Intellectual Property Law

Japan’s 2023 IP Reforms: Higher Damages & Digital-Imitation Clamp-Down Explained

Japanese Attorney at Law - Bengoshi L.L.

• 7 min read
Slide showing Japan’s 2023 IP reforms: digital-imitation ban via telecom lines, capacity-excess royalty damages, infringement-premium uplift and compliance checklist.

TL;DR

  • 2023 amendments widen Unfair Competition Prevention Act (UCPA) Article 2(1)(iii) to cover digital “dead copies” offered online and clarify that purely virtual goods are protected.
  • Copyright Act & UCPA damages rules now allow recovery of lost-profit royalties for infringing sales that exceed the right-holder’s capacity and let courts add an “infringement premium” to reasonable royalties.
  • Right-holders should audit design portfolios, prepare evidence for capacity-exceeding sales, and leverage new interim-relief tools.

Table of Contents

  • Part 1: Combating Digital Imitation under the UCPA
  • Part 2: Enhancing Damages Calculations in IP Infringement
  • Practical Implications and Strategic Considerations
  • Conclusion

As businesses increasingly operate in digital and globalized environments, intellectual property (IP) laws must adapt to provide effective protection and remedies. Japan took significant steps in this direction with amendments passed in 2023 as part of the "Act for Partial Revision of the Unfair Competition Prevention Act, etc." (Act No. 51 of 2023). These reforms address two critical areas for IP enforcement: clarifying protection against the imitation of product designs in digital spaces and enhancing the calculation methods for damages in infringement cases under both the Copyright Act and the Unfair Competition Prevention Act (UCPA). These changes, effective from January and potentially June 2024 respectively, signal Japan's commitment to strengthening IP rights in the face of new technological challenges and economic realities.

Part 1: Combating Digital Imitation under the UCPA

Japan's Unfair Competition Prevention Act (不正競争防止法, Fusei Kyōsō Bōshi Hō) provides crucial protection against various unfair business practices, sitting alongside patent, trademark, design, and copyright laws. One of its key provisions, Article 2(1)(iii), specifically targets the act of creating and distributing "dead copies" – slavish imitations of another company's product configuration (商品の形態, shōhin no keitai).

The Existing Framework and the Digital Gap:

  • Protection Against Dead Copies: Article 2(1)(iii) prohibits the transfer, lease, display for transfer/lease, export, or import of goods that imitate the configuration of another's goods. This protection is valuable, particularly for products with shorter lifecycles where obtaining design rights might be too slow, as it kicks in automatically upon sale and lasts for three years from the date of the first sale in Japan. It aims to protect the market lead and investment made by the originator of a product design.
  • Ambiguity in the Digital Realm: The rise of metaverses, virtual worlds, and digital marketplaces created uncertainty about the scope of this provision. Key questions arose:
    • Do digital items like virtual clothing, avatar skins, or digital replicas of physical products qualify as "goods" (商品, shōhin) under the Act, which traditionally implied tangible items?
    • Does making a digital item available online (e.g., for sale or download within a virtual platform) constitute "transfer" (譲渡, jōto) or "display for transfer" as required by the statute?
    • Could the configuration of a physical product be considered "imitated" by a purely digital representation?

The 2023 Amendment (UCPA Art. 2(1)(iii)):

To address these ambiguities and explicitly extend protection to the digital sphere, the 2023 revision amended Article 2(1)(iii) by adding acts of providing imitated goods "via telecommunication lines" (電気通信回線を通じて提供, denki tsūshin kaisen o tsūjite teikyō) to the list of prohibited unfair competition acts.

  • Clarifying Scope: This amendment, effective likely by June 2024 (within one year of promulgation), makes it clear that offering imitation products online – including purely digital items – falls within the scope of the prohibition. Legislative history and planned updates to official METI commentary accompanying the law confirm the intent to include intangible digital items (like virtual fashion, furniture for virtual spaces, etc.) within the definition of "goods" for the purpose of this provision.
  • Targeted Acts: The protection now covers not only the sale/distribution of physical copies imitating another product's design but also the online provision of digital files or assets that imitate the configuration of either a physical product or another digital product. This directly addresses the copying of designs for virtual items intended for use in metaverses or other digital platforms.

Key Considerations and Limitations:

  • What is "Configuration" (形態, keitai)? The law protects the external shape, patterns, colors, and their combination that are recognizable from the outside. Purely functional aspects or commonplace configurations are excluded. Defining and comparing the "configuration" of digital items (which might involve code, visual representation, and interactive elements) with physical items or other digital items will be a key challenge for courts. Is a 3D model file that allows users to create an imitation considered an infringing good itself, or is infringement only triggered when it's visibly rendered or used in a platform? These nuances will require judicial interpretation.
  • What is "Imitation" (模倣, mohō)? Imitation under this provision means creating a product that is "substantially identical" (実質的に同一, jisshitsuteki ni dōitsu) to another's existing product configuration. Trivial differences are ignored. How this standard applies when comparing a physical product to a digital representation, or between two digital items, will need careful assessment based on visual similarity and overall impression. The focus remains on copying the design itself, not underlying ideas or functions protected by patent law.
  • Three-Year Limit: The protection under Article 2(1)(iii) remains limited to three years from the date the original product was first sold in Japan. This relatively short term means it primarily protects against immediate, direct copying rather than offering long-term design exclusivity like a design right.
  • Requirement of Harm: As with other unfair competition claims, the plaintiff must demonstrate that their business interests have been or are likely to be infringed by the defendant's actions (UCPA Article 3).

