David Kahaner is a US scientist on location in Japan, reporting on
various aspects of Japanese science and technology. What follows is a report
he wrote on Japanese patent attitudes. It appeared in the volume 18, number 2
issue of the Office of Naval Research Asian Office Scientific Information
Bulletin.
SOFTWARE PATENTS IN JAPAN
David Kahaner
Dec. 30, 1992
There is growing concern in Japan about patents, those granted here as
well as those granted in other countries, especially the United States and
European Community (EC). Recently, a variety of publications have been
subjected to disputes, particularly with U.S. companies, and changes in the
Japanese patent system. What follows is a summary of a few of these reports.
All technical people should be aware of the influence that patents and patent
policies have on research and technology directions. Thoughtful comments are
welcomed.
Because of the growing importance of software in economies and industries,
patents are now rapidly becoming more software oriented in Japan, Europe,
and the United States. Software is generally thought to be protected by
copyrights, but how should software "ideas" be protected?
Programs are definitely protected by copyrights. However, there is no
basis for protecting the ideas and algorithms by copyrights; these can only be
protected by patents. In the United States and Japan the number of software
patents, which protects software ideas and methods, is now increasing rapidly.
Software is incorporated in almost all high-tech devices, especially, but
not limited to computers. These are hardware, but software is essential for
their operation. Patents, which in the past were thought of as centering on
hardware, also protect software ideas and algorithms. Therefor there has
been a rapid increase of patents covering software.
TI AND AT&T--COMPANIES THAT ANTICIPATED THE SHIFT TO SOFTWARE PATENTS
Anticipating the worldwide shift towards patented software, U.S. firms
such as Texas Instruments (TI) and AT&T changed their earlier patent
strategies from focusing on hardware to patent strategies now centering on
software. Recently there has been a drift in this direction in the patent
strategies of other U.S. firms also.
In 1986, TI, which holds numerous basic patents in the field of
semiconductors, brought a lawsuit against 9 Japanese and Korean semiconductor
companies for infringing upon its basic DRAM patent. The suit was settled out
of court. TI is said to have received more than $200 million in royalties
at that time. In 1989, TI asked for new royalty payments from the companies
because this basic IC patent came into existence in Japan. A lawsuit over
this is still going on (in Japan) between Tl and Fujitsu.
AT&T's software patent strategy has been straightforward. In 1988 AT&T
acquired in the United States a patent with Karmarker's linear programming
algorithm (Karmarker, born in India, developed the algorithm while working
at Bell Labs). An application for the patent was also made in Japan, but it
was rejected. However, this is now being challenged in court.
In 1989 AT&T acquired a patent for a computer integrated manufacturing
(CIM) technique called the "Product Realization Method (PRM), essentially
an algorithm." A patent application was also made in Japan. PRM provides
computerized centralized control of a series of product development and
production processes, from design to processing and assembly, in connection
with the manufacturing of printed circuit boards for electronic devices.
In the United States, the subjects covered by the patents have been
broadened to include mathematical solutions, system concepts, and publicly
known facts such as the basic patent for Karmarker's algorithm; and again in
CIM, the basic patent for the FMS (flexible manufacturing system) (obtained in
the United States by the UK company, Morins). The inventions' protection with
patent rights tends to be expanded. For example, the CIM and FMS are software
patents that impact on the machine tool industry. Japanese machine tool
makers, which had been adopting hardware-centered patent strategies, did not
think that there was any possibility of such software patents being granted.
Software patent strategies that are mainly targeted to protect rights over
software ideas and algorithms are not limited to TI and AT&T; many Japanese
believe that these are becoming the basic stance of most U.S. firms in their
patent strategies. Emphasis is especially being placed on "basic patents"
that pertain to the principles and mechanisms of new products and
technologies.
