Tasuku Honjo, Ph.D., a 2018 Novel laureate in Physiology and Medicine and Deputy Director-General and distinguished Professor of Kyoto University, is in conflict with Ono Pharmaceutical Co., Ltd. (hereinafter Ono) over patent royalty related to Opdivo, an immunotherapeutic drug. In June, 2020, he filed a suit to the Osaka District Court seeking 22.6 billion JPY (214 million USD) in consideration paid by Ono to him as a dividend for a patent which has been settled in a patent infringement litigation between Ono and Merck. In 2003, the patent in question was jointly obtained by Ono and Dr. Honjo himself, and not Kyoto University. Why does the patent belong to Dr. Honjo and not Kyoto University?
Technical transfer and business-academia collaboration have only had a short history in Japan. While the Bayh-Dole Act was implemented in the US in 1980, benefits of intellectual properties related to government-commissioned research and development were not allowed to belong to the researchers in Japan until 1999 when the government established a similar act. In the previous year, the Technology Licensing Organization Law (TLO Law) was stipulated. It was only a few years after the dawn of technical transfer legislation when Dr. Honjo and Ono filed the patent application. Although the Kyoto University has become one of the top three institutions in terms of revenue derived from patents among Japanese universities nowadays, it is said that they may not have had enough knowledge for joint patent application and relevant contracts back in those days.
In the present day, management and practical systems in intellectual property are well established in many universities. However, at the same time, many problems still remain unsolved. The progress of the above lawsuit has been drawing attention since it may affect contract strategies between universities and companies or it may change the style in business-academia collaboration itself.
This article introduces regulations for joint patent applications and the current situation in universities in Japan earning income from patents.
Regulations for joint patent applications
In the case where an invention has been achieved jointly by two or more inventors:
- The right to obtain patent is co-owned by all inventors
- A patent application may only be filed by all the co-owners
- A request for an appeal against Decision of Rejection may only be filed by all the co-owners
- Each joint owner may work the patented invention without consent of all the other co-owners unless otherwise agreed upon by contract.
- No co-owner may transfer their own share, establish an exclusive license, or grant a non-exclusive license on the patent right to any third party without consent of all the other co-owners.
- Claims for injunctions or damages against patent infringement may be filed by a single owner.
Effective countermeasures against misappropriated application for legitimate right holder
When one party of the inventors has filed a patent application independently despite the invention was jointly achieved, the other party should take the following measures:
- File a confirmation request to the court prior to established
If the court finds a right to obtain patent belonging to the legitimate right holder, the holder is eligible to take procedure for transfer of assignee at the Japan Patent Office (JPO)
- After the registration of establishment: File a request for
reclaim of patent right
A litigation for transfer of patent right must be filed and the request should be upheld by the court in order to be granted the registration of transfer of right. There is no time limit to filing a request under the Japanese Patent Law.
Indemnification for not working an invention
Under the Japanese practice, indemnification for not working an invention is often agreed upon when universities and companies sign a contract on joint research. This is because most universities are not capable of making income by working their own patent invention nor allowed to grant a license on their patent right to a third party without consent of other joint owners. This stipulation requests the company to pay the university a license fee as indemnification when the company works the patent invention which was jointly invented or jointly owned. However, it is difficult to estimate the appropriate amount of the indemnification in many cases where factors remain to be seen and the patent invention has not been worked at the time of concluding the contract for joint research or joint patent application.
Court decision ruling down the calculation method of indemnification rate
Case number: 2000 (WA) No. 5238
Judgement Date: March 25, 2004
Venue: Osaka District Court
The plaintiff claimed that the defendant had not paid the compensation for working the patent invention in accordance with their signed agreement which stipulates that the defendant pays the fixed royalty separately later even though the defendant had worked the patent invention. In addition, the plaintiff requested the payment of the compensation for working of the patent invention and damages caused by the default.
The court calculated the indemnification rate of the patent working to be 2%*1 of the overall sales of the Defendant's products by referencing the usual license fee rate in the related industry in light of the following circumstances for abatement:
- The plaintiff did not work the patent invention in the agreement, i.e., the plaintiff was less capable of working the patent invention
- The value of the patent invention, i.e., low contribution ratio of the patent invention in the accused product
- Factors other than the patent invention working: hygiene management, crude materials, production methods, expenses for the marketing approval
*1 The rate was reduced to 1.5% for the production in relation to use of a third party's invention.
Recent trends regarding indemnification for not working an invention
Payment to indemnification for not working an invention may weigh on startups and SMEs (small and medium-sized entities). In recent years, companies have more frequently raised objections to agreements pertaining to the indemnification clause than ever. The implicit reason lies behind the scenes. Many would think that patent working without consent of all the other joint owners is a right conferred by the Patent Law to patent owners and no one is legally obligated to compensate the indemnification even if the joint owners, such as universities, do not work the patent invention.
Some have taken actions to abolish or be exempt from the compensation through the following ways:
- The company is imposed on paying the entire cost for patent prosecution in exchange for bearing the compensation
- The amount of indemnification will be determined by a degree of the company's contribution to the patent
- The company has to be imposed on paying more expenses attributed to joint research in exchange for bearing the compensation
- The indemnification is not required when the co-owned patent is working on a non-exclusive basis.
Current standing of patent income and joint research of universities in Japan
While the number of patent applications filed by Japanese universities has not significantly increased recently, the amount of expenses for joint research from companies and its patent income earned by Japanese universities are steadily increasing year by year. This has spurred the trend in which the outcome of fundamental studies has led to practical applications based on the progresses of applicative studies. However, the absolute number of them is considerably different from that of major overseas countries and further progress is expected.
The Japanese government has been seeking ways to foster an environment which would enable universities and companies to develop innovation with a sense of speed during collaboration. The government is aiming to triple the amount investments in universities by companies by 2025, and has prepared guidelines for enhancing joint research.
However, they are still far away from reaching their goal. Three Japanese universities are ranked in the top 30 of universities with the most number of PCT filings published in 2019, and still seem to be active in their activities for patent obtainment. On the other hand, their license income is overwhelmingly low in comparison to that of universities in the US as shown in the following chart.
Number of Patent Applications Filed by Universities
The case were counted where applicants are president of university, incorporate educational institution, and approved technical licensing organization.
Source: Japan Patent Office Annual Report 2019
Number of Cooperative Studies between Universities and Private Companies and Amount of Cooperative Study Expenses Received by the Universities
Source: Ministry of Education, Culture, Sports, Science and Technology, Implementation Status of Business-Academia Collaboration in Universities in 2018
Comparison of License Revenues Earned by Universities in US and Japan
Source: Ministry of Education, Culture, Sports, Science and Technology, Material for investigative commission of IP management for universities in the era of open/close strategy
Challenges for the Future
Novel laureate, Dr. Honjo discovered Opdivo, which has been applied to immunological treatments for cancer. Likewise, the outcome of joint research could potentially become a base for novel drugs which would be widely applied throughout society, and may grow into something that could produce enormous profits. Universities should negotiate better deals with companies by setting research goals for not only patent obtainment under the co-ownership but also for possible applications and the commercial side of things during negotiation of the contract. While many universities have consolidated a framework where their IP departments review contract details of joint research, few universities are still facing shortage of human resources. It is said that stagnation in management and practice within organization of universities, such as personnel transfer, wage system, and fund management may have been obstacles in further progressing business-academia collaboration. Also, universities have been strongly urged to further improve their planning and management on business-academia collaborations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.