Co-Owning Patents in Japan (Patent Act Art. 73): What Are the Default Rules for Exploitation and Licensing?

In today's collaborative innovation landscape, it's increasingly common for patents to be owned by multiple parties. This co-ownership can arise from joint research and development ventures, university-industry partnerships, or partial assignments of patent rights. In Japan, the rules governing co-owned patents (共有に係る特許権 - kyōyū ni kakaru tokkyoken) are principally outlined in Article 73 of the Japanese Patent Act. Understanding these default provisions is crucial for any entity involved in or contemplating co-ownership of a Japanese patent, as they significantly impact how the patented invention can be exploited, licensed, and how the co-ownership itself can be managed.

The Genesis of Patent Co-ownership in Japan

Co-ownership of a patent, or the right to obtain a patent, typically emerges in several ways:

1. Joint Invention: When two or more individuals from different entities collaboratively contribute to the inventive concept, their respective employers or assignees may become co-owners of the ensuing patent rights, assuming appropriate internal invention assignment policies are in place.
2. Assignment of Partial Interest: A sole owner of a patent or patent application may assign a partial interest (a share) to another entity, thereby creating co-ownership.
3. Joint Research & Development Agreements: Such agreements often stipulate how IP arising from the collaboration will be owned, frequently leading to joint ownership of resulting patents.

The "right to obtain a patent" (特許を受ける権利 - tokkyo o ukeru kenri) initially vests in the individual inventor(s). In corporate or institutional settings, this right is typically assigned to their employer or the relevant entity through employment agreements or specific invention assignment regulations. If inventors from multiple entities are involved, their respective assignees become the co-applicants and eventual co-patentees.

Article 73 of the Japanese Patent Act: The Regulatory Keystone

Article 73 of the Japanese Patent Act lays down the fundamental default rules governing the interactions between co-owners of a patent. These rules apply unless the co-owners have explicitly agreed otherwise in a contract, such as a joint application agreement or a specific co-ownership agreement. The key provisions address the working of the invention, assignment of shares, and licensing to third parties.

Working the Patented Invention: Article 73(2)

The Rule: "(2) Where a patent right is jointly owned, each of the joint owners may, except as otherwise provided for by contract, work the patented invention without the consent of the other joint owner(s)."

This provision grants each co-owner a significant degree of autonomy in exploiting the patented invention themselves. Unless a contract between the co-owners stipulates otherwise (e.g., restricting fields of use, requiring royalty payments to other co-owners for self-working, or imposing other conditions), any co-owner can independently manufacture, use, sell, offer for sale, or import the patented product or use the patented process.

Implications:

• Independent Commercialization: A co-owner can commercialize the invention without needing permission from, or typically needing to account for profits to, the other co-owners, based purely on this statutory right to work.
• Potential for Competition: This can lead to situations where co-owners compete with each other in the market using the same patented technology.
• Contractual Modification is Key: Given these implications, co-owners often contractually modify this default. For instance, they might agree on specific territories or fields of use for each co-owner, or establish mechanisms for profit sharing if one co-owner's exploitation is particularly successful or impacts the others.

Assignment of Share and Establishment of Pledges: Article 73(1)

The Rule: "(1) Where a patent right is jointly owned, no joint owner may assign his/her share or establish a right of pledge on his/her share without the consent of all the other joint owner(s)."

This rule restricts a co-owner's ability to unilaterally transfer their ownership stake or use it as collateral.

Implications:

• Protection of Co-owners' Interests: The primary purpose of requiring consent is to protect the existing co-owners from having an undesirable or unknown third party become a new co-owner, which could disrupt the existing relationship or strategic alignment.
• Limitations on Liquidity/Financing: This can limit a co-owner's ability to easily liquidate their share or use it for financing purposes.
• Contractual Provisions for Transfer: Co-ownership agreements often address this by, for example:
  • Granting other co-owners a right of first refusal if one co-owner wishes to sell their share.
  • Defining specific conditions under which consent for assignment will not be unreasonably withheld.
  • It has been noted that while Article 73(1) is a strong default, contracts can, in theory, deviate. However, a clause flatly stating "Article 73(1) does not apply" would be unusual and its broad enforceability could be questioned if it completely undermines the protective intent without a clear, reasonable alternative mechanism. More commonly, agreements set forth procedures for assignment rather than outright nullifying the consent requirement.

Licensing to Third Parties: Article 73(3)

The Rule: "(3) Where a patent right is jointly owned, no joint owner may grant an exclusive license (専用実施権 - sen'yō jisshiken) or a non-exclusive license (通常実施権 - tsūjō jisshiken) under the patent right to any third party without the consent of all the other joint owner(s)."

This is perhaps the most impactful provision of Article 73 in day-to-day business dealings involving co-owned patents. It establishes a default veto right for each co-owner over third-party licensing.

Implications:

• Significant Restriction on Licensing: A single co-owner, regardless of their share size, can block any attempt by other co-owners to license the patent to an external entity. This can severely hinder the commercial exploitation of the patent if co-owners cannot agree on a licensing strategy.
• Necessity of a Licensing Framework Agreement: To avoid deadlock and facilitate the broader use of the patented technology, it is imperative for co-owners to establish a clear contractual framework for third-party licensing. This framework might include:
  • Designating one co-owner as the lead for licensing activities.
  • Pre-agreeing on target licensees, royalty rates, or other key licensing terms.
  • Establishing a decision-making process for licensing (e.g., majority approval, or conditions under which consent cannot be unreasonably withheld by a dissenting co-owner). An example provision from a joint application agreement context might involve a notification period, where if no reasonable objection is raised by other co-owners within a certain timeframe, consent is deemed given.
  • Mechanisms for sharing licensing revenue, typically in proportion to ownership shares.

