Japan’s New Patent Law Amendment Might Spell Doom for Innovation

Enterprises lack of market competitiveness, has contributed to Japan’s long economic slump, according to a Shanghai Stock Information Service report. The number of patent applications slid since reaching a pinnacle in 2000. The main cause has been the very little recognition and compensation Japanese employees have been receiving for their important inventions. Amendments to existing patent laws are expected to further aggravate the situation.

Japan’s patent law has been effective since 1921, and clearly states the patent rights belong to the inventor. But nearly one century later, Japanese legislators are planning to change ownership under the patent law from inventor to enterprises. This has ignited heated debate in Japan.

One of the most well studied patent legal cases in Japan has been blue LED inventor Shuji Nakamura’s lawsuit against former employee Nichia. Nakamura successfully developed the blue LED in early 1990s. The Tokyo District Court ruled at the time, the invention generated at least 120 billion Japanese Yen (US $1.01 billion) worth of profits for Nichia, but the company only paid Nakamura a bonus of 20,000 Japanese Yen for the invention.

In 2001, Nakamura filed a lawsuit against Nichia seeking 20 billion Japanese Yen in compensations. After a lengthy legal battle, Nakamura and Nichia arrived to a settlement of 840 million Japanese Yen in 2005. It was around this time that rumors emerged that amendments to the patent law would require the inventor and enterprise to clearly negotiate compensation conditions.

It became apparent Nakamura no longer could stay in Nichia after the lawsuit, so he became a Professor at University of California, Santa Barbara. He was awarded the Nobel Prize of Physics for his invention of GaN LED in November 2014. The invention not only created huge profits for Nichia, but also greatly lowered power consumption in many related applications.

“Rage against a company has been the main momentum behind my diligence, if I wasn’t full of anger I would not have been able to succeed,” said Nakamura. At the time, he was often ridiculed as a freeloader, and asked when he would quit. Despite his important LED invention, no Japanese company would hire Nakamura when the lawsuit between Nichia broke out.

There are a lot of similar cases in Japan. In theory, companies should heavily reward R&D staff, who have made important inventions and turned in patent rights to the company. In reality, Japanese R&D staff’s invention rewards are pitiful, and companies usually will have many excuses: “Without technical and lab support from companies, R&D engineers would not be able to make significant scientific breakthroughs. In addition, engineers can be carefree since enterprises have provided them with stable lifelong employment. Moreover, the invention is the result of team work and does not belong to an individual. If the award only goes to the main inventor, what about the others? Wouldn’t this affect their morale?”

Although, Nakamura won the lawsuit, Japanese enterprises were alarmed. They worried if patent laws remained unchanged, there might be similar lawsuits in the future that would bog down manufacturers. Many enterprises thus turned to Japan Business Federation and other economic groups to lobby the Japanese government to amend patent laws. Japan Prime Minister Shinzo Abe has launched “Abenomics” during his second term, but he needs financial groups support for this economic policy to succeed.

Hence, Abe has responded to enterprises demands. The Japanese government has announced in June 2013, amendments should be made to intellectual property rights, and stated it would “revolutionize the foundation of the invention system.”

Diminishing patent applications since 2000 have contributed to Japan’s sluggish economy and affected enterprises market competitiveness. Employees that have made significant inventions are barely rewarded, thus sucking out the passion to drive innovation. Enterprises usually have acquired supernormal profits from these inventions, thus inventors should be able to claim a reasonable share as their reward. Enterprises will always have the largest profit share, and the bigger the bonus the more effective it is in driving talented engineers. The U.S. is able to acquire many global elites because they insist on giving large awards to innovators and contributors. Without innovation, how can manufacturers compete?

Since the implementation of Japan’s patent laws, there has been no problems in its mechanisms, and there is no need for change. Looking back in history, the patent law played an important role in spurring Japan from a backward country to one of the top countries in the world. Japan’s old patent law encourages enterprises to innovate, said a senior U.S. patent specialist, shortly after Nakamura’s lawsuit ruling. The lawsuit against Nichia could have created a positive effect and encouraged more engineers to innovate, but Japan’s financial sector has moved in the opposite direction to prevent enterprises from being bothered by similar lawsuits.

Japan has long been an advocate of intellectual property rights to deter companies from China and other countries from copying products and taking technology advantages. The country has long used the slogan of “foundation of a country lies in intellectual property rights,” but when it comes to Japanese employees, the country is only concerned about enterprise profits. Not only does this make the slogan seem nothing more than empty words, it also further affirms Japan’s strategy of preventing other countries technology from surpassing it. Some Japanese are concerned the new patent laws will become a stumbling block and choke off innovation. 

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