Basic patents are those granted for technological inventions that spawn
many technologies and new products created on their basis. Although Japanese
companies have been ahead in the number of patent applications submitted for
almost twenty years, the majority of these patents relate to improvements in
technology (refinement patents). In the United States there are roughly one
million researchers, and about half that numher in Japan. But patents in the
United States number about 100,000, whereas in Japan there are over five times
that many. The primary reason is that the subjects of U.S. patents are
"basic", whereas Japan's subjects center around production and refinement
technology. In other words, Japanese lag behind the United States and European
Community in terms of holding basic patents, and this has been a major reason
Japanese companies have frequently paid settlements and damages stemming from
patent disputes. Fujitsu's view is probably close to that generally held in
Japan. "New technologies in electronics comprise numerous existing
technologies. There are not any new technologies that do not include other
patents." "At the moment, it would be practically impossible" to develop a
basic patent, such as the one that TI has for basic IC technology and for
which Japanese and other companies pay very large sums to use.
A point of view widely held by the Japanese is that in the early 1980s
there was a rapid hollowing out of U.S. manufacturing technology because of
the high value of the U.S. dollar. During the Reagan administration,
strengthening and protecting intellectual property rights was emphasized
instead of strengthening manufacturing as a way to compensate for the decline
in production capacity and to reap profits; this became the national policy of
the United States. One result was that U.S. firms and the industrial world
significantly skifted the course of their patent strategies from hardware
subjects to emphasizing software.
One Japanese writer said simply, "The Minolta...case was inevitable. The
United States had been carefully preparing for 10 years. Hidden behind that
was a fear of Japanese technology." S.Garai, Chairman of Canon Corporation,
which was involved in a major patent dispute with Honeywell states: "With the
percolation mergers and acquisitions in the United States to make money, and
of product liability cases due to excesses, the atmosphere for straightforward
cultivation of manufacturing business has become thin. In such a situation,
I suspect that intellectual property rights have emerged as a weapon for
easily attacking Japan. That was not necessarily beneficial in restoring the
competitive strength of the U.S. industries. Nevertheless, since
software has become important in economy and industry, patenting will
increasingly tend towards greater emphasis being placed on software instead of
hardware."
"Basic patents, which are given for inventions of basic principles and
mechanisms, can bring huge profits in a single shot if successful. However,
there is no guarantee that such original and pioneering inventions will
continually come into existence. It is extremely risky for firms and national
economies to rely on the income received from such basic patents, or to
excessively rely on that growth and development. In contrast, refinement
patents, which recognize inventions that are improved technology, will
continue to come into existence as long as a firm has places of manufacturing.
Accordingly, only if patents on inventions that improve quality (not just mass
production of poor articles) keep on coming, as they have been up to now (in
Japan), will a firm's continued growth and development be guaranteed. If basic
patents are combined with refinement patents in the right way, Japanese firms
will stand in a very dominant position in the patent war among Japan, the
United States and European Community.
[This author goes on to illustrate the latter point by citing the web of
basic and refinement patents acquired by Xerox during the 1960s on copiers,
and that company's subsequent domination of the copier market for many years.]
The current patent strategies used by U.S. firms that have abandoned
manufacturing and have overrelied on the acquisition of basic patents look
powerful at a glance, but are fragile in reality. Japanese firms should
absolutely steer clear of the rut that U.S. firms are now in."
Another Japanese writes, "IBM, a firm that knows the value of intellectual
property much better than AT&T or TI, adopts a realistic patent strategy
that copes with the recent importance of software patents. IBM protects its
software with patents as well as copyrights. IBM will never let go of its
manufacturing technology and plants that make hard disks and printers; and,
in its patent strategy, it regards the refinement patents produced by its
manufacturing plants, and not just the basic patents produced by its labs,
as very important. There is much to learn from the corporate policies of IBM."
Other Japanese don't agree. For example, a Japanese patent attorney, F.
Otuska, states that by viewing patent disputes such as TIs, he sees it as a
conflict in which U.S. businesses, which are losing in the technology
competition, try to fight back by using patents as weapons. Mr. F. Otuska
states that this is inappropriate and that, in fact, these examples are few
and far between.
