Prior User Rights in Japan: Can Your Business Continue Operating if Another Party Patents Your Independently Developed Technology?

Imagine this scenario: your company has diligently and independently developed a new technology, perhaps even incorporated it into products and started commercial activities. Later, you discover that another entity has filed a patent application for, and subsequently obtained a patent on, the very same or a substantially similar invention. Under Japan's "first-to-file" patent system, the party who files the application first generally secures the exclusive rights. Does this mean your business must cease its operations related to that technology? Not necessarily. Japanese patent law provides a crucial safeguard known as "prior user rights" (sen-shiyō-ken), which can allow your business to continue its activities under specific conditions.

The Rationale Behind Prior User Rights

The existence of prior user rights, as stipulated in Article 79 of the Japanese Patent Act, reflects a balance between several important principles. While the first-to-file system encourages early disclosure of inventions through patenting, a rigid application could unfairly penalize those who, in good faith and through their own independent efforts, were already utilizing or were on the cusp of utilizing an invention before someone else filed a patent application for it.

The primary rationales for recognizing prior user rights include:

1. Protection of Existing Investment and Business: Businesses that have invested resources in developing and implementing a technology, or in preparing to do so, have a legitimate interest in continuing their operations. Forcing them to abandon these investments due to a later-filed patent by another party could lead to significant economic hardship and waste.
2. Equity and Fairness: It is generally considered equitable to allow a party who independently conceived of and utilized an invention to continue doing so, even if they did not seek patent protection themselves, particularly if they were unaware of another's parallel inventive activity.
3. Promotion of Industry: By allowing established, good-faith activities to continue, the law avoids unnecessary disruption to industrial and commercial activities.

Prior user rights effectively grant a non-exclusive license to the prior user, allowing them to continue working the invention within certain boundaries without infringing the subsequently issued patent.

Establishing Prior User Rights: Key Requirements (Patent Act Art. 79)

To successfully claim prior user rights in Japan, several stringent conditions must be met. The burden of proof lies with the party asserting these rights.

1. Independent Creation or Legitimate Acquisition of the Invention:
The person asserting prior user rights must have either:

• Created the invention themselves, without knowledge of the content of the invention described in the patent application filed by the other party.
• Learned the invention from a person who created it without such knowledge.

This emphasizes that the prior user's knowledge and use of the invention must stem from their own independent efforts or a legitimate, independent source, not from the patent applicant's disclosure.

2. Use or "Preparation for Business" in Japan at the Time of Patent Filing:
This is arguably the most critical and often litigated aspect. The prior user must have been:

• Actually using the invention in their business in Japan.
• Or, making "preparations for business" involving the invention in Japan.

Crucially, this condition must be met at the time the patent application was filed by the other party.

• What constitutes "preparation for business"? Mere abstract ideas or preliminary research are generally insufficient. The Supreme Court of Japan, in a judgment on October 3, 1986 (often referred to as the Walking Beam Furnace Case), provided influential guidance. It stated that "preparation for business" requires "having an immediate intention to implement [the invention], and that intention being manifested in a manner and to an extent that is objectively recognizable."The assessment is fact-specific and considers the nature of the invention and the level of investment typically required. For instance:
  • Prototypes: For a mechanical device like a specialized grasping machine, the completion of a high-quality prototype that is itself commercially viable and potentially even sold on a custom-order basis before the patent filing date can constitute sufficient preparation. An Osaka District Court judgment on October 7, 1999, concerning a "fork claw" (a type of grasping machine), found that selling such a prototype, even if not yet in mass production, counted as implementing the business or, at least, preparing for it.
  • Large-Scale Projects: For large-scale industrial plants or systems, "preparation" might be recognized at an earlier stage. Submitting detailed quotation specifications to potential clients, establishing joint ventures for the project, conducting detailed feasibility studies, or placing orders for basic designs could all be indicative of objectively recognizable preparations, even if a final construction contract has not yet been signed.
  • The underlying principle is that there must be tangible, objective evidence of a serious commitment to commercialize the invention.

3. Lack of Knowledge of the Patented Invention's Content:
This ties back to the independent creation requirement. The prior user must have been working the invention without knowing the content of the invention for which the patent application was filed.

Scope of Prior User Rights

If prior user rights are established, they grant the prior user a non-exclusive license to work the patented invention. However, this license is not unlimited. Article 79 specifies that the right is "within the scope of the invention and the business purpose being implemented or prepared."

1. Scope of the "Invention Implemented": The "Invention Idea Theory"
A key question is whether the prior user is restricted to practicing the invention in the exact form (jisshi keishiki) it was being used or prepared at the patent filing date. The prevailing view in Japan, supported by the Supreme Court in its October 3, 1986 judgment, is the "invention idea theory" (hatsumei shisō setsu).

This theory holds that the prior user right is not narrowly confined to the specific embodiment that existed at the time of filing. Instead, it extends to the "technical idea embodied" in that original implementation. This allows for a degree of flexibility, permitting reasonable modifications, improvements, or variations by the prior user, as long as these subsequent forms of implementation still fall within the core technical concept that was the subject of the prior use or preparation.

For example, consider a company that had developed and was preparing to sell a specific type of grasping machine (Machine α). If another party later patents a grasping machine whose claims cover Machine α, the first company might have prior user rights. If this company subsequently modifies Machine α by adding a well-known, non-inventive component (like a standard slewing device to create Machine α'), the prior user right may still extend to Machine α' if the core technical features of the original Machine α (which overlap with the patent) are preserved and the modification is a natural evolution within the same "technical idea." The Osaka District Court, in its October 7, 1999 judgment regarding the fork claw, found that adding a known slewing device, which was not part of the patented invention's core features, did not take the modified product outside the scope of the prior user's rights.

