JAPAN ROUNDTABLE: Avoid invalidity risks in court

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2007 JAPAN: ROUNDTABLE

Many companies fear that initiating a infringement lawsuit in Japan is tantamount to inviting the courts to invalidate their rights. MIP and Finnegan Henderson jointly hosted a roundtable in Tokyo to consider inventive step, invalidity and successful litigation techniques in one of the world’s most important markets Avoid invalidity risks In association with: in court

PO: What are the factors that make it difficult for plaintiffs to win still not brought to the court – that only happens at stage three. Of patent litigation in Japan? course, the defendant would want to avoid the risk of an injunc- NY: There are a lot of good reasons to file patent litigation in tion and therefore they will try their best to reach some kind of res- Japan. It is very, very fast, and injunctions are available. You could olution, so only those cases where such resolutions were not pos- even say it is easier than in the US. Also, judges are very experi- sible would be taken to court. enced. But the major concern that many companies have is that in AI: The viewpoint of Mitsubishi Heavy Industries on more than 80% of cases – of course you can dispute the statistics and, I suppose, of Japanese companies in general is that of course – but in more than 80% of cases the patentee loses, and I think if your technical development has a positive outcome you would when you have such a low success rate you will think twice before want to protect it. Plus you would like to respect the rights of filing a lawsuit in Japan. That has been the major concern of many other parties should there be any situation of infringement. companies, both Japanese and foreign. As was mentioned by the Judge, companies would not think TI: I have some statistics about infringement litigation in Japan about one single claim, but they would try to think about poten- for the 10 years from 1997 to 2006. The total of patent infringe- tial cross-licensing, or they would try to look at other transactions ment cases was 2,500. Roughly 45% ended with the final judg- that they might have with the other party to resolve the matter. ment made by the court, and 48.6% were concluded in other Going to court is definitely the last resort. The matter will be taken ways, including settlement. to court only if differences of opinion cannot be resolved or if no In cases decided by the court, the plaintiff won 30.5% of the further concessions can be made. Such deadlocks might occur in time and lost in 67.6% of cases. Awareness about the importance terms of the amount of money demanded or whether or not there of patents has continued to rise in Japan since the year 2000 and is an infringement. If they can’t agree they will decide that a third as a result patent-related disputes between companies have party judgment is needed. increased and are expected to continue to increase. But when And why is there hesitancy to take the matter to court? Because patent disputes occur between companies, not all of the cases will if both of the parties in the dispute are Japanese companies we gen- go to court. In fact, only a small percentage of those disputes are erally believe that it should be negotiable and resolvable through taken to the court. discussion. There is a strong belief among Japanese companies that To analyze whether the winning rate is high or low you have to going to court is cumbersome and a lot of hard work, particularly analyze the situation for patentees, the right holders. In what cir- for the technical experts and the engineers of the company. It cumstances would they expect what outcome, and in what situa- would be more constructive to let such designers and engineers tions would they decide to go to court? As far as I know such com- concentrate their efforts on more R&D for the company rather parative studies are very limited. than wasting time on court matters. Anyway, one thing is clear; the number of patent disputes end- SO: I believe that in the 1990s most patent disputes occurred ing up in court is only a small percentage. The tendency of between Japanese and American companies, and more recently Japanese companies is not to take the matter to court. disputes have been occurring between Japanese companies and In many disputes there would be prior negotiations between the Taiwanese, Chinese, or Korean enterprises. As Judge Iimura has companies and it would be extremely rare for a matter to be sud- mentioned, if it is between Japanese companies then there is a denly taken to court. I believe there are three stages before court. strong tendency to try to avoid litigation in the first place. Today In the first stage in-house counsel in the patent and licensing divi- most of the matters that are discussed in the Japanese courts relat- sions or the legal affairs departments will be engaged in negotia- ing to patents are against Chinese, Korean, and Taiwanese compa- tions with the other side, and these negotiations can take a very nies, whereas in the past it was against American enterprises. long time, as neither side seems to be in a hurry. Before court, the The important issue for Japanese companies today is how to situation can be resolved with, for example, a unilateral or a cross- fight and win against these Chinese, Korean, and Taiwanese com- licensing agreement. panies, and many of the IP strategy staff in Japanese companies In stage two licensed or patent attorneys, the benrishi, believe that it would not be in their advantage to try to exercise would be invited into the negotiations. Even at stage two this is their rights in these three particular countries. So they would either

