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Employee Inventions in Japan: Revised Article 35 and its Implementation

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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
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
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.

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. 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.

9
What 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
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 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.

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 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.

14
Proposals 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.

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_at_patest.co.jp
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