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Olympus Optical Co., Ltd. v. Shumpei Tanaka

Supreme Court, 3rd Petty Bench / Decided April 22, 2003 / Case No. Hei 13(uke)1256
(Patent Law, Section 35, Paragraph 3)

Defendant's appeal against the High Court's affirmation of the district court's decision that Defendant should pay the amount of 2,289,000 yen to Plaintiff was dismissed.


Olympus Optical Co., Ltd, Petitioner/Defendant, ("Olympus"), is a major manufacturer and seller of optical machineries in Japan. Olympus obtained a number of patents relating to pick up devices for video disc players. The core technology of the patent portfolio was invented by Mr. Morokuma, another employee of Olympus. A patent portfolio was licensed to many licensees in Japan, bringing to Olympus royalty income of many billions of yen.
Mr. Shumpei Tanaka ("Tanaka") was an employee of Olympus from May 1969 to November 1994. He engaged in the development of video disc devices at the Research & Development Division for the period from 1973 to1978.
In 1977, Tanaka invented an improvement in the structure of video pick up devices. A patent application for his invention was filed as an employee's invention. Olympus's work rules permitted Olympus to acquire from its employees the rights to obtain patents based on their inventions created during the course of their employment.
Olympus's work rules also contained an employees-incentive policy. One of the components of the policy was the patent reward program under which Olympus paid to Tanaka, remuneration in the amount of 3000 yen for the patent application and 8000 yen for the patent grant. Another was the special award program under which Olympus paid to Tanaka, in addition to the foregoing patent consideration, a bonus payment in the amount of 200,000 yen. The special award program set forth conditions such as a limitation of the effective period to 2 years from the date of first royalty income and the one-time payment could not exceed 1 million yen.
Tanaka, after retiring from Olympus, brought suit against his former employer and claimed the payment of 200 million yen as reasonable remuneration under the Patent Law, Section 35-3.

Lower Courts' Decisions

[Tokyo District Court]

1) Amount of Reasonable Remuneration

The Patent Law, Section 35, Para. 3 stipulates that the employee has the right to reasonable remuneration when he has assigned to its employer the right to obtain a patent or the patent right with respect to an employee's invention, or has given the employer an exclusive right to such invention in accordance with contracts. Section 35, Para. 4 stipulates that in calculating reasonable remuneration, two factors have to be considered: profit which the employer received according to the subject invention and contribution by the employer to the making of the invention.
The Tokyo District Court determined that the amount of Olympus' profit was 50,000,000 yen and that the percentage of its contribution to the invention was 95%. Thus, the amount Tanaka ought to actually receive was 2,500,000 yen less the amount already paid up. Actual payment was calculated by the following equation.

2,500,000 - (3,000+8,000+200,000) = 2,289,000

(2) Validity of the internal programs

Olympus argued that its employees were unable to claim additional payments for reasonable remuneration under Section 35-3 so far as the employees' inventions were subject to the provisions of the internal programs for employees' inventions. The District Court rejected this argument. The court stated that since the programs were drafted by Olympus unilaterally, there were no reasons for its employees to be bound by.
Olympus also argued that the existence of compliance agreements signed by the individual employees constituted waiver of the right for further compensations. Such compliance agreements, the court said, were an omnibus agreement and the omnibus agreement could not preempt specific, individual claims for additional payment of reasonable remuneration.

(3) Limitation of Statute

The Tanaka invention was made in 1977. His invention was included in the patent portfolio and Olympus received royalties under the licensed patent portfolio in 1990 and onward. In 1992, Tanaka received the bonus payment for his invention under the award program. However, prior to 1992, records were insufficient to support accurate calculations of royalty income. Therefore, it was in 1992 that Tanaka could reasonably recognize the basis for claim for reasonable remuneration.
This case was brought to the court in 1995, three years after from the year of Tanaka's recognition of the basis for calculating the bonus. However, 10 years is needed in order to establish a statute of limitations defense. In this case, the District Court held that the statute of limitations defense has no ground.

The both parties appealed to the Tokyo High Court.

