Quite some time has passed since Japan's initial push to become a leader in intellectual property. Since then, in addition to the actual obtaining of IP rights, a focus has been also placed on the effective protection and utilization thereof. Contracts play an undeniably important role in all three of these - the obtainment, protection, and utilization of IP rights.
Contracts are an essential part of our society. While we might not draw up a contract for simple transactions at a convenience store, for example, we do enter into contracts for large purchases, such as when buying a car or house. In the field of IP as well, where effective utilization of IP can yield immense earnings, written contracts are crucial. When licensing or transferring IP rights, failure to put a contract into writing can lead to a multitude of problems - just one example being the inability to receive one's rightfully deserved benefits.
In order to avoid such problems, it is necessary to utilize contracts that are optimized to one's unique business goals and which maximize one's benefit in each IP-related endeavor, whether it be obtainment, protection, or utilization. This requires legal advice which not only facilitates the realization of one's business goals, but which also helps one circumvent potential legal disputes and ensure that damages are kept to a minimum even if problems should arise.
Our firm's services do not stop at support mere legal consultation. Our experts strive to serve as business strategy advisers, providing individually-tailored advice from an IP strategy standpoint in order to help our clients succeed in realizing their unique business goals.
Our firm has previously established a "Technology Transfer & Licensing Service Consultation" service to provide advice on various contracts involved with technology transfer. However, utilizing a company's IP to its fullest potential requires comprehensive analysis and an integrated approach that accounts for patents, trademarks, and design, as well as the Unfair Competition Prevention Law and Copyright Law. To this end, we have also established a separate "Contract Consultation" service.
2. What Are Contracts?
A contract can be defined as a voluntary agreement between two or more parties which creates obligation therebetween*1.
- A. Agreement (congruence of expressed intent)
- B. Creates obligation
*1 Obligation means that an obligee has a right to demand, for example, a specific amount of payment from a specified obligor, and the obligor has a duty to pay the specified sum to the obligee.
2.2. The purpose of contracts:
･ To render an agreement legally binding.
- "Legally binding" means that a person who fails to keep an agreement can be forced to do so by a court of law. The basis for this legally binding power lies in the modern liberalist value judgment that a person should be obliged to keep an agreement entered into by his/her own free will*2.
*2 Agreements determined to have not been entered into by free will not be acknowledged as legally binding.
2.3. Establishment of contract
- ･ Congruence of intent is sufficient to establish a contract, and thus a written document is not necessarily required*3.
- ･ With no written record, proving the details of the contract will be difficult should a dispute arise later.
- ･ Normally, an agreement is put in some form of writing, regardless of whether the document is titled with the word "Contract."*4
*3 Some contracts, such as guarantees, are required to be in writing (Japan's Civil Law, Article 446(2))
*4 Courts of law have shown a tendency to deem a contract as nonexistent unless it has been written in some form.
Characteristics of a Written Contract
- 1. A document expressing a business agreement between two or more parties (mainly corporations)
Cf. the recorded minutes of a meeting - merely a record and not an agreement
- 2. Creates legal obligations
Cf. a written expert opinion - merely a statement of opinion
Thus, a written contract is a means of directly proving the existence of the contract (i.e., the agreement between parties) in the event that a party is in breach thereof. A written contract makes it possible to request a court of law to enforce observance or demand payment of damages from a violating party.
3. Contracts and Intellectual Property
A company's business activities and IP are related as in the diagram below illustrating the cycle of IP creation. Listed on the right side of the diagram are IP-related contracts that become important at each stage of the cycle. It is important to note that confidentiality contracts regarding IP-related technical matters and trade secrets are an absolute must. (It is possible to stipulate confidentiality requirements in each individual contract, but establishing a confidentiality contract in the initial stages of negotiations is an effective strategy.)
4. Points of Caution When Drafting Contracts
4.1. From a business risk management standpoint:
First, clarify the intended business relationship.
- For market expansion:
Use local subsidiary, or license to business partner?
- For market entry:
Receive IP assignment, or licensing?
Analyze of potential business risks prior to contract
- Market analysis, selection of contract partner, confirmation of status of patent rights in intended country of operation, etc (operational risks)
– Risk of information leaks, loss of market
– Clearly distinguish what should and shouldn't be divulged
- Identify potential future problems (legal risks)
– Clarification of burdens of respective parties in the event that problems arise
– Consideration of necessary obligations (obligation of various notifications, prohibition of sublicensing, etc.)
