4.Contract Drafting, Review and Negotiation

Q4 (Ownership to Improvements in Patent Licenses)

In a patent license agreement, we wish to include a provision under which we are assigned the ownership rights to any improvements that the licensee may develop, at no cost.  Is there any issue?

There is a possibility that this could be problematic under the Antimonopoly Act. Under the Antimonopoly Act, so-called “restrictive term transactions” (entering into a transaction with a party with conditions unreasonably restricting the party’s business activities, including transactions of the party with another party) are prohibited as unfair business practices. Imposing an assignment obligation to improvements on the licensee at no cost strengthens the licensor’s position in the technology market and product market. Further, it discourages the licensee from developing improvements. And in most cases it is difficult to find a reasonable justification for such a restriction. So, generally speaking, we believe this would be deemed an unfair trade practice. Even though, in principle, a patent holder can freely exercise its rights under its patents and license them to third parties, you should keep in mind that, depending on the terms of the transaction, there could be a violation of the Antimonopoly Act.

For more details, please see the Japan Fair Trade Commission’s “Guidelines for the Use of Intellectual Property under the Antimonopoly Act”.

(Posted: January 27, 2012)