The government is aiming to amend the patent law so that patents for inventions by corporate researchers can be credited to their employers — not the researchers as under current law — on condition that in-house rules are set in place to reward the inventors.

The question is how effective the rules will be in ensuring fair remuneration for the inventors, so that the planned change does not become a disincentive for company researchers and engineers. The stated purpose of the revision, which is to enhance Japan’s industrial competitiveness, could be defeated if the change dampens employees’ motivation to create new technologies and products, or if it causes an engineering brain drain as talented researchers feel compelled to look abroad for more lucrative opportunities.

The draft proposal submitted by the Japan Patent Office at its panel of experts this month follows a call for change from the business sectors, which have cited the continuing risk of lawsuits that may be filed by their employees seeking hefty compensation for handing over their right to patents for their inventions. Following further discussions on details at the panel, the government hopes to submit a bill to change the law to the current Diet session.

Currently the law says the rights to patents for inventions by corporate employees belong to them, and companies wishing to cash in on the inventions through patents must first take over the rights by providing “reasonable remuneration” to the employees. However, the vague definition of the remuneration has long been a source of problems.

For years researchers at many Japanese firms received only nominal rewards for their inventions. Shuji Nakamura, one of the three winners of 2014 Nobel Prize in Physics for the development of blue light-emitting diode, was initially paid a mere ¥20,000 for the patent to his invention by his employer, Tokushima-based chemical engineering and manufacturing firm Nichia Corp., which drastically increased its earnings after it marketed the world’s first high-brightness blue LED product in 1993.

Nakamura sued the company in 2001 seeking ¥20 billion as fair compensation for his invention — an amount that the Tokyo District Court awarded him in 2004 in view of the contribution of his invention to Nichia’s increased earnings. While the amount was later sharply reduced to ¥843 million in a settlement mediated by the Tokyo High Court, the case triggered similar lawsuits against major firms, including Hitachi Ltd. and Toshiba Corp., which resulted in rulings and settlements in favor of former in-house researchers demanding higher remuneration.

The Nichia case, meanwhile, ushered in a revision to the patent law and changes in the way Japanese firms handle inventions by their employees. A 2004 amendment to the law requires management to consult their employees in setting remuneration for taking over patents for in-house inventions. Many companies, which needed to secure talented workers to beef up their competitiveness, introduced new rules to provide substantial rewards to their researchers for inventions that contributed to their earnings.

Because of such efforts, the number of lawsuits filed over patent remunerations have declined. Still, the business community has remained jittery that the risk of being ordered to pay hefty amounts of compensation lingers once the employees take their cases to court.

According to the draft amendment, the right to patent for inventions by in-house researchers will be credited to the companies, while the employees will retain the right to demand fair remuneration for their inventions, including through legal discourse. The system will apply not only to private-sector businesses but local governments and universities. These organizations may choose to keep the right to patents in the hands of their workers as under the current law.

The proposed revision will effectively require businesses to establish in-house rules for rewarding employees for their inventions. The Patent Office is to set a guideline on the procedures for devising rules acceptable for employees, which will likely include requiring management to sound out the employees’ wishes for remuneration in advance and to notify them of the criteria on which the amount of reward will be set.

The guideline will also cite examples of how the companies can specifically reward employees, which will include not only financial rewards but other means such as promotion and increased research budgets for their projects. However, the Patent Office is not likely to set any criteria on how a company should set the amount of remuneration.

Concern remains that the company management, once they have been given the right to patents for the inventions made by their workers, will have the upper hand in setting the in-house rules for remuneration. The guidelines to be set by the Patent Office appear to leave much room for discretion on the part of company management on how to reward employees. It needs to be closely monitored whether the guidelines will have enough teeth to ensure that companies will establish transparent rules to give employees a fair share of the earnings their inventions bring the company.

In media interviews he gave after winning this year’s Nobel Prize, Nakamura, who moved to the United States in 2000 and is now a professor at the College of Engineering at the University of California, Santa Barbara, said he “vehemently opposes” the proposed parent law revision and warned that Japan could face an engineering brain drain if the change is instituted. He criticized the move as an attempt to follow the U.S. example in the handling of patent rights without creating an environment where, as in the U.S., corporate researchers with innovative ideas have ample opportunities to start up their own businesses with venture capital. He said the amendment would only work to protect the interests of big businesses.

It remains to be seen how well the government will address such concerns before amending the patent law.

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