Having lost its edge as a mass-production base, Japan's future economic prosperity depends on its innovativeness in offering high value-added products and services.

Along with efficient research and development, the strategic use of known technologies holds the key for Japanese firms to surpass their foreign rivals and come out on top in the global market.

With such an outlook, the government embarked on a policy favoring patent holders in the late 1990s, emulating a policy in the United States initiated in the 1980s that successfully helped reinforce the then-ailing U.S. economy.

Defining inventions and innovations as strategic assets, the so-called propatent policy calls for greater protection of intellectual property rights, enabling inventors to gain a just reward for their work and giving them incentive to work harder.

To date, however, the policy has not yielded many visible results, according to pundits.

"Awareness of the value of intellectual property is rapidly rising. But we have yet to see conspicuous achievement in terms of the policy's actual contribution to technological development," said Kozo Oikawa, commissioner of the Japan Patent Office.

Among the specific measures previously taken under the propatent policy, the government has broadened the scope of intellectual property subjected to protection, applying stricter punishments for patent infringements. It has also introduced mechanisms to facilitate efficient exchange of patent information.

The carrot-and-stick strategy aims to create a cycle in which inventions and innovations bring ample profits to inventors, enabling them to direct more financial resources to further research, said Hisamitsu Arai, a former JPO commissioner who initiated Japan's propatent policy.

In the past, the amounts of fines and court-ordered compensation payments were so low that many firms chose to illegally copy others' technology rather than pay royalties, which deprived patent-holders of the opportunity to make profits, he explained.

To change that, the government in 1998 revised the method of evaluating damage caused by rights infringements, effectively boosting the amount of compensation payments, while raising the maximum amount of fines from 5 million yen to 150 million yen.

In a ruling that set the record in Japan for damage compensation for patent infringement, the Tokyo District Court in 1998 ordered Fujimoto Pharmaceutical Corp. to pay 3 billion yen in damages for infringing on intellectual property rights held by two subsidiaries of then SmithKline Beecham Plc, a British drug maker.

Japan's Patent Law had traditionally limited the scope of invention to a "high-level technological concept" created by "utilizing the laws of nature," effectively excluding newly conceived business strategies. Last year, however, the government redefined its guidelines to grant patents on business approaches.

The government has also created a database of so-called dormant patents, to facilitate the efficient use of existing technologies. This was done in response to the reality that certain inventions -- which may be valuable to companies in different sectors or small venture businesses that lack the resources to conduct their own R&D -- remain unused as their inventors find little use for them.

To stimulate academic research, the government introduced a new law in 1998 to promote technology transfers from universities to the private sector.

Another law, enacted in 1999, has enabled government-commissioned researchers to claim a stake in patents on their breakthroughs, which were deemed solely government assets in the past, to better motivate such pursuits.

Unlike in the U.S., where propatent policy -- in coordination with other industrial policies -- paved the way for the prosperity in the 1990s, Japanese efforts have yet to generate similar results.

One reason pundits point to is that Japanese researchers are generally far less rewarded -- thus less motivated -- than their U.S. counterparts, though they see the 1999 legislation as a step forward.

In a symbolic case that has revealed a huge gulf between Japan and the U.S. regarding the environment surrounding researchers, Shuji Nakamura, developer of the blue light-emitting diode, filed a lawsuit against his former employer, Nichia Corp., in August, demanding 2 billion yen as just reward for his invention and a one-thousandth stake in the patent on LEDs.

Nakamura, now a professor at the University of California, Santa Barbara, has been nicknamed Slave Nakamura by his fellow researchers who sympathize with his case, which is currently in the trial phase.

JPO commissioner Oikawa said Japanese companies are also far from being efficient in utilizing their patents.

"Few Japanese companies consider intellectual property rights as a core part of their business. In a sense, Japanese firms are using patents only in a defensive manner" without pursuing possibly lucrative cross-licensing arrangements, he said.

In a November 1999 survey conducted by the Japan Intellectual Property Association, 80.5 percent of its member companies said the purpose of their patent applications was defensive in nature.

Separate statistics also indicate that Japanese firms are not aggressive in utilizing their patents on the global market.

