Corporate Approaches to Protecting Intellectual Property: Implications for U. S.-Japan High-Technology Competition: Report of a Workshop (1994)

In the United States differences in the American and Japanese intellectual property systems and celebrated cases of patent litigation have received a fair amount of attention over the past several years.4 This attention has focused on U.S. complaints about the Japanese patent system, and on the large number of patents filed by Japanese companies in the United States. In Japan, however, press coverage of IPR issues has been both more extensive and sustained and has gained new impetus after Honeywell's 1992 court victory over Minolta in the autofocus case. Much of the Japanese press coverage starts from the premise that the United States is waging a coordinated, deliberate “patent war” against Japan.5 Many Japanese apparently believe that U.S. companies are losing their ability to produce new technologies and inventions and therefore have turned to using old or overly broad patents in order to keep Japanese competitors at bay by extracting exorbitant licensing fees and settlements.

Patent systems aim to encourage the development and diffusion of new technology by giving innovators a limited time monopoly in which to use their inventions in return for public disclosure. The workshop participants agreed that the Japanese system leans toward encouraging diffusion, whereas the U.S. system leans toward encouraging new developments. This basic divergence in orientation arises from both formal differences in the two systems as well as disparities in how the systems actually operate.

For U.S. companies competing with Japanese industry in high-technology sectors, a primary concern is protecting intellectual property in Japan. Workshop participants discussed the results of a U.S. General Accounting Office (GAO) study of the experiences of U.S. firms in obtaining and enforcing patents in Japan, Europe, and the United States.6 The GAO obtained survey responses from 300 companies (90 percent U.S. owned and the remainder U.S. subsidiaries of foreign multinationals) in the fields of chemicals, semiconductors, and biotechnology. The firms represent over 90 percent of the top U.S. corporate patent holders and represent both small and large companies. In addition to collecting survey data, GAO conducted in-depth interviews with more than 50 respondents.

The major survey results are not startling to those who have followed this issue, but they do quantify aspects of U.S. corporate experience with the Japanese patent system that, up to now, have been supported only by anecdotes. More than three times as many of the responding companies were dissatisfied with their overall patent experience in Japan as compared with that in the United States and Europe. Generally, the companies surveyed were most satisfied with their patent experience in Europe through the European Patent Office (EPO), indicating that they were not partial to the U.S. Patent and Trademark Office (PTO).

About 40 percent of the companies surveyed reported having “great” or “very great” difficulty in obtaining patents in Japan, with a much lower percentage reporting patent problems in the United States and Europe. The GAO identified four key issues: (1) delays in obtaining a patent grant, (2) the cost of obtaining a patent, (3) the scope of the resulting grant, and (4) difficulty in protecting pioneering innovations. About 65 percent of the companies surveyed had problems in Japan in at least one of these areas. About 25 percent had problems in Europe concerning at least one of the four, and less than 20 percent had problems in the United States. Although 23 percent of the companies surveyed reported that the Japanese patent system gives Japanese firms “a great advantage” over U.S. companies, only 6 percent reported that Japanese patent practices resulted in a “great adverse effect” on their businesses. This disparity

might arise because some U.S. firms found it difficult to separate patent problems from the general difficulty in accessing the Japanese market.

Some of the results of the survey were unexpected. First, the proportion of U.S. companies reporting difficulties protecting IPR in Japan did not vary significantly according to industry, firm size, the frequency or infrequency with which the company filed in Japan, or whether the company was well established or relatively new. Second, only 12 percent of the companies reported a great problem in Japan with “patent flooding”—the tendency for competing firms to file numerous applications claiming minor, incremental changes surrounding a claimant's core technology. Although this was more than the 3 percent and 5 percent of companies that experienced this problem in Europe and the United States, respectively, it is a lower figure than expected from the attention this issue is given in some of the literature. However, when companies reported problems with “patent flooding” in Japan, pioneering inventions and/or those involving high commercial value were usually involved.

The findings of the GAO report confirmed the experiences of workshop participants. Among the patent systems of developed countries, Japan 's is uniquely difficult for U.S. companies to cope with. The key issues on which there was a range of views were: (1) to what extent could the IPR difficulties experienced by U.S. companies in Japan be mitigated by more skillfully working the Japanese system? and (2) what changes in the Japanese patent system would most benefit U.S. industry?

