Inventor ’ s Remuneration Update -Hitachi Sup. Ct. Case

1. Inventor’s Remuneration Update-Hitachi Sup. Ct. Case Kay KONISHI MIYOSHI & MIYOSHI AIPLA MWI January 23-24, 2007, New Orleans

2. 1.1.Rationale for “Employee Invention” (Sec. 35) Employer Right to obtain a patent Employee Sec. 35 (3): “Where the employee in accordance with any agreement etc., assigns the right to obtain a patent… for an employee invention in the employer …, the employee shall have the right to receive reasonable remuneration”.

3. 1.2. What do the precedent say on “reasonable remuneration”? Olympus Sup. Ct. Case (2003, April 22): “If remuneration stipulated in any agreement/employment regulation <‘reasonable remuneration’, then an employee can claim the difference before the court.” (The court can decide “reasonable remuneration” regardless of what the agreement says.) Old sec. 35 (4): “The amount of the ‘reasonable remuneration’ shall be determined by taking into consideration the amount of profit to be received by the employer from the invention”. Reasonable remuneration = “the amount of profit to be received by the employer” * (1- (the employer’s contribution)) (“the amount of profit to be received by the employer”=“monopolistic profit”)

4. 1.3. How to calculate “Monopolistic profit” ?… • Nichia (Blue LED) Tokyo Dist. Ct. Case (2004, Jan. 30): • “Monopolistic profit” is calculated as follows: • In case of licensing-out: amount of royalty • In case of in-house implementation (no licensing-out): • (a) the profit gained by the employer by prohibiting the others to implement patented invention due to exclusivity of the patent (“extra profit”); or • (b) hypothetical royalty extra profit/ monopolistic profit Extra profit profit from statutory non-exclusive license (Sec. 35 (1))

5. 1.3. How to calculate “Monopolistic profit” ? -How to calculate the royalty amount of comprehensive (package) cross-licensing? -Can an employee enjoy “reasonable remuneration” for right to obtain “foreign” patents?

6. 2.1. Lower court precedent after Olympus decision

7. 3.1. Hitachi case -fact Plaintiff (appellee): Hitachi Corp. Defendant (appellant): ex-employee, Mr. Yonezawa Facts found in Tokyo High Ct.: -Mr. Yonezawa was co-inventor of three inventions regarding CD/DVD recorder/player (1973-1977) -Three applications were patented in Japan, and corresponding applications were also patented in U.S., Canada, U.K., France, Germany, and Netherlands. -Hitachi had internal regulation regarding inventor’s remuneration at a time of assignment, which covered both domestic and foreign patent. -Mr. Yonezawa and Hitachi assigned right to obtain a patent (incl. right to obtain foreign patent) to Hitachi according to the internal regulation. -Mr. Yonezawa got paid 2.3 millions for the assignment of right to obtain a patent. -Hitachi got profit from royalty through licensing-out of the patents. -In 1998, Mr. Yonezawa brought lawsuit and claimed JPY 970 millions.

8. 3.2. Hitachi case -issues -Can an employee enjoy “reasonable remuneration” for right to obtain “foreign” patents? (Issue 1) -How to calculate the royalty amount of comprehensive cross-licensing? (Issue 2)

9. 3.3. Tokyo District Ct. decision (Hei10(wa)16832) <Issue 1: Reasonable remuneration for right to obtain foreign patents> -Tokyo Dist. Ct. ruled that foreign counterpart patents should NOT be taken into consideration when calculating reasonable remuneration under Sec. 35”, and Sec. 35 shall apply only to “right to obtain domestic patent”, because: -Applicable law on formation and effect of the assignment agreement of right to obtain foreign patent is Japanese law, since the assignment agreement was made between Japanese company, Hitachi, and Japanese employee, Mr. Yonezawa, in Japan. -However, based on the “Doctrine of Territoriality”, applicable law on remuneration for the assignment of right to obtain foreign patent is respective foreign patent laws. Conclusion: The employee can not enjoy reasonable remuneration for right to obtain foreign patents.

10. 3.3. District Ct. decision <Issue 2: royalty amount of comprehensive cross-licensing> -Dist. Ct. ruled that monopolistic profit should be royalty amount Hitachi could quit of paying via cross-licensing. JPY 34 millions awarded

11. 3.4. Tokyo High Ct. decision (Hei14(ne)6451) < Issue 1: Reasonable remuneration for right to obtain foreign patents> -Reversed -Tokyo high Ct. ruled that foreign counterpart patents should be taken into consideration when calculating reasonable remuneration under Sec. 35”, and Sec. 35 shall apply both to “right to obtain domestic patent” and “right to obtain foreign patent”, because: -Since implied consent was found between the parties that applicable law on formation and effect of the assignment agreement should be Japanese law, according to Horei (Law Application Principles Act) Sec. 7(1), applicable law on the assignment of right to obtain foreign patent is Japanese law. -In light of labor law aspect of Sec. 35 and considerable diversity on employee’s invention system in foreign countries, “reasonable remuneration” should be unifiedly determined according to the law to which the employer and employee belong. Conclusion: The employee can enjoy reasonable remuneration for right to obtain foreign patents.

