JAPAN: An Introduction to Intellectual Property: Domestic

With the impact of COVID-19 receding, the environment surrounding intellectual property in Japan has returned to normal, and the country is looking to expand innovation further. Examples include the innovation box taxation system and the movement to utilise intellectual property in the agriculture and fisheries sectors. While there were no Supreme Court or IP High Court Grand Panel decisions on IP in late 2023 or 2024, there were some interesting decisions that made headlines, and the first-ever case of a compulsory licence request being concluded by settlement. In terms of the patent linkage system, the Ministry of Health, Labour and Welfare (MHLW) is considering some changes to the operation of the system.

Innovation Box Taxation System

The Innovation Box Taxation System, which has been introduced in European countries since the 2000s, was established in Japan through a tax reform in 2024. Specifically, in the fiscal years between April 2025 and March 2032, if a company transfers or licences its patent rights on inventions made in Japan or AI-related software copyrights created in Japan (limited to those invented or created on or after 1 April 2025) to others (excluding its affiliates), the company will be able to use a reduced tax rate (from 29.74% to approximately 20% on an effective corporate tax rate basis) for the income obtained from the transactions.

The introduction of this system is expected to promote innovation in Japan further.

Movement of IP Utilisation in Agriculture and Fisheries

In the agricultural and fisheries sectors, there is growing momentum to focus on intellectual property rights, which have not been utilised much in the past, and to promote business by taking advantage of these rights. For example, new varieties can be protected by breeder's rights, cultivation methods by patent rights, products by trade mark rights, processing machinery and technology by patent rights, and names of products that represent the region can be protected by geographical indication registration.

There are many concrete examples of profits being generated by using intellectual property rights.

Judgments That Have Made Headlines

Litigation regarding inventorship of AI systems

Applicant v the Commissioner of Patent dated 16 May 2024 (2023 (gyo-u) No 5001)

The Patent Office dismissed the patent application submitted by the plaintiff with the name of the inventor as DABUS (standing for "Device for the Autonomous Bootstrapping of Unified Sentience”). The applicant claimed that an artificial intelligence autonomously invented the invention, but the application was dismissed because the name of a natural person was not stated as the inventor. The applicant filed a lawsuit seeking cancellation of the disposition. However, the Tokyo District Court dismissed the claim, as did courts in other countries, on the grounds that the Basic Intellectual Property Law is understood to provide that "inventions" are created by natural persons and that the Patent Law also naturally assumes that the inventor is a natural person.

However, the Court mentioned that in light of the differences between the autonomous creative ability of AI and the creative ability of natural persons, there is also ample room for designing a system in which the duration of rights pertaining to AI inventions differs from the duration under the current Patent Act from the perspective of industrial policy, taking into account the changes in socio-economic structure that AI brings about and added that, in light of the importance of AI inventions in terms of industrial policy, a legislative review of AI inventions is expected to be conducted and promptly reach a conclusion.

Patent infringement lawsuit concerning toilet paper

Nippon Paper Crecia v Daio Paper dated 21 August 2024 (2022 (wa) No 22517)

The plaintiff and defendant are competitors and are both involved in the manufacture and sale of toilet paper in Japan. The plaintiff has three patents relating to a technique for making toilet paper rolls of a longer paper than conventional paper rolls, solving softness and texture problems by using specific embossing, and sued the defendant seeking an injunction and damages for infringing the patents.

The claims of each patent described numerical ranges for the depth of embossing. The plaintiff measured the depth of embossing of the defendant's products and submitted a report, but the Tokyo District Court dismissed the plaintiff's claim finding that the measurement was different from the measurement method in the specification.

Conclusion of Compulsory Licence Request Case by Settlement

Helios Corporation, Riken, and Osaka University Patent jointly hold a patent directed to a method for creating retinal pigment epithelial cells (“RPE cells”) from induced pluripotent stem cells (“iPS cells”), and Sumitomo Pharma, which received an exclusive licence from the patent holders, has been working to develop cellular medicine using iPS cell-derived RPE cells and a treatment for age-related macular degeneration.

Dr Takahashi (one of the inventors of the patent in question), who had been leading clinical research using iPS cell-derived RPE cells at RIKEN, resigned from RIKEN at the end of July 2019 and became the representative director of Vision Care Inc on 1 August 2019, focusing on clinical development using iPS cell-derived RPE cells. On 13 July 2021, Vision Care filed a request for a compulsory licence for the patent based on the public interest to the Minister of Economy, Trade and Industry (Article 93(2) of the Patent Law). The JPO set up a special committee and held a total of 22 hearings, but the minutes of these meetings were not disclosed. Based on the press releases of both parties, the Committee formed a certain tentative view as a result of the hearings and came to the view that this case should be resolved through negotiation between the parties and urged both parties to hold meetings on the premise that, among the requests, a licence may only be granted for the production of RPE cells derived from autologous iPS cells, and as a result, the parties reached a settlement.

This was the first compulsory licence request that was substantively heard, but because the record was closed and no ruling was issued, it was unclear whether the request met the requirements of "for the public interest" and "when it is particularly necessary" and how the hearing was conducted. The issue of the lack of expeditious proceedings was also raised.

Potential Change in the Practice of the Patent Linkage System

The MHLW, based on the notice, decided not to approve a generic drug if the original company had a compound patent on the API and not to approve a corresponding portion of a generic drug if the original company had a patent directed to the indication or the dose and administration. This is the so-called patent linkage system. However, it has become increasingly difficult for the MHLW to find the patents stated in the notice and the scope of the extended patent.

However, in Japan, a marketing approval application for a generic drug is not on its own an act of patent infringement, and a DJ action filed by a generic company seeking a declaratory judgement confirming non-infringement is likely to be dismissed as lack of actual controversy (Eisai v Nipro, 10 May 2023 (2022 (ne) 10093)).

In August 2024, the MHLW established a study group to investigate domestic and foreign articles, court decisions, and academic theories so that, based on the results of the study, the scope of patents to be considered in the generic approval will be clarified. The MHLW seems to be considering introducing a system for referring opinions to experts (Document from the Pharmaceuticals and Medical Devices System Subcommittee of the Council for Science and Technology held on 25 July 2024).