Licensing Your Japanese Patent: Understanding Exclusive vs. Non-Exclusive Licenses (and More)

Obtaining a patent in Japan grants the owner valuable exclusive rights to their invention. However, to fully capitalize on this asset, or to enable broader use of the technology, patentees often turn to licensing. A patent license is essentially a permission granted by the patent holder to another party to work the patented invention under agreed terms. Conversely, for businesses seeking to use patented technology, securing a license is the legitimate path to avoid infringement.

Japanese patent law provides a structured framework for different types of licenses (実施権 - jisshiken), each with distinct characteristics, legal effects, and strategic implications. The primary categories are granted licenses (negotiated between parties), which can be either exclusive or non-exclusive. Beyond these, the law also recognizes statutory licenses that arise automatically under specific conditions, and compulsory licenses that can be imposed by governmental authorities in limited circumstances. This article will delve into these various forms, with a particular focus on understanding the critical differences between exclusive and non-exclusive granted licenses.

I. Granted Licenses (許諾実施権 - Kyodaku Jisshiken): The Core of Patent Commercialization

Granted licenses are the most common and are established through an agreement between the patentee (or an existing exclusive licensee with the right to sub-license) and the prospective licensee. These licenses are fundamental tools for technology transfer, commercial partnerships, and revenue generation.

A. The Non-Exclusive License (通常実施権 - Tsūjō Jisshiken) (Article 78, Patent Act)

1. Definition and Fundamental Nature:
   A non-exclusive license (tsūjō jisshiken) grants the licensee the right to work the patented invention as a business, but only within the scope (e.g., territory, field of use, duration) defined in the license agreement. As the term "non-exclusive" implies:
   • The patentee retains the right to continue working the invention themselves.
   • The patentee can grant similar or different non-exclusive licenses to multiple other parties for the same invention, even within the same scope.
     Essentially, a non-exclusive license is a promise by the patentee not to sue the licensee for infringement for acts falling within the license's scope. It is primarily a contractual right (in personam) between the licensor and licensee, though with important effects against third parties as discussed below.
2. Creation and Formalities:
   A non-exclusive license is typically created simply by a license agreement between the patentee (or other authorized licensor) and the licensee. Unlike exclusive licenses, no registration with the Japan Patent Office (JPO) is required for a non-exclusive license to be valid and effective between the contracting parties.
3. Effect Against Third Parties: The "Automatic Perfection" System (当然対抗制度 - Tōzen Taikō Seido) (Article 99):
   This is a cornerstone of modern Japanese non-exclusive licensing practice, introduced by significant amendments to the Patent Act effective from 2012. Under the current Article 99:
   • A non-exclusive license, once it has validly "arisen" (発生 - hassei) (typically upon the conclusion of the license agreement), is automatically effective against any person who subsequently acquires the patent right itself (e.g., through an assignment from the original patentee) or against anyone who subsequently obtains an exclusive license (sen'yō jisshiken) for that patent.
   • This "automatic perfection" means the non-exclusive licensee does not need to register their license to assert its existence and their right to continue working the invention against such subsequent rights holders.
   • Rationale: This system was implemented to greatly enhance the security and predictability for non-exclusive licensees. The previous system (pre-2012) generally required non-exclusive licenses to be registered with the JPO to be effective against third-party successors in title to the patent or subsequently registered exclusive licensees (Old Article 99). However, this registration was rarely utilized due to costs, administrative burdens, and concerns about disclosing confidential license terms. As a result, many non-exclusive licensees were vulnerable if the patent changed hands. The "automatic perfection" system addresses this vulnerability directly.
   • Implications for Due Diligence: For entities acquiring patents or seeking exclusive licenses in Japan, this system underscores the critical need for thorough due diligence to identify any existing, unrecorded non-exclusive licenses, as these will generally be binding. This often involves seeking warranties and representations from the patent seller/licensor regarding existing licenses.
   • Transfer of Ancillary Contractual Obligations: An important ongoing discussion relates to whether all contractual terms of the non-exclusive license (e.g., the licensee's obligation to pay royalties to the original licensor, or the original licensor's support obligations) automatically transfer to and bind the new patent owner upon assignment of the patent. While the licensee's right to work the invention is perfected against the new owner, the prevailing view (often referred to as the "non-succession theory" - 非承継説 hi-shōkeisetsu) suggests that many ancillary contractual obligations and rights (especially those that are personal or not directly tied to the permission to work) do not automatically transfer to the new patent owner unless specifically agreed upon by all relevant parties (original licensor, licensee, and new patent owner). For instance, the right to receive royalties might be assignable by the original licensor to the new patent owner under general contract law principles (with notice to the licensee), but obligations of the original licensor might not automatically pass without the licensee's consent to a novation or assumption.
4. "Contractually Exclusive" Non-Exclusive Licenses (独占的通常実施権 - Dokusen-teki Tsūjō Jisshiken):
   In practice, parties sometimes create what is often termed an "exclusive non-exclusive license" or a "sole license." This is a contractual arrangement where the patentee, while granting a non-exclusive license (tsūjō jisshiken), additionally promises not to grant any other licenses within a defined scope (e.g., a specific territory or field of use). In a "sole and exclusive" non-exclusive license, the patentee might also promise not to work the invention themselves within that scope.
   • Legal Status: Despite the contractual "exclusivity," under the Patent Act, this is still legally classified as a tsūjō jisshiken. The exclusivity stems from contract, not from a distinct statutory property-like right.
   • Enforcement Against Third-Party Infringers: A crucial consequence is that the holder of such a contractually exclusive non-exclusive license generally cannot directly sue third-party infringers for patent infringement in their own name. The right to sue for patent infringement typically resides with the patentee or a registered exclusive licensee (sen'yō jisshiken).
   • Remedies: If the licensor breaches the contractual promise of exclusivity (e.g., by granting another license in the "exclusive" field), the licensee's primary remedy is for breach of contract against the licensor. There has been ongoing debate and some development in case law regarding whether such a licensee might, under specific circumstances (e.g., patentee's inaction, specific harm), have limited direct claims (e.g., in tort for damages) against an infringer, or the ability to compel the patentee to take enforcement action, but direct patent enforcement rights are not inherent.
5. Sub-licensing (Article 94(1)):
   A non-exclusive licensee can only grant a sub-license of their rights to a third party if they have obtained the consent of the patentee (and of any relevant exclusive licensee, if the head license was granted by an exclusive licensee), unless the original license agreement explicitly permits sub-licensing without such case-by-case consent.