12. 3.4. Tokyo High Ct. decision Horei (Law Application Principles Act) Sec. 7(1)As to the low governing the formation and the effect of a juristic act, the applicable law shall be determined by the parties of such juristic act. (2) If the parties do not determine such applicable law, the law of the place of the act shall govern.

13. 3.4. Tokyo High Ct. decision < Issue 2: royalty amount of comprehensive cross-licensing > -Reversed -Tokyo high Ct. ruled that in case of package cross-licensing, monopolistic profit should be calculated by either: -(a) (royalty amount Hitachi should have paid for all patents included in the cross-license) * contribution rate of the employee’s invention; or -(b) royalty amount the counterpart of the cross-licensing should have paid for the employee’s invention JPY 163 millions awarded (14% of licensing income, second highest)

14. 3.5. Supreme Ct. decision(Hei16(ju)781) Decided on Oct.17, 2006 -Affirmed Issue 1: High Ct. decision upheld with different reasoning “Reasonable remuneration should cover assignment of right to obtain foreign patent by analogy with the application of Sec. 35 (3) and (4).” Issue 2: High Ct. decision upheld -Favorable decision for employees

15. 3.5. Supreme Ct. decision <Issue 1: Reasonable remuneration for right to obtain foreign patents> 1st step:Applicable law on remuneration for assignment of right to obtain foreign patents <Rulings> -Applicable law on remuneration for assignment of right to obtain foreign patent shall be primarily determined based on the parties’ intension according to Horei Sec. 7 (1) (ref. “FM demodulator” Sup. Ct. decision on Sep. 26, 2002). -In this case, applicable law is Japanese law. <Reasoning> -Remuneration for assignment of right to obtain a patent is a matter of debts and credits, i.e., effect of contract e law, to which the Horei Sec. 7 (1) shall apply. <Dogma of “Doctrine of Territoriality”> -This rulings does not conflict with “Doctrine of Territoriality” that governs effect of respective right to obtain foreign patents. -Applicable law on the effect of respective right to obtain foreign patents shall be respective foreign laws where the patents were granted according to “Doctrine of Territoriality”.

16. 3.5. Supreme Ct. decision <Issue 1: Reasonable remuneration for right to obtain foreign patents> 2nd step: Is the right to obtain foreign patents covered by Sec. 35 (3)? (Is foreign patents taken into consideration when calculating “reasonable remuneration”?): <Rulings> -Sec. 35 (3) and (4) could not directly apply, however, reasonable remuneration should cover assignment of right to obtain foreign patent by analogy with the application of Sec. 35 (3) and (4). -In this case, foreign patents should be taken into consideration when calculating “reasonable remuneration”. <Reasoning> -Considering the patent independence doctrine under Paris Convention 4 (2) and the fact that Sec. 35 (1) and (2) only stipulates right to obtain domestic patent, Sec. 35 (3) and (4) could not directly apply. -However, (1) the objective of Sec. 35 (3) and (4) is to secure certain amount of remuneration for employees from labor law aspect, which is similarly applicable to domestic patent and foreign patents; (2) Respective rights to obtain patents derive from single invention under single employment relationship; and (3) Since where to file is not yet determined at a time of assignment, the parties’ intension is assumed that all relevant rights should be processed as a whole.

17. 4.1. What’s confirmed? After Hitachi Sup. Ct. decision… -Reasonable remuneration should reflect profits from corresponding foreign patents. -By analogy with Sec.35, right to obtain a foreign patents can be assigned in advance to an employer by comprehensive agreement, internal regulation, etc. and an employer has statutory non-exclusive license for implementation of foreign patents. -Hitachi Sup. Ct. decision is also applicable to assignment of the right to obtain a patent under new Sec. 35 (i.e., assignment on or after Apr. 2005), since new Sec.35 is still silent on “right to obtain foreign patents”.

18. 5. Another issue Should monopolistic profit include employee’s profit from in-house implementation in case of non-discriminatory licensing-out? Mitsubishi Dist. Ct decision, decided on July 18, 2006 <Calculation of monopolistic profit> In case that the patent at issue is licensed out non-discriminatorily AND implemented in house, a profit from in-house implementation is excluded from basis for calculation of “monopolistic profit”. extra profit/ monopolistic profit In-house implementation profit from statutory non-exclusive license (Sec. 35 (1))

19. Thank you for your kind atttention! Kay KONISHI MIYOSHI & MIYOSHI konishi@miyoshipat.co.jp