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“The relationship between tradition and change in Japan has always been complicated by the fact that change itself is a tradition.”    � Edward Seidensticker, Low City, High City: Tokyo From Edo to the Earthquake(1983)

Only 15 years ago, Japan’s economic might was at its peak, and American business executives, policy-makers, and legal scholars frantically studied Japanese success. Since then, roles have dramatically reversed as Japan’s economy floundered throughout the 1990s, American high technology boomed, and Japan today � how ironic! � is increasingly looking to the United States for economic solutions. As part of this role reversal, Japan is actively attempting to learn from the United States’ so-called Bayh-Dole system. Bayh-Dole is shorthand for the legal system established under the Bayh-Dole Act of 1980, whereby innovative technology is transferred via patent licensing from government laboratories and universities conducting government-funded research to private-sector entities that can commercially exploit it. For example, the government may fund nanotechnology research at a university that leads to the invention of a new “nanowire” useful for semiconductors. The university may patent the invention and exclusively license it to the private sector, with the government also retaining certain rights. In many cases, a company is “spun out” from the university to license the patent, commercialize the technology, seek venture capital investment, and/or plan for an eventual IPO. Although not the most glamorous of legal subjects, Bayh-Dole has been a critical underpinning to the emergence of sophisticated technologies in the United States. Economic competitiveness and national security are at stake here. Now revolutionary changes are afoot in Japan. The country is working to develop the same kind of pipeline from university research to thriving business that has served the United States so well. And particular interest is focused on nanotechnology, a sector related to but distinct from biotechnology. PUSH TO INNOVATE According to the Nomura Research Institute, a highly respected source of information on Japanese economic issues, Japan was spurred to counteraction by the American nanotech push and, in particular, the U.S. National Nanotechnology Initiative, started about five years ago under the Clinton administration. Japan wanted to avoid falling behind in nanotech as it had fallen behind in biotech and other high-tech growth areas in the 1990s. Over the past several years, the Japanese have worked to modernize their technology transfer system. Specific efforts have focused on making the transfer of patent rights easier in ways that will encourage innovation and support an entrepreneurial climate. For example, commercial development based on technology transfer can’t happen without clear legal title to intellectual property. The traditional Japanese notion had been that patent rights legitimately belonged to the government or to individuals. Beginning in April 2004, a new legal regime has more clearly recognized the right of universities to own patents. In addition, Japan has dramatically sought to institutionalize the teaching of intellectual property concepts throughout the country. Former officials at the Japanese Patent Office have taken up positions in the leading universities to create both undergraduate programs in intellectual property law and graduate programs that combine business courses with legal courses. This is all part of Prime Minister Junichiro Koizumi’s master effort to promote tech transfer. The next step � the essence of Bayh-Dole � is to move intellectual property expeditiously from inventors to developers. Through new laws and funding programs, Japan is pushing to increase the numbers of spin-out companies and exclusive licenses. Technology licensing offices and intellectual property centers at national labs and at universities are proliferating to assist with business development. And there are growing numbers of business incubators and more efforts to encourage a rising class of independent venture capitalists. THE NUMBERS RISE Preliminary results are there for all to see: Invention disclosures from Japan’s “national” universities have soared in recent years. In 1997, they numbered less than 1,000; in 2003, they were nearing 7,000. The estimated number of invention disclosures by all Japanese universities, public and private, have grown even faster in the same general period: from less than 2,000 in 1997 to about 10,000 in 2002. Of course, Japanese academics still lag far behind their American counterparts. U.S. universities’ invention disclosures rose from more than 11,000 in 1997 to more than 15,000 in 2002. Finally, the number of university spinoff ventures in Japan has grown from about 20 in 1997 to some 180 in 2003. (Thanks to Gerald Hane of Q-Paradigm in Bethesda, Md., for these numbers. Hane regularly consults about opportunities in Japan-related technology transfer, working closely with Bayh-Dole scholar Robert Kneller at the University of Tokyo.) TIME TO INVEST? In the past, investing in Japan has been a hard sell in the United States. U.S. investors have generally relied on consultants and Japanese trading companies to navigate the business community there. (European investment has seemed easier.) For many, the fundamentals of warm trust and cold information seemed lacking in Japan. And there was the sense that though Japanese technology is high-quality, the technology transfer system is inadequate. But now, with the Japanese government pushing an easier and more reliable Bayh-Dole-style system, the opportunities are there for venture capitalists and other investors to explore. The changes in Japan are part of a larger reality. Growing international investment opportunities are now the norm. Indeed, one leading text � The Money of Invention: How Venture Capital Creates New Wealth, by Paul Gompers and Josh Lerner (2001) � states: “[C]onditions have ripened for venture capital to flourish in countries and regions around the world. The same underlying technological innovations and business management practices driving the U.S. venture capital revolution have unleashed similar results elsewhere. Countries with relatively dismal track records of financing fresh ideas are now experiencing the first stirrings of entrepreneurial revolution.” Japan, of course, has moved beyond “the first stirrings.” A mixture of optimism, cunning, patience, and a certain kind of creative punch will still be needed by investors and their legal counsel. But the future of IP investment looks brighter in the Land of the Rising Sun. J. Steven Rutt ( [email protected]) is an associate and Stephen B. Maebius ( [email protected]) is a partner in the D.C. office of Foley & Lardner. Maebius leads the firm’s nanotechnology industry team, of which Rutt is also a member.

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