B. The Exclusive License (専用実施権 - Sen'yō Jisshiken) (Article 77)

An exclusive license, or sen'yō jisshiken, is a significantly more powerful right than a non-exclusive license. It grants the licensee a status that, within its defined scope, is very similar to that of the patentee themselves.

1. Definition and Nature:
   A sen'yō jisshiken is a statutorily defined right that grants the licensee the exclusive right to work the patented invention as a business within the scope established by the act of establishment (the license agreement) and perfected by registration. It is considered a real right (in rem) or a right having property-like characteristics, effective against the whole world once registered.
2. Creation and Perfection – Registration is Key:
   An exclusive license is established by an agreement (an "act of establishment") between the patentee and the licensee. However, unlike a non-exclusive license, an exclusive license must be registered with the JPO to become legally effective (Article 98(1)(ii)). Without registration, the agreement may be contractually binding between the parties, but it does not create the powerful, third-party-effective sen'yō jisshiken. The patentee has a duty to cooperate in the registration process.
3. Effect of Exclusivity:
   • Sole Right to Work: Within the registered scope (territory, time, field of use), the exclusive licensee has the sole and exclusive right to work the patented invention.
   • Patentee Also Excluded: Critically, once an exclusive license is registered, even the patentee is generally excluded from working the invention within that registered scope, unless the license agreement specifically reserves such a right for the patentee (Article 68, proviso).
   • Direct Right to Sue Infringers: The registered exclusive licensee has the independent right to sue third-party infringers in their own name, seeking remedies such as injunctions (Article 100) and damages (Article 102).
4. Scope:
   The scope of an exclusive license is defined in the act of establishment and recorded in the patent register. It can be limited by:
   • Territory (e.g., a specific region within Japan).
   • Duration (within the patent term).
   • Content/Field of Use (e.g., for a specific application of the technology, or for specific acts of working like manufacturing only).
     It is generally understood that quantitative restrictions (e.g., limiting the number of units that can be produced) cannot be part of the registered scope of a sen'yō jisshiken, as this would be inconsistent with its truly "exclusive" nature within the defined field. However, multiple non-overlapping exclusive licenses can be granted for different scopes under the same patent.
5. Sub-licensing and Transfer:
   • An exclusive licensee can grant a non-exclusive sub-license (tsūjō jisshiken) to a third party only with the consent of the patentee (Article 77(4)).
   • The transfer of an exclusive license itself (e.g., assigning it to another company) also generally requires the patentee's consent (Article 77(3)), except in cases of general succession (like inheritance or corporate mergers) or when the license is transferred along with the business in which it is primarily worked. Transfers of exclusive licenses must also be registered to be effective (Article 98(1)(ii)).
6. Patentee's Remaining Rights:
   Even after granting an exclusive license, the patentee remains the owner of the underlying patent right. They can still assign the patent itself (though it will be subject to the registered exclusive license) or use the patent right as collateral for a pledge. The patentee also retains the right to take certain actions to maintain the patent, such as paying annuities, and to defend it in invalidation proceedings (though the exclusive licensee also has a strong interest and can participate).

