Download PDF（Newsletter）

Introduction

IP High Court Affirmed the Patent Right of Japan Can Be Enforceable to System Composed of User Terminal Located in Japan and Server Located Abroad.

On May 26, 2023, the Intellectual Property High Court (the IP HIGH COURT) rendered an important grand panel decision regarding the extraterritorial application of Japanese patent rights in the case of “production of a network system including a user terminal located in Japan and servers located abroad” (Dwango v. FC2. Inc. et al. Case 2022 (Ne) No.10046).
The case at issue is the second lawsuit between the same parties, the first lawsuit (Dwango v. FC2. Inc. et al. Case 2018 (Ne) No.10077) was reported in Issue 22 (published in November 2022) (In the first lawsuit, the IP HIGH COURT rendered a decision ruling that a defendant’s transmission of a computer program from a server located in the U.S. to Japanese customers may constitute an infringement of a Japanese patent.).
Furthermore, the current case has attracted attention publicly because it was the first case to utilize the “Amicus Brief” procedure under Article 105-2-11 of the Japanese Patent Act. This procedure was newly added in the revision of the Patent Act in 2021, and under this procedure, the court solicits written opinions from the public regarding the application of the Patent Act as well as through application of other laws to the facts, and enables the parties to file the written opinions as evidence, if necessary.

 

Summary of Facts

Dwango Co., Ltd., the Plaintiff, was a Japanese company that runs the famous video-sharing service known as “Niconico Video” in Japan. “Niconico Video” had become popular because viewers can post comments for the video clip, and unlike other video-sharing services, the comments are overlaid directly onto the video, and allows viewers to create a sense of a shared watching experience.　Dwango was the patentee pf JP patent No. 6,526,304 (the “Patent”), which relates to the invention of such comment distribution system.

Patented Invention (excerpt):
A comment distribution system that is composed of a server and a plurality of user terminals connected via a network, wherein the server transmits a comment file and a video file, etc. to the user terminals, and a plurality of comments are displayed moving in a horizonal direction in non-overlapping positions each other on top of the video.

The defendants FC2, Inc., a US company, and a Japanese company, provided a video-sharing service including the function of comments overlaid with the video, transmitted the video files and the comment files, etc. to user terminals in Japan from the server located in the US.

Then, Dwango sued FC2, etc., for infringement of the Patent.

The Issue:
Whether the act of producing the subject system, in which the system satisfies all the components of the patented invention has not been completed in Japan, constitutes “production” under the Patent Act which would cause the patent right to be enforceable in right of the Territoriality Doctrine.

 

The First-Instance Judgment

Tokyo District Court:
In the case of the Invention of a system, i.e., “invention of a product,” the “production” of a patented product under the Patent Act requires that a product that meets all of the components of the patented invention be newly produced in Japan.

The First-Instance Court strictly applied the Territoriality Doctrine and, thus, rejected the enforcement of the patent right because it did not fall under “production” of the Patent Act.

 

IP HIGH COURT Decision

The IP HIGH COURT stated that if the Territoriality Doctrine is strictly interpreted as in the first-instance judgement, it would allow for parties to easily avoid the patent by installing the server outside of Japan, and it would be impossible to provide sufficient protections for the invention of a network-type system, thus, the IP HIGH COURT ruled as below. 

IP HIGH COURT: If it could be evaluated that the producing action of the subjected system is performed within the territory of Japan, it constitutes “production” under the Patent Act. 

[Factors to be Considered]
1) The specific manner of how the producing action of the subjected system was performed;
2) The functions or roles of the patented invention which are performed by the compositions of the subjected system located within Japan;
3) The place where the effects of the patented invention are gained by using the subjected system; and
4) The impact on the patentee’s economic benefit caused by using the subjected system.

In this case, FC2’s producing action was found to have been performed in the territory of Japan under the following circumstances.
i) When the　user terminals in Japan receive the comment file and the video file, the subjected system becomes a condition for performing all the functions of the patented invention, and at this point, the producing action is completed.
ii) The function of displaying comments in non-overlapping positions, which is the feature of the patented invention is exercised by the user terminals in Japan.
iii) The subjected system is available for users in Japan, and the enhancement of entertainment using the comment function is generated in Japan.
iv) There is the possibility that the Dwango’s economic interests are affected.
As a result, the IP HIGH COURT overturned the first-instance judgement, deemed that FC2’s video-sharing service infringed on the Patent, and granted Dwango’s request for an injunction, compensation for damages, etc..

Conclusion

As stated above, it was affirmed that a Japanese patent right on an Internet-related system is enforceable under certain conditions even if a server is located abroad. Therefore, this decision reinforces the advisability of obtaining Japanese patent rights for a company who provides Internet-related services to customers in Japan.
On the other hand, this IP HIGH COURT’s judgement determined that, as a factor to be considered, the characteristic function of the patented invention is performed by a user terminal in Japan. Therefore, there is room for a different conclusion in cases where the characteristic function is performed by a device located abroad and the user terminal just displays it, and so future developments warrant close attention.