Resolving IP Disputes in Japan: Counting the Cost

By John A. Tessensohn and Shusaku Yamamoto

John A. Tessensohn, Board Member, and Shusaku Yamamoto, founder-owner, Shusaku Yamamoto, Japan, are co-authors of this article detailing Japan’s mechanism for the resolution of IP disputes.

Japan is known to be one of the world’s most expensive countries, with Osaka and Tokyo regularly topping the rankings as the world’s priciest cities. This high-cost perception has clouded the surprisingly refreshing truth that Japan is in fact a relatively affordable and reliably expeditious IP dispute resolution venue.

The dispute resolution framework

Japanese IP dispute resolution currently uses a two-track system, with the Board of Appeals of the Japan Patent Office (JPO) hearing invalidation appeal (IA) challenges and the District Court hearing patent infringement actions. The JPO Board of Appeals panel consists of experienced appeal examiners and reviews all relevant invalidation grounds.¹

Patent infringement proceedings are heard before the Osaka or Tokyo District Court, which have exclusive jurisdiction over different geographical areas. Both district courts have designated IP divisions, whose technical advisors (saibansho chōsa-kan) brief judges on the complex technical matters often involved in patent infringement cases.

Under Japan’s patent law, only the JPO has the jurisdiction to invalidate a patent, but the infringement courts can decline to enforce a patent if there are grounds for invalidation. The Intellectual Property High Court of Japan (IPHCJ), the country’s specialist IP appellate court, reviews, on a de novo basis, all JPO invalidation and District Court infringement decisions.

An appeal mechanism against IPHCJ decisions is available through the Supreme Court, Japan’s highest appellate court. The Supreme Court rarely overturns the IPHCJ’s decisions as appeals are restricted to reviewing the legal reasoning behind the decision, not the facts of the case. It has the discretion to accept or decline to review an appeal.

Japan’s Dispute Resolution Framework

Benrishi and bengoshi

The Japanese IP bar consists of benrishi (patent attorneys) and bengoshi (attorneys-at-law).  Japanese patent attorneys, like their American counterparts, usually have a technical background and a legal mandate to practice patent and other IP law before the JPO, IPHCJ and Supreme Courts. They can also litigate patent infringement matters as co-counsel with bengoshi. Most bengoshi, like Japanese judges, rarely have a science or technology background; therefore, the ideal litigation team for complex high technology patent matters would consist of benrishi and bengoshi.

Benrishi and bengoshi routinely charge on an hourly basis for invalidation and infringement proceedings – rates vary from US$180 to US$550. However, fees based on economic value are common in Japan, and bengoshi customarily charge an initial retainer and a success (contingent) fee for achieving a favorable settlement.

The initial retainer fee is calculated on the basis of the economic value sought in the complaint, and the success fee is based on the amount actually obtained. As the amount at issue increases, the rate of fees gradually decreases. As an indication, attorney’s fees in small patent litigation should be less than US$300,000, with medium-sized patent litigation at around US$550,000 and larger or more complex patent litigation costing upwards of US$850,000.

Many Japanese attorneys still estimate their fees according to the Japan Federation of Bar Associations standard for attorney’s fees that was abolished in 2004. Foreign clients should nevertheless be able to negotiate billing arrangements that suit their respective circumstances.

Even so, IP attorneys’ fees are generally lower in Japan than in the U.S.², because there are no discovery procedures or deposition practices which largely make up the high cost of U.S. patent litigation (see “U.S. Contingency Fee – A Level Playing Field,” page 3). However, all court-filed documents must be in Japanese, meaning that foreign litigants usually incur sizeable translation costs for patent litigation.

Invalidation proceedings

Japan's mukou shimpan – invalidation appeal – procedure came into effect on January 1, 2004, replacing the former opposition system. Over the years, the JPO has worked to streamline and expedite the handling of invalidation appeal proceedings, which are conducted on a preferential basis, using oral proceedings to expedite the examination process. According to the JPO Annual Report 2009, the average IP deliberation period in 2008 was an astonishingly quick 9.5 months, down 2.5 months from the average in 1998 which was already a respectable 12 months.

Given the swiftness of the JPO’s invalidation proceedings, coupled with its familiarity and experience with enablement, completion or obviousness analysis of complex technologies, such as biotechnology and information technology, the JPO is the invalidation forum of choice in IP dispute resolution matters.

The average cost of preparing and prosecuting an invalidation appeal before the JPO is from US$25,000 to US$120,000 – but may be more depending on the complexity of the case. The costs cover drafting of briefs, translation of references and other documents and preparation of experiments, as well as securing expert opinions where applicable. Each party bears its own attorney’s fees. Although JPO invalidation decisions conclude by ordering the losing party to bear the costs of the Appeal proceedings “under Section 61 of the Code of Civil Procedure mutatis mutandis in Sec. 169(2) of the Patent Law,” such costs do not include the losing party’s attorney’s fees and the recoverable amount is so nominal that no one seeks to recover them.