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fight other non-Japanese companies in Japan. For example, disputes ROUND TABLE PARTICIPANTS between two large American companies or between an American company and a Korean company over their IP rights in Japan. NK: We have talked lot about statistics, but I would like to talk Setsuko Asami about the system or the institution. There is a rumour that the win- is director of the examination standards office at ning percentage of patent holders in infringement cases is declin- SA the . ing. If there is such a decline, one of the reasons I believe is relat- ed to the on infringement cases. Quite recent- ly it has become possible to invalidate a patent. Toshiaki Iimura Recently the media reported on a very big case related to the is a judge in the third division of Japan’s IP High electronic ticket issuing system of airline companies. This expand- TI Court. ed into a very large case between the two largest airline companies with ¥10 billion ($84.3 million) sought in compensation, and in Akira Ishikawa this lawsuit an extra piece of information led to the patent being is group manager of the IP and technology law invalidated and therefore the case was withdrawn. group within the legal department of Mitsubishi After all, each and every patent is different, and each patent dis- AI Heavy Industries. pute is also different, so maybe we shouldn’t be too nervous about whether in one particular year that many patentees won and in a different year the patentees did not win at such a high rate. JL: From some of our international clients’ perspective, when Naoki Koizumi they look at the risk/reward of litigating in Japan it is not just the NK is a professor of IP law at Keio Law School in Tokyo. risk side, the invalidity that we have been talking about, it is the reward side as well. There is a belief that damages in Japan are not as high as they are in other jurisdictions. So when you couple that John Livingstone with a perception that your patents are more likely than not to be is an attorney-at-law at the Tokyo office of Finnegan held invalid, the risk/reward slides against litigating here. Even JL Henderson Farabow Garrett & Dunner. though that invalidity finding is not controlling in other jurisdic- tions, it can certainly be persuasive when brought before the court Yukio Nagasawa in other jurisdictions, so many of our clients choose to litigate else- is an attorney-at-law and for New where. Bridge Law Office and a former judge at the Tokyo NY: I think one of the major concerns is the obviousness factor YN High Court. in Japan. Often the standards of obviousness or inventive step reflects the patent policy of that country, and it seems to me that – although this may be just my view – compared to the US, Japanese Seiji Ohno inventive step or obviousness standards may be a little high. This is an attorney-at-law and partner of Ohno & means that it is easier to prove obviousness and invalidate a patent SO Partners. during a trial. That certainly seems to be the concern of many Japanese companies.

Naoki Yoshida PO: Ms Asami, what are the difficulties in agreeing a consistent (YN) is managing partner of the Tokyo office of standard for assessing inventive step in Japan? Do you think there NY Finnegan Henderson Farabow Garrett & Dunner. a difference between the standard of the court and the JPO? SA: I would say the standard of inventive step used by the JPO should be totally dependent on the judgments rendered by the court. The JPO makes decisions about patentability on each case, Peter Ollier and if there is any dissatisfaction, the case can be taken to the IP PO is Asia reporter of Managing . High Court and a judicial decision will be rendered, and, ulti- mately our decision will have to follow the decision of the court. try to assert their rights in Japanese courts, or try to preserve their We have some 1,500 examiners and we are trying our utmost position using the strength of their patents, because if you look at to make these examiners provide consistent judgments, so we pre- the labour costs or the production costs, there is no way Japanese pared examination guidelines. We have made this public so that companies can be competitive against these countries. Therefore, there would be more consistency in how inventive step is assessed. the basic IP strategy for today’s Japanese companies is to try to use Often we hear the opinion that it is very difficult to prove inven- the strength of their patents to be competitive. tive step in Japan compared to in the US. But according to our cur- YN: If we look at patent litigation between Japanese and rent examination guidelines we believe there is not such a big differ- Japanese enterprises I do not see any change between large enter- ence between the guideline and the viewpoint used in the US. In par- prises, but my personal feeling in Japan in recent years is that, after ticular in the KSR case this year the US Supreme Court discussed the the whole country started to talk about greater utilization of IP motivation of combining two cited references and it was decided that and other rights, smaller and medium sized enterprises have start- you could just refer to the common knowledge of those skilled in the ed to go to court to protect their IP rights from larger enterprises. art rather than presenting those particular publications, and similar I also believe that larger, non-Japanese companies are trying to viewpoints are described in our Japanese guidelines. www.managingip.com An MIP roundtable reprint, in association with Finnegan, Henderson, Farabow, Garrett & Dunner, LLP 3 JAPAN: ROUNDTABLE

