"Sale Does Not Break a License" in Japan? Understanding the Automatic Perfection of Non-Exclusive Licenses Against Patent Transferees

Imagine your company has invested significantly in developing and marketing a product based on a non-exclusive patent license obtained from a patent holder. Business is progressing, and then you learn that the patent has been sold to a new owner. A critical question immediately arises: Is your license still valid against this new patent owner? In many legal systems, the answer might depend on whether your license was registered or if the new owner had notice. In Japan, however, the situation for non-exclusive licensees is notably robust, embodying a principle akin to "sale does not break the license" thanks to its system of "automatic perfection."

This article explores the Japanese system of jōzen taikō (当然対抗), which provides significant security to non-exclusive patent licensees when a patent changes hands.

Non-Exclusive Patent Licenses (Tsūjō Jisshiken) in Japan

A non-exclusive patent license (tsūjō jisshiken) in Japan grants the licensee the right to work the patented invention within the agreed scope (e.g., for a specific territory, period, or field of use). Unlike an exclusive license, the patentee generally retains the right to work the invention themselves and to grant other non-exclusive licenses to third parties, unless contractually agreed otherwise. These licenses are vital for technology dissemination and commercialization.

The Historical Challenge: Vulnerability of Unregistered Licenses

Prior to a significant amendment to the Japanese Patent Act in 2011, the general rule for non-exclusive licenses was that they needed to be registered with the Japan Patent Office (JPO) to be "perfected" against third parties. This meant that if a non-exclusive license was not registered, it might not be enforceable against a subsequent purchaser of the patent who acquired the patent without knowledge of the license.

In practice, however, the registration of non-exclusive licenses was relatively uncommon. The process could be cumbersome, and parties often overlooked or opted out of registration for various reasons. This created a precarious situation for many non-exclusive licensees, whose rights could potentially be defeated if the patent was sold.

Japan's Modern Solution: The "Automatic Perfection" (Jōzen Taikō) System (Patent Act Art. 99)

Recognizing the need to bolster the position of non-exclusive licensees and promote a more stable licensing environment, Japan amended Article 99 of its Patent Act, effective April 1, 2012 (the amendment itself was part of the 2011 revisions to the Act).

The core of the current Article 99 is revolutionary in its simplicity and strength:
A non-exclusive license, once validly granted by the patentee or an exclusive licensee (if they have the power to sublicense), is automatically effective against any person who subsequently acquires the patent right or an exclusive license on the patent, without the need for registration.

This means that the non-exclusive licensee's right to continue practicing the invention under the terms of their license is inherently protected, even if the patent is sold or an exclusive license is later granted to another party. The registration system for perfecting non-exclusive licenses against third parties was abolished.

The rationale behind this shift to automatic perfection includes:

• Strengthening Licensee Protection: Providing greater security and predictability for businesses that rely on non-exclusive licenses.
• Promoting Licensing Activity: By reducing the risk for licensees, the system encourages the granting and taking of licenses, facilitating technology transfer and innovation.
• Aligning with Practical Realities: Acknowledging that registration of non-exclusive licenses was not a widespread practice and that the previous system often failed to protect legitimate licensee interests.

To benefit from automatic perfection, the non-exclusive licensee primarily needs to be able to prove the existence of a valid license granted by a party who was entitled to grant it at the time. This protection extends to all types of non-exclusive licenses, including those arising from contracts, statutory provisions (like prior user rights under Article 79 or certain rights for employees/employers under Article 35), and compulsory licenses.

Implications of Automatic Perfection

The shift to automatic perfection has significant practical implications for both licensees and those acquiring patent rights in Japan.

For Non-Exclusive Licensees:
The most obvious benefit is enhanced security. A non-exclusive licensee can invest in commercializing a patented technology with much greater confidence, knowing that their right to operate under the license will survive any subsequent sale of the patent or the grant of an overarching exclusive license to another entity. Their business operations are not held hostage to the patent changing hands.

For Acquirers of Japanese Patent Rights:
The automatic perfection system places a heightened burden of due diligence on any party looking to acquire a Japanese patent or an exclusive license thereon. Since non-exclusive licenses do not need to be registered to be effective against them, potential acquirers must:

• Thoroughly investigate the existence of any non-exclusive licenses granted by the current or previous patent owners. This might involve reviewing licensing records, interviewing relevant personnel, and seeking warranties from the seller.
• Understand that any patent they acquire will come encumbered by all such validly existing non-exclusive licenses.
• Factor these existing licenses into the valuation of the patent and their own freedom to operate or grant further exclusive rights. The presence of significant non-exclusive licenses can substantially affect the commercial value and strategic utility of a patent.

