The Olympus Supreme Court Decision on Employees Inventions and Section 35 of the Japan Patent Law

1
The Olympus Supreme Court Decision on Employees
Inventions and Section 35 of the Japan Patent Law

• Yoshi Inaba
• TMI Associates
• AIPLA Meeting, October 28, 2003

2
Significance of the Decision

• The Supreme Court has set a clear precedent for
  determination of a reasonable remuneration under
  Japan Patent Law Section 35 on Employees
  Inventions.

3
Olympus Case - procedural history

• Olympus appealed from Tokyo High Courts decision
  awarding JPY 2,289,000 to ex-Olympus employee as
  the reasonable remuneration for Employees
  Invention under Patent Law Section 35-3, 4.
• The Supreme Court affirmed.

4
What is Employees Invention?

• Patent Law Section 35-1 defines Employees
  Invention as an invention which by reason of its
  nature falls within the scope of the business of
  the employer, etc. and an act or acts resulting
  in the invention were part of the present or past
  duties of the employee, etc. performed on behalf
  of the employer, etc.

5
Employees Right to Reasonable Remuneration

• Patent Law Section 35-3 provides for the
  employee-inventors right to a reasonable
  remuneration for passing his Employees Invention
  to the employer.

6
Advance Agreement for Transfer of Right to Patent

• Patent Law Section 35-2, by way of reverse
  interpretation, provides for validity of an
  advance agreement for a transfer of patent rights
  (incl. a right to obtain a patent, a patent
  right, and an exclusive license) for Employees
  Invention.
• E.g., contractual provisions, service regulation,
  or other stipulation in advance.

7
Calculating the Reasonable Remuneration

• Patent Law Section 35-4 provides that the amount
  of such remuneration shall be decided by
  reference to the profits that the employer, etc.
  will make from the invention and to the amount of
  contribution the employer, etc. made to the
  making of the invention.

8
Olympus Case - facts

• Ex-employee invented a pick-up device as part
  of his employment duties at Olympus and
  transferred his right to the patent for his
  invention to Olympus as per the employment
  regulations.
• In consideration, Olympus paid Ex-employee JPY
  211,000 as Industrial Property Right Income per
  the employment regulations.

9
Olympus Case - holding 1

• When an employee has transferred his right to
  receive a patent for the employees invention to
  the employer, and the employment regulation or
  the like established by the employer provides for
  a consideration for the transfer of right, if
  such consideration does not amount to the
  reasonable remuneration as defined by Patent Law
  Section 35-3 and -4, the employee may demand the
  balance due from the employer.

10
Olympus Case - holding 2

• The statute of limitations for demanding
  reasonable remunerations is tolled at the time of
  payment of the consideration owed by the employer
  to the employee, when the employment regulation
  or the like provides for the due date for payment
  of such consideration.
• 10 years according to Civil Law Section 167
  Paragraph 1.
• Here, while the invention was completed in 1973,
  the ex-employee received the Industrial Property
  Right Income on April 1992 per the employment
  regulation, so the statute of limitations had not
  lapsed on March 3, 1995 when ex-employee had
  filed suit.

11
Olympus Case - rationale

• It is clear that when the employees invention
  has yet to be made, and the nature and value of
  the right to receive a patent for such
  invention, which will be transferred to an
  employer, is yet to materialize, it is not
  possible to determine the amount of reasonable
  remuneration with certainty, and the provisions
  of the above-mentioned Section i.e., Japan
  Patent Law Section 35 and their goals cannot be
  interpreted to allow such determination.

12
Olympus Case rationale contd

• In other words, while the remuneration defined by
  an employment regulation, etc., could be
  interpreted to constitute a part of the
  reasonable remuneration under Paragraphs 3 and 4
  of Section 35, it does not immediately amount to
  the entirety of the reasonable remuneration.

13
Olympus Case - calculation of balance due on the
reasonable remuneration

• Balance Due on Reasonable remuneration was held
  to be JPY 2,289,000, based on the following
• JPY 50 Million (Olympuss profit from the patent)
  x 5 (discounting 95 contribution by Olympus)
  JPY 211,000 (Amount already received by
  Ex-employee under employment regulation).

14
Other Cases on Employees Invention
15
Scope of Section 35 Answers to questions from
AIPLA to Commissioner Imai

• Mr. Michael K. Kirk, Executive Director of AIPLA
  submitted a letter to Commissioner Yasuo Imai of
  Japan Patent Office requesting review and
  revision of the current Section 35 Japan Patent
  Law.
• The following pages discuss the questions raised
  by Mr. Kirk in the letter, and my answers.

16
Q. Does Section 35 apply only to Japanese entity
employers?

• A. No. By virtue of the Principle of
  Territoriality, Section 35 applies not only to
  Japanese entity employers but each and every
  employer located in Japan.

17
Q. Does Section 35 apply to Japanese
subsidiaries of non-Japanese corporations?

• A. Yes. Section 35 applies to all employers in
  Japan.

18
Q. Does Section 35 also apply to any entity with
employees located within Japan?

• A. Probably yes.

19
Q. Does Section 35 apply only to
employee-inventors who are Japanese citizens?

• A. Probably no. By virtue of the Principle of
  Territoriality, Section 35 applies to
  employee-inventors working in Japan at an entity
  located in Japan regardless of his/her
  citizenship.

20
Q. Does Section 35 apply only to inventions made
in Japan?

• A. Probably yes. Again, this is by virtue of
  the Principle of Territoriality.

21
Q. Is the answer to any of the foregoing
questions related to Section 15, or any other
section of Japan Patent Law, or any other
Japanese statute or binding court decision(s)?
If so, what are such authorities?

• A. No. Section 15 defines the venue of the
  court for a patent owned by a resident abroad
  whereas the answer to the foregoing questions is
  related to the range of entity applicable to
  Section 35.

22
Q. Does Section 35 compensation have to be
calculated based only upon profits derived from
use or sale within Japan of the patented
invention?

• A. Yes. By virtue of the Principle of
  Territoriality, Section 35 does not apply to the
  right to receive a patent in a foreign country
  (See Tokyo Dist.Ct. H10(wa) No. 16832).
• I.e., A remuneration per Japanese Patent Law
  Section 35 cannot be sought based on a foreign
  patent.

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The End

• Thank you!