C. Provisional Licenses (仮実施権 - Kari Jisshiken) (Articles 34-2, 34-3)

To facilitate early-stage commercialization discussions and secure rights even before a patent is granted, Japanese law provides for "provisional licenses" that can be established based on a pending patent application.

• Provisional Exclusive License (仮専用実施権 - kari sen'yō jisshiken): This can be agreed upon and, importantly, registered with the JPO based on the pending application (Article 34-4(1)). If the patent is subsequently granted, it is deemed that a full exclusive license (sen'yō jisshiken) was established within the agreed scope from the date of patent registration (Article 34-2(2)). This registered provisional right can be asserted against third parties who later acquire rights in the application.
• Provisional Non-Exclusive License (仮通常実施権 - kari tsūjō jisshiken): This can be granted by the applicant of a pending application (Article 34-3(1)). If the patent is granted, it is deemed that a non-exclusive license (tsūjō jisshiken) was granted (Article 34-3(2), (3)). A provisional non-exclusive license, once validly granted, is effective against persons who subsequently acquire the right to obtain the patent or a provisional exclusive license thereon (Article 34-5).

These provisional licenses provide a valuable mechanism for formalizing licensing intentions and securing a licensee's position during the often lengthy patent prosecution period.

II. Licenses Arising by Operation of Law: Statutory Licenses (法定実施権 - Hōtei Jisshiken)

Statutory licenses are non-exclusive licenses that arise automatically under specific circumstances defined by the Patent Act, without requiring the patentee's consent. They are intended to balance equities between parties or to serve particular public policy objectives. These licenses are generally effective against third parties without registration, benefiting from the principle of Article 99.

Key examples include:

1. Employer's License for Employee Inventions (Article 35(1)): If an employee makes an invention defined as an "employee invention" and the employee (or their assignee, other than the employer) obtains a patent, the employer automatically has a statutory, royalty-free, non-exclusive license to work that invention.
2. Prior User's Right (先使用権 - Sen'yūken) (Article 79): If a person was, in good faith and without knowledge of another's yet-to-be-filed invention, independently making the same invention (or learned it from such an independent inventor) and was already commercially working it or making bona fide preparations to do so in Japan before the filing date of the other party's patent application for that invention, the prior user obtains a statutory, royalty-free, non-exclusive license to continue working the invention within the scope of their existing business and preparations.
3. Intervening Right for Working by a Non-Entitled Person after Patent Transfer (Article 79-2): If a patent granted to a non-entitled person is later transferred to the true owner, a party who was, in good faith, working the invention or preparing to do so under a license from (or as) the non-entitled patentee before the true owner demanded transfer, obtains a statutory non-exclusive license. This license, however, requires payment of reasonable remuneration to the true patentee.
4. Other Intervening Rights: Similar statutory licenses exist in complex situations such as when a patent is invalidated and a similar patent is later granted to a rightful owner (Article 80, requiring remuneration), for use after a conflicting design right expires (Articles 81, 82, remuneration may be required), or for those who started using an invention in good faith after a patent was (seemingly) invalidated but before that invalidation decision was overturned in a re-trial and the patent restored (Article 176, royalty-free, known as goyōken).

