What Are the Key Legal Aspects of Patent Licensing Agreements in Japan (Exclusive vs. Non-Exclusive)?

Japanese Attorney at Law - Bengoshi L.L.

• 10 min read

Patent licensing is a cornerstone of technology commercialization and strategic intellectual property management in Japan. It allows patent owners (licensors) to generate revenue and disseminate their technology, while licensees gain the right to utilize patented inventions without fearing infringement claims. Japanese patent law primarily recognizes two statutory types of licenses: the exclusive license (専用実施権 - sen'yō jisshi-ken) and the non-exclusive license (通常実施権 - tsūjō jisshi-ken). Beyond these, contractual arrangements creating de facto exclusivity within a non-exclusive license framework are also prevalent and carry significant legal implications.

Understanding the distinct legal characteristics, rights, and obligations associated with these licensing structures is paramount for businesses and legal professionals engaging in technology transfer in Japan.

1. Non-Exclusive Licenses (通常実施権 - Tsūjō Jisshi-ken) - Article 78

A non-exclusive license grants the licensee the right to work the patented invention in the course of trade, within the scope defined by the license agreement or, in the case of statutory non-exclusive licenses (e.g., for prior users or employers in employee invention scenarios), as prescribed by law (Article 78(2) of the Patent Act).

A. Nature and Effect:

  • Contractual Right: Fundamentally, a consensually granted non-exclusive license is a contractual right (債権的権利 - saiken-teki kenri). It primarily creates an obligation on the licensor (patentee) not to assert their patent rights against the licensee's authorized working of the invention. It does not, by itself, grant the non-exclusive licensee the right to prevent others (including the patentee or other non-exclusive licensees) from working the invention.
  • Sub-licensing (再実施許諾権 - sai-jisshi kyodaku-ken): A non-exclusive licensee can grant sub-licenses to third parties only if this right is expressly provided for in the license agreement with the patentee.

B. Effect Against Third Parties (対抗力 - Taikō-ryoku) and the "Automatic Perfection" System (Article 99):

A crucial development in Japanese patent law concerns the enforceability of a non-exclusive license against third parties who subsequently acquire the patent or an exclusive license on it.

  • Post-2011 Amendment (Automatic Perfection): Since the Patent Act amendments effective April 1, 2012 (related to changes enacted in 2011), a non-exclusive license, once granted, is automatically effective against any person who subsequently acquires the patent right or an exclusive license thereon, without needing to be registered with the Japan Patent Office (JPO) (Article 99). This is often referred to as the "automatic perfection system" (当然対抗制度 - tōzen taikō seido).
  • Rationale for the Change: This was a significant departure from the pre-2011 system, where registration of a non-exclusive license was generally required to make it effective against such third parties. The reform aimed to enhance the protection of non-exclusive licensees, recognizing that many such licenses (especially those embedded in broader commercial agreements or arising implicitly) were often not registered, leaving licensees vulnerable if the patent changed hands. It promotes smoother licensing practices and greater legal certainty for licensees.

C. Non-Exclusive Licenses in the Licensor's Bankruptcy:

The automatic perfection of non-exclusive licenses also has important implications in the event of the licensor's bankruptcy. Under the Japanese Bankruptcy Act (破産法 - hasan-hō, particularly Articles 53 and 56 concerning executory contracts), rights that are perfected against third parties (like a non-exclusive license under Article 99 of the Patent Act) are generally protected. This means that a bankruptcy trustee for the licensor typically cannot freely terminate a valid, automatically perfected non-exclusive patent license.

D. Transfer of the Underlying Patent: Does the License Agreement Transfer?

When the patent itself is transferred to a new owner, a complex question arises: does the new patent owner automatically assume all the rights and obligations of the original licensor under the existing non-exclusive license agreement?

  • "Automatic Succession Theory" (当然承継説 - tōzen shōkei setsu): This view, sometimes drawing analogies from real estate law (where a new owner of leased property may step into the landlord's shoes), suggests that the entire contractual relationship, including obligations like receiving royalties or providing technical support, automatically transfers to the new patent owner.
  • "Non-Succession Theory" (非承継説 - hi-shōkei setsu): A contrasting view argues that only the core patent covenant – the licensor's promise not to sue the licensee for infringement for acts within the scope of the license – is automatically binding on the new patent owner by virtue of Article 99. Other purely contractual rights and obligations (e.g., the original licensor's right to receive royalties, or their duty to provide know-how) do not automatically transfer to the new patent owner without a separate agreement for the assignment of contractual status. Proponents of this view argue it encourages clearer contractual stipulations regarding the fate of license agreements upon patent transfer and better reflects the often complex, multi-faceted nature of license agreements which may contain obligations personal to the original licensor. The authors of the source text appear to favor this non-succession theory.
  • Scope of Enforceable License Terms: Even under the non-succession theory, terms that define the scope of the non-exclusive license itself (e.g., field of use restrictions, territorial limitations within Japan, duration, limitations on product types or quantities) are generally considered part of the perfected right under Article 99 and thus remain binding on the new patent owner. If the licensee operates outside these defined scope limitations, they could face an infringement claim from the new patent owner. Purely ancillary payment obligations might, under this theory, remain due to the original licensor unless the contract is novated or assigned.

