Remuneration Act in Japan (Art. 35, Patent Law)

Right to Receive Remuneration in Japan
Japanese patent law provides an employee with a right to receive remuneration for inventions made within the scope of employment. Articles 35(1) and 35 (3), Patent Law.

In the past, many Japanese corporations maintained their own internal rules for evaluating inventions and determining compensation. Such rules were typically made and applied by each corporation.

In 2001, the Tokyo High court found that “because the remuneration right belongs to an employee, the quality and contents of the right cannot be unilaterally determined by his counterparty, an employer.” in re Olympus, Tokyo High court 2001.

This decision called into question the internal rules for evaluating inventions, and many cases were brought to the courts to decide an appropriate remuneration amount. Some of the cases resulted in remuneration as high as JPY 20billion, in re Nakamura vs. Nichia, Tokyo district court 2004, and JPY 163 million, in re A vs. Hitachi, Tokyo High court 2004 and gained the attention of patent practitioners around the world.

Amendment of Japanese Patent Law
Following a significant controversy in the affected industries, the Japanese patent law was amended in 1994 to enable corporations to provide articulable standards for evaluating inventions.

Article 35(4) of Patent Law 1994 provides, essentially, that where a contract, employment regulation, or any other stipulation has provided a standard for calculating remuneration, the remuneration made following the standard shall not be unreasonable in light of the activities for setting the standard, including

(1) consultations between the employers and the employees taken place for setting the standard,
(2) publications of the standard, and
(3) hearing of those who would evaluate the inventions by applying the standard

But for the standard, remuneration could be found very high depending on the amount of profit the employer-corporation makes. By providing a reasonable remuneration standard, unforeseen remuneration can be avoided. To have the standard found reasonable, it is essential to carry out the above activities (1) to (3) and preserve proof of such activities.

Case Studies Published by the JPO
The Japan Patent Office (“JPO”) published “The Case Studies of the Procedures under the New Employee Invention System” (“case study”).

Although case studies or guidelines published by the JPO are not binding, Japanese courts generally respect the official comments of the JPO. For example, the patent examination guidelines are often cited and followed by the courts. Therefore, the case study is a valuable reference for considering how to set the standard. The case study is detailed on each critical issue of setting the standard, including the above activities (1) to (3).

We would be happy to explain the essential points from the Case Studies, analyze your current situation, and help you make a remuneration standard.

If you need any other information or assistance, please feel free to contact us.