The Significance of Co-owners' Shares (持分 - Mochibun)

While Article 73 itself doesn't dictate how ownership shares are determined, the concept of a mochibun (share or stake) is fundamental to co-ownership.

• Default Presumption of Equal Shares: If a co-ownership agreement is silent on the specific shares held by each party, Japanese Civil Code Article 250, which deals with co-owned tangible property, is generally applied by analogy to intellectual property. This article presumes that the shares of co-owners are equal. Thus, for a patent co-owned by two parties without a specific agreement on shares, each would be presumed to hold a 50% share.
• Impact of Shares:
  • Cost Sharing: Co-owners are typically responsible for the costs associated with obtaining and maintaining the patent (e.g., application fees, annuities) in proportion to their respective shares (again, by analogy from Civil Code Article 253, which applies to burdens related to co-owned property), unless contractually agreed otherwise.
  • Revenue Distribution: If the co-owners jointly decide to license the patent to a third party and generate royalty income, this income is typically distributed among the co-owners according to their shares, absent a different contractual arrangement.
• Share Size vs. Right to Work: It's important to reiterate that, under Article 73(2), a co-owner's right to work the patented invention themselves is not dependent on the size of their share. A co-owner with a small share (e.g., 10%) generally has the same right to exploit the invention as a co-owner with a larger share, unless their contract specifies otherwise.

"Fujisshi Hoshō" (不実施補償): Compensation for Non-Practicing Co-owners

A notable practice in Japan, particularly in the context of co-ownership between an exploiting entity (like a company) and a non-exploiting entity (like a university or research institute), is the concept of fujisshi hoshō (不実施補償) – literally, "non-working compensation."

• Rationale: Since Article 73(2) allows any co-owner to work the invention, a situation can arise where a company co-owner commercializes the patent and reaps profits, while a university co-owner, which typically does not directly manufacture or sell products, does not derive similar commercial benefits from its own working of the invention. To address this potential imbalance and ensure the non-practicing co-owner still benefits from their inventive contribution, a contractual provision for fujisshi hoshō may be included.
• Contractual Basis: This is not a statutory entitlement under the Patent Act but rather a contractual arrangement negotiated between the co-owners. It essentially provides for the practicing co-owner to pay a form of royalty or compensation to the non-practicing co-owner(s) based on the commercial exploitation of the patent.
• Typical Rates: While no official statistics exist, compensation rates for fujisshi hoshō are often observed to be in a range similar to standard patent royalty rates, such as 1% to 5% of sales or profits derived from the patented invention.

This mechanism serves as a "win-win" clause, ensuring that even non-practicing co-owners receive a fair return on their contribution to the jointly owned IP.

Strategic Implications and the Need for Tailored Agreements

The default rules under Japanese Patent Act Article 73 create a specific legal landscape for co-owned patents. The freedom for each co-owner to independently work the invention can be advantageous for rapid exploitation but can also lead to internal competition. Conversely, the requirement for unanimous consent for third-party licensing and share assignment can be highly restrictive and potentially lead to deadlocks if co-owners have differing strategic objectives or valuations of the IP.

Therefore, it is almost always essential for parties entering into a co-ownership situation—whether through joint R&D leading to a joint application, or through other means—to negotiate and execute a comprehensive "Joint Application Agreement" (共同出願契約 - kyōdō shutsugan keiyaku) or a detailed co-ownership agreement. Such an agreement should proactively address:

• Specific shares of ownership.
• Responsibilities and cost-sharing for patent application, prosecution, and maintenance (domestic and foreign).
• A clear framework for decision-making regarding third-party licensing, including conditions for granting licenses and revenue distribution.
• Procedures for assigning shares, possibly including rights of first refusal.
• Mechanisms for resolving disputes among co-owners.
• Provisions for fujisshi hoshō if applicable.
• The handling of improvements or related inventions developed by one or more co-owners.

International Considerations: It's crucial to remember that Article 73 applies to Japanese patents. If a co-owned invention is also patented in other countries, the co-ownership rules of those respective national laws will govern the foreign patents. These can differ substantially (e.g., U.S. law, by default, allows any co-owner to license a patent without the consent of, or an accounting to, other co-owners). International collaboration agreements must therefore consider a multi-jurisdictional IP strategy.

Conclusion: Proactive Management of Co-owned Japanese Patents

Co-owning a Japanese patent comes with a set of default rights and restrictions defined by Patent Act Article 73. While each co-owner enjoys the freedom to work the invention independently, their ability to assign their share or license the patent to third parties is significantly curtailed by the requirement for unanimous consent. These defaults underscore the critical importance of foresight and detailed contractual planning. Parties involved in or anticipating co-ownership of Japanese patents should invest the time to negotiate comprehensive agreements that clearly define their respective rights, obligations, and procedures for managing and exploiting their shared intellectual property, thereby unlocking its full commercial potential while minimizing the risk of future disputes.