Country Focus: IP Revolution – How Japan Formulated a National IP Strategy

Hisamitsu Arai played a central role in formulating and implementing the national strategy which aims to make Japan a “top intellectual property-based nation.” This article is excerpted from Mr. Arai’s latest book, Intellectual Property Revolution, published (in Japanese) by Kadokawa Publishing Corporation, Tokyo, in September 2006. The English text of this article was prepared by the WIPO Secretariat in consultation with the author. The full length version is available on the website of the WIPO Worldwide Academy.

It seems that not a day passes without an article about intellectual property (IP) appearing in the press somewhere in the world. This growing media coverage reflects a major shift in the driving force of international trade – from tangible property in the form of goods and products, to intangible intellectual property in the form of innovative and creative works. Nowadays, the competitiveness of a state depends to a large extent on how well it manages these intangible assets. This overview of how Japan began to revitalize its economy through innovation and creativity – and through the strategic use of the IP system to protect them – is an instructive illustration, that may be of interest to policymakers and stakeholders in other countries.

1996 - An outdated system

When I took office as Commissioner of the Japan Patent Office (JPO) in 1996, the national IP system was rigid and out-dated, and the country’s IP law and policies needed reviewing in the light of a new role for IP in Japan’s new innovation policies. Urgent action was required, especially as Japan was struggling to recover from a long economic slump – the so-called “lost decade” of the 1990s.

First, the patent system had to become more user-friendly, particularly to researchers and managers of small and medium sized enterprises (SMEs). Interviews with employees at research institutes and factories indicated that the processing of patent applications by the JPO was too slow and onerous. My top priority was therefore to accelerate the examination procedure to meet users’ needs, which were growing rapidly, in part due to fast-moving technological changes. 

An additional priority was to increase the amount of damages awarded to patent owners in cases of infringement, as these were too small to discourage illegal activities. If Japan was to become an “IP-based state,” more severe penalties had to be imposed on parties willfully infringing IP rights. I felt strongly that Japanese citizens should be encouraged to create new technologies, rather than purloining existing ones. With this in mind, I proposed a major amendment to the patent law that included changes in the criteria for assessing damages for IP infringement.

The first case concerned a Japanese researcher at a U.S. university medical center who was accused of illegally taking genetic material from the center for research on Alzheimer’s disease. His contract stated that any research results belonged to the center, but the researcher had not understood the scope of this provision. This confirmed my concern about the lack of awareness about IP among Japanese researchers and companies, particularly those undertaking joint research projects.

Dr. Shuji Nakamura, winner of the 2006 Millennium Technology Prize, surprised the world in 1993 when he demonstrated bright-blue LEDs. (Photo: Millennium Technology Prize)

The second case was a patent lawsuit filed by an inventor, Dr. Nakamura, against his former employer, the Nichia chemical company, over his claim for “appropriate” remuneration for his contribution to the invention of a blue light-emitting diode (LED), that had excellent market potential. The Tokyo District Court ruled that the company should pay Dr. Nakamura some US$180 million (the sum he had sought), although he could have requested half the estimated company profits on the invention (US$1,200 million). 

Industry was critical of the decision and of the way in which Dr. Nakamura’s contribution had been calculated. Under Japanese patent law, patent rights belong to researchers even if the invention is made in the course of their employment. However, a company can conclude a contract with its employees and researchers whereby patent rights are assigned and transferred to the company in return for appropriate compensation. Dr. Nakamura’s case became a test case in establishing guidelines on “appropriate” remuneration.

On appeal, the parties settled out of court in 2005 and Dr. Nakamura accepted US$8 million in return for transferring the patent rights to Nichia. The group of lawyers assisting Dr. Nakamura noted in a statement that, first, compared with the $200 originally proposed as remuneration for the invention, $8 million dollars, though much less than the value of the invention, was a significant victory; second, the case had clarified the relationship between employee and employer with regard to the employees’ inventions; third, establishing a correct evaluation of an invention should help promote research in Japan; and, finally, the new principles on evaluation and remuneration established a much-needed precedent.

Concerned about the issues raised in these cases, I, together with ten like-minded people, set up a small task force, the National Forum for an Intellectual Property Strategy, in August 2001. We believed that if Japanese researchers, engineers and creators could establish a win-win relation with their employers and collaborators, innovative activity would greatly increase, resulting in strong patents that would boost both the Japanese and the world economy. Japan’s long recession at that time was blamed by many people on the financial system and banks; however, the weakness of industry and its lack of competitiveness was also responsible¹.

Under the slogan – Intellectual property: powering Japan to the top by 2010, the Forum published in January 2002 a list of 100 suggestions plus a ten-year action plan. The suggestions covered seven areas – universities, education, private enterprises, governments, diplomacy, legislation and the judiciary – and called for a fundamental review of policies, using a comprehensive, holistic approach. The Forum’s work began to attract the interest of some politicians.

Former Prime Minister Koizumi chairs a meeting of the IP Strategy Headquarters in 2003. (Courtesy of the IP Strategy HQ)

In his annual address to the Diet (Parliament) in February 2002, the then Prime Minister Koizumi said: “Japan already possesses some of the best patents and other IP in the world. I will set as one of our national goals that the results of research activities and creative endeavors are translated into IP [rights] that are strategically protected and utilized so that we can enhance the international competitiveness of Japanese industries.”  This was the first specific mention of IP in a Prime Minister’s keynote address in the history of Japan. Prime Minister Koizumi set up and chaired a new Intellectual Property Strategy Council, of which I was appointed a member, and made clear that an IP strategy was to be a key part of an overall national strategy, aimed at making Japan an IP-based nation.