Last year we conducted a study to compare differences in out- the problems in terms of motivation of combining prior art. We comes of patent filings in different countries. This was not limited referred to a large number of court decisions and we started to to inventive step decisions but considered other aspects of exami- permit the combination of two references if they belong to the nation as well and we compared Japan, the US and Europe. same area of technology, or if the functions and the work are We looked at the fate of the same application in different similar, and these descriptions were added to the guidelines. So offices. Overall, in 66% of filings the patent was granted in Japan, our examiners might find more reasons to reject for lack of the US and Europe and 6% of the applications were rejected in all inventive step. three offices, which means that in 72% of the filings the three offices reached the same conclusion. Applications which were PO: In what circumstances would the courts decide to invalidate a patented in Japan and Europe but rejected only in the US account- patent for lack of inventive step? ed for only 1%. On the other hand, 10% of filings were rejected TI: Previously a decision on the validity of a patent was only ren- only in Japan but patented in Europe and US [see pie chart]. dered by the JPO based on a complaint or an opposition filed by Looking only at these figures you might conclude that it might be other parties. If a party was dissatisfied with the Patent Office easier to win your patent in the US and there would be a higher decision then the complaint could go to the Tokyo High Court, possibility of being rejected in Japan. But more careful analysis is which has now become the IP High Court, and at the Tokyo High needed. Court there was a particular technical department which dealt We then tried to analyze the reasons why some applications with litigation regarding the nullification of the patent. The time were rejected only in Japan. In most of those cases it was because this took caused problems. of the lack of inventive step, and many of the cases were because As of April 11 2000, the Supreme Court decided that during JPO examiners had discovered Japanese language publications and patent litigation the defendant can directly claim that the plain- rejected the patent on that basis. tiff’s patent is invalid if there are obvious grounds of invalidity, You could argue that this is due to the very high competence of and so the infringement claim can be rejected. After that the Patent the searching capabilities of Japanese examiners, but there is Law was also revised, and therefore it has now become very pos- another reason! It is also true that in the US, unlike the Japanese sible that the validity of the plaintiff’s patent could be judged dur- system, you do not make a request for examination and therefore ing the court procedures of infringement litigation. you know the conclusion of the patent office more quickly. In As Asami-san mentioned earlier, in 2000 the Japan Patent Europe both a patent application and search report on the appli- Office issued new guidelines, and legal practice is based on

