Monday, February 3, 2014

FRAND and Standard-Essential Patents in Japan

1.  On January 23, 2014, the Japanese IP High Court announced that the Japanese Apple/Samsung FRAND dispute will be the matter of a Grand Panel appeal, see here.  According to the IP High Court's website:
Intellectual property disputes often involve important legal issues, and in many cases, court decisions have a critical impact on corporate activities and the Japanese economy. In the area of IP law, there were requests to form reliable rules and ensure consistency of judicial decisions at a high court level. To meet such a need, the Grand Panel system, in which a five-judge panel hears cases and makes decisions, was introduced in April 2004. We will continue to work on the Grand Panel cases to form precedents that can be relied on.
In addition, as noted recently on the IPKat Blog, the IP High Court is soliciting amicus briefs on the question "Should there be any restriction on the right to seek an injunction and damages based on a standard essential patent (SEP) in respect of which a FRAND declaration is made?"  

My paper The Comparative Law and Economics of Standard-Essential Patents and FRAND Licensing, available here, provides some background on the case (as does this blog post from August 2013):

An abuse of rights argument . . . was successful in a dispute between Apple and Samsung in Japan.  In a decision handed down in February 2013, the Tokyo District Court held that Samsung could not obtain damages for the infringement of a SEP asserted against Apple due to Samsung’s “abuse of right.”68  In particular, the court held that, under the Civil Code of Japan, while "there are no express provisions regarding the duties of parties at the stage of preparation for contract execution . . . it is reasonable to understand that, in certain cases, parties that have entered into contract negotiations owe a duty to each other under the principle of good faith to provide the other party with important information and to negotiate in good faith.”69  The court rejected Samsung’s argument that the duty to negotiate in good faith had not arisen because Apple’s offer reserved the right to contest validity, and concluded that Samsung had not acted in good faith because, inter alia, it had refused to disclose information Apple had requested to substantiate Samsung’s offer a 2.4% royalty for all patents essential to the UMTS standards, and had continued to seek a preliminary injunction in the Japanese proceedings.70  The court therefore concluded that Samsung’s conduct constituted an abuse of rights precluding Samsung from the right to seek damages from Apple.71

68 See Tomofumi Sato, Apple Japan Limited Liability Company (Plaintiff) v. Samsung Electronics Co., Ltd. (Defendant), Tokyo District Court/Judgment of Feb. 28, 2013/Case No.  2011 (wa) No. 38969; Case to seek declaration of nonexistence of liability, 38 AIPPI J. 174 (2013).  A translation of portions of the judgment provided by Apple, Inc., can be found in Respondent Apple, Inc.’s Notice of New Facts Related to the Commission’s Questions on the Issues Under Review, and on Remedy, Bonding, and the Public Interest, In the Matter of Certain Electronic Devices, Inv. No. 337-TA-794 (FTC Mar. 4, 2013), available at [hereinafter Apple Translation].    

69 Apple Translation, supra note 68, at 10.  Article 1 of the Japanese Civil Code states that:

(1) Private rights must conform to the public welfare.

(2)The exercise of rights and performance of duties must be done in good faith.

(3) No abuse of rights is permitted.

Minpō [Civil Code], Law No. 89 of 1896, art. 1 (Ministry of Justice tr. 2009), available at also Florian Mueller, Japanese Court Deemed Samsung’s Delayed Disclosure of Essential Patents Abusive Conduct, Foss Patents (Mar. 5, 2013), available at,  Mueller sees a parallel in certain provisions of the German Constitution and Civil Code.

