E-News No.46

E-News No.46

Draft Guidelines regarding Employee Inventions

by Taku Fujiwara (YUASA and HARA – Japan)

A draft of Guidelines regarding employee inventions, in relation to which the Patent Act was amended in 2015, was released in January, 2016. These Guidelines are expected to be helpful for corporations in establishing internal procedural standards of remuneration for employee inventions.

This article will introduce the drafted Guidelines (the ‘Guidelines’) regarding employee inventions which were released by the Ministry of Economy, Trade and Industry (‘METI’) in January, 2016. The finalized Guidelines will be released shortly, now that the amendment of the Patent Act came into effect on April 1, 2016.

1. Background

Under the current Patent Act, based on an agreement between an employer and an employee, the right to obtain a patent on an employee invention is vested in the employee and can be transferred to the employer for reasonable value (Article 35(3)). The payment of the value shall not be considered unreasonable provided various procedural aspects are taken into account (Article 35(4)) (‘Unreasonableness’). Under this Article 35, there have been cases in which the amount of the reasonable value for individual employee inventions was disputed.

In 2015, the Patent Act was amended in relation to employee inventions as follows;

  1. The right to obtain a patent on an employee invention can be originally vested in an employer (Article 35(3));
  2. An employee who made such invention has a right to receive a reasonable amount of money or any other economic interests (Article 35(4)); and
  3. METI released the Guidelines regarding the circumstances of Unreasonableness which are listed in Article 35(5) of the amended Act and Article 35(4) of the current one (Article 35(6)).

2. Guidelines

(1) Scope

The scope of employers subject to the Guidelines includes not only corporations but also other entities such as universities, and inventions by staff which fall under employee inventions.

(2) Effect

While the Guidelines do not have any legally binding effect upon the courts, it is expected that the courts will respect the Guidelines since the amended Act expressly stipulates the provision of the Guidelines.

(3) Contents

At the outset, the Guidelines clarify that when deciding Unreasonableness, if the processes exemplified in Article 35(5) (i.e. a negotiation for setting standards, a disclosure and a hearing) are duly conducted, a provision of money or other interests to an inventor/employee in accordance with the set standards is, in principle, considered reasonable regardless of the amount of money or value of other interests.

Secondly, in relation to the listed steps, the Guidelines importantly provided as follows;

(a) Negotiation:

  • It is important to provide employees with opportunities to participate in a negotiation and offer their opinions.
  • A negotiation can be conducted individually or collectively.
  • The mutual agreement on the standards set based on a negotiation is not required as far as the negotiation has been thoroughly carried out.
  • An employer should provide the grounds with documents and information supporting the proposed standards.

(b) Disclosure

It is necessary for an employer to disclose the set standards at least internally in a manner accessible for employees.

(c) Hearing

  • An employer should provide the grounds with documents and information supporting the calculation of money or other interests in each case.
  • A hearing can be conducted even after the provision of money or other interests according to the set standards.
  • It is not necessary to reach a mutual agreement as an outcome of a hearing.
  • It is recommended to establish an internal objection system as a part of this hearing process.

Finally, as examples of the other interests which can be offered to employees, the Guidelines provide as examples, stock options, opportunities for studying abroad, promotion, additional paid leave, license of patents related to an employee invention etc.