cation are usually published 18 months after filing, which means those guidelines. So Asami-san explained that in comparison to that when a Japanese examiner examines the corresponding appli- the situation before the new guidelines, following court deci- cation he or she can look at the US outcome and can also refer to sions on inventive step or the lack of inventive step, the JPO has the European search report, and on top of that Japanese examin- tried to make its standards more sophisticated and more ers will search for Japanese language publications. This means that detailed. the Japanese examiners would be referring to the largest number Of course cases are all different so specific analysis is not pos- of cited references and that might explain the larger number of sible, but looking at the processes taken by the court it seems that, rejections in Japan. with the year 2000 as the threshold, the standard on inventive step seems have become more rigorous, and decisions rendered by PO: How and when were the guidelines for inventive step amended? authorities have became more consistent with fewer variations or SA: In 2000. Before then, just like in the US, there was criticism in inconsistencies. Patent rights are not being provided to worthless Japan from Japanese industry about “trivial patents”. But, having technology. said that, there are court decisions so you cannot easily amend Many of the patents litigated today would have been granted guidelines, and if the guidelines are amended then what was many years ago, which means that if you try to apply today’s new patentable before would suddenly become non-patentable, and guidelines of inventive step, most of those old patents would not such dramatic changes would not have a positive impact. be considered patentable any longer. Having said all that, a small part of the guideline was amend- So before companies try to accuse other parties of infringement ed, and the perspective was to look at whether it would resolve of their own technology it is essential for them to try to review www.managingip.com 4 An MIP roundtable reprint, in association with Finnegan, Henderson, Farabow, Garrett & Dunner, LLP JAPAN: ROUNDTABLE

their technology and consider whether that patent would continue PO: John, were you surprised by Ms Asami’s statistics indicating a to be viable under today’s changed, more rigorous perspective on 72% agreement between the three patent offices and do you inventive step. Otherwise if you go to court without reviewing think KSR will change that? your technology there is potentially a larger risk that your patent JL: The agreement surprised me quite a bit, and I wondered if Ms would be considered invalid, and, therefore, your position would Asami judged the agreement between offices on simply patents not be permitted, but I would say that this potential larger risk for issuing or on claim scope. the patentees is transitional. SA: No, we did not look into the claim scope. We only checked Going forward the more rigorous inventive step standard will to see whether it was patented or not. be applied and there will be more patent disputes related to the JL: I think most of us would agree you can get a patent on just patents granted after the application of these new rigorous rules, about anything if you write your claims narrowly enough, but it which means that eventually invalidity cases would converge or may be that you get a patent with a broad scope in the US because stabilize, so to say. the inventive step is not as critical or not applied as critically as in KSR was rendered in April this year and no one can say what Japan. will happen regarding the obviousness criteria, but if it is going to I think all indications from the USPTO are that KSR will affect become more difficult to prove your inventiveness even in the US patentability in the US. There were three precedential opinions then there might be similar situations occurring such as the cases that were just released last week from the Board of Patent Appeals in Japan that I just described. and Interferences in which they applied KSR in a mechanical, an electrical, and a biotech case, and in all three the application of PO: Do other people agree that the difficulties people are having KSR resulted in a finding of obviousness. So I think it may pull the in patent litigation now are the result of patents granted before US closer to the inventive step standard that we have here in the year 2000? Japan. SO: From the plaintiff’s perspective naturally the largest and most NK: Before KSR people said inventive step criteria was rather crucial question considering Japan’s situation today is whether you lax in the US and more rigorous in Japan. But looking at the deci- can maintain the validity of your patent. In the last couple of years sion now I would say that at the abstract level the JPO guideline the problem has been that the prior art that was successfully over- is very close to what was discussed in KSR, so in terms of the rules come during invalidity cases might be used by the court and the I would say that there is a very high degree of harmonization. As court might decide that your patent is invalid. Or there are cited Asami-san said, part of the reason for the more rigorous applica-

