The Japan Patent Office held a committee meeting today to discuss patent system reforms and has reportedly confirmed that it will shelve plans to introduce a mandatory ADR system for SEP disputes. The decision was explained in documents distributed in advance of the meeting and summarised

The ADR scheme was also described by the government as a “licensing award system for SEPs”. In short, it proposed that when two parties could not agree on an SEP licence agreement, the prospective licensee would be able to request mediation by the JPO, which would determine a FRAND royalty rate in a mandatory process, “with due care of not unfairly haring the interests of the patent holders”. Major global rights owners raised numerous objections, branding it as a form of compulsory licensing.

Watanabe reports two main reasons given by the government for its deferment of the ADR plan. First, it was only intended to make awards based on Japanese patents issued by the JPO; given the global nature of most major SEP licensing, the mechanism would have stood little chance of resolving major disputes. Second, questions were raised about the JPO’s “ability to set out appropriate licence conditions in individual cases”. When I asked members of a panel I moderated at IPBC Asia in Tokyo about the proposal, the primary concern raised was about its mandatory nature.

Today's decision can be seen as a setback for proponents of more aggressive government measures to meet what many see as a potential patent threat to Japanese industry. The ADR idea originated with a study group made up of leaders from industry, academia and the legal community. The authors noted pointedly that in LTE SEPs, many of the largest rights holders originate in China or South Korea. With both expected to play an even bigger role in 5G, the licensing market will not get any easier for Japanese implementers. The country’s powerful auto industry is one of the sectors that is particularly worried about the effects of convergence on their bottom line, as they see NPE activity in the industry picking up.

But the JPO also signalled that it will continue to focus on SEPs and their relation to what they term the Fourth Industrial Revolution. The government is conducting a public consultation on SEP matters, asking industry to weigh in on what are appropriate negotiation methods and what constitute reasonable royalties. Guidelines will reportedly be issued in Spring of 2018, but it would be surprising if these went any further than comparable documents released in South Korea and China.

More interestingly, the JPO signaled that it will begin to provide advisory opinions on whether patents it has granted are or are not essential to a given standard. It will do this by expanding an existing system called Hantei. Currently, it provides neutral, non-binding opinions on whether a given product infringes a JPO-issued patent at the request of either rights holders or their potential targets. Under this new proposal, it seems an implementer could ask for a Hantei on whether a given patent is truly standards-essential.

That same study group which drew up the ADR proposal also raised concerns about the lack of verification that declared SEPs are really essential. The document points out that while SEP declarations are increasing, standardisation groups do not determine their essentiality. It goes on to cite a 2013 study by Japan’s Cyber Creative Institute which suggested that only half of LTE patents declared to ETSI are truly essential for implementation. The JPO evidently sees an opportunity to provide opinions in this area, something that standards groups have not shown much interest in doing.

IPBC Asia attendees who heard JPO commissioner Naoko Munakata’s keynote speech on the third day of the event will not be totally surprised by today's news. The commissioner made no mention of the ADR plan, stressing instead that any SEP guidelines issued in the coming year would be voluntary, and mentioned the possibility of giving essentiality opinions. What is worth watching is whether the reform talk shifts back to a long-running discussion on the court system in Japan, and whether damages and other remedies available there do enough to incentivise patent ownership.