Japan considers introducing a new ADR system with a compulsory license for SEPs

   In April, 2017, Ministry of Economy, Trade and Industry (METI) in Japan revealed a report on a new design of an IP system taking the 4th industry revolution into consideration. The report discloses the possibility of introduction of a compulsory license on SEPs (Standard Essential Patents) in upcoming several years.

   According to the report, in order for Japanese companies to generate profits and expand their businesses, METI believes that it is indispensable to actively promote open innovation, which develops technologies and business models beyond companies and types of industries, and therefore, METI would like to expand and deepen the subject of an open & close strategy. In the open & close strategy, a company distinguishes a patent group on its core technologies from other patent groups on non-core technologies, and then, licenses the non-core technologies to third parties (open strategy) while keeping monopoly on the core technologies (close strategy). The main purpose of the open & close strategy is to guide the licensees into a market by the open strategy for inducing an innovation, and on the other hand, to expand profits from the core technologies by the close strategy.

   In the report, METI considers a comprehensive review of a patent system and a management thereof in terms of “data utilization”, “IP system”, and “international standardization”. Among many topics in the report, I would like to discuss one important topic; a proposed new Alternative Dispute Resolution (ADR) system with a compulsory license on SEPs.

Current status and issues

   In accordance with more complication of recent technologies, it is reported that an increasing number of SEPs is involved in a standard technology. In this situation, it is more difficult for SSO (Standard Setting Organization) to successfully offer a patent pool with all relevant SEPs involved. Accordingly, the costs necessary for license negotiation and dispute resolution are becoming higher. It is also reported that it is very hard to newly enter into the industry where a large number of SEPs is involved especially for small and medium-sized companies. Taking into account the IoT (Internet of Things), it is anticipated that various types of companies such as automobile companies, that did not utilize standard technologies on telecommunications so far, will probably want to utilize those standard technologies. Therefore, it is possible that the cost for utilizing SEPs will increase in a society as a whole.

Appropriate Efforts and Solutions

   With regard to SEPs which would become a part of a social infrastructure due to the IoT, it is necessary to tackle the cost issue which could be an obstacle for efficient utilization of those standard technologies by lowering the cost necessary for licensing negotiation and dispute resolution.

   For SEPs with a significant influence on society, METI will consider introducing a new ADR system with a compulsory license which allows an administrative organ, based upon a request by private parties, to intervene their licensing negotiation and grant a compulsory license with an appropriate licensing conditions when a negotiation between a patentee and a future licensee does not work well. Even when the administrative organ actually intervenes, it must not unfairly harm a patentee’s right. In addition, the following issue should also be considered when METI sets up the new ADR system: what requirements for granting license are necessary? And aside from Dejure standard and SEPs, what standards and patents could be included as the subjects of the new ADR system?

Comments

   METI will be discussing this issue in detail after this autumn, including discussion on an amendment of Japanese Patent Act. It is likely that a new article of compulsory license on SEPs will be introduced into the Japanese Patent Act. The conditions for granting such a compulsory license are unclear at this moment, but they probably won’t be clearly stated in the relevant either. The conditions will probably be decided at the discretion of METI.

 

2017-08-12

Hirotaka Nonaka

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