[Tokyo High Court]

On appeal, the Tokyo High Court affirmed the judgment of the District Court on each issue. Among other things, the High Court clarified the judgment of the District Court with respect to the validity of internal employment programs on employees' inventions.

While an employer can unilaterally set forth in its internal programs the treatment of patents relating to employees' inventions, it cannot unilaterally set forth in the program the amount of reasonable remuneration in advance.

The court stated that the provisions of Section 35, Para. 3 and Para. 4 can preempt provisions in the internal employment programs.

Olympus appealed to the Supreme Court.


The Supreme Court basically affirmed the conclusion of the lower courts' decisions and dismissed the appeal. The court reasoned as follows.

1) Validity of the Internal Programs

Under the Patent Law, the employer has a non-exclusive right to use a patent for the employee's invention (35-1). It is valid that the employer prepares an internal employment policy stipulating the consequent assignment of such patent from the inventor/employee (35-2). When such assignment takes place, the inventor/employee retains a right to receive reasonable remuneration (35-3). In determining the amount of reasonable remuneration, employer's profit from and its contribution to the patent-related business have to be considered (35-4). The court stated as follows.

The employer, irrespective of whether an inventor/employee has an intention to transfer the right to obtain a patent for his/her invention, can legitimately set forth provisions in its internal employment policy with regard to the future transfer of the right from the inventor/employee to the employer. Statutory provisions do not prevent such internal policy from including the commitment, amount and timing of payment. However, illegality is clear if the amount of reasonable remuneration is determined in final form well before an employee's invention is completed and before the detail and value of the right to a to-be-obtained patent becomes specific.

The amount set forth in the internal programs can constitute parts of reasonable remuneration available under Sections 35-3 and 35-4. But, it should not be regarded as the full amount of reasonable remuneration. ... Even if there were a compensation program setting fourth a specific amount of payment for reasonable remuneration, the invention/employee could claim additional payments of reasonable remuneration when the amount prescribed in the program was less than what ought to be under Section 35-4.

2) Limitation of Statute

There are no provisions in the Patent Law directly applicable to the point in time to start counting the period for reasonable remuneration under Section 35-3. Therefore, the inventor/employee who claims reasonable remuneration should wait until the time prescribed in the compensation program has come. Otherwise, his/her right to claim reasonable remuneration would have no basis in law. The period for statutory limitation should be counted from the date prescribed in the program, if there is any.


The Supreme Court issued a long awaited decision. However, it is doubtful whether the Supreme Court's decision will have paved the road for the resolution of disputes on reasonable remuneration under Section 35-3. There are several reasons.
First, this case established that the venue for determination of the amount of reasonable remuneration is the court but not the employer. The Supreme Court confirmed that the inventor has a right to claim additional payments of reasonable remuneration if he/she feels a shortage in the amount actually received under the internal regulations. Nevertheless, there have been no teachings as to how the amount under Section 35-3 be calculated.
In Japan, there are four cases pending before the district court and one appeal case before the high court. In these cases, former employees sued their former companies claiming the additional payment of reasonable remuneration by former employers. In each case, the court has to tackle with money issues whose amount tend to be unsatisfactory for both parties.
However, there is one interesting remark made by the court on statutory limitation. Interestingly, the court said that a specific date prescribed in the internal employment policy or compensation program can trigger the statutory limitation. This new interpretation may have a substantial effect to keep the number of suits minimal.
Challenges to seek more reasonable remuneration have been made by former employees. In the past cases, plaintiffs brought their suits after they had retired from their companies. Under the new Supreme Court's decision, the application of the 10 years statutory limitation will be effective from the date prescribed in the compensation program. This may force inventors/employees who contemplate to claim additional payments of reasonable remuneration to decide whether to quit their company or continue to an employee. The bar of the 10 year statutory limitation would not allow them to wait for their regular retirement.
For those who are interested in this case, a full English translation of the District Court decision is available in the AIPPI Journal, Vol. 24, No. 6, 1999, at pages 255-276.

(By Jinzo Fujino, Published in the AIPPI Journal, May 2003, pp 212-216)

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