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Taisho Sophisticates

by Jeff Kingston

EXPLOITING PATENT RIGHTS AND A NEW CLIMATE FOR INNOVATION IN JAPAN, edited by Ruth Taplin. London: Intellectual Property Institute, 2003, 124 pp., £35 (paper).

Intellectual property rights (IPR) is a hot issue in Japan. The government has implemented a series of related legal and institutional reforms aimed at protecting and tapping the economic benefits of Japan’s vast IPR portfolio. The rapid introduction of these reforms and innovations belie pervasive perceptions of policy paralysis and political gridlock.

As the second leading holder of patents behind the US, accounting for some 24% of the global total, Japan has belatedly awoken to the potential of these assets. Clearly, the prolonged recession has stimulated firms to more aggressively assert their rights and reap economic benefits therefrom. Certainly the government is concerned about the $4 billion IPR trade gap with the US and is aware that US firms generated $37 billion in royalties and licensing fees in 1999. Overall, the US enjoys a $27 billion surplus in its IPR trade account.

Hitachi has been one of the most successful Japanese firms in managing and exploiting its patent portfolio, earning some $400 million per annum in recent years. Throughout corporate Japan, according to Quentin Vaile, there is an increasing emphasis on generating revenues from IP royalties and licensing fees. In addition, firms are more inclined to pursue IPR-related litigation.

This helps explain why Keidanren has been such a strong proponent of judicial reform and believes that doubling the number of lawyers is an answer to Japan’s problems. There is a need to speed up legal proceedings in infringement cases, especially for smaller firms that can not afford lengthy litigation. In addition, companies need access to legal expertise to assert and manage patent rights.

METI (The Ministry of Economy, Trade and Industry) has taken the lead in trying to promote closer ties between industry and academia, and stimulating entrepreneurial inclinations in universities, areas where Japan lags well behind the US. Vaile notes that Japanese universities held only 90 patents generating less than $1 million in revenue in 1996 while US universities held more than 3,800 patents generating over $370 million. Three of the nine chapters in this volume examine how universities are becoming far more active in this field.

Although the emphasis in Japan is on closing the IPR revenue gap and maximizing profits from patent portfolios, there is also a sense that this new focus on the knowledge economy will generate opportunities for foreign firms. International joint ventures and collaboration on new technologies are already paying dividends. Concerns that a government-led industrial policy will shoulder foreign firms aside are offset by skepticism that such efforts can succeed.

How do employees figure in this IP revolution? Are the actual inventors set to personally benefit from their work? Katsuya Tamai limns the debate in Japan and sketches the US and German models. He advocates instituting a minimum remuneration system based on the German model coupled with a contract system as exists in the US. This would mean that all researchers would benefit based on a scale of pay-outs related to sales while some established scientists would be able to negotiate more favorable contracts. This latter provision would help limit the brain drain.

Takuma Kiso argues that an entrepreneurial culture is taking hold in Japan and that this suggests significant changes in the near future. He argues that this shift in attitudes is driving a revolution in IPR and venture capital. The implosion of Japan, Inc. during the 1990s, and the fading of lifetime employment are key factors in this shift in attitudes. New graduates find far more support for their dreams of starting their own business, ranging from “how to” courses to venture capital. Venture capitalists are reaching out to innovators and raising the cash to finance their business plans. This emergence of risk taking and incubators is launching a generation of entrepreneurs. So far this has been on a small scale, but with changes in IPR laws, greater cooperation between government and business on IPR issues, and the lure of patent revenues, Kiso is optimistic that Japan is closing the entrepreneur gap.

In such a brief volume, it is not possible to cover many important aspects of the rapidly evolving IPR regime in Japan, but this is a good inter-disciplinary introduction to a fascinating subject.