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3 The Experience of U.S. Firms in Japan JAPANESE CASE LAW One approach to assessing the impact of the Japanese patent system on American innovators is to look at the record of patent infringement cases involving foreign companies. The existing records do not give a complete picture of litigation because the records of Japanese case law are only certain to include cases that went to a final decision. Infringement suits that end in settlement and decisions involving preliminary injunctions may not be reportedly It is important to note that criticism of the Japanese system has specifically focused on the ability of large firms to force cross-licensing agreements and settlements. Sole reliance on the record of decisions in Japanese patent infringement suits may lead to incomplete or incorrect conclusions about how the Japanese IPR system treats foreign inventors. However, the record of case law gives clues as to whether there is any reason to suspect systematic bias against foreigners or against innovators generally in Japanese patent courts. Patentees encounter several obstacles in contesting infringement suits in Japan as compared to their experience in the United States. These include the lack of wide-ranging discovery procedures, which hinders the plaintiff in collecting evidence to prove infringement, as well as a generally weaker enforcement of a "doctrine of equivalents." 3sRaymond C. Stewart, "Pharmaceutical and Biotechnology Litigation in Japan," 1991, p. 1, prepared for the Workshop on IPR and U.S.-Japan Competition in Biotechnology. 17

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18 Because there has been only one Japanese infringement decision handed down in biotechnology to date, which is currently under appeal, we must use decisions in suits over chemical and pharmaceutical patent infringement as proxies.36 Since it has only been since 1976 that chemical products and pharmaceutical composi- tions could be claimed in Japan, the history of case law mainly consists of process . . . infringement suits. The record of decisions since 1945 shows no evidence of bias against Ameri- cans or other foreigners in court. Of the thirteen suits brought by U.S. companies TABLE 1 Pharmaceutical Patent Litigation in Japan Involving U.S. Companies Patent Accused Date Case Owner Party Decided Infringement Chlortetracycline American Cyanamid Meiji 9/9/55 Admitted Chloramphenicol Parke Davis Yamanouchi 12/24/55 Admitted Dihydrostreptomycin Merck Kaken 7/3/67 Admitted Tetracycline American Cyanamid Mitsui Toatsu 7/21/72 Admitted Methocarbomal Robins Chemia Boeki 9/27/72 Denied Nalidixic acid Sterling Drug Sumitomo Chem. 7/21/76 Denied (High Court Appeal) 9/27/79 Denied Oxygen supply Baxter Junken 3/30/77 Admitted apparatus (High Court Appeal) 10/25/78 Admitted - Triamcinolone Squibb Kaigai Seiyaku 3/14/79 Denied acetonide Cephradine Squibb Taiyo Yakubin 7/12/85 Admitted Contact lens Allergen Hoya 2/29/88 Denied cleaner (High Court Appeal) 3/28/90 Denied - Contact lens Allergan Ophtecs 10/28/88 Denied cleaner (High Court Appeal) 3/28/90 Denied - Carbadox Pfizer Doryu 3/28/88 Admitted Source: Raymond Stewart 36Genentech has been contesting infringement suits against Toyobo and Sumitomo Pharmaceu- tical for tissue plasminogen activator (t-PA), the blood clot-dissolving treatment. The Osaka District Court ruled in favor of Genentech in the Toyobo case in late October, 1991, but Toyobo was planning to appeal. See Marilyn Chase, "Genentech Wins Ruling on TPA in Japan Court," The Wall Street Journal, October 29, 1991, p. B4.

