) contribution by an employer to an employee’s invention. • In a few cases, the court ruled that treatment by an employer of an employeemay also be considered to determine the amount of reasonable value for the transfer.

17. Employer’s Risk • It is provided under the previous Act that the amount of reasonable value for the transfer shall be determined in light of (i) the amount of profit to be obtained by an employer for an employee’s invention, and (ii) contribution by an employer to an employee’s invention. • In a few cases, the court took into consideration the risk on a employer for business for an employee’s invention to determine the amount of reasonable value for the transfer. • In a few cases including the Astellas Pharma case, the court did not take into consideration the risk on a employer for business for employees’ inventions other than an employee’s invention at issue.

18. Transfer of Foreign Right • In the Hitachi case, on October 17, 2008, the Supreme Court ruled that the provision under the previous Act concerning reasonable value for the transfer of the right for an employee’s invention is not directly but by analogy applicable to the transfer of the foreign right for an employee’s invention according to the interpretation of reasonable intentions of an employer and an employee for a contract, and thus that the amount of profit to be obtained by an employer for an employee’s invention in a foreign country may also be considered to determine the amount of reasonable value for the transfer. • In the Astellas Pharma case, the Tokyo District Court also ruled the same for the transfer under a regulation.

19. Extinctive Prescription • In many cases including the Astellas Pharma case，the court ruled that the claim for reasonable value for the transfer of an employee’s invention shall be extinguished if not exercised for ten years, from the time of the transfer, in general, and from the time for the payment of compensation for the transfer, if a contract or regulation provides the same, under the Civil Code. • In a few cases including the Astellas Pharma case, the court ruled that the extinctive prescription for the claim was nullified upon acknowledgment under the Civil Code if an employer pays to an employee compensation for the transfer under a contract or regulation.

20. Thank you! Kei Iida Attorney at Law & Patent Attorney NAKAMURA & PARTNERS Shin-Tokyo Bldg., 6F, 3-1, Marunouchi 3-Chome, Chiyoda-ku, Tokyo 100-8355 Japan Tel: 81-3-3211-8741 Fax: 81-3-3214-6367 E-mail: k_iida@nakapat.gr.jp