This amendment is a crucial update reflecting the reality of digital commerce and virtual environments. It provides businesses with a clearer legal tool to combat the unauthorized replication of their product designs, whether physical or digital, within the Japanese market.

Part 2: Enhancing Damages Calculations in IP Infringement

Calculating monetary damages in IP infringement cases is often complex. While Japanese law provides statutory methods, rights holders frequently argued that these methods did not fully compensate for the actual harm suffered. The 2023 amendments to the Copyright Act (著作権法, Chosakukenhō) and the UCPA aim to address some of these shortcomings, largely mirroring changes made to the Patent Act in 2019. These damages-related revisions took effect on January 1, 2024.

Key Changes to Damages Calculations:

1. Lost Profits Calculation: Covering Sales Exceeding Rights Holder's Capacity:

  • Previous Limitation: Under provisions like Copyright Act Article 114(1) and UCPA Article 5(1) (previously limited to technical trade secrets but now expanded), a rights holder could claim lost profits based on the number of infringing units sold by the infringer, multiplied by the rights holder's profit per unit. However, this amount was often capped by the rights holder's own capacity to produce or sell that number of units. Damages for infringing sales beyond this capacity were difficult to recover under this specific calculation method.
  • The 2023 Amendment: The revised provisions explicitly allow the rights holder, when calculating damages under this method, to claim an amount equivalent to a reasonable royalty for the number of infringing units that exceed their own sales or production capacity.
  • Rationale & Impact: This recognizes that even if the rights holder couldn't have made those specific sales themselves, the infringer's excess sales still represent a lost licensing opportunity for which compensation is due. This allows for potentially higher damages awards in cases of large-scale infringement where the infringer's volume outstrips the rights holder's capacity. The UCPA amendment (Revised Art. 5(1)) also importantly expands this type of lost profit calculation to cover all types of trade secrets, not just technical ones.

2. Reasonable Royalty Calculation: Considering an "Infringement Premium":

  • Previous Ambiguity: Article 114(3) of the Copyright Act and Article 5(3) of the UCPA allow rights holders to claim damages equivalent to the amount they would normally be entitled to receive for licensing the right (a reasonable royalty). However, debate existed on whether this royalty should be based solely on standard, pre-existing license rates or if the fact of infringement itself could justify a higher rate.
  • The 2023 Amendment: New provisions were added (Copyright Act Art. 114(5) and UCPA Art. 5(4)) explicitly stating that in determining the reasonable royalty amount, the court may consider circumstances indicating that the royalty rate would have been set higher if the parties had negotiated a license on the premise that the infringement had occurred or would occur.
  • Rationale & Impact: This formally allows courts to consider an "infringement premium." The logic is that a license negotiated willingly before any infringement might be set at a certain rate, but a license negotiated "under the shadow" of known infringement (essentially, settling a dispute) would likely command a higher rate to reflect the tortious nature of the use and the leverage gained by the infringer. This does not mandate a specific uplift but gives courts clear authority to award royalties potentially exceeding standard market rates when justified by the circumstances of the infringement. This aims to prevent infringers from benefiting from simply paying standard rates after being caught and strengthens the compensatory and deterrent effect of reasonable royalty damages.

Practical Implications and Strategic Considerations

These 2023 amendments bring practical changes for businesses involved in IP creation and enforcement in Japan:

  • Stronger Defense Against Digital Clones: The clarification regarding UCPA Article 2(1)(iii) provides a more reliable tool for businesses facing imitation of their physical or digital product designs in online environments, metaverses, and other digital platforms targeting the Japanese market.
  • Potential for Increased Damages Awards: The revisions to damages calculations under both the Copyright Act and UCPA create the potential for higher monetary recoveries in infringement lawsuits. Rights holders may be able to claim larger amounts based on lost licensing opportunities for sales exceeding their capacity and by arguing for an infringement premium when calculating reasonable royalties.
  • Evidence and Litigation Strategy: Plaintiffs seeking enhanced damages will need to present appropriate evidence. For capacity-exceeding claims, evidence of potential licensing value is needed. For seeking an infringement premium, evidence regarding the specific circumstances of the infringement, the lack of a readily available license, or factors suggesting a higher hypothetical negotiation rate will be important. Defendants, conversely, will need to counter arguments for uplifted royalties or demonstrate that standard rates are appropriate.
  • Alignment Across IP Rights: These changes bring the damages provisions for copyright and trade secrets (under UCPA) more closely in line with the framework already established for patents since the 2019 Patent Act revision, creating greater consistency in Japanese IP damages law.

Conclusion

The 2023 amendments to Japan's UCPA and Copyright Act represent important strides in adapting IP law to the digital age and strengthening enforcement mechanisms. By explicitly extending protection against product configuration imitation to digital goods offered online, the law provides clearer recourse against emerging forms of unfair competition. Furthermore, by refining the methods for calculating damages to better account for lost licensing opportunities and the context of infringement, the reforms aim to ensure that rights holders receive more adequate compensation for the harm they suffer. These changes underscore Japan's ongoing efforts to maintain a robust and relevant IP system that supports innovation and fair competition in both the physical and digital marketplaces. Businesses should review their IP protection and enforcement strategies in light of these enhanced legal tools.