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19 against Japanese defendants from 1945 to 1990, the plaintiffs have won eight and lost five. There were no final decisions in cases brought by Japanese plaintiffs against U.S. companies, and only seven decisions in Japanese vs. Japanese infringement suits.37 In addition to providing no direct evidence of prejudice against Americans or other foreigners, the small number of Japanese-Japanese decisions supports the widespread belief that Japanese companies use infringe- ment litigation as a tool in negotiations leading to cross-licensing agreements. To some observers, an examination of the particular cases where U.S. compa- nies have brought patent infringement suits is proof that the factors determining the success or failure of the firms have mostly been within their own control. Some international patent attorneys argue that if U.S. firms make sure that their patent applications are translated correctly into Japanese, and if they apply for patents on predictable modifications to the original invention in the eighteen month period between the time when the original patent application is filed and the time when the JPO publishes the claim as a kokai, then they can successfully protect their inventions.38 The quality of translations is considered to be especially critical by the Japanese patent examiners themselves.39 The most important determinant of success or failure in prosecuting an infringement suit may be the quality of Japanese representation. Many Japanese patent attorneys are essentially clerks who fill out the proper forms and file them with the JPO.40 The lower frequency in Japan of litigation in general and patent litigation in particular compared to the United States means that the patent law specialization is not as extensive there as it is here. Skilled patent attorneys and litigators are, however, available in Japan. The contributions of a particular Japanese patent lawyer and courtroom litigator team were critical in both Ameri- can Cyanamid's success in enforcing its tetracycline patent in 1955 and 1972, and in Monsanto's 1987 victory in the dispute over the selective herbicide Roundup.4 37Stewart, op. cit., p. 2. 38Harold C. Wegner, "Engineered Proteins: An Even Patent Playing Field," 1991, p. 6, prepared for the Workshop on IPR and U.S.-Japan Competition in Biotechnology. 39Harold Wegner, in his presentation on "The Experience of U.S. Firms in Japan," at the Workshop on IPR and U.S.-Japan Competition in Biotechnology. The U.S. accepts foreign language applica- tions if they are followed up by English translations, and the native language document can be used to prove intent. Japan does not accept foreign language applications except in rare circumstances. See Epstein and Jones, op. cit., p. 90. 40See Spero, op. cit., p. 65. 4'Roundup is the brand name. See Wegner, op. cit., pp. 2-4.

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20 Some point to examples of U.S. firms that have submitted poor translations, have not enlisted the best available legal representation, and have failed to understand and utilize the Japanese patent system effectively to argue that in many cases problems are due to their own lack of effort. Those skeptical about charges of unfairness lodged by U.S. firms against the Japanese system contrast the employees of Japanese companies who are sent to the U.S. to learn the subtleties of the U.S. patent system to American lawyers in Japan, many of whom are there to serve Japanese clients in connection with their U.S. operations.42 This characterization may be accurate for many of the cases where U.S. firms have experienced patent difficulties in Japan, and foreign firms may well be treated fairly before judges. However, the Allied-Signal case is a disturbing example of how delays at JPO can mean that by the time a patent is granted and litigation against infringers becomes possible, a lawsuit may be pointless. In addition to delays at JPO, some foreigners charge that Japanese infringement litigation is even slower and more costly than litigating in the United States, which discourages innovators from defending their rights in court.43 Genentech's experience with :-PA illustrates some of the issues that arise for U.S. biotechnol- ogy companies operating in the Japanese IPR environment. GENENTECH AND T-PA According to Stephen Raines, Vice President for Patents at Genentech, the key patent application for recombinant tissue plasminogen activator was filed in Japan in 1983. After examination, the grant entered the opposition phase, and twenty- eight parties objected to Genentech's patent. As a result of the objections, Genentech was forced by the JPO to limit its claim to the :-PA with the identical amino acid sequence as natural human t-PA. According to Raines: "one could possibly avoid infringement by altering by as little as one amino acid in the tissue plasminogen activator sequence of 527 amino acids. The alteration at each position could employ any one of nineteen amino acids in place of the amino acid of the natural sequence. With a molecule the size of tissue plasminogen activator, it is very easy to make a variant differing by one amino acid and still retain the activity."44 42Wegner, op. cit., P 1 43See Epstein and Jones, op. cit., p. 91, and Spero, op. cit., p. 66. 44Stephen Raines, Vice President for Patents, Genentech, Inc., personal communication to National Research Council, Office of Japan Affairs, February 1991.

