How the Japanese patent system should be reformed in order to encourage industrial development is a major issue in Japan. Currently, most technical fields in Japan are lacking in price competitiveness while neighboring countries, such as Korea, China, and Taiwan, are reaching a high level of price competitiveness under the booming economic market. In addition, Japanese technological strength has weakened in recent years, while the same level of expertise has been attained in certain fields in countries such as Korea and China. Therefore, Japanese industrial products no longer dominate the global market. Under such conditions, it can be said that a fundamental reform of the Japanese patent system would be a significant step in promoting industrial development. This might become evident from the following analysis of the relationship between price competitiveness and the effectiveness of patent rights.
Price Competitiveness and Effectiveness of Patent Rights
- Effectiveness of patent rights in price-competitive countries
More than ten years ago, most Japanese companies used to be price competitive. In other words, they had sufficient capability to provide consumers with high-quality and good-performance products at a low cost compared with rival products of the same quality and performance produced by other countries. Under such circumstances, a weak and narrow patent right might be better for enterprises. For example, if an innovative company creates a unique, smash-hit product and obtains patent protection, latecomer companies would be able to sell similar products having some improvement at a lower cost. In this case, the price-competitive latecomers might prefer that the patent right be strictly construed with a narrow scope. Patent enforcement limited in this way helps businesses to avoid unnecessary IP disputes allowing stability in business activities and fostering industrial development. For an emerging industrial market, this kind of strictly-limited patent system would be better for industrial development. Therefore, one could consider that strict limitation of patent enforcement promotes industrial development during this era of high economic growth.
- Effectiveness of patent rights in less price-competitive countries
If companies which are not price competitive want to survive in a competitive market, it is necessary for them to develop unique new products. In addition, they should first obtain patent rights which protect the unique technology of their products and prevent market entry of similar products at cheaper prices by latecomer companies. As more and more new products are distributed in the market, more and more latecomers are able to enter the market with lower prices. Latecomer companies tend to imitate only hit products. In general, it is necessary to spend a lot on R&D to develop a unique new product. If cheaper, similar products produced by latecomers enter the market before the innovative companies make a profit, these innovators cannot continue to develop new products. In addition, since the Internet allows consumers to gather product reviews quickly and easily, value is placed more on price rather than on brand reputation for products of similar quality.
Stable Business Activities and Potential IP Disputes
One could say that patent enforcement should be strictly limited in order to ensure the ability to conduct business activities, for example, R&D planning, manufacturing planning, and sales planning, and in order to decrease the economic burden of IP disputes on such businesses. It is obvious that the potential risk of IP disputes will increase and that the ability to conduct business activities will be less certain if the scope of patent rights is broader than before.
However, the definition of stable business activities in Japan implies a continuing downslide of the Japanese economy. Reflecting on the rapid industrial development in neighboring countries, if the Japanese patent system is designed to sustain business activities, there is a deep concern that the Japanese economy might possibly face a gradual or even rapid decline.
The Japanese government has been encouraging a pro-patent policy for more than a decade. There is a recent trend for the Intellectual Property High Court to hand down favorable decisions to patentees. However, it is not certain whether the pro-patent policy has an effect on the Japanese economy. The Japanese government is now being requested to establish a pro-patent system which clearly affects the Japanese economy. Furthermore, although the Japanese patent law has been revised year after year, it is not obvious that these changes affect the Japanese economy. For example, although future revisions are expected to enable the shortening of the examination period from two years to one year, it cannot be said that the Japanese economy will be revitalized. It is necessary to make the Japanese patent system function more effectively in order to promote industrial development. In conclusion, the actual effectiveness of patent rights should be further bolstered in order to counteract latecomers’ cheaper similar products, regardless of whether they are imitations or not, particularly in Japan’s current society where price competitiveness is weakened due to higher human resource expenses than those of emerging countries.