Inventor hopes lawsuit over diode empowers peers

Shuji Nakamura is confident that his court battle can radically change the relationship between Japanese companies and their in-house inventors.

“If I win, there would be a storm of litigation. A slew of in-house researchers would file lawsuits (against their companies),” said Nakamura, the inventor of the blue light-emitting diode, which is widely used for electronic screens. “Or before such a thing happens, companies would opt for out-of-court settlements.”

Nakamura is waging litigation against his former employer, Nichia Corp., a Tokushima-based chemical firm, demanding a ¥2 billion reward for his breakthrough invention, which was made in 1993 while working for the company.

Currently a professor of engineering at the University of California, Santa Barbara, Nakamura, 47, maintains that his invention brought billions of yen to Nichia. The company rewarded him with ¥20,000 for the invention.

Nakamura’s case has attracted attention because the outcome of his lawsuit may set new reward standards for corporate inventors at a time when they are increasingly demanding a “fair” reward for their inventions.

While some firms are already reviewing their reward systems, pundits say Nakamura’s case is an isolated example and that rewarding in-house inventors is generally a lot more complicated.

Under the Patent Law, employees are entitled to a reward for inventions made on the job if they transfer the patent right of their invention to their employer.

Although corporate inventors have been quiet until now, problems in the country’s decaying lifetime employment system accompanied by cutbacks in the corporate sphere help explain why claiming rewards is becoming more of an issue for corporate inventors.

“Employees did not ask companies to evaluate the value (of their inventions) and the reward set by companies is very low,” according to Hidetoshi Masunaga, a lawyer for Nakamura. “But employees did not complain because they intended to work for the same company until retirement.”

Masunaga predicts that more lawsuits will be filed by corporate inventors, especially those who lose jobs in the process of corporate restructuring.

An increasing number of companies have established higher rewards for successful corporate inventors, providing employees with an incentive and helping to stem a brain-drain of competent employees.

One such example is Mitsubishi Chemical Corp., which plans to introduce a new reward system in fiscal 2002, paying out up to ¥250 million to innovative employees as an incentive.

The company’s newly established reward system has nothing to do with Nakamura’s lawsuit, a spokesman for Mitsubishi Chemical said.

The reward amount is striking, however, compared with the paltry sums offered by most Japanese companies.

Conventionally, Japanese companies pay a bonus based on patents obtained for inventions by employees, according to Takahiro Naka, executive managing director at Japan Intellectual Property Association, which has about 800 corporate members.

Typically, a firm would pay a certain amount of money, ranging from several thousand yen to less than ¥100,000, for each patent application filed and each patent right obtained, Naka said.

As well as increasing the bonus payments, Naka said, an increasing number of companies are adopting achievement-oriented bonuses based on such matters as royalties from patents. But the achievement-based reward is often a fixed amount of money and is not in proportion to the profits brought by the invention, he added.

While corporate inventors demand a fair share from their contribution to a company, it is often hard to precisely define their contribution, making it difficult to calculate their share of the reward, according to pundits.

It is virtually impossible to determine the value of each employee’s contribution to an invention because Japanese companies conduct research and development with a team of in-house scientists, Naka said.

Rewarding a particular member of a team also runs counter to the team-oriented R&D practice at Japanese firms and could distort the R&D system, said Giichi Marushima, adviser to Canon Inc. and a patent attorney himself.

“Nakamura’s case is unique since his invention was the sole base of a commercialized product. It would invite confusion to make his case a model case when Japan is at a transitional period” regarding the reward issue, Marushima said.

Companies, concerned by employees’ changing perceptions regarding rewards for their inventions, are wary of possible lawsuits filed by underpaid corporate inventors.

Some companies are being sued by their employees, Naka said, while others have settled disputes through a compromise.

Because the Patent Law does not specify what constitutes a “fair” reward, the court is left to determine the value of an employee’s contribution.

In the case of a lawsuit filed against Olympus Optical Co. by a former employee, the Tokyo High Court in May estimated that the plaintiff’s invention brought ¥50 million in profits to the company, ruling the plaintiff’s contribution to the profit was 5 percent.

However, legal disputes with employees over fair rewards for inventions is the last thing that companies want.

In December, the Japan Intellectual Property Association proposed abolishing the existing items in the Patent Law that guarantee employees’ rights to receive a fair reward from their employers. It submitted the proposal to the Ministry of Economy, Trade and Industry and other relevant government ministries.

The association also said rewards for in-house inventions should be established in a contract between an employee and an employer. The issue could be handled as part of a labor contract, Naka said.

In an interim report compiled in December, a study group jointly set up by the Japan Patent Office and METI failed to come up with a clear-cut reward policy for corporate inventors due to the divided opinions of its group members.

Instead, the interim report merely states that the issue concerning rewards for corporate inventors should be clarified.

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