references of prior art that were already examined during the tion of inventive step criteria might be explained by the Japanese- patent office examinations but the court would go back to that only publications. She also mentioned that the JPO’s decision is same prior art and render an invalidity decision, so in that sense largely dependent on what the court says. there is no predictability. The JPO does have a published examination guideline, but I When clients come to us for consultation it is extremely diffi- think it is high time now that the court renders a more clear and cult for us to give advice and say exactly what they should do or unified decision on inventive step, either by the IP High Court or in what circumstances the validity of their patents might be main- by the Supreme Court. tained, and so many companies are very hesitant to take the mat- NY: In the US, the case of Graham v John Deere set a frame- ter to court. Unlike the US, we do not have the presumption of work to determine obviousness. Some Japanese practitioners have validity, and therefore I have to conclude that it is extremely diffi- told me that it may be a good idea for the Japanese court or cult for Japanese patent holders to assert their rights. Japanese system provide a precedential case in order to determine NY: Whether KSR raises the standard of obviousness to the obviousness, and I would like to know if Japanese practitioners, Japanese Office level is too early for us to answer. Many are argu- the JPO or the Japanese courts believe such a standard would be ing that the standard for inventive step has been raised. Judge helpful. Iimura has raised an interesting point. If indeed it raised the stan- TI: A decision on whether a single patent does have an inventive dard of obviousness, patents granted before KSR may be invali- step or not in Japan is based on the facts as well as on a legal inter- dated or become obvious, and the same thing that happened in pretation and evaluation, and in most of the cases in this country it Japan due to the standard change in 2000 could happen in the US. really is done on a case-by-case basis. So at this stage when no one www.managingip.com An MIP roundtable reprint, in association with Finnegan, Henderson, Farabow, Garrett & Dunner, LLP 5 JAPAN: ROUNDTABLE

Agreement on examination results at JPO, USPTO and EPO

6%  By groups of applications filed in ✔ Granted 1%  the US in April 2002 ✘ Japan: Refused 7% (total: 625) US: Refused and abandoned 2% • The earliest application and EPO: Refused and withdrawn   its divisional/continuation appli- after start of examination, and 6% cations are counted as one withdrawn without request for  group. examination  1% • A group is classified as “grant- ed” when there is one or more applications granted a patent. 10% Percentage agreement Among all three offices: 72% Between JPO and USPTO: 79% Between JPO and EPO: 80% Between USPTO and EPO: 84% 66% Source: JPO

is certain about future technological advances and what conver- PO: Do you think something similar could happen in Japan? gence in technology might occur or not, I would say it is not exact- NY: Well, I think it is possible to render a decision like that which ly wise to try to set a precedent with one particular case. covers a broad range of technologies. Whether that is necessary is YN: In the Supreme Court of Japan there are three expert IP another question, but it is certainly possible to set out a certain law clerks, just like the law clerks in the US. Going forward I think standard that may help practitioners regardless of technologies. it is more likely that these three expert examiners at the Supreme AI: Earlier there was discussion that US might be more lax in Court in charge of IP cases would try to say that a more unified the application of the inventive step criteria compared to Japan. standard regarding inventive step is required. But when it comes to Now, in fact just this week my company was comparing the

inventive step decisions each and every case should not be deter- patents owned by other companies filed in Japan and rejected here mined by the Supreme Court, just as Judge Iimura mentioned. I but granted in the US. This is the very case that Ms Asami don’t think the specific decision on whether it is inventive or not is described, when Japanese examiners discover Japanese language conducive to decisions by Supreme Courts, so I agree with that prior art and reject the technology for lack of inventive step, but it point. is issued in the US. Having said that, for certain areas of technology I believe that Our engineer studied this technology and was astonished by if the court renders some decisions it would be useful and they his findings, saying that “In the US even this kind of almost could also show some methodology on how to evaluate inventive common sense so-called invention is issued!” And he strongly step. So if it is within a certain degree or if it is providing a gener- condemned the US. Therefore, from the perspective of the al sense of the court’s criteria, I think that is likely to happen and defendant I would say that there are increased expectations as a it would also be useful in practice. result of KSR and people are waiting to see how KSR will work in the future. PO: In the Graham v Deere case how did the US manage in one deci- Now, as was mentioned earlier, even before reaching court we sion to set a standard that applied to different areas of technology? know the validity of our technology is going to be reviewed and JL: It is actually a trilogy. There are three cases rolled into one. But we try to prepare fully and give a prior decision ourselves. So what they did was they clarified the nonobviousness requirement whether you are a plaintiff or defendant, before going to court you by creating a four-part test for analyzing inventive step, and that should fully review the validity of your patent once again. test is utilized regardless of technology area. But the question of inventive step is still very difficult to judge, www.managingip.com 6 An MIP roundtable reprint, in association with Finnegan, Henderson, Farabow, Garrett & Dunner, LLP JAPAN: ROUNDTABLE