[On the other hand, the cases of nonpublic reconciliation between companies
are many, so it may not be possible to accurately judge this trend.]
Otuska states that "Americans feel very strongly about their rights. Their
feelings are beyond comprehension to the average Japanese. It is easier to
understand the situation, if we consider that most pending patent disputes
(in the United States) have resulted from this American sense of rights. To
protect its own rights, an American firm will fight anyone, be it an American
or a Japanese firm. (Kodak vs Polaroid, or NASA vs Hughes are notable
examples.)"
"In patent infringement suits, American standards for judging advancements
or improvements achieved by an invention, a requirement in a patent, are lower
than the standards used in Japan. The interpretation of the scope of a patent
right is also expansive. (A good example of this was a case between Corning
and Sumitomo, concerning the manufacturing of optical fibers. Corning's
technology refracts light in the fiber core; Sumitomo's refracts in the
cladding. A U.S. Federal District Court ruled that these were essentially
equivalent.) In Japan, relatively high weight is given to the effects of an
invention and advancements achieved by an invention. The scope of a patent
rights tends to be limited to what is claimed in the patent application.
Japanese businesses accustomed to the Japanese patent system are likely to
interpret U.S. patents in the Japanese way. This trend probably led Japanese
businesses to misjudge their chances in patent disputes.
"The Japanese patent system contains elements of an industrial legislation.
The U.S. constitution also defines advancing industry as an objective of
protecting inventions, but the U.S. trend to respect the protection of
inventions and ideas is much stronger than the trend in Japan. We should
interpret the U.S. system of rewarding the first inventor and renewing patents
as a manifestation of the U.S. idea of protecting inventions." Another
difference between U.S. and Japanese patent systems is that the U.S. system
grants patent rights for 17 years from the date the patent is granted (no
matter how long the patent examination is extended). This is linked to the
principle of rewarding the first inventor; the Japanese system awards patent
priority to those who apply first. Japanese patent rights cases use judges.
The United States use jury trials very often, 50-60%. Basic opinion in the
United States is that anything that is born out of the intellect of human
beings is to be protected (example: "trade-dress"--the yellow color of Kodak's
film cases). This was something that was beyond the comprehension of the
Japanese, who are permitted to borrow upon each other's cleverness in all
matters.
Canon's Garai says, "It is important to develop innovative patents, but
a great deal of time and ideas are necessary before they are implemented and
offered to the consumer at a fair price. Although there may be only one
inventor, the corporation invests thousands of people in development and
production,..., a great deal more creativity may be invested in converting
the patent into a product. Since it [the company] made the patent into
something useful, it at least deserves some gratitude."
In the United States and Europe, several inventions can be incorporated
into a single application, whether it is for a hardware or software patent.
Even if implementation examples in the application that validate the invention
are few, patent-rights policies have been adopted that grant "strong, broad
rights." A major factor in granting powerful rights to the inventor is that
it makes it easier to acquire basic patents.
Amidst the increasingly serious patent disputes between Japan, the United
States, and the European Community, the Japanese Patent Office has revamped
its "implementation-example centered doctrine." This had granted much
narrower rights to the inventor than the Patent Offices in the United States
or EC had. The Japanese are now formulating and implementing new patent
examination criteria that will give "strong, broad rights" like those in the
United States and EC, to original and pioneering inventions.
In the past the Japanese Patent Office's examination policies emphasized
refinement patents because of its "implementation-example centered doctrine;"
the new policies aim to encourage firms to also try to acquire basic patents
with "strong, broad rights." This is a significant shift in the direction of
government patent policies, and the consequences are also expected to be
significant. As readers should note by some of the quotes in the earlier
portion of this report, not all Japanese think that this approach is correct.
The patent strategies of U.S. firms are shifting from hardware to software,
as illustrated by the TI and AT&T examples above. Moreover, the focus is
narrowing to the acquisition of basic patents with "strong, broad rights."
