Japan enacts law to ascribe employee inventions to firms

JIJI, Kyodo

The House of Councilors passed a bill into law on Friday allowing companies to obtain patents on inventions by their employees — more than a decade after Nobel Prize winner Shuji Nakamura launched a lawsuit against his company over the invention of the blue light-emitting diode.

The amendment, the first in more than 90 years, will help reduce the litigation risks for companies.

In 2001, Nakamura, winner of the 2014 Nobel Prize in Physics for inventing the blue LED with two other Japanese scientists, set a precedent for individual intellectual merit by suing his employer, Nichia Corp., to claim reasonable compensation for the invention.

In 2004, the Tokyo District Court ordered Nichia,which is based in Tokushima Prefecture, to pay ¥20 billion (about $164 million) to Nakamura for his invention. After a long legal battle, a rare ¥840 million settlement was reached.

He was initially rewarded ¥20,000 for the patent.

At a news conference held in Santa Barbara, California last October, Nakamura said he chose to relocate from Japan to the United States because researchers there are given a lot of freedom and everybody has a chance to succeed if they work hard.

Under the current system, patent rights of an employee’s invention belong to the employee and companies that want to cash in on employee inventions through patents must first take over the rights by providing “reasonable remuneration” to the employee. But Japan Inc. has voiced concerns that they would be forced to provide a large sum of remuneration.

With the revision, patent rights will belong to the companies if they have informed the employees beforehand, including in the company’s work regulations. Companies that obtained patents for inventions by employees will be required to give appropriate rewards in accordance with the Japan Patent Office’s guidelines.

The bill states that employees who invented products whose patents have been acquired by their employers are entitled to considerable compensation and economic benefits from the companies.

In a bid to avoid demotivating inventors at companies, the bill limits the scope in which the patent acquisition right can be transferred from employees to their companies.

The bill says that the right to obtain patents can be ascribed to companies only if they promise to reward employees for their inventions in internal rules or by other means.

Many major companies have internal rules on the transfer of the patent acquisition right to the companies from employees.

The patent office is expected to draw up the guidelines within the year. In them, the office will urge firms to introduce systems to receive objections from developers regarding rewards proposed by their employers.

The Upper House also passed a bill to revise the unfair competition prevention law, in order to tighten penalties on theft of trade secrets, such as product designs.

  • 151E

    Vague promises of “reasonable renumeration” don’t mean much. I’ll be interested to see if this bill precipitates a flight of Japan’s best and brightest scientists and engineers.

    • J Steel

      They certainly won’t be better off in this regard going to the West. This is commonplace in Western countries already. I work in tech and I have yet to see a single U.S. company for example that doesn’t state clearly in its contract to employees that all inventions developed during company time belong solely to the company. The fact that under the current Japanese system inventions belong to the employee and companies have to provide “reasonable renumeration” is already incredibly generous when compared alongside the U.S. system. The U.S. logic (not saying this is the right or best way) is that the employee used company time, company resources, and company equipment to formulate and develop the invention.

  • Liars N. Fools

    This is not so much about the law but about the culture. In a western company, the innovator will get rewarded handsomely because the company values innovation in its employees because often the head is an innovator himself/ herself.

    In Japan, however, the innovator is just an employee. The collective that makes up that company does not want too many nails to stand up for fear that others will be unhappy. That is why pay for performance has such an unhappy history in Japan currently.

    I have been at lectures by Dr. Nakamura. He actually talks about his experience, including the cultural and not merely the legal aspects.

    • TowerTower

      Adding my two cents to this.

      Don’t disagree with your assessment of the cultural differences but there’s more to that as well.

      These lawsuits by employees in Japan seeking such large rewards for their inventions is actually very unique and rare in the world. You won’t find much cases from this in the West. This is not because “the innovator will get rewarded handsomely because the company values innovation in its employees…” I would have to thus disagree with that statement. Inventions by employees at corporations done in the West actually get very minimal financial compensation. The person that invented the Post-it Note for example was entitled to none of the royalties and received no direct financial benefit from its sales.

      The difference is that employees in the West have more opportunities to go out and work with many other companies to further develop the idea. And yes the company will usually make sure the employee is amply recognized for that invention, which opens up many other opportunities. The clause in employment contracts that attribute inventions to the company, when used in Japan would probably involve cases where the company asserts rights to the invention by the employee. In the West many of the incidents have it being used against “former” employees that took the invention to a rival company. It has to do with the fact that the culture in Japan is where researchers tend to keep working at the same company. In the West, an employee who invented something of great value may not get any meaningful improvement in financial compensation, but because of the subsequent recognition they would just move to another company that offered them a significant increase in compensation, or just start a company backed by venture capital.

