The Japan Patent Office (JPO) published a 56-page “Guide to Licensing Negotiations Involving Standard Essential Patents” (“Guide”) on June 5, 2018. The Guide provides an overview of licensing negotiation processes and royalty calculation methods based on the latest case law and legislative developments mainly in the United States, Europe, and Japan. Cases referred to include Microsoft v. Motorola (U.S.), In re Innovatio (U.S.), TCL v. Ericsson (U.S.), Huawei v. ZTE (E.C.J.), Unwired Planet v. Huawei (Eng.), Apple v. Samsung (Japan). Although this Guide is not legally binding, it could be a useful reference tool for practitioners who engage in the licensing of FRAND-encumbered, de jure standard essential patent (“SEP”).
The publication of the Guide was a part of the JPO’s efforts to provide a simple mechanism through which interested parties could swiftly resolve SEP disputes. The initial plan was to introduce an alternative dispute resolution mechanism. However, in light of the opinions of key industry organizations such as the Japan Business Federation (Keidanren), the JPO subsequently reshaped its plan into a scheme with two parts. The first is the expansion of the advisory opinion system under the Patent Act Article 71 to enable the JPO to render a non-legally binding advisory opinion (“hantei”) of the essentiality of an alleged SEP, and the second was the publication of guidelines on SEP licensing negotiations. The latter has materialized into the Guide, after being renamed from “guidelines” to a “guide” to emphasize its non-binding character, according to JPO Commissioner, Naoko Munakata. The Guide was aimed at supporting non-routine players in the SEP licensing market, such as companies from industries that were traditionally not implementing SEPs and small-and-medium-sized enterprises to become able and effective negotiators in the market.
The Guide reflects voices of relevant industries and experts. In formulating the Guide, the JPO twice called for public proposals and comments, once between September and November of 2017 and another between March and April this year. Around 50 companies, industry organizations, practitioners, and experts from all over the world sent comments to the JPO for each round, and the resulting Guide was finalized and published earlier this month.
Guide to Licensing Negotiations Involving Standard Essential Patents
To comply with the so-called FRAND conditions, a licensing agreement must be, procedurally and substantively, fair, reasonable, and non-discriminatory (“FRAND”). The first half of the Guide concerns the procedural aspect: it mainly introduces international legislative trends and case law regarding the behavior of both the SEP holders and implementers of the relevant standards during the licensing negotiation process. In many jurisdictions, implementers must act “in good faith” to avoid injunction; therefore, the critical question has become what acting in good faith means. To clarify the good faith standard, the Guide lays out key points on which foreign and domestic courts have focused when deciding the willingness of the parties to reach an agreement on FRAND terms. In addition to the discussion on good faith, the Guide provides tips to conduct efficient negotiations, including the use of pool licenses and the protection of confidential information, among others.
A noteworthy characteristic of this Guide is that it addresses SEP issues that are of particular relevance to Japanese companies. For example, the Guide dedicates a significant amount of pages to choosing the negotiation counterparty in the supply chain. The Guide points out the risk that end product manufacturers such as automobile companies could be forced to negotiate SEP licensing agreements against their wish to avoid taking part in the negotiations.
The second half focuses on the substantive aspect of the agreement and summarizes royalty calculation methods. It explains the common practices of calculating a reasonable and non-discriminatory royalty that would be considered FRAND-compliant, such as the bottom-up approach and the top-down approach. However, it did not lay down any rules on which calculation method should apply where competing methods exist.
 Japan Patent Office, Guide to Licensing Negotiations Involving Standard Essential Patents, 51 (June 5, 2018), https://www.jpo.go.jp/torikumi_e/kokusai_e/seps-tebiki_e.html.
 A case from China, Huawei v. Samsung (CN, intermediate court, 2018), Case No. 816 of 2016, was added to the Reference of the final version of the Guide.
 Microsoft Corp. v. Motorola, Inc., 864 F. Supp. 2d 1023 (W.D. Wash. 2012).
 In re Innovatio IP Ventures, LLC Patent Litigation, No. 11-c-9308, 2013 WL5593609 (N.D. Ill. Oct. 3, 2013).
 TCL Communication Technology Holdings, Ltd v. Telefonaktienbolaget LM Ericsson, No.8-14-cv-00341 (C.D. Cal. Dec. 21, 2017).
 Case C-170/13, Huawei Technologies Co. Ltd v ZTE Corp., ZTE Deutschland GmbH (2015) (E.C.J.).
 Unwired Planet v. Huawei  EWHC 711 (Pat) (Eng.).
 Chiteki Zaisan Kōtō Saibansho [Intellectual Prop. High Ct.], May 16, 2014, Case No. 2013 (Ne) 10043 (“Apple v. Samsung”).
 Japan Patent Office, Challenges Concerning Standard Essential Patents and Institutional Corresponding Measures [Hyōjyun Hissu Tokkyo wo Meguru Kadai to Seidoteki Taiō ni tsuite], Reference material for the twenty-third meeting of the Patent System Subcommittee of the JPO, 6 (Nov. 27, 2017), https://www.jpo.go.jp/shiryou/toushin/shingikai/pdf/newtokkyo_shiryou23/01.pdf.
 JPO Opts Not to Introduce an ADR Mechanism; Difficulty in Setting Licensing Fees [Tokkyochō ga ADR Seido Miokuri. Raisensuryō no Settei Konnan], Nikkan Kogyo Shimbun: Topic, (Dec. 30, 2017), https://newswitch.jp/p/11233.
 Supra note viii, at 5.
 Supra note ix.
 Tokkyohō[Patent Act] art. 71(1), A request may be made to the Patent Office for its advisory opinion on the technical scope of a patented invention.
 See generally, Japan Patent Office, Manual of “Hantei” (Advisory Opinion) for Essentiality Check (Mar. 2018), https://www.jpo.go.jp/torikumi_e/t_torikumi_e/files/hantei_hyojun_e/01_e.pdf.
 Supra note i, at 3-4.
Id. at 4-5.
 Id., at 24-28.
 Id., at 3, 24.
 Id., at 39-41.
 Id., at 41-42.