E. Transfer of the Non-Exclusive License Itself by the Licensee (Article 94):

A non-exclusive license can generally be transferred by the licensee to a third party only with the consent of the patentee (and, if an exclusive license exists, also with the consent of the exclusive licensee) (Article 94(1)).

  • Exception for Business Succession: An important exception exists: if the non-exclusive license is transferred as part of the transfer of the business in which it is worked (e.g., through a merger, or acquisition of the entire business unit associated with the license), the patentee's consent is generally not required (Article 94(1) proviso). This is intended to facilitate smoother business transactions.
  • Perfection of Transfer: Since the 2011 amendments abolished the registration system for non-exclusive licenses, the perfection of a transfer of a non-exclusive license against third parties (other than the patentee against whom it is always effective if validly transferred) is now governed by the general rules for the assignment of claims under the Civil Code (Article 467), which typically involves notice to, or consent from, the obligor (i.e., the patentee who granted the original license).

2. Exclusive Licenses (専用実施権 - Sen'yō Jisshi-ken) - Article 77

An exclusive license under Article 77 of the Patent Act grants the licensee a significantly stronger, more proprietary right than a non-exclusive license.

A. Nature and Effect:

  • It grants the licensee the exclusive right to work the patented invention in the course of trade, within the scope defined by the license agreement (Article 77(2)).
  • Crucially, once an exclusive license is validly established and registered, it excludes all others, including the patentee themselves, from working the invention within the defined scope (Article 68 proviso), unless the license agreement specifically allows the patentee to also work the invention.
  • It is considered a powerful, property-like right (物件的権利 - bukken-teki kenri), akin to a real right in property law, due to its exclusivity and requirement for registration.

B. Registration as an Essential Prerequisite (Article 98(1)(ii)):

Unlike non-exclusive licenses after the 2011 reforms, an exclusive license (sen'yō jisshi-ken) must be registered in the official patent register at the JPO to take effect. Without registration, the arrangement does not constitute a statutory exclusive license under Article 77, although the underlying contract might still be enforceable between the parties as a de facto exclusive non-exclusive license (see below).

  • The establishment, transfer (except by general succession like inheritance), modification, extinguishment (except by merger or confusion of rights), or restriction on disposition of an exclusive license also requires registration to be effective against third parties.

C. Rights of an Exclusive Licensee:

The registered exclusive licensee obtains significant enforcement rights:

  • Independent Right to Sue for Infringement: An exclusive licensee has the independent right to sue infringers in their own name. They can seek:
    • Injunctive relief (Article 100 of the Patent Act) to stop infringing activities.
    • Damages (Article 102 of the Patent Act and Article 709 of the Civil Code).
  • Patentee's Right to Sue Post-Grant of Exclusive License: Despite granting an exclusive license, the patentee generally retains the right to sue for infringement. This was affirmed by the Supreme Court on June 17, 2005 (Minshu Vol. 59, No. 7, p. 1074, the "Stable Complex Structure of Biopolymer-Ligand Molecule Search Method" case or 「生体高分子―リガンド分子の安定複合体構造の探索方法」事件). The patentee may still have interests to protect, such as their royalty income (if based on the licensee's sales which are diminished by infringement), their reversionary interest in the patent, or if the exclusive licensee fails to take appropriate action against infringers.

D. Obligations and Restrictions on the Exclusive Licensee:

The exclusive licensee's ability to further deal with their right is also regulated:

  • An exclusive licensee generally cannot transfer their exclusive license, establish a pledge on it, or grant non-exclusive licenses (sub-licenses) under it without the consent of the patentee (Article 77(3) and (4)), except for transfers accompanying a general succession or business transfer.

3. De Facto Exclusive Non-Exclusive Licenses (独占的通常実施権 - Dokusenteki Tsūjō Jisshi-ken)

In practice, parties often create what is functionally an exclusive license through a contractual non-exclusive license agreement that includes a covenant from the licensor not to grant similar licenses to any other third parties within a defined scope. Sometimes, this may also include a promise from the licensor not to work the invention themselves (a "sole and exclusive" type of non-exclusive license, or 完全独占的通常実施権 - kanzen dokusenteki tsūjō jisshi-ken).