III. Licenses Mandated by Authorities: Compulsory Licenses (裁定実施権 - Saitei Jisshiken)

Compulsory licenses are non-exclusive licenses granted by a government authority—either the JPO Commissioner or the Minister of Economy, Trade and Industry (METI)—even against the patentee's will. These are exceptional measures invoked when specific public interest concerns or issues related to competition or access to technology arise.

Key grounds include:

1. Non-Working or Insufficient Working (Article 83): If a patented invention has not been "appropriately" worked in Japan for a continuous period of three years or more after patent grant (or four years from filing, whichever is later), and a party wishing to work the invention has been unable to negotiate a voluntary license on reasonable terms, they may apply to the JPO Commissioner for a compulsory non-exclusive license. Remuneration is payable to the patentee.
2. Dependent Patents (Cross-Licensing) (Article 92): If working a later patented invention (the "dependent patent") would necessarily infringe an earlier patent owned by another party (the "dominant patent"), the owner of the dependent patent can seek a compulsory non-exclusive license under the dominant patent if their invention constitutes a "substantial technical advance of considerable economic significance". The owner of the dominant patent can, in turn, request a cross-license under the dependent patent. This is adjudicated by the JPO Commissioner, and remuneration is set.
3. Public Interest (Article 93): If working the patented invention is deemed "particularly necessary for the public interest" (e.g., in cases of public health crises, national emergencies, or to address anti-competitive practices), the METI Minister can grant a compulsory non-exclusive license to a party seeking to work the invention. Prior negotiation is also generally a prerequisite, and remuneration is payable.

Compulsory licenses are very rarely granted in Japan. Their existence, however, can serve as an incentive for patentees to engage in voluntary licensing negotiations, particularly in situations involving public interest or dependent technologies.

IV. Key Considerations for Licensing Agreements in Japan

When entering into patent license agreements governed by Japanese law, parties should pay close attention to:

• Clear Definition of Scope: Precisely define the territory, field of use, duration, and the specific acts of working being licensed. For exclusive licenses, this scope will be registered.
• Exclusivity: Clearly state whether the license is exclusive (sen'yō jisshiken, requiring registration for full effect) or non-exclusive (tsūjō jisshiken), and if the latter, whether any contractual exclusivity (sole license) is intended.
• Royalties and Payment Terms: Detail the royalty rates (e.g., percentage of sales, fixed fee), calculation methods, payment schedules, and auditing provisions.
• Sub-licensing Rights: Explicitly address whether the licensee has the right to grant sub-licenses, and if so, under what conditions (e.g., requiring licensor approval).
• Patent Maintenance and Enforcement: Allocate responsibilities for paying patent annuities and for taking action against infringers.
• Impact of "Automatic Perfection": For non-exclusive licenses, understand that the right to work the invention will generally bind subsequent patent owners. For entities acquiring patents, thorough due diligence on existing licenses is critical.
• Governing Law and Dispute Resolution: Specify the governing law (if there's an international element) and the mechanisms for resolving disputes.

Conclusion

Japan provides a comprehensive and evolving legal framework for patent licensing, accommodating a range of commercial needs and policy objectives. The distinction between powerful, registrable exclusive licenses (sen'yō jisshiken) and more flexible non-exclusive licenses (tsūjō jisshiken)—now notably strengthened by the "automatic perfection" system—is fundamental. Beyond these negotiated agreements, statutory and rarely invoked compulsory licenses address specific equitable and public interest situations.

For patentees, licensing offers diverse avenues to commercialize technology and generate returns. For those seeking to use patented technology, understanding the types of licenses available and their respective rights and obligations is essential for securing legitimate access. Careful drafting of license agreements, with attention to Japanese legal nuances, is key to successful technology transfer and collaboration in this important IP jurisdiction.