Employee inventions and 'reasonable value'

Patent Law Article 35[3] provides that when the employer asserts a right to file an application for an employee invention, achieved by acts categorised as a present or past duty of the employee, the employer should pay reasonable value to the employee in accordance with an agreement, employment regulation or any other stipulation.

In 2004, in a lawsuit initiated by Professor Shuji Nakamura against Nichia Corporation, the court decided that Nichia should pay ¥20 billion ($245 million) to Professor Nakamura as compensation for the invention of the blue-colour light-emitting diode.

At that time, ex-employees of big companies also brought actions against their ex-employers, claiming compensation for inventions in cases including ‘aspartame’ against Ajinomoto Co., Inc. and ‘optical disk’ against Hitachi, Ltd. The court ordered both companies to pay their ex-employees substantial compensation for their inventions.

The Japanese business community was concerned by these court decisions and approached the Japanese government to amend the provision of Article 35. In 2004, Article 35 was amended to stipulate that the compensation be reasonable in accordance with a revised agreement or employment regulation.

However, the phrase “the employee, etc. shall have the right to receive reasonable value”, which was the main source of disputes, remained unamended despite heated discussions. After the revision of the law, Japanese companies revised their employment regulations. Even so, lawsuits claiming reasonable value for employee inventions have continued to be regularly filed.

“IT IS IMPORTANT TO PROVIDE WORKERS WITH OPPORTUNITIES TO NEGOTIATE WITH THEIR EMPLOYERS FOR COMPENSATION FOR THEIR INVENTIONS, BUT IT IS QUESTIONABLE WHETHER IT IS SENSIBLE TO HAVE REASONABLE VALUE ENSHRINED IN LAW, CONSIDERING THE COSTS OF LAWSUITS AND THEIR EFFECTS.”

An ex-employee of Hitachi, Ltd. claimed ¥600 million ($7.3 million) in a lawsuit, insisting that though he obtained ¥20 million ($245,000) in compensation for his patented invention relating to a semiconductor, the amount he obtained was not reasonable. The court ordered that Hitachi pay the ex-employee ¥63 million ($772,000). An ex-employee of Sony Corporation claimed ¥100 million ($1.2 million) as compensation for his invention relating to Sony’s PlayStation, but the court decided that Sony should only pay ¥5.12 million ($63,000). The IP High Court also decided that Canon Inc. should pay ¥70 million ($855,000) to an ex-employee for an invention relating to a laser printer, but that lawsuit is ongoing at the Supreme Court.

This employee invention system is unique in Japan, and the problems stated above will not arise in the Western countries, because in such countries, compensation for the employee inventions is paid in accordance with agreements made between employers and employees.

In Japan, it is difficult for employees to file a lawsuit against their employers claiming compensation for their inventions while they are working, and therefore ex-employees tend to file lawsuits before the right to claim compensation expires (after 10 years).

The IP High Court has stated that the provision of Patent Law Article 35 is a mandatory statute for settling conflicts between employees and employers regarding employment contracts. Although the provision is part of the patent law, at the same time, the provision has meaning as a labour law. In view of this, a foreign company that acquires a Japanese company assumes the risk of legal action from employees claiming compensation for their inventions.

It is important to provide workers with opportunities to negotiate with their employers for compensation for their inventions, but it is questionable whether it is sensible to have reasonable value enshrined in law, considering the costs of lawsuits and their effects. In order to increase Japan’s competitiveness, Japanese business should be educated about contracts rather than filing lawsuits, and the phrase “reasonable value” should be deleted from the article in the next amendment of the law.

Ryo Maruyama is a patent attorney and vice president of Kyosei International Patent Office. He can be contacted at: kyosei@tkc.att.ne.jp