In 1998, Japanese firms filed some 360,000 patent applications in Japan and some 432,000 overseas, while the number of overseas patent applications made by their U.S. counterparts totaled 2.07 million, far exceeding the 141,000 applications they made domestically, according to the World Intellectual Property Organization.

Recognizing Japanese firms' numbness to the growing importance of patent strategy, Giichi Marushima, chairman of the intellectual property subcommittee of the Japan Federation of Economic Organizations (Keidanren), said Japanese firms should be wiser and more selective in their R&D activities.

While keeping patents on its core technologies, a company can offer noncore technology patents in a portfolio for cross-licensing, he said.

In this way, the firm can optimize the use of its held technologies and obtain those developed by others at a minimum cost, he said.

Marushima, former head of the intellectual property headquarters of Canon Inc., Japan's pioneer in patent strategy, urges greater efforts on the part of the government.

The state's propatent policy is lagging far behind the actual needs of the business community, he said, whereas it should be anticipating needs if it intends to strengthen Japan's competitiveness.

"What the government is trying to do now is a patchwork of existing laws," he said, questioning the effectiveness of the existing legal framework in coping with rapidly changing needs.

By granting a patent on computer software, for example, the government simply modified the examination guidelines instead of changing the definition of an invention, he said.

Government officials say, however, they are continuously working with policymakers who are reviewing the nation's policy concerning intellectual property rights.

Last month, the Economy, Trade and Industry Ministry and JPO launched a joint study group to examine the role of intellectual property policy in the country's industrial strategy. The group is expected to compile a report by next April.

Among the issues to be taken up by the study group is the role of universities as a source of technological innovations and inventions.

Earlier legislative changes allowed researchers at universities and national research institutions to hold patents on their own research findings, and the next step is to facilitate technology flows from the academic to the business world, Oikawa said.

Indeed, the Japanese business sector is counting on universities to play a greater role in basic research.

"When the capital market demands that we produce short-term results, we cannot continue to conduct all the research, from the basic to applied levels, on our own," Marushima said.

Naoya Kaneko, a senior researcher at Japan Research Institute, called for creation of a consortium of major companies from different industrial sectors to take up such tasks as screening and transforming academic findings into technology applicable to marketable products.

Although researchers-cum-entrepreneurs bear a similar role in the U.S. by starting up venture businesses based on their research, such entrepreneurs are few in Japan, he said.

As means to further encourage businesses to establish and utilize intellectual property rights, pundits call for reforming the nation's judicial system and boosting the number of legal experts on the issue to speed up legal actions involving patent infringements.

With the business environment quickly changing, speedy trials are essential to properly protect inventors' rights, especially for small firms that lack a solid financial base.

Some even warn that the prospect of prolonged domestic trials may drive Japanese firms to take legal action in U.S. courts, leading to an accumulation of intellectual property rights information in the U.S. and a depletion in Japan.

"What happens is that outcomes (of trials) in U.S. courts set precedents and create the possibility that such precedents will become world standards," said Akira Koike, president of the Japan Patent Attorneys Association.

Litigation in the U.S. imposes added financial and psychological burden on Japanese companies, which have to hire lawyers abroad and prepare their cases in a foreign language, he added.

While an efficient patent strategy seems a remote goal for many Japanese firms, they also remain vulnerable to copyright piracy.

In China, imitations of Japanese- and Western-made products are still rampant and original producers are losing their markets while not receiving royalties for their technologies and trademarks.

With some countries, especially China, quickly gaining technological capability, the quality of the imitations is improving to a level comparable with that of the original products, creating an even bigger problem for the original producers.

To cope with this, Japan has been demanding that the governments of those countries strictly protect intellectual property rights through bilateral and multilateral channels, while helping them establish efficient patenting systems, a JPO official said.

Japan is also a major supporter of the ongoing multilateral approach to harmonizing patent systems globally under the WIPO initiative. Tokyo believes such harmonization would provide a level of predictability for patent application results.

With such uncertainty surrounding application results, many small and midsize Japanese firms remain reluctant to file patent applications overseas, making them vulnerable to technology leaks, especially in developing countries where many Japanese companies set up production bases, the official said.

With greater predictability of outcomes, Japanese firms will probably become more willing to seek patents, thereby better protecting their businesses, the official said.