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21 Sumitomo Pharmaceutical, defendant in one of Genentech's infringement suits, is working on a :-PA that is different from Genentech's only in having methionine in the 245 position rather than valine, and claims that this does not infringe Genentech's patent.45 The case is pending in Osaka District Court. Genentech is also trying to obtain approval on two other patent applications that would give it broader protection.46 For most products in the recombinant DNA area currently being developed, applications with broad claims are still pending in Japan. Japanese fimns are expending significant resources to develop these products, indicating that the companies believe that grants will be limited, allowing them to avoid infringement with minor modifications.47 Yet the preliminary ruling by the Osaka Distnct Court is encouraging to Genentech and, perhaps, to other biotechnology companies.48 In the United States, some criticize a trend toward broad claims for biotechnol- ogy patents. The patent infringement battle over :-PA in this country is a good example of the ongoing debate over where to draw the line in interpreting the breadth of claims. Some argue that it has not yet been proven that recombinant human :-PA a mimic of the natural form is significantly better than other drugs that dissolve blood clots, and that further research may yield a more effective version.49 The rationale for narrowly defined patents is the possibility that a slight variation may prove to be safer or more effective. Genentech's broad claims and aggressive approach to defending its patents the company won an infringement suit against Genetics Institute in 1990 that is under appeal as of this writing are seen by some to be discouraging research by U.S. companies aimed at improving on human t-PA. Some observers, noting the ease with which drug and chemical companies could "copy cat" patented molecules in the past, believe that with 45Ibid. 46Ibid. It costs 14,000 yen, about $100, to file an application in Japan. The cost for filing an opposition is 8,800 yen, and for demanding an appeal 39,600 yen plus 4,400 yen per claim. There are also gradually rising registration fees that must be paid after the patent is granted for the effective life of the grant. See Japanese Patent Office, Guide to Industrial Property in Japan (Tokyo: JPO, 1988), p. 197. 47For a summary of Japanese corporate R&D on t-PA, see "Asahi Kasei, Kowa, Raishun Hatsubai e" (Asahi Chemical, Kowa, To Be On Sale By Next Spring), Nthon Keizai Shimbun, December 20, 1990, p. 13. In order to gain approval for new pharmaceutical products in Japan, it is necessary to demonstrate "merit." A product representing a minor modification must show some improvement on an existing drug. But the threshold is relatively low. See Robert Neimeth, "Japan's Pharmaceutical Industry," in Gelijns and Halm (eds.), op. cit. 48See Chase, op. cit. 49Gary Slutsker, "Patenting Mother Nature," Forbes, January 7, 1991, p. 290.

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22 Genentech's :-PA patents and other biotechnology inventions "the pendulum seems to have swung too far the other way."s Fundamental disparities in the way biotechnology inventions are treated in the two countries cause special problems for U.S. companies in this field. How the JPO and the Japanese courts treat pending applications in coming years will determine whether U.S. biotechnology companies can obtain meaningful IPR protection in Japan. Though the Japanese "patent playing field" may be tilted against innovators, disputes in the United States over similar breadth of claim questions show that at least some of the disparities result from legitimate differences over how to treat biotechnology inventions. Yet the experience of American films in Japan is just part of the picture. Even when an invention is established and protected, IPR can be bought and sold on a global open market. Genentech licensed Japanese rights to :-PA to Mitsubishi Kasei and Kyowa Hakko of Japan, and sold a majority interest to Roche. Even if meaningful protection is eventually obtained in Japan, licensing, equity invest- ment, and other mechanisms still transfer the rights to products to Japanese companies or other foreign fimns. Licensing technology from emerging U.S. companies is just one of several mechanisms that Japanese firms utilize to gain access to U.S. biotechnology, access that enhances their competitiveness over the long-term. In order to get a broader picture of where IPR fits into U.S.-Japan competition in biotechnology, it is necessary to look at other factors, primarily the growing presence of Japanese firms in the United States. 50Slutsker, op. cit., p. 290. 5'The patent dispute between Xoma and Centocor over their monoclonal antibodies shows that uncertainties over IPR in biotechnology are not limited to recombinant DNA. See Ann M. Thayer, "Biopharmaceuticals Overcoming Market Hurdles," Chemical and Engineering News, February 25, l991,p.48.

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23 What Constitutes Infringement of a Protein Patent? Beg, ORIGINAL PATENTED GENE SEQUENCE Cog SLIGHTLY MODIFIED GENE SEQUENCE NO INFRINGEMENTS Decisions about whether the modified protein infringes the original patent may depend on its properties. ..... .. ~... ~ I _ ............ _ it_ INFRINGEMENT _ ~ ~ _ ~ _ ~ _ at_ a_ PATENTED PROTEIN _~_ SLIGHTLY DIFFERENT PROTEIN If the proteins have different reactive properties, the modified form may be uniquely patentable itself. If both proteins have identical reactive properties, the modified version may be an infringement. If the modified protein has both unique and previously patented features, its maker may not need to pay a licensing fee for some unique applications. FIGURE 3 What Constitutes Infringement of a Protein Patent? Source: "Patenting Life" by John H. Barton. Copyright 1991 by Scientific American, Inc. All rights reserved.