and if you ask the same question to different experts they give you TI: Going back to what happens once a case gets to court. In different advice, so it is still a very difficult issue for us. If the JPO the US trials take place in a limited time frame and even before the and the court would provide a decision, and even if they did not trial there will be procedures such as discovery, which are differ- provide something of a standard, so to say, if they can give some ent from those in Japan. sort of clearer indication it would be a great help. For example, on In Japan the party files with the court and then after some time what degree of combination of evidence as exhibits would suffice judges are appointed. After that the trial or the court deliberation to prove validity. If such indications were provided it would be will be open only once a month or once every one-and-a-half easier for us to predict what we ought to do, and maybe it would months or so; it proceeds incrementally. In most cases it would be easier to resolve disputes without going to court. take on average about one year for a decision. In many of the cases SA: Last week I visited Seattle in the US to attend a symposium the judge would get involved, and during the practical court pro- at the University of Washington. The participants as well as the ceedings would try to indicate whether he or she is in favour of the speakers were all very interested in KSR. Before I visited the sym- defendant or the plaintiff, and by way of indicating his or her per- posium I had expected that there would be people who would say ception would try to lead the parties to some settlement or other KSR would have a major effect and those who would say that resolution. there would be minimal effect. If the defendant is likely to lose the case then the risk of having Those who say that KSR will not have such a big impact are production or sales suspended is very great. So in this case the arguing that it is not that divergent from US guidelines, nor is it judge might intervene and there would be an incentive for the that different from previous cases. defendant to try to settle. On the other hand, those who believe that this is going to have And more recently there is an increased risk for the plaintiffs that a major impact argue that the Supreme Court rejected the attitude their patent rights would be nullified and invalidated, and there are of the Federal Circuit, where they were very rigidly applying the increasing numbers of court cases where the judge would try to indi- TSM [teaching/suggestion/motivation] test. These people believe cate his or her feeling that it is likely that the patent would be inval- that the US will become more flexible in referring to the common idated. If a company has licensed technology to other parties, and knowledge among those skilled in the art. I observed that most the defendant has not entered into a licensing agreement, but the people believed that there is going to be a significant change. patent is going to be invalidated, then the risk would be so large for Also people discussed the fourth point mentioned in Graham v the plaintiff or the patentee that they would try to settle. John Deere, that there would be more cases where the secondary I think it is very clear today that there is an increasing risk for

consideration would be used in the rebuttal. Some people at the the patentees that their patents would now be invalidated. But symposium commented that there will be increasing harmoniza- there is another point that is also clear: in the examination by the tion regarding the decision of inventive step. In summary most of JPO or by the Board of Appeals decisions, the decision making is the people believed that inventive step criteria will be more rigor- sophisticated and there are very few differences of opinion ously applied in the US. between the Patent Office and the Court today. On the subject of guidelines, as a practitioner I believe that no The reason why the application of the inventive step criteria has matter how many guidelines you produce it all depends on how become more rigorous is because of the thinking that if it is a good you apply them on an individual case-by-case basis. It depends on patent it should be protected well, and if that patent is not that the area of technology, the specification and on the common worthy then you don’t need to protect it. If the patent is a very knowledge among those skilled in the art. Just because you have good patent it would never be nullified, but one can never say Graham v John Deere and the KSR decisions now in the US I do never! If the patent is very strong I would say that there is a very not think the judgment regarding inventive step is going to change high possibility that it would not be invalidated. But the whole so easily. Consistent decision making will not happen easily or point is that if you accuse someone of infringing your patent and quickly. My impression is that although guidelines have been pre- go to court there should be a thorough study and review of the pared by the JPO, you still have to apply them on a case-by-case prior art. You should seek the opinion of experts and have con- basis. It is also important for the examiners to continue to follow sultations with them, and you should do all you can to minimize and review what decision was made by the court for what type of the possibility of the other party pointing out the defects or defi- technology. ciencies of your right. www.managingip.com An MIP roundtable reprint, in association with Finnegan, Henderson, Farabow, Garrett & Dunner, LLP 7