If the prior user's implementation only corresponds to a part of the broader patented invention, their prior user right will be limited to that part. Courts often look to the patent claims themselves when delineating the "technical idea" and the corresponding scope of the prior user right.

2. Scope of the "Business Purpose" (jigyō mokuteki)
The prior user right is also confined to the "business purpose" that was being pursued or prepared at the time of the patent filing. This means:

• If a prior user was only, for example, selling finished products embodying the invention (which they might have sourced from another manufacturer), they cannot later rely on prior user rights to start manufacturing those products themselves. Such an expansion would unfairly prejudice the patentee.
• A more nuanced question arises if a prior user was manufacturing and using the invention internally for their own processes but not selling the product embodying the invention. Can they later begin selling such products under their prior user right? This often depends on whether selling was an objectively recognizable part of the "prepared" business purpose at the time of the patent filing. If the product was already completed and "in Japan" at the time of the patent filing, its subsequent sale might also be permissible under principles related to the exhaustion of rights for those specific existing items (though this is distinct from the ongoing right to manufacture and sell new items under a prior user right).

Generally, the law aims to allow the prior user to continue the business activities they had demonstrably embarked upon, not to grant them a license to enter entirely new fields of activity based on the patented invention.

Who Can Benefit from Prior User Rights?

The protection of prior user rights can extend beyond the original entity that established them:

• Successors in Business: Prior user rights are generally transferable along with the business in which the invention was being used or prepared for use (Patent Act Art. 80(1)).
• Contractors as "Hands and Feet" (teashi ni sōtō suru mono): If the entity establishing prior user rights (the principal) outsources the actual manufacturing or implementation of the invention to a third-party contractor who acts under the principal's direction and for the principal's sole benefit, that contractor can typically invoke the principal's prior user rights as a defense if sued for patent infringement by the patentee. The contractor is viewed as an extension, or the "hands and feet," of the principal. This principle was affirmed by the Supreme Court in a design law case on October 17, 1969. This can apply even if the specific outsourcing arrangement began after the patent application was filed, provided the principal had established the underlying prior user right.
• Downstream Purchasers and Users (ryūtsū no karyū ni ichi suru mono): When a prior user legitimately manufactures and sells products embodying the invention, those who purchase these products are generally free to use and resell them without infringing the patent. This is essential for the prior user's right to commercialize their invention to be meaningful; otherwise, if customers could not use or resell the products, the prior user's market would be severely limited. A Chiba District Court judgment on December 14, 1992 (in a design case) supported this, stating that the use, enjoyment, and disposal of such lawfully sold articles by third-party purchasers are naturally anticipated by the prior user's business.
  However, it's important to note that while purchasers can use and resell specific items they bought, they cannot start manufacturing new units of the patented invention themselves based on the original seller's prior user rights.

The Concurrent Defense: Patent Invalidity

Beyond asserting prior user rights, a party accused of patent infringement in Japan has another powerful defense: challenging the validity of the patent itself. If the patent should not have been granted in the first place (e.g., because the invention lacked novelty or an inventive step), then there is no valid exclusive right to infringe.

Historically, Japanese courts in infringement lawsuits were hesitant to directly rule on patent validity, as this was primarily the domain of the JPO through separate invalidation trial proceedings. However, a pivotal Supreme Court decision on April 11, 2000 (the Kilby patent case), shifted this landscape. The Court held that asserting a patent right that is manifestly invalid and would inevitably be nullified in an invalidation trial constitutes an abuse of rights.

Following this, Article 104-3 was introduced into the Patent Act (effective 2004). This provision explicitly allows a defendant in an infringement action to argue that the patent "should be invalidated by a patent invalidation trial." If the court agrees, it can deny the patentee's claims for injunction or damages, even if the patent has not yet been formally invalidated by the JPO.

In the context of a prior user scenario, if the prior user's activities (such as public use or sale of the invention in Japan before the patent application's filing date or priority date) were such that they destroyed the novelty or rendered the invention obvious to a person skilled in the art, these activities would not only support a prior user right claim but would also serve as strong grounds for arguing the patent's invalidity. For example, if a company had completed a functional prototype of a grasping machine and sold it to another company, who then put it to public use in a demolition project before a competitor filed a patent application for that grasping machine, this prior public use could invalidate the competitor's patent for lack of novelty.

Conclusion: Protecting Your Independent Innovations

For businesses operating in Japan, the doctrine of prior user rights provides a vital shield against patent infringement claims when they have independently developed and utilized technology before another party's patent filing. However, successfully asserting these rights hinges on meticulously meeting the statutory requirements, particularly demonstrating objectively recognizable use or preparation for business in Japan at the critical date. Comprehensive record-keeping of R&D activities, investments, and early commercial steps is therefore indispensable.

Furthermore, the ability to challenge the validity of the asserted patent under Article 104-3 of the Patent Act offers an additional, often concurrent, line of defense. Businesses faced with infringement allegations should explore both avenues – prior user rights and patent invalidity – to robustly defend their legitimate commercial activities. Understanding these twin pillars of Japanese patent litigation strategy is crucial for navigating potential IP conflicts and safeguarding independent innovation.