Title: Employee Inventions in Japan: Revised Article 35 and its Implementation
1 Employee Inventions in Japan Revised
Article 35 and its Implementation
- Yasunori Ohtsuka
- Ohtsuka Patent Office
AIPLA - January 26, 2005
2Learned 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.
3Art. 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.
4New Article 35 Para 4
Art. 35, paras. 1 to 3 were not amended
- 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.
5New 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.
6Characteristics 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.
7What 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
8What are the Procedural Elements?(Consultation
and Disclosure)
- 1. Important issues in the consultation process
- 2. Consultationwith 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.
9What are Procedural Elements (Hearing)
- Hearing of employee's opinions on the calculation
of remuneration
- The inventors 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 inventors counter-proposal,
if any - It is of primary importance to keep a
record of these hearings
10How 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.
11Harmonize the Compensation System under Art. 35
with the Companys own Employee Compensation
System
- Art. 35 must be implemented within the company.
- However, the implementation of Art. 35 must be
harmonized with the companys structure to
compensate all personnel involved in the
research, development and commercialization of
the invented product.
12Recommended 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
13When should you establish your companys 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. Nakamuras 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.
14Proposals to Strengthen the Companys 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.
15What 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.
16Final 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.
17Conclusion
- 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.
18Thank you for your ATTENTION!
OHTSUKA PATENT OFFICE 7th FL., SHUWA KIOICHO
PARK BLDG. 3-6, KIOICHO, CHIYODA-KU TOKYO
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