The Japanese feel that the weakening of U.S. manufacturing implies that
refinement patents are not being generated from the manufacturing environment.
Thus these firms are compelled to narrow the targets of their patent
strategies down to "the acquisition of basic patents in the software field."
[Doesn't imply that in the past U.S. companies did actually generate
refinement patents? Do the statistics support that?]
A Japanese view is that the change in the Japanese Patent Office's
examination policies will become a trigger that encourages Japanese firms to
acquire basic patents. At the same time, though, it will spur U.S. and EC
firms, that already have numerous basic patents and that emphasize the
acquisition of royalties, to apply for and obtain more patents in Japan.
Given that Japan and the United States can cover a huge market with a single
patent application and acquisition, the economic effects of patents range over
an extremely large market. For that reason, the lawyers of U.S. firms see that
"patents become money," and they are putting emphasis on patent offensives
against Japan.
"Once the Japanese Patent Office grants "strong, broad rights" with its
adoption of new examination criteria, firms may lose interest in acquiring
many peripheral (refinement) patents that only have narrow, detailed rights.
Then, the patent strategies will change to the direction of "competing for
quality" more so than volume, and as a result the number of Japanese patent
applications will also decrease."
"Nevertheless, at the same time in Japan there may also be an increase in
the number of patent lawsuits involving the extent to which the rights of
software patents and basic patents are protected, and patent disputes between
Japan, the United States, and EC may increase."
In Japan, if "strong, broad rights" are granted with the adoption of new
examination criteria, disputes revolving around the extent to which rights
are protected by patents will be brought into the courts, and patent lawsuits
will increase.
Recently, U.S. firms have been very vigorous in seeking large damage
settlements for patent infringements. A well known example is the Honeywell
vs Minolta case associated with autofocus technology; it also illustrated the
"strong, broad rights" concept. Honeywell obtained patents from 1975 to 1977.
Two images pass through a lens and are then formed on an optical sensor. If
the camera is focused, the two images will have the same position. Although
Honeywell never made a camera, its technology finds the focusing position by
moving the lens with a motor. Minolta's approach detects blurring between the
images and a microcomputer calculates the direction in which the lens should
be moved and the amount of lens movement necessary, eventually feeding this
to a motor. A U.S. jury decided that in principle, the technologies are the
same, and that being able to determine focus in this way (pupil proportioning)
was a theory. Eventually, Minolta made a large out-of-court settlement with
Honeywell.
Several Japanese writers have stated that Japanese firms need to develop
new strategies to confront what is seen as patent offenses by U.S. and EC
companies. These suggestions include the following.
(a) Building new patent strategies that cope with the era of software
patents.
(b) Strengthen R&D, especially basic research, to emphasize the
acquisition of basic patents that have "strong, broad rights."
As pointed out above, this point is not universally agreed on.
(c) Modifying the usual Japanese routine of paying large sums of money
to settle patent suits out of court, and thoroughly challenging
the points that should be challenged in the patent trial to check
the increase in patent lawsuits and the huge out-of-court
settlements.
Japanese writers also anticipate patent fights in liquid-crystal and
superconductor technology.
The Sanyo Electric Co. is one example of a more aggressive approach.
Sanyo recently presented a case to the U.S. District Court against TI for
violation of antitrust laws. This is Sanyo's response to TI's case against
them, which was presented to the district court, on the grounds of patent
infringement of semiconductors. Sanyo believes that patent fights are usually
conducted whether patent infringements exist or not, and contrary to this
traditional argument, Sanyo is trying to counter TI by using anti-trust laws
as a weapon.
Another example is Hitachi. In 1981 it established a patent division that
covered everything from software copyrights to trade secrets. This was
elevated to an Intellectual Property Rights Headquarters in 1988, and it has
moved into what is considered an offensive rather than defensive stance. It
has a staff of 330, including a tie-up with a law office in the United States,
and 60-70 technical researchers who are specialists in IPR activities. Other
companies have established similar organizations and claim that they generate
profit for their parent corporation.
