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Sunday, April 17, 2005

THE ASIAN BOOKSHELF

Peace of mind for Japanese inventors


VALUING INTELLECTUAL PROPERTY IN JAPAN, BRITAIN AND THE UNITED STATES, edited by Ruth Taplin. London: Routledge, 2004, 163 pp., $97 (cloth).

On April 1, Japan's first court dedicated to cases concerning patents and other intellectual property rights (IPR) was established as part of a far-ranging renovation of Japan's judicial system. The Intellectual Property High Court is tasked with speeding up and coordinating rulings on the growing number of disputes over IPR.

The 18 judges assigned to adjudicate IPR cases will play a key role in establishing and clarifying new business rules such as what constitutes a patent infringement. Within the new court, a four-judge, grand panel system has been established to expedite and coordinate rulings on cases deemed especially significant.

The new court handles appeals of IPR cases originating from district courts and serves as the court of first instance in cases involving the Patent Office. It is a sign of the times that the court has a multilingual Web site and that Japan has declared April 18 Invention Day.

The shabby treatment of in-house inventors by corporate Japan is challenged increasingly by former employees who have filed lawsuits seeking proper compensation for their contributions. The most notorious case involved Shuji Nakamura, whose invention of the blue light-emitting diode (LED) catapulted Nichia, his former employer, into a position of market dominance, bestowing hefty profits.

For what many consider a "Nobel-class" invention, Nakamura was paid a paltry 20,000 yen. In 2004, the district court ordered Nichia to pay him 20 billion yen, the amount Nakamura demanded, even though the judge calculated that he deserved some 64 billion yen, constituting 50 percent of the profits that Nichia had earned from his invention. Nichia appealed, and under considerable pressure from the high court judge earlier this year, Nakamura angrily agreed to a settlement for 843 million yen.

This settlement is the highest ever in Japan and will set a precedent for other in-house inventors seeking proper compensation. At Hitachi, Toshiba, Ajinomoto and Olympus, to name a few blue chips, employees are similarly asserting their rights as awareness about global norms concerning fair rewards spreads. As a result, many firms have overhauled their compensation schemes while revisions to the Patent Law in 2004 call on firms to adopt a reward system through consultations with employees.

Proper valuations of IPR and issues of fair compensation are thus critical in Japan and demonstrate that the myth of the reluctant litigant is fading fast.

Ruth Taplin's second book on IPR puts risk, rewards and calculations of value in comparative perspective. Ten contributors from divergent backgrounds demonstrate that IPR is now an interdisciplinary field and no longer the preserve of accountants and lawyers.

Valuing IPR has become an issue for insurance firms that offer products covering the risk that firms face in cases of patent infringement. These new products have forced firms and their insurers to properly calculate value and risk associated with IPR.

While many firms consider fire insurance a necessary cost of doing business, it has been only recently that they have begun to assess and protect their IPR. In Japan, employee compensation for inventions is increasingly part of this process, since most companies have not awarded fair compensation for world-beating technological innovations.

The reader quickly learns that valuing IPR is tricky and that no unified standard exists. The dot-com boom and bust has exposed the problems of relying on market valuation. While it may be relatively easy to calculate patent royalties, IPR also contributes to firms' intangible assets that figure prominently in a firm's brand name and thus market value.

The proper valuation of IPR, which involves predicting future economic benefits and the contribution of a particular patent to future cash flow, presents many problems. Here, contributors discuss the merits of various valuation methods.

Patent infringement is not the only risk that companies face. Accusations of infringement have been bypassed through small alterations, but more importantly, a popular new tactic is to challenge the validity of IPR. Taplin points to the "common misconception that, once granted, patents and other rights are set in 'tablets of stone.' This is not the case; they are vulnerable to attack on the grounds of invalidity, ownership or title . . . . In Europe this is often used as a negotiating tool to commence licensing discussions."

What may look like a nightmare for corporate managers can turn out to be a gold mine for patent attorneys and insurance agents. These essays highlight just how quickly IPR is evolving as a field of litigation, insurance and corporate strategies.

While the text may be too specialized for many readers, this fine book details how global norms in the field of IPR are inspiring sweeping reforms in Japan.

Jeff Kingston teaches history at Temple University Japan.


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