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The legal wrangle between University of California, Santa Barbara, Prof. Shuji Nakamura, and Nichia Corp, Tokushima Pref., his former employer, came to an end by a court-brokered reconciliation January 11, 2005, one year after the lower court ordered Nichia to pay him ¥20 billion for his invention. The blue LED inventor agreed to bury the hatchet in lieu of about ¥840 million (¥600 million plus interest) in compensation for his invention. The case clearly sent the industry scurrying to make an overhaul of its reward regulations, but similar lawsuits are rapidly adding up. During this period the Japanese Patent Law was revised. The issue catapulted both the judiciary and business into a pandemonium looking for the right price to pay an inventor that can strike a good balance between reward and corporate management.
Some business leaders sighed in relief when the news of the settlement came through as they felt the court-recommended figure put business sustainability in perspective. Hiroshi Okuda, President of Japan’s largest business organization, Keidanren (Japan Business Federation), commented, “¥20 billion would have put the company out of business. I think the price was fair.” A lawyer representing Nichia appreciated the deal that took the reality of corporate risk involved into account.
The reward for an invention is determined by the profits it generates and the weight of the contribution of the researcher who put the technology together. The first trial evaluated Nakamura’s contribution at 50% of the ¥120 billion the court determined Nichia had earned in monopoly markets, which entitled him to ¥60 billion in compensation and awarded him the full amount he had claimed, ¥20 billion.
The appeal court sharply lowered the firm’s foreseeable future profit estimates and computed its monopoly profits at ¥12 billion and put the inventor’s contribution at 5%, or ¥600 million, rigorously shrinking both the profits and the contribution to one tenth of those calculated by the lower court. The Tokyo High Court’s recommendation highlighted a strong implication of a comprehensive judgment that brings into view a sound, sustainable business that heralds the tone that compensation for an invention is not limitless.
The appeals court’s recommendation of 5% evoked the focus of the attention of corporate managers. In the groundbreaking Olympus dispute over patent remuneration, the Supreme Court determined the claimant’s contribution at 5% in April, 2003, and the Ajinomoto case resulted in a settlement valued at ¥15 million in payment to the plaintiff where the contribution was also given as 5%. Some observers speculate that the figure might well be used as a guide in future litigations.
But juridical experts do not agree with this view because the researchers’ contributions are highly varied. Nakamura’s attorney Hidetoshi Masunaga says the equation used in his trial does not make a legal precedent, and all judgments will be made on a case-by-case basis.
A veteran judge said that there must be countless projects around that are never brought to a commercial success, disagreeing with the decision of granting a 50% contribution to just one success. A civil judge conjectured that it would take many more judgments before a precedent can be really set.
Why was the court judgment divided over the issue so sharply?
Another civil judge speculated that Nichia had not worked hard enough to prove their assertion. Former Keidanren IP Chairman Giichi Marushima expressed his distrust of the system saying, “The whole thing proved that we are incredibly relying on the discretion of a presiding judge and I think there is a serious limitation to settlement by trial.”
The recent rapid increase in the number of patent lawsuits filed by inventors against their employers is caused by, besides complainants’ discontent with the poor reward for jobs well done, the lack of express standards to guide corporations to pay the right remuneration.
Tohoku University Professor Fujio Masuoka, who filed a suit last spring against his former employer, Toshiba Corp., for ¥1 billion for his invention of flash memory chips, the company’s huge cash cow, said he had for years felt he had been underpaid for his contribution and said the settlement was an encouragement for him.
“It’s the biggest reward an inventor ever gets paid for his work. Mr. Nakamura practically won his case, be it a settlement or whatever, and I believe it’s a landmark victory. I think the Tokyo High Court figured out the sum rationally on some basis and I appreciate it.”
Some companies are alarmed about the potential threat of growth of lawsuits created by this precedent though the amount was dramatically cut from what the lower court had found appropriate. A Mitsubishi Chemical spokesman said, “Words have wings. I won’t be surprised if people start thinking it doesn’t hurt to try and going to court.”
About the time Nakamura sued Nichia, Japanese firms scrambled to revamp their reward regulations to eliminate the risks of lawsuits that could inflict sudden and big financial damages on them. Canon, Honda, Takeda and Toray removed the limit to the reward and NTT instituted a Fellow program to install the inventor as director.
Tokyo Institute of Technology Postgraduate School Professor and former NEC IP director Naoki Kyomoto proposed that companies should not just cough up statutory rewards for inventions but learn to further treat the inventors in a more comprehensive manner.
In the West, companies and researchers commonly sign a reward contract under which the researchers are rewarded with stock option plans, promotions or pay rises but not with a specific remuneration even if they invent an innovative technology that rakes in stupendous profits.
Germany is an exception to the rule. The German employee invention law provides a precise reward calculation method. Calculated by this method, Nakamura could at best take double-digit million yen, according to a Japanese Patent Office expert.
The revised Japanese patent law that took place last April stipulates that an invention reward program must be worked out between the employer and the employee and bans companies from setting the standards ex parte. The revision is designed to promote dialogue among the parties in conflicts and discourage lawsuits.
A new framework that ensures the inventor the maximum monetary return for his highly competitive invention that also keeps the company going strong is dawning.
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