An outline IP Strategy was prepared and, in November 2002, a Basic Law on Intellectual Property was enacted. The Law was intended “to promote measures for the creation, protection and exploitation of IP in a focused and planned manner.” This included clarifying the responsibilities of the State, local governments, universities, and business enterprises etc. The new Law also established the Intellectual Property Strategy Headquarters, a permanent body based on the work of the Intellectual Property Strategy Council, comprising the Prime Minister as Chair, all the Cabinet Ministers as members, ten experts, and myself as Secretary-General reporting to the Prime Minister.

The first action plan, or “IP Strategic Program,” approved by the IP Strategy Headquarters in July 2003, contained some 270 proposals for legislative and institutional reform. They included radical measures to speed up patent examination; the creation of the High Court of Intellectual Property; and the reinforcement of anti-counterfeiting and piracy measures.

Japan’s IP strategy is based on the premise that strategic use of IP is the only way for the country, which lacks natural resources, to maintain its position in the world economy by enhancing its competitiveness. It is also based on the belief that enhanced innovation and creativity in Japan benefits the world economy and the well being of society as a whole, including the countries of the developing world. Japan’s IP promotion plan initially consisted of activities in five priority areas:

• IP creation;
• IP protection;
• IP commercial exploitation;
• promotion of creative content, particularly audiovisual works; and
• human resource development.

To invigorate the innovation cycle, the role of universities and R&D institutions were reviewed. To enable them to play a role in the commercialization of research results, particularly if funded by the government, changes were made in laws and policies, encouraging, for example, the setting up of technology licensing offices, which would assume ownership of IP rights in research results and promote licensing of the associated technologies. Some 100 such offices were established to support the new role of universities in the strategic use of IP.

Regarding patent protection, some 500 fixed-term examiners were employed to reduce the backlog in patent examination; and prior art search was outsourced. These measures aimed to reduce the period of patent examination from 26 to 11 months by 2013. The enforcement of IP rights was also strengthened by the establishment in April 2005 of the High Court of Intellectual Property to speed up IP dispute resolution by improving support from technical experts, establishing a coherent approach to the cases and centralizing the jurisdiction of IP disputes.

In the area of commercial exploitation of IP rights, amendments to the Business Trust Law in December 2004 allowed rights-holders to use their IP as collateral to raise start-up funds for new businesses. Small and medium-sized enterprises could now use their IP strategically to enhance their business opportunities.

The new Contents Promotion Law, of May 2004, was introduced to strengthen the collaboration between creators and companies involved in Japan’s strong movie, animation and software game industries. IP education at university level was reinforced by including IP law courses in the curricula of more than 70 colleges and by setting up specialized IP post-graduate courses. The mid-term goal for IP education and training is that the number of trained, specialized IP professionals should increase from the current 60,000 to 120,000 within the next ten years.

Most recently, Japan’s focus has shifted to the contribution it can make to the international community through sharing its knowledge and the results of innovation, as well as by addressing the global threat posed by counterfeiting and piracy. The vision from which Japan’s IP strategy grew is based on the belief that innovation and creativity should be rewarded; counterfeiting and piracy are a serious threat to realizing that vision.

At every meeting of the IP Strategy Headquarters, the Prime Minister gave instructions to relevant Ministers and the Headquarters for action based on the decisions taken. The Headquarters ensured that these were implemented by the Ministries in timely fashion. Each year, the Headquarters evaluated progress then updated and expanded the IP Strategic Program for the following year. So far, the Diet has passed more than 40 laws following the adoption of the Basic Law on Intellectual Property. 

The ruling Liberal Democratic Party has also established a committee on IP strategy, to contribute both to discussions at the IP Strategy Headquarters and to the implementation of the IP Strategic Program. The largest industry association in Japan, Keidanren, also set up an IP committee with strong support from President Mitarai, the CEO of Canon and a member of the IP Strategy Headquarters. All these initiatives have contributed to creating a strong mechanism driving Japan towards its goal of becoming a top IP-based nation.

In 2003, I gave three instructions to my team of 30 staff at the IP Strategy Headquarters, a unique group drawn from various ministries, academia and industry. First, we should be clear about our mission, i.e. that Japan should become a leading IP-based nation. Second, we should forget the interests of the organizations from which we came, and concentrate on pursing the best interests of our country. Third, we should keep the spirit of entrepreneurship. The IP Strategy Headquarters was ambitious and wide-ranging enough to reform Japan’s IP infrastructure. By encompassing the viewpoint of the whole government, it was in a prime position to prepare an overall design for the national IP Strategic Program, and to ensure its implementation. The team worked day and night to overcome initial strong opposition in some areas.

The period from 2003 to 2006 established a solid basis for the implementation of the Strategic Program. We expect to start reaping the rewards of this effort. A lengthy action plan is under preparation for the 2007 Program; including, for example, promoting innovation; strengthening university Technology Licensing Offices; encouraging collaboration between universities and SMEs; enhancing the national response to the need for high global competitiveness; providing more effective services in patent examination; increasing measures for combating counterfeiting and piracy; promoting the creation of new contents for the creative industries; and enhancing IP education, in order to develop human resource capabilities.