Land of the Rising Suit

Filing suit over patent infringement used to be as appetizing to Japanese companies as baking sushi. But their aversion to litigation is slowly fading. Prodded by government officials in Tokyo and driven by financial need, more Japanese companies are suing when their intellectual property is violated. With more patents registered worldwide with holders in Japan than from any other country, the implications of this new approach are huge.

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Filing suit over patent infringement used to be as appetizing to Japanese companies as baking sushi. But their aversion to litigation is slowly fading. Prodded by government officials in Tokyo and driven by financial need, more Japanese companies are suing when their intellectual property is violated. And with the rare exception, they’re targeting foreign competitors. The implications of this new approach are huge, because more patents are registered worldwide with holders in Japan than from any other country. According to the Ministry of Economy, Trade, and Industry in Tokyo, Japanese companies hold 40 percent of all patents registered across the globe (including 20 percent of all U.S. patents). Several observers say that Japanese companies rarely sued patent infringers in the past because of ingrained cultural traditions, such as showing respect even to competitors. According to Masanobu Katoh, the intellectual property group president at Fujitsu Limited, asking an adversary to pay licensing fees was about as far as most Japanese businesses were willing to go. If that didn’t work, Katoh says, “we gave up. There was no next step.” Things are changing in the land of the rising sun, however. According to an April article in The Japan Times, the main English-language newspaper in Tokyo, the number of IP suits filed by Japanese businesses has doubled in the past two years. Alan Johnston, a Tokyo-based IP partner with Morrison & Foerster, says that Japanese companies are still averse to suing their local rivals. But because going after a foreign business shows less disrespect, Johnston says it’s more acceptable. He predicts, “There will be a lot more lawsuits in the future against U.S. companies.” Indeed, American businesses have already been targeted in several recent patent cases: � In February 2003 The Furukawa Electric Co. Ltd., sued Hickory, N.C.-based Corning Cable Systems LLC over optical-fiber wire, in Tokyo district court. � In October 2003 Takeda Chemical Industries Ltd. sued two U.S.-based companies and one Indian business over claims that they were making generic copies of Takeda’s diabetes-fighting drug, in U.S. district court in New York. � This past April, Sony Corp. sued Rochester, N.Y.-based Eastman Kodak Co. over various digital camera features, in U.S. district court in New Jersey. Nelson Blish, a patent counsel at Kodak, says he can’t comment about Sony’s suit specifically. But he says that he’s noticed that these days, “Japanese companies seem more likely to litigate over IP disputes than yesterday.” Blish adds, “American companies have to watch out.” Part of the reason for the get-tough approach is economic, say experts familiar with the trend. “Japan is in the midst of a recession,” says Christian Dippon, a San Francisco-based senior consultant with NERA Economic Consulting who has conducted a broad historical study of IP litigation in Japan. “But companies there can gain hundreds of millions of dollars by recognizing the fact that they hold the most registered patents in the world,” Dippon adds. The government has also urged Japanese companies to be more aggressive in defending their intellectual property. In July 2003 Japanese prime minister Junichiro Koizumi delivered a major speech before the country’s business leaders in which he urged them to fight the “exploitation of others” by litigating IP infringement in the name of “national interest.” Japanese companies have been able to take up Koizumi’s challenge because they’ve been bulking up their IP legal staffs. Over the past five years, Fujitsu has hired 400 new IP lawyers, while watchmaker Seiko Corp. and NEC Electronics Corp. have both hired an additional 200 IP lawyers. MoFo’s Johnston adds that Japanese companies have been primed for litigation because they’ve taken so many punches in the past. “Many [Japanese in-house attorneys] have cut their teeth defending their companies from intellectual property disputes in the U.S.,” Johnston explains. “Now that they have risen to the top of their IP departments, they are applying the lessons they learned.” Fujitsu, for example, was hit with patent infringement suits by IBM Corp. in the ’80s and Texas Instruments Incorporated and Hyundai Electronics Industries Co. Ltd., in the late ’90s. Still, even Fujitsu doesn’t always put on the gloves right away. According to Katoh, the company’s engineers discovered earlier this year that some of Fujitsu’s patents had apparently been violated by a Seoul-based rival, Samsung Electronics Co. Ltd. Katoh first tried the old approach and called lawyers at Samsung, offering to negotiate “reasonable” licensing fees. Samsung refused, Katoh says, so in April Fujitsu filed suit in both Tokyo and Los Angeles. After Fujitsu won an early ruling in Tokyo and picked up additional support from the Japanese government, Samsung backed down in June and agreed to licensing fees. The fact that Fujitsu filed suit in the U.S. as well as Japan may have been a sign that Japanese companies still don’t feel like they can rely on the courts in their home country. Karen Hagberg, an IP partner at Morrison & Foerster who worked in the firm’s Tokyo office for five years, says that historically, “[Japanese] courts were slow, damage awards were figured less favorably than [in the U.S.], and patent litigation was terribly expensive.” (Hagberg is now managing partner of MoFo’s New York office.) In the past six years, the Japanese government has tried to fix these problems with a series of reforms: overhauling the patent office, creating dedicated courts for infringement claims, and encouraging more lawyers to specialize in IP. As a result, the average length of a patent infringement trial has been halved and the average jury award has tripled, according to government data. The effect of the reforms has been noticeable, says Fujitsu’s Katoh. “Japanese courts are improving the speed of making decisions,” he says. “That’s what I learned during the case with Samsung.” This newfound litigiousness by Japanese companies could be a real problem for U.S. businesses, especially when it comes to finding local counsel. David Harshman, an associate GC at Toshiba America Informatixon Systems Inc., in Irvine, Calif., notes that the number of lawyers in Japan is very tiny. Indeed, there are only 5,000 registered patent attorneys in the entire country. But that’s partly because litigation used to be frowned upon. If Japanese companies take it up with a passion, IP law could be the country’s next growth industry.

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