March 15, 2021

Patent News

The Intellectual Property High Court decides on an interpretation of the contractual provision which provides “the joint owner shall forfeit its rights”.

The IP Hight Court (Case No. 2020 (Ne) 10016) judgment issued on August 20, 2020 decided on how to interpret the contractual provision which provides “the joint-owner shall forfeit its rights if the joint owner works the invention without permission from the other joint owners”.

Background

Plaintiff-Appellant (“Plaintiff”), Defendant-Appellee (“Defendant”) and the other two joint-owners A (“Joint Owner A”) and B (“Joint Owner B”) (Plaintiff, Defendant, Joint Owner A and Joint Owner B are collectively referred to as “Joint Owners”) planned joint business of selling no-tie shoe laces, and in July 2012 filed a patent application for the invention "To provide a lace provided with tubular lace body" (“Invention”). Joint Owner A manufactured and Joint Owner B packed up products of the Invention in China, Defendant purchased the products, Plaintiff imported the products into Japan and started selling the products. In September 2013 the patent was granted for the Invention (“Patent”). Joint Owners filed another patent application for the invention “The fixing strap provided with tubular lace body” and in October 2013 the patent was granted for this other invention.

Joint Owners executed “Joint Application Agreement” dated April 1, 2013 (“Agreement”) to provide terms and conditions for the manufacture and selling business of no-tie shoe laces. The Agreement provides the following.

Article 1 (Confirmation of the invention and inventors)
Plaintiff, Defendant, Joint Owner A and Joint Owner B confirm the invention and inventors specified below and joint ownership rights under the Agreement.
Title of Invention: Tubular assembling base shoelaces …

Article 7 (Working of the Invention)
Plaintiff, Defendant, Joint Owner A and Joint Owner B shall separately agree after the negotiation for working of the Invention.

Article 13 (Violation)
If a Party obtains new rights of this case or conducts manufacture or selling without prior negotiation and permission, rights of this case shall be forfeited (applicable to all of Plaintiff, Defendant, Joint-Owner A and Joint-Owner B).

Plaintiff considered that Defendant refused transaction with Plaintiff because of the request for the minimum purchase amount and price increase and repeated defects, and planned starting the manufacture and sales of shoelaces which fall in the technical scope of the Invention (“Plaintiff’s Products”).

On June 15, 2016 Defendant filed a lawsuit (“Prior Lawsuit”) against Plaintiff alleging that selling Plaintiff’s Products infringes Defendant’s joint ownership right in the Patent.

Defendant established a company (“Defendant Company”) and started selling shoelaces in the technical scope of the Invention (“Defendant’s Products”) with permission from Joint Owners A and B but not from the Plaintiff.

The Tokyo District Court dismissed the claim for the Prior Lawsuit (Tokyo District Court Case No. 19633 (Wa), judgment issued on March 29, 2016) and the IP High Court entered the interlocutory judgment (IP Hight Court Case No. 10049 (Ne), judgment issued on December 26, 2018) holding that selling Plaintiff’s Products by Plaintiff violates Article 13 of the Agreement and infringes the joint ownership right of the Defendant.

Plaintiff filed a lawsuit against Defendant and the Defendant Company alleging that selling Defendant’s Products infringes Plaintiff’s joint ownership right in the Patent. The Tokyo District Court dismissed the claim and Plaintiff appealed to the IP High Court.

Judgment

The IP Hight Court decided as follows:

• The Agreement shall be interpreted as the Joint Owners agreeing on each Joint Owner having the rights to work the invention for the business agreed upon by Joint Owners and on the other hand having no rights to work the invention for other businesses without prior negotiation with or permission from the other Joint Owners.
• Considering the language “forfeit” used in Article 13, each Joint Owner shall lose its joint ownership right if the Joint Owner works the patented inventions and manufactures or sells the products without prior negotiation with or permission from the other Joint Owners.
• Paragraph 1, Article 98 of Patent Act that provides that transfer of a patent and forfeiture due to a waiver must be registered to take effect, does not prevent the effect of the acquisition and loss of the right among the parties who have an issue regarding attribution of the right due to the acquisition or loss of the right.
• Plaintiff was forfeited the joint ownership rights in the patents because Plaintiff did not obtain permission from the other joint owners for selling Plaintiff’s Products.
• The Joint Owner who lost the ownership right due to the breach of the Agreement shall not be in the position to negotiate or give permission for working of the invention by other Joint Owners.
• As stated above, Plaintiff lost its joint ownership right in the patents due to selling of Plaintiff’s Product in Japan from April of 2016. Therefore, Defendants do not need to obtain consent or permission from Plaintiff for selling Defendant’s Product.

Comments

In case where a patent right is jointly owned by two or more persons, rules for joint-ownership apply unless otherwise agreed by joint owners. Paragraphs 1 and 3 of Article 73 of the Patent Act provide that consent of the other joint owners is required for licensing or transfer to a third party. Paragraph 2 of Article 73 provides “if a patent right is jointly owned, unless otherwise agreed upon in a contract, each of the joint owners of the patent right may work the patented invention without the consent of any other joint owner.” “Unless otherwise agreed upon in a contract,” joint owners have freedom to work the invention of the jointly owned patent. Also, joint ownership is dissolved by transfer or forfeiture due to waiver, which is required to be registered to take effect. Item 1, Paragraph 1, Article 98 of Patent Act.

Article 13 of the “Joint Application Agreement” provides “if the Party obtains new rights of this case or conducts manufacture or selling without prior negotiation and permission, rights of this case shall be forfeited (applicable to all of Plaintiff, Defendant, Joint Owner A and Joint Owner B).” Defendants started manufacture and selling Defendant’s Product without permission from Plaintiff after Plaintiff started manufacture and selling Plaintiff’s Product without permission from the other Joint Owners including the Defendant.

In this lawsuit Plaintiff alleged that Defendants had been infringing the joint ownership right of Plaintiff. The IP Hight Court interpreted “rights of this case shall be forfeited” of Article 13 in the Agreement” as “a contract” set forth in Paragraph 2, Article 73 of the Patent Act. Then the issue is whether “forfeiture” takes effect without registration although Item 1, Paragraph 1 of Article 98 of the Patent Act provides transfer or forfeiture due to a waiver requires registration to take effect. If loss of joint ownership right does not take effect without registration among the joint owners, the “forfeiture” will not be effective without cooperation for the registration by the joint owner who loses joint ownership right by the registration, which might be difficult to obtain.

The court held that “Paragraph 1, Article 98 of the Patent Act that provides that transfer of a patent and forfeiture due to a waiver must be registered to take effect, does not prevent the effect of the acquisition and loss of the right among the parties who have an issue regarding attribution of the right due to the acquisition or loss of the right,” having significance that loss of joint ownership right takes effect among joint owners only by an agreement without registration.

Written by Mr. Akihiro Sako (Attorney at Law, Patent Attorney)