      Dr. Nakamura’s statement is thus very true, but as noted it’s about there being the research freedom and opportunity to succeed in the U.S. If looking solely at monetary compensation for employee inventions by companies, I don’t see that much difference between Japanese and Western companies.

      • KenjiAd

        Very true. If you are an engineer/scientist in American company, and if one day you came up with a great idea, you would want to make sure that:
        1) the idea has nothing to do with what you are doing in the company, and
        2) all the preliminary experiments be done in your garage outside of your work hours.

        Then you have to leave the company and starts looking for investors who would financially support your idea. In Japan, that would be difficult. Most R&D projects in Japan are sponsored by big corporations, rather than individual investors supporting talented geeks.

      • Testerty

        You cannot do that now as evidence by the arrest of several Chinese-Americans recently. The company will send in the FBI to arrest you as spy and claim your innovation while you are locked away. Under the new TPP, they can even go to member country to arrest you. Large corporations alway win.

      • KenjiAd

        I think we are talking about two separate issues. Theft of intellectual properties, which I believe you are alluding to, is of course illegal.

        But any invention done by an engineer/scientist belongs to him/her, as long as it’s done outside of his/her work hours and done without using any resources (physical or intellectual) of the company s/he works for.

        For example, let’s say you are an engineer working for Apple iPhone team where your work is to build a user interface. One day, you suddenly came up with an idea for on-line gaming; you worked on it exclusively after you came home thus not using any of the Apple resources. Then this idea would belong to you and you would be free to market it. No, no FBI would knock on your door.

      • Testerty

        They were accused of spying, not thief of IP. As such they are jailed without bail while hearing will remain close from the public. Way to go USA, close door judiciary just like Gitmo. That’s the way to shut them up while their IP got stolen by the competing company.

      • Xiteru corvus naga

        how r u testerty?

    • tisho

      No. Culture is a result of law, governmental model and economic system. Hong Kong is an Asian country but the difference between Hong Kong and Japan is like comparing China to the US, that’s because Hong Kong has been under free market and open economy, low to no regulations and very little government intervention into the society for decades now. In the United States, most companies have individual policies regarding patent ownership. There is no federal law about this. Most companies i would guess have a share policy in these type of scenarios. The corporate culture in the United States is based on individual incentive driven, this has been made possible due to decades of no government intervention and free labor market. Companies create policies that create strong incentive for individual workers to excel in their work because the more you excel the more money you get, which create incentive. In Japan, due to the closed and overly regulated labor market, the corporate culture is different, it is not based on individual incentive for money, it is based on risk avert. The government policies makes it difficult for companies to reward their employees for better work, it is difficult to fire/hire people. Decades of this economic system has created what you see today. This can be changed if you liberalize the labor market and stop government intervention into the economy. All businesses exist to make money, once you let companies be free, they will find a way to make more money, they will learn how to use the individual incentive driven model quickly.

    • KenjiAd

      Actually, at least in America, most R&D scientists/engineers sign a paper saying they are hired to invent. What it means that, when an invention is developed by these scientists/engineers, the employer will own the invention. The actual inventors (R&D scientists/engineers) usually will get nothing from the invention.

  • R RKK

    In US inventions on the company time and resources belongs to companies and usually pay about $2K as an token appreciation. So what is the motivation for employees to come up inventions ? And most of the outstanding inventions are done at the startup companies where the inventor have significant stock or ownership in the company.

  • tisho

    What incentive does any employee now have to innovate ? Knowing that his invention will be taken and claimed by the company, this takes the incentive for people to be creative. Also, the government should not tell private companies how to run their own company. It should be up to the company to decide what type of policy they want to pursue.

  • Kazuhiro Shino

    Legislation is draconian & counter productive blue LED settlement is travesty at least 3~4 digit short patent would make $ multi trillions Japan has so many patents but earning from pattents are minimum by clumsy negotiation & silly pricing that’s why Japanese productivity is so low Japanese average salary should be at least Germany level

  • Kazuhiro Shino

    Patent reward should be shared between firm & inventors by percentage of future use & remuneration combined is fair way some patent could not convert immediate commercial merchandises or use. Japanese companies have been exploited by third party beneficiaries also poor negotiation skill & inexperienced layers