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Employee Inventions in Japan: Revised Article 35 and its Implementation

Employee Inventions in Japan: Revised Article 35 and its Implementation. Yasunori Ohtsuka Ohtsuka Patent Office. AIPLA - January 26, 2005. Learned Lessons from Japan Court Decisions Regarding an Employee Invention under Current Art. 35.

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Employee Inventions in Japan: Revised Article 35 and its Implementation

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  1. Employee Inventions in Japan: Revised Article 35 and its Implementation Yasunori Ohtsuka Ohtsuka Patent Office AIPLA - January 26, 2005

  2. Learned Lessons from Japan Court Decisions Regarding an Employee Invention under Current Art. 35 • The court may intervene in a dispute even if there is a company rule (Supreme court, April 22, 2002). • A company rule does not binds the parties on the amount of remuneration. • The judges have substantial discretion in making their decisions (e.g., Nichia, Hitachi, Ajinomoto). • In other words, the company rules have weak authority.

  3. Art. 35 was Amended to Make the Voluntary Agreement more Effective New Article 35 will become effective from April 1, 2005 and is applied to patents assigned and filed after April 1, 2005.

  4. New Article 35 Para 4 4. (Added) In a case where remuneration under the preceding paragraph is determined in accordance with provisions of a contract, employment rules, or other stipulation, making reference to: ·    the circumstances of consultations made between by the Employer, etc and the Employee, etc. for establishing standards to determine remuneration; ·    the circumstances of disclosure of such established standards; and ·    the circumstances of soliciting the views of the Employee, etc. when calculating the amount of remuneration, and an amount of remuneration determined in accordance therewith is paid [in accordance with the contract, employment rules, or other stipulation], such amount must not be considered unreasonable. Art. 35, paras. 1 to 3 were not amended

  5. New Article 35 Para 5 5. In a case where there are no such provisions [of a contract, employment rules, or other stipulation] of the preceding paragraph, or where otherwise paying remuneration in accordance with such provisions is considered unreasonable according to the preceding paragraph, the amount of the remuneration under the preceding section shall be determined by reference to: ·    the amount of profits to be realized by the Employer, etc. from the invention; and ·     the burden assumed and the contribution made by the Employer, etc. in relation to the invention, and the compensation and benefits given to the Employee, etc.

  6. Characteristics of New Article 35 • The basic framework regarding employee inventions has been maintained. • The new article emphasizes procedural reasonableness. • If the process is reasonable, then the court will respect that process and its results. • If the outcome regarding the amount of remuneration is clearly unreasonable, the court will intervene.

  7. What is Emphasized in the JPO Guidelines Issued in late 2004? • Emphasizes the importance of procedural elements in employee invention rules. • The amount of compensation shall be considered in a secondary manner, compared to procedural aspects. • The JPO has made an English version of the Guidelines available at: http://www.jpo.go.jp/shiryou_e/s_sonota_e/c ase_studies.htm

  8. What are the Procedural Elements?(Consultation and Disclosure) 1. Important issues in the consultation process 2. Consultation…with whom? 3. Disclosure of the standards • The compensation system for inventions should be well explained and understood • For a company to bring to market one good invention, it implies • For one good idea, a lot of failures • Risk associated with the development phase and its costs • One product does not equal 1 single invention, but many ones. • Representatives of the union, the management class, and the researchers / inventors. • The outcome of these discussions should be made available to all employees to stimulate their participation in the process of consultation. • Records should be kept at all time about the discussed matters.

  9. What are Procedural Elements (Hearing) Hearing of employee's opinions on the calculation of remuneration - The inventor’s opinion should be heard about the compensation, at the time the compensation is made or later - The guideline recommend hearing the opinion at the latest within 6 months after the payment to the inventor; - The company should listen to the inventor’s counter-proposal, if any - It is of primary importance to keep a record of these hearings

  10. How to implement a Company Rule under Art. 35 Method 1: A fixed amount of money is paid to the inventor when the patent is filed and when the patent is issued. Then further considerations are provided when the invention is commercialized. OR Method 2: It is also possible to pay considerations to the inventor at one time, based on the expected profit of the commercialized invention.

  11. Harmonize the Compensation System under Art. 35 with the Company’s own Employee Compensation System • Art. 35 must be implemented within the company. • However, the implementation of Art. 35 must be harmonized with the company’s structure to compensate all personnel involved in the research, development and commercialization of the invented product.

  12. Recommended Incentive Program • Incentive programs for leadership or driving forces within the company or department. • Not only the inventor himself, but participating colleagues should benefit from the incentives. • The invention needs to be made tangible in order to be marketed • The efforts and resources of a company are needed. *Need agreement of the majority of employees to operate such an incentive program in order to meet the requirements of Art. 35. Examples: President Prize $10,000 to $50,000

  13. When should you establish your company’s new rules, and how should you handle your current rules? • New Rules • Wait and See • Existing Rules -Recommended to take effect from April 1, 2005. - Example Mr. Nakamura’s case (Nichia) was settled for an amount 100 times less than the court awarded in the first decision. - Also, you can learn from similar companies. - It is not absolutely necessary to modify existing rules, but you must inform your employees about the rules and get their input, opinion and their “understanding” (i.e., consultation process). • - Under the spirit of the new law, the consultative procedure will cause such existing rules to have ex post facto • effect to previously filed patents.

  14. Proposals to Strengthen the Company’s Position against the Inventor - Employee • Use individual (separate) agreements with the employee for good and valuable inventions. • Company rules should have measures to avoid lawsuits (i.e., to prevent disclosure of trade secrets and the like) by providing confidentiality and arbitration agreement clauses.

  15. What Should be done in the Case of Soon-to-retire Employees? An agreement should be made between a soon-to-retire employee and the company in order to prevent any misunderstandings and lawsuits. Example: confirm the compensation system, method of calculation, etc. and obtain the agreement from such employee.

  16. Final Outcome on Nichia Case (Jan. 11, 2005) • Under the settlement before the Tokyo High Court, Dr. Nakamura had to be paid about JPY 600 million ($6 million). This is about 100 times less than the amount ordered by the Tokyo District Court. • The Tokyo High Court said that the price paid by a company for an invention should be sufficient to motivate employees, and yet be at a level that allows the company to survive and develop in the competitive situation of the market. • Groups representing employers have said that the decision was acceptable.

  17. Conclusion The new Article 35 should promote a more harmonious and stable employer-employee relationship, as employers should be encouraged to take risks associated with research and development activities.

  18. Thank you for your ATTENTION! OHTSUKA PATENT OFFICE 7th FL., SHUWA KIOICHO PARK BLDG. 3-6, KIOICHO, CHIYODA-KU TOKYO 102-0094, JAPAN TELEPHONE: +81-3-5276-3241 FACSIMILE : +81-3-5276-3242 E-MAIL: opt@patest.co.jp

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