1.  New Employee Invention System & Guidelines therefor in Japan Pre-Meeting AIPLA Mid-Winter Institute January 26, 2016 La Quinta Sumiko Kobayashi 1

2. Contents - 1 1 Current System 2 New System 3 Background of New System 4 Advantages of New System 5 Guidelines for New System = Discussion in Preparation of Regulation on how to determine Reasonable Benefit 2

3. Contents - 2 5 Guideline for New System 5-1I Purpose 5-2II 1. General idea 2. Discussion 3. Disclosure 4. Hearing 5. Basic materials relating to the standard for determination 3

4. Contents - 3 5 Guideline for New System 5-3III 1. “Reasonable Benefit” other than money 2. Amendment to the standard 3. New employees 4. Retired persons 5. Middle or small size companies 6. Universities 6 Notes 4

5. 1 Current System - Premise: Owner of the employee invention (“Invention”) is the inventor. Right to obtain a patent for Invention - The employer can be assigned the “right” according to regulation relating to Invention (Regulation) prepared in the company. - “right”: right to obtain a patent, patent, exclusive license, etc. - The employee has a right to receive “reasonable compensation” according to Regulation in case of the assignment so called “statutory right to obtain compensation” 5

6. 2 New System - 1 The New System for Dealing with Employee Invention Amendment to Patent Law, Article 35. Published July 10, 2015 Enacted April 1, 2016 6

7. 2 New System -2 - Premise: employer is the owner of the right to obtain a patent for Invention - According to Regulation established prior to Invention in the company - Employee has a right to receive a reasonable economic benefit (economic benefit includes money and others) in the case of employer`s acquisition - METI minister shall prepare and issue Guideline encouraging invention, for discussion processes of preparation of criteria (standard) to determine the reasonable benefit 7

8. 3 Background of New System Companies, etc. having Regulation would likely adopt the employer ownership:  Big companies (99%)  Minority of middle/small companies (20%)  Minority of universities (40%) Companies, etc. having no Regulation would not likely adopt the employer ownership:  Majority of middle/small companies (80%)  Majority of universities (60%) 8

9. 4 Advantages of New System in light of Issues currently present It is expected that New System is helpful in overcoming the following issues present in the current system. (1) Difficulty in determining the amount of Reasonable Compensation (2) Issues arose in connection with transfer of the right (3) Current system does not provide an incentive for Invention in reality 9

10. 4 Advantages of New System - 2 (1) Compensation (i) Guideline would help form a consensus so that the determined reasonable benefit will be rational. Thus, the low predictability associated with determining reasonable compensation in the previous system can be overcome. (ii) More variety of incentives, more freedom in determining incentive according to Guideline would give an opportunity to more number of employees than in the current system so that lack of equality feeling between employees can be eliminated. (iii) Guideline and devising reasonable benefit would allow employer to take easier way to calculate and the like of the benefit which would lessen costs for management. 10

11. 4 Advantages of New System - 3 (2) Against issues arose in connection with transfer of the right The following issues can be solved taking the premise that the employer (single entity) is the owner, according to the JPO: - Issue of complication due to double transfer - Issue in making the disposition of right created during a collaborative research 11

12. 4 Advantages of New System - 4 (3) Against the fact that current system does not provide an incentive for Invention in reality The incentive will become clearer or stronger as the variety of the applicable incentives increase. 12

13. Guideline for New System I Purpose Guidelines proposes a regulated process which includes three actions which should be conducted in good faith > : (1) discussion between the employee and employer to determine the regulation; (2) disclosure of the regulation; and (3) a hearing for the employee to determine reasonable benefit. - then the employer and employees respect Regulation; - then, the processes for determination of reasonable benefit are clear, - thus, the legal predictability of determining rationality is higher 13

14. Guideline for New System II 1. General idea - Standard can be different between the following processes in acquisition of a right to obtain a patent in determining of reasonable benefits - Rationality in Regulation is judged separately from validity in light of the labor law 14

15. Guideline for New System II 2. Discussion Relevant members to the discussion: - Employees to whom the Regulation is applied - Representative of labor union 15

16. Guideline for New System II 3 Disclosure The regulation should be accessible for relevant employees For example, - Posting the papers on board for them to see easily - Disclosure in the intranet which is accessible by them at any time 16

17. Guideline for New System II 4 Hearing - Relevant employees - Can be taken place before or after determination of reasonable benefits - Employer should deal conduct the hearing in good faith - In the case of failure of reaching agreement, the failure would not necessarily be a definite ground for irrationality if the discussion has been fully conducted 17

18. Guideline for New System II 5. Basic materials relating to the standard for determination It is desirable to keep as much of the information as possible, i.e., the materials prepared and used in the discussion processes in establishing Regulation because they can be basic materials for judging rationality in preparation of Regulation or determination of reasonable benefit 18

19. Guideline for New System III 1. “Reasonable benefits” other than money - economic value, i.e., does not include paper award of merit - based on Invention Examples: study abroad, stock option, promotion associated with the monetary benefit, leave with salary for the period exceeding certain days or periods, exclusive license or ordinary license based on Invention 19

20. Guideline for New System III 2 Amendment to Regulation Discussion is necessary, in case of amendment, between employer and the employees who would be affected by the possible amendment 20

21. Guideline for New System III 3 New employees - Discussion between the employer and the new employees is preferable - The fact that discussion between the employer and the employees was fully made and negotiation power gap between the employer and the employees was overcome during preparation of Regulation prior to coming of new employees can be a factor to judge that the state of the discussion between the employer and the new employees is rational even if no discussion is actually made 21

22. Guideline for New System III 4. Retired persons Examples of treatment - lump-sum payment - Hearing of intention at the time of retirement 22

23. Guideline for New System III 5. Middle or small size companies To devise method or processes for discussion in accordance with the size of the companies. Example, Disclosure of Regulation does not have to be made through intranet but through posting the paper having description of Regulation 23

24. Guideline for New System III 6. Universities To an employee of the university the provision of Patent Law, Article 35 is applied To a student having no employment contract with the university at all the provision of Patent Law, Article 35 is not applied 24

25. Notes 1. Any significance of reasonable benefit in comparison to a reasonable compensation ? 2. Is it necessary to take into account performance such as sales amount in determining the benefit ? 3. Is incentive necessary for a retired person ? 4. How to determine the reasonable benefit for Nobel Prize level Invention ? 5. Is know-how relevant ? 6. Can research facility be a reasonable benefit ? 25

26. Notes 7. Can a company have two systems in parallel: employer ownership premise and employee ownership premise ? 8. How to deal with a right to obtain a foreign patent ? 9. How to deal with Invention made by a visiting employee ? 10. How to make it consistent with the other party’s Regulation in the case of collaborative research ? 11. Can the Regulation be retroactive to Invention made before enforcement of the Amendment to the Patent Law? 12. Can a reasonable benefit other then money be assigned ? 26

27. ANY QUESTIONS ? Thank you ! 27