The contract drafting process
- 1. Establishing specific clauses based on the business goals (from the aforementioned standpoint of risk management)
- 2. Addition of necessary general clauses (cancellation conditions, period of contract, governing law and judicature, nondisclosure clauses)
- 3. Confirmation that all conceivable risks are addressed
4.2. Binding Effect of Contract
- A contract must be worded clearly. Unclear wording could cause later disputes over the meaning thereof or cause one to be held to terms and conditions differing from those originally intended
- Regarding wording
As a basic rule, wording that can be construed in multiple ways is to be avoided.
Wording that can be understood only by the involved parties should also be avoided.
4.3. Relations between contract terms and laws
- With regards to binding effect of a contract, matters that are not specified in the contract are handled in accordance with the provisions of relevant laws and regulations, such as patent law or civil law.
- As a general rule, a contract may include terms that differ from the stipulations of relevant laws and regulations. Caution is necessary, however, as there are compulsory provisions, such as antimonopoly laws, which must be observed.
Partial list of Japanese laws and compulsory provisions related to IP contracts:
- Patent Law, Article 73 (Jointly owned patent right)
- Patent Law, Article 127 (Licensee consent to request trial for correction)
- Antimonopoly Law, Article 21 - Application of Antimonopoly Law with regards to acts deemed as being an exercise of the Patent Law in form but not in substance.*5
*5 Types of acts to which the Antimonopoly Law applies are (i) private monopoly, (ii) improper restriction of trade, and (iii) unfair business practice.
- Necessity of Considering Tax Agreements
In a licensing agreement between a Japanese and non-Japanese corporation, the burden of tax withheld upon payment of royalties becomes an issue. This issue requires consideration of any tax agreements between the respective countries of the parties to the licensing agreement.*6
*6 Note that parties to a contract must abide by tax provisions, whether stipulated in international tax agreements or domestic law.
4.4. Governing law (in cases where Japanese law serves as governing law)
- Governing law refers to which country's laws apply in case of a dispute etc. over juristic relation pertaining to private law (e.g., contracts) wherein international dealings are involved. In contracts, the parties thereto are, as a general rule, allowed to select the governing law voluntarily.
- In a contract between a Japanese and non-Japanese corporation, the laws of Japan may be chosen as the governing law. In such a case, it becomes necessary to confirm whether the contract may be in violation of the Japanese Antimonopoly Law or other compulsory provisions. It is also important to identify what legal issues may arise in the case of a breach of contract. Our firm can perform thorough confirmation of these issues to help you avoid potential legal trouble.
5. Types of IP-Related Contracts Our Firm Handles
For details, please see the relevant linked page.
- 1. Non-Disclosure agreements
- 2. Joint development agreements
- 3. Software development entrustment contracts
- 4. Joint patent application contracts
- 5. Patent & know-how licensing agreements
- 6. Software licensing agreements
- 7. Trademark/design licensing agreements
- 8. Copyrighted work licensing agreements
- 9. Character licensing agreements
- 10. Patent assignment contracts
- 11. Trademark/design assignment contracts
- 12. Copyright assignment contracts
- 13. Contracts regarding rights/permission to publish copyrighted works
6. Why Choose HARAKENZO for Contract Drafting/Review?
- ･ Expert knowledge in technical fields
Contracts involving complex technical content require a proper understanding of specialist terms and wording used in the relevant field. HARAKENZO has on staff a large number of experts in fields such as mechanics, chemistry, biotech, physics, medicine, and more.
- ･ Strategically effective clauses
Strategic effectiveness is an essential element of every contract. Our experienced "business strategy advisers"*7 remain constantly mindful of this fact in order to provide our clients with strategically sound contractual clauses.
- ･ Multilingual Translations by Our Fully Staffed Translation Department
Our firm employs an in-house team of translators - including non-Japanese native speakers and Japanese staff who have graduated from foreign universities - who can handle English, Japanese, Chinese, Korean, French, and German translations.
- ･ HARAKENZO's Legal Department
HARAKENZO also includes a Legal Department to handle IP-related work outside the technical fields of patents and utility models. Not limited to just trademark and design applications, our Legal Department utilizes its expertise in Japanese civil law and civil procedure to handle a large number of cases involving copyright infringement, unfair competition, and all manner of IP-related issues.
*7 Our firm has registered the term "ビジネス戦略参謀" (meaning “business strategy advisers”) as a Japanese trademark.
Since fees will vary from case to case, our firm will provide an estimate based on your individual needs. Alternatively, if you inform us of a general budget beforehand, we can also provide services within your indicated range.