A Deeper Dive: Succession to Contractual Terms and "Sole Non-Exclusive Licenses"

While Article 99 clearly establishes that the non-exclusive licensee's right to practice the invention is perfected against new patent owners, a more nuanced question is the extent to which the new patent owner automatically inherits all the specific contractual obligations of the original licensor under the license agreement.

This becomes particularly pertinent in the context of "sole non-exclusive licenses" (dok占的通常実施権, dokusenteki tsūjō jisshiken). This is a specific type of non-exclusive license where the licensor contractually agrees not to grant any other licenses for the same scope (and sometimes also agrees not to work the patent themselves within that scope). It offers the licensee a degree of exclusivity greater than a simple non-exclusive license but is still legally categorized and typically registered (if registration occurs for other purposes) as a non-exclusive license.

The Core Question:
Suppose Patentee Alpha grants a sole non-exclusive license to Company Beta, contractually promising Beta that no other licenses will be granted. Patentee Alpha then sells the patent to Company Gamma. Company Gamma, as the new patent owner, is aware of Beta's license. Can Gamma now grant a license to Company Delta, effectively undermining the "sole" nature of Beta's license?

Beta's right to use the patented invention is secure against Gamma due to automatic perfection. But is Gamma also bound by Alpha's contractual promise to Beta not to grant further licenses? Japanese legal commentary discusses two main theoretical approaches to the succession of such contractual terms:

1. Automatic Succession Theory (tōzen shōkei setsu): This view posits that the new patent owner (Gamma) automatically steps into the material contractual position of the original licensor (Alpha) with respect to the license agreement. This would include negative covenants like the promise underpinning a "sole" license. The analogy is sometimes drawn to real estate law, where certain leasehold covenants can bind subsequent purchasers of the property if the lease is perfected. If this theory applies, Gamma would be bound by the "sole" commitment to Beta and could not license Delta without breaching this obligation to Beta.
2. Non-Succession Theory (hi-shōkei setsu): This theory argues that the perfection of the license right (the right to use) against the new owner is distinct from the automatic transfer of all ancillary contractual obligations. The original contract is between Alpha and Beta. While Gamma must respect Beta's perfected right to use, Gamma, not being a party to the original Alpha-Beta contract, might not automatically inherit all of Alpha's specific contractual promises unless Gamma explicitly assumes them, or such succession is strongly implied by the nature of the right and the purpose of Article 99. Under a strict interpretation of this theory, Beta might primarily have a contractual claim against Alpha if Alpha failed to ensure the "sole" aspect was honored by Gamma, rather than a direct block against Gamma licensing Delta based purely on the original Alpha-Beta agreement's "sole" term automatically binding Gamma.

The Current Legal Position and Analysis for "Sole" Licenses:
The amended Patent Act does not explicitly detail the extent to which all contractual obligations of a licensor automatically transfer to a new patent owner. Legal commentary suggests that the outcome may depend on the specific nature of the contractual term in question and the circumstances of the case.

However, in the specific case of a "sole non-exclusive license," the licensor's commitment not to grant further licenses is a fundamental and defining feature of the license, directly impacting its commercial value and the licensee's bargained-for exclusivity. There is a strong argument that the purpose of Article 99—to provide effective protection to licensees—would be undermined if such a core element of a "sole" license did not bind a subsequent patent owner who takes the patent subject to this known (or discoverable through due diligence) encumbrance. To give meaningful effect to the jōzen taikō principle for sole licenses, the new patent owner should generally be considered bound by the commitment not to grant conflicting licenses. Otherwise, the "sole" character of the license, which is often a key negotiating point, could be easily nullified by a patent sale.

This implies that for critical terms defining the exclusivity or nature of the licensed right itself, a degree of succession is likely, while for more purely administrative or ancillary contractual obligations, the analysis might be different.

Conclusion: Enhanced Stability in the Japanese Licensing Landscape

Japan's system of automatic perfection for non-exclusive patent licenses under Article 99 of the Patent Act marks a significant enhancement in licensee protection. It ensures that businesses relying on such licenses can operate with greater certainty, as their fundamental right to practice the invention will withstand subsequent transfers of the patent, without the previous burden of registration for this purpose.

For companies acquiring Japanese patents, this underscores the absolute necessity of comprehensive due diligence to uncover all existing non-exclusive licenses, as these will directly impact the scope of rights being acquired and the patent's overall commercial utility. While the core right to use is clearly protected against new patent owners, the full extent to which all ancillary contractual terms of a license agreement automatically bind a new patent owner may still involve careful legal analysis, especially for highly specific or unusual obligations beyond the direct scope of the right to practice the invention. Nonetheless, the principle that a "sale does not break a license" is now strongly embedded in Japanese patent law for non-exclusive licensees.