Patent infringement action

The Japanese District Court patent infringement proceedings are not held on a single day or over several consecutive days – as is the case in most U.S. hearings. Instead, a series of hearings is usually held at one or two-month intervals until the completion of deliberations. The parties submit briefs, evidence and expert opinions at each hearing. Live examination of witnesses is extremely rare. Sometimes, the District Court may suggest a court-mediated settlement, but if mediation is inconclusive, the infringement deliberations resume. If an infringement liability is found, the Courts will request briefings and accounting expert reports for damage assessment.

The plaintiff must pay an official filing fee to the District Court, calculated as a percentage of the economic value of the case. For example, if the amount at issue is US$1,000,000, the official filing fee will be about US$4,000, and if the value is US$10,000,000, the filing fee will be about US$30,000. The economic value of a patent litigation case generally consists of the cost of prohibiting future infringement³ plus the amount of damages claimed.

The average pendency period of first instance IP lawsuits was more than halved – from 31.1 months to 12.5 months – between 1996 and 2006.⁴

District Court – Attorney’s fees awards

Each party generally bears its own costs in patent infringement actions, but courts have the discretion to order the losing party to pay costs to the winner. But a successful litigant is unlikely to recover all or even a substantial portion of its attorney’s fees. Judges assess the costs after either party makes a petition to fix the amount of costs. Stamp fees, including the official filing fee, and other costs allowed under the rules of the court could be covered, but not the actual attorney’s fees borne by the parties.

In patent and other IP right cases, the plaintiff can add a certain portion of the attorney’s fees as part of the damages suffered. In practice, courts usually allow up to 10 percent of damages to cover attorney’s fees, and they consider factors such as the degree of difficulty of the case, total damages awarded, file history and conduct of the litigation.

JPO decisions can be appealed in the Intellectual Property High Court which can, in turn, have its decisions appealed in the Supreme Court, but only on points of law, so it is rather rare. (Credit: Wikipedia)

IPHCJ appeals

Either party, dissatisfied with a JPO or District Court decision, can appeal to the IPHCJ. Proceedings in the IPHCJ are similar to those in the District Court. In 2008, the average pendency period for IPHCJ proceedings was 7.7 months.⁵

The IPHCJ may convene a technical presentation, during which the parties may use multimedia aids to explain the technology concerned in the patent dispute. As in the district courts, the IPHCJ judge is briefed by technical advisors.

During the appeals of both infringement and JPO decisions, the IPHCJ gives litigants wide latitude to introduce new evidence, but not new issues, to support issues previously pleaded. This can include new expert opinions, experimental results, references and any other evidence, provided that it does not change the gist of the issues previously pleaded. For example, if obviousness was argued in the original JPO invalidation proceeding, it is possible to introduce new obviousness prior art references to the IPHCJ. It is not permissible to introduce a novelty argument and/or prior art reference at this stage: the challenger would need to initiate a separate invalidation appeal proceeding based on novelty at the JPO.

Each party bears its own costs for IPHCJ appellate proceedings, and attorney’s fees can range from US$75,000 to US$250,000 (or more) depending on the complexity of the case – complex cases sometimes last longer than the average eight-month pendency period.

Supreme Court Appeal Costs

The IPHCJ decision can be further appealed to the Supreme Court of Japan but such cases are very rare and limited to points of law. The estimated cost of preparing a petition to the Supreme Court depends on the case’s complexity (and ranges from US$5,000 to US$25,000). If the Supreme Court accepts to hear the appeal, the cost of briefing and attending the hearing could be between US$15,000 and US$25,000 (again depending on complexity).

Conclusion

Today’s technology-centric, globalized economy provides many opportunities for right holders to maximize the value of their IP portfolios through enforcement and licensing activities that could have a significant impact on competitors. Competitive imperatives give potential defendants and licensees an incentive to challenge such asserted patent and other IP rights internationally. Given the rapidity of resolution of IP invalidation (9.5 months at the JPO) and infringement (13.7 months in first instance courts) proceedings and the relative affordability of contentious IP proceedings, Japan is an extremely compelling and attractive market for IP dispute resolution.

Litigants in Japan can count on reasonable costs for protecting their IP in the world’s second-largest free-market economy. Japan’s cost-friendly and expeditious IP dispute resolution system should therefore play a central role in any global, IP-centered business strategy.

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1 Naoki Koizumi and Toshiko Takenaka, The Changing Role of the Patent Office and the Courts after Fujitsu/TI in LAW IN JAPAN: A TURNING POINT, 558-559 (Daniel Harrington Foote, ed. 2008).
2 Robert Kneller, Bridging Islands: Venture Companies & the Future of Japanese & American Industry 153 (2007) (noting that the “costs of litigating patent infringement in Japan are lower than in the USA perhaps by a factor of five.”).
3 Standards for calculating the amount are available from the Intellectual Property Division of the Tokyo District Court
4 Peter Ganea and Sadao Nagaoka, Japan in INTELLECTUAL PROPERTY IN ASIA, 148 (Paul Goldstein and Joseph Straus, eds. 2009).
5 Administrative Bureau of Supreme Court of Japan statistics