Legal Status and Enforcement by the Licensee:

  • Contractual Nature: This type of license is primarily contractual. It does not require JPO registration to be effective between the contracting parties. Its effect against third-party acquirers of the patent is now covered by the "automatic perfection" rule of Article 99 for non-exclusive licenses.
  • Licensee's Right to Sue Infringers: This is a critical area:
    • Injunctive Relief: A de facto exclusive non-exclusive licensee generally cannot sue for an injunction directly in their own name under Article 100, as this right is statutorily granted to patentees and registered exclusive licensees. However, there is case law suggesting that such a licensee might be able to obtain injunctive relief by exercising the patentee's right to sue via a creditor's subrogation claim (債権者代位権 - saikensha daii-ken) under the Civil Code. This usually requires showing that (a) the licensee has a specific contractual or good-faith right to have the patentee protect their exclusivity (e.g., an explicit or implied duty on the licensor to suppress third-party infringements), (b) the patentee has failed to exercise their own right to sue, and (c) the licensee needs to step in to protect their interest. Some court decisions have allowed this (e.g., Tokyo District Court, August 31, 1965), while others have been more restrictive if a clear duty on the licensor to exclude infringers was not established (e.g., Osaka District Court, December 20, 1984).
    • Damages: There is stronger support in case law for allowing a de facto exclusive non-exclusive licensee to sue for damages in their own name under general tort principles (Civil Code Article 709). The reasoning is that the third-party infringement directly harms the licensee's contractual exclusivity and their expected profits from exploiting the invention. The presumption of infringer's negligence under Article 103 of the Patent Act has also been held to apply in favor of such licensees in some cases (e.g., Tokyo District Court, May 29, 1998, Hanrei Jihō No. 1663, p. 129). When calculating damages, any royalties the licensee would have owed to the patentee on the lost sales are typically deducted.

Several recurring legal issues arise in the context of patent license agreements:

A. Obligation to Return Paid Royalties if Patent is Retroactively Invalidated:

If a patent is invalidated by a JPO trial decision, the invalidation has retroactive effect to the date of grant (Article 125). A frequent question is whether the licensee can then reclaim royalties already paid under the license for that now-void patent.

  • "No Refund" Clauses: If the license agreement explicitly states that royalties are not refundable even if the patent is later invalidated, such a clause is generally enforceable.
  • Absence of a "No Refund" Clause:
    • Traditional View: The older, and for a long time dominant, view was that even without such a clause, the licensee generally could not reclaim paid royalties. The rationale was that the licensee had enjoyed the de facto benefit of operating under the "umbrella" of a presumptively valid patent, potentially deterring competitors, and this constituted sufficient consideration for the royalties paid.
    • Modern Counterarguments: With the increased prevalence of validity challenges (including the invalidity defense in infringement suits), the strength of the "factual benefit" argument has been questioned. A strong counterargument, rooted in unjust enrichment principles (Civil Code Article 703), is that if the patent (the legal basis or 給付原因 - kyūfu gen'in for the royalty payments) is declared void ab initio, then the royalties were paid without legal cause and should be returnable. The underlying license agreement itself might be voidable for mistake regarding the patent's validity.
      This area reflects an evolving understanding, with a greater potential now for licensees to reclaim royalties if the patent is nullified, absent contractual provisions to the contrary.

B. Non-Challenge Obligations (不争義務 - Fusō Gimu) and Non-Challenge Clauses (不争条項 - Fusō Jōkō):

License agreements often include clauses by which the licensee agrees not to challenge the validity of the licensed patent.

  • General Enforceability: Such non-challenge clauses are generally considered enforceable in Japan as a matter of contract law. They represent a bargained-for element of the license, potentially exchanged for more favorable terms (e.g., lower royalties). They can also contribute to stability in the licensing relationship.
  • Potential Limitations: However, if a patent is manifestly and clearly invalid (e.g., it claims subject matter that was undeniably in the public domain well before filing), enforcing a non-challenge clause to compel continued royalty payments might be deemed contrary to public policy or good faith principles and thus unenforceable, at least to that extent. The balance is between contractual freedom and preventing the abuse of clearly invalid patent rights.
  • Licensee's Cooperation in Patent Defense: Relatedly, issues can arise if a licensor seeks to correct (amend) the patent claims during an invalidity challenge by a third party. Article 127 of the Patent Act requires the consent of an exclusive licensee, and sometimes non-exclusive licensees, for certain types of patent corrections. A licensee's refusal to provide such consent, if it thwarts a legitimate attempt by the licensor to save the patent, could potentially be a breach of an implied duty of good faith or cooperation under the license, depending on the circumstances. However, a licensee also has a legitimate interest in not being bound by a patent whose validity is questionable, especially if the proposed correction adversely affects their interests.

Conclusion

Patent licensing in Japan involves a sophisticated interplay of statutory provisions and contractual arrangements. The distinction between registered, property-like exclusive licenses (sen'yō jisshi-ken) and the more flexible non-exclusive licenses (tsūjō jisshi-ken)—which now benefit from automatic perfection against third parties—is fundamental. The common use of de facto exclusive non-exclusive licenses adds another layer, with evolving case law defining the enforcement rights of such licensees. Key issues like the fate of paid royalties upon patent invalidation and the enforceability of non-challenge clauses require careful consideration and often explicit contractual provision. For businesses engaging in technology licensing in Japan, a thorough understanding of these legal aspects is indispensable for structuring effective agreements and managing intellectual property rights.