Participants agreed in general that most of the problems U.S. companies encounter in Japan result from the interaction of elements of the Japanese system with the tendency of U.S. firms to employ patent practices and strategies developed to work in the U.S. system. In some cases, the incentives built into the U.S. system are linked directly to common problems encountered in Japan. For example, in order to avoid the expense of filing unnecessary patent applications, American companies often wait until the end of the U.S. “priority year” (the grace period following the public disclosure of an invention during which the disclosure will not affect patentability) before deciding whether or not to file worldwide. The company may allow only a few days to have foreign applications translated, so Japanese translations filed in this context may be rushed and inaccurate. Since Japan does not allow an initial foreign language filing to serve as the ruling document, the U.S. company may end up applying for a nonsensical or worthless patent.7

Although participants agreed that a number of the IPR problems experienced by U.S. companies in Japan theoretically are amenable to changes in strategy that are under their own control (these changes would be costly, as will be

discussed below), there was some disagreement among workshop participants on another key point. This was the question of whether Japanese government and industry—particularly the Ministry of International Trade and Industry (MITI)—sometimes use the patent system as an instrument of policy. Some have asserted that, in contrast to the United States, where obtaining and enforcing intellectual property protection generally are seen to be determined by impartial administrative and judicial processes, the Japanese system allows government and industry to avoid granting patent protection to breakthrough foreign innovations. Even those who assert that this is the case believe that it happens only rarely and in new fields that Japanese industrial and technology policies have identified as critical for the nation. Some of the individual cases cited as examples include Texas Instruments' basic semiconductor patents, Corning's fiber optic cable technology, and Allied Signal's amorphous metals patents.

The role of MITI in coordinating and channeling the flow of critical industrial technology into Japan during most of the postwar period —particularly prior to the removal of exchange controls around 1980 —is well documented. The fact that some American parties to long-standing cases of objection and delay at the Japan Patent Office (JPO) were finally granted protection during periods of particularly high tension in U.S.-Japan trade relations also lends credence to the argument that the Japanese patent system is used sometimes as a policy tool. Further, MITI has jurisdiction over JPO, with the career paths of MITI officials often including a stint at the patent office. In contrast, the career paths of PTO officials and the rest of the Department of Commerce generally are not intertwined.

Disagreement among knowledgeable observers over whether or to what extent policy manipulation of IPR occurs in Japan is inevitable because such manipulation is very difficult—usually impossible—to prove.8 The Japanese patent system allows greater opportunities and scope for determined competitors to delay the process of issuing breakthrough patents, regardless of government policy. Third parties can file objections with JPO when patents are laid open eighteen months after filing, but the opposition process begins after the applicant has requested examination, the request has been allowed, and the application is published a second time. The JPO may ask the applicant to make changes in the application in order to respond to third-party oppositions. In contrast to the opposition mechanism under the European Patent Convention, oppositions in Japan are allowed before the patent is granted and are considered serially rather than all at once. In addition, a great deal more informal contact between companies and patent examiners is customary in Japan than in the United States, providing another mechanism for applicants or those who file oppositions to influence the system.

One workshop participant suggested that a careful and impartial examination of particular cases in which foreign inventors believe their pioneering inventions were discriminated against might yield valuable generalizations both on which JPO practices are especially troublesome and on which strategies are most effective for obtaining pioneering patents in Japan.

Whether or not breakthrough inventions are delayed or blocked in Japan as a matter of policy, it is often the case that American companies have problems obtaining meaningful protection. For example, a U.S. biotechnology company trying to patent its diagnostic test for hepatitis C—a fairly prevalent disease in Japan—has obtained enforceable protection in Europe and the United States but not in Japan. Some of the objections filed by Japanese companies assert that natives of Japan suffer from a hepatitis C “different ” from that found in other people. Since it is often possible to make minor changes in a recombinant protein and still retain the activity that allows its use as a diagnostic or therapeutic agent, Japanese companies may be able to market a slightly altered diagnostic to treat “Japanese” hepatitis C that would constitute infringement in the United States.9

In order to improve participation in the Japanese market, U.S. companies across a range of high-technology industries need to obtain better intellectual property protection in Japan. The workshop discussion summarized in chapter 4 provides insights of how U.S. and Japanese companies approach IPR issues, how these approaches are evolving, and how U.S. companies can obtain more effective IPR coverage.