70 See Sato, supra note 68, at 175; Apple Translation, supra note 68, at 11-13.

71 See Sato, supra note 68, at 175; Apple Translation, supra note 68, at 13.  According to Christoph Rademacher, there also has been a good deal of discussion in Japan concerning whether to adopt an eBay-like rule, but "[i]n light of the low success rates of Japanese patentees in Japanese patent infringement lawsuits and the difficulties defending the validity of plaintiffs' patents, the consensus in the Japanese patent community has been to refrain, at least for the time being, from introducing any measures that would result in further weakening the status of the patentee.” Christoph Rademacher, Injunctive Relief in Patent Cases in the US, Germany and Japan:  Recent Developments and Outlook, in Intellectual Property in Common Law and Civil Law 325, 341 (Toshiko Takenaka ed. 2013).  (For discussion of win rates and invalidity rates in Japan, see Cotter, supra note 5, at 298-300.)  Rademacher also discusses the possibility that a nonpracticing entity that merely licenses its patent would not be viewed as "practicing" the invention and therefore might be vulnerable to compulsory licensing under article 83 of the Japanese Patent Act.  Unlike article 93 of that act, which also permits compulsory licensing under some circumstances, article 83 does not require a showing that the license is necessary to serve the public interest.  See Rademacher, supra, at 344-46.  Apparently there are no cases applying this provision, though.
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2. Also in regard to Japanese law and SEPs, I would note that the two most recent editions of the Japanese IIP (Institute of Intellectual Property) Bulletin collectively include a two-part article titled The Exercise of Essential Patents for Standards, which is "an English translation of the summary of a FY2012 Institute of Intellectual Property (IIP) research study report."  Both can be downloaded here.  The abstract of Part 1 (published in the 2012 issue, that is, IIP Bulletin volume 21) reads as follows:
If the holder of a patent that is essential for a standard (“essential patent”) seeks an injunction on the grounds that the patent was infringed, it would make it practically impossible for the companies that have been conducting business in compliance with the standard to continue their business despite the capital investment that they have made so far. The exercise of such right would place those companies in a highly disadvantageous position against the patent holder, negatively affecting the future company management and the diffusion of the standard itself in some cases. In the field of telecommunications, in particular, there have been some pending lawsuits over the issue of whether the holder of an essential patent should be permitted to seek an injunction. In this technical field, there is an urgent need for determining the approach to these cases over essential patents.
Some people started arguing that the exercise of the right to seek an injunction should be limited in certain cases. Previous research has shown that opinions have been divided over whether such limitations should be imposed or not. In order to explain the current situation in Japan, I will (1) present the results of a study on domestic cases and the results of a domestic questionnaire survey and a domestic interview survey, (2) identify the issues that could arise when the holder of an essential patent seeks an injunction in the field of telecommunications, etc., (3) examine the relationships between patent rights and the competition law (antimonopoly law) in the field of telecommunications, etc., and (4) analyze various issues pertaining to the management of standards bodies. 
The abstract of Part 2 (published in the 2013 issue, that is, IIP Bulletin volume 22) reads as follows:
In recent years, a number of large-scale patent disputes over the exercise of rights based on standard-essential patents have been brought to courts worldwide. In Japan, a court made a noteworthy ruling that it constitutes an abuse of right for a patentee to claim damages without fulfilling the duty to negotiate in good faith despite its FRAND commitment. Also in the United States, the report released by the Federal Trade Commission (FTC, 2011) and the joint statement made by the Department of Justice and the United States Patent and Trademark Office (DOJ and USPTO, 2013) addressed issues of the exercise of rights based on standard-essential patents and (F)RAND terms for licensing such patents. Amid such trends, there is a growing necessity in Japan as well to develop debates on the exercise of rights based on patents.
In this research study, with the awareness of the situation mentioned above in mind, we surveyed domestic legal cases and foreign systems to review the recent trends in terms of the exercise of rights based on standard-essential patents. We also identified the present challenges while hearing opinions of patent professionals, and examined in which situation the exercise of rights based on standard-essential patents are found to be inappropriate, by what kind of legal basis such inappropriate exercise of rights can be restricted, and what could be the limits to such restriction under the existing law. This study report shows the outcome of the discussion on the exercise of rights based on standard-essential patents.
Part 2 states, inter alia, that "The committee . . . reached a consensus that a right to seek an injunction vested in a patent right is not of absolute nature but it should inevitably be restricted if the exercise thereof goes against the purpose of the patent system, which is to contribute to the development of industry."  In this regard, Minoru Takeda "proposes that a provision on the restriction on the exercise of a right to seek an injunction should be inserted in the Patent Act, following the existing provisions of Article 100, paragraph (1). This provision on restriction should be drafted from the perspective of indicating a simple and clear criterion that allows flexible interpretation to some degree, while making reference to the eBay decision under the US law."  Alternatively, Yoshiyuri Tamura proposes that, for certain situations, the abuse of right doctrine may be adequate to the task of providing a rationale for denying injunctions, but for cases involving patent holdup a statutory amendment merits further discussion.  Commentary also discusses the possible application, or not, of competition law or the patent act's compulsory licensing provisions.

It will be interesting to see if these discussions bear fruit either in legislation or judicial practice in Japan.

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