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Jurisdiction II: Global Networks/Local Rules

September 11-12, 2000
San Francisco, CA

Respect for the Act of Foreign State: The Validity of Foreign Patents

Masato Dogauchi
Professor of Law
University of Tokyo, Japan


I. Introduction
II. A Japanese Case
III. Article 12 of the Hague Draft Convention
IV. Act of State Doctrine
V. Conclusion

I. Introduction

While extraterritorial jurisdiction by itself has been widely discussed, the topic of how to deal with extraterritoriality of foreign law in a foreign state has not been debated very much. Recently a dispute arose in Japan involving the problem of the extraterritorial application of United States Patent Law, and the lawsuit is still pending before the Supreme Court of Japan. In addition to the aspect of extraterritorial jurisdiction, this case seems to show how a court of one country can deal with a foreign patent, which is one of the most controversial problems raised by the Preliminary Draft Convention on Jurisdiction and Foreign Judgments in Civil and Commercial Matters made on October 30, 1999 by the Special Commission of the Hague Conference on Private International Law. Therefore, it would be of interest to present and analyze the Japanese case not only to show how a court of one state responds to foreign extraterritorial jurisdiction but also suggest what rule should be in a new international jurisdiction convention.

In this paper, judgments of the Tokyo District Court and the Tokyo High Court on this case will be introduced. Some points will be addressed in order to highlight the problem here. Next, Article 12 (4) of the Hague Draft Convention will be discussed. And finally, the problem of how to deal with foreign patent will be analyzed in light of the act of state doctrine, as this doctrine should play a necessary role to resolve the problem here.

II. A Japanese Case

1. Summary of the Case

The plaintiff, Akira Fujimoto, who is Japanese, is an owner of the patent registered in the United States with regard to a certain kind of electronic device. The defendant, Neuron Corporation, which is a Japanese company, is producing card readers in Japan in which the electronic devices are incorporated. The plaintiff filed a suit against the defendant for, among others, the prohibition of production in Japan and exportation of such products from Japan, the destruction of them in Japan, and damages to compensate for the loss caused by the exportation of them to the United States in the past in the amount of 180 million yen (= 1.6 million dollars).

The plaintiff alleged that the defendant's activities were deemed to be active inducement or contributory inducement of indirect infringement of the plaintiff's patent under Section 271 (b) or (c) of the United States Patent Law1 and that such provisions were to be applied as if such activities were done in the United States, irrespective of where such activities were actually done2. The defendant responded that the patent law of each country should be applied within its territory, or, in other words, the territorial principle should be observed in the field of patent law.

The Tokyo District Court3 held on 22 April 1999 that, although the United States Patent Law should be the applied with regard to the plaintiff's claims for the prohibition of production and exportation and for destruction, the extraterritorial application of the United States Patent Law was irreconcilable with the basic system of Japanese Patent Law because the territorial principle was widely recognized among states including Japan. Accordingly, the Court held that it was against the public order of Japan as provided for in Article 33 of the Horei (Japanese Code of Private International Law)4 to apply the United States Patent Law to activities in Japan. On the other hand, with regard to the claim for damages, the court applied Japanese law as the governing law on torts because the place of the fact causing damage, i.e. lex loci delicti, as provided for in Article 11 of the Horei 5is Japan and because the defendant's activities were all done in Japan. It was held that the claim for damages should be dismissed for the defendant's activities were not to be blamed in accordance with Japanese law.

On appeal, the Tokyo High Court6 held on 27 January 2000, with regard to the plaintiff's claims for the prohibition of production and exportation and for destruction, it was not the United States Patent Law but Japanese Patent Law that should be applied to such claims arising from activities in Japan in accordance with the territorial principle. Since Japanese Patent Law has no provisions to prohibit activities that would result in violation of a foreign patent law, such claims were dismissed. On the other hand, the Tokyo High Court, adopting the same position of the Tokyo District Court, dismissed the plaintiff's claim for damages under Japanese law designated as applicable law by Article 11 of the Horei.

2. Some Points

There seems to be several points in the above judgments that need to be discussed further.

The first point is that the Japanese courts admitted their jurisdiction to adjudicate claims based upon foreign patent law. Although the defendant in that case did not raise the defense of invalidity of the foreign patent, the courts, not mentioning any word on the jurisdictional problem, went into the consideration of the merits of the case. As this problem has been one of the serious points of conflict within the Hague Draft Convention, it would be better to discuss this matter in the next section of this paper dealing with Article 12 of the Draft Convention.

The second point is that there is one important difference between the judgment of the Tokyo District Court and that of the Tokyo High Court in the determination of the claims for the prohibition of production and exportation and for destruction. The former court held that the applicable law should be the foreign patent law but in that case it would be against the public order of Japan to apply it to the activities in Japan. The latter held that the only Japanese patent law should be applied to the activities in Japan with regard to such claims. It seems illogical for the Tokyo District Court to reject the applicable law on the grounds of its extraterritorial scope of application, because the geographical scope of application is the matter of the conflict of law rules and such a foreign conflict of law rule is not applicable in Japan unless such a special rule as renvoi, as provided for in Article 32 of the Horei7, allows it. Such a foreign conflict of law rule as extraterritoriality in this case should not be considered. In so far as the Japanese patent law system adopts the territorial principle, it seems natural to apply Japanese Patent Law to activities in Japan as the Tokyo High Court did. This means that, if the defendant's activities were done in the United States, then the Japanese court should apply the United States Patent Law to such activities and order appropriate remedies under such law8.

The third point is that both courts dealt with claim for damages as an ordinary tort claim. Both courts distinguished the claim for damages from the claims for the prohibition of production and exportation and for destruction. In the patent laws of many countries, including Japan and the United States, there are no distinctions between damages and other remedies such as the prohibition of production. Therefore, some commentators criticized the distinction made by the courts9. Other commentators, on the contrary, support such a distinction on the level of the conflict of law rules because of the public law nature of the patent law itself and such remedies as injunctions under the patent law10. As will be discussed in section IV, the patent is thought to be the product of a sovereign act of state. From this position, such special remedies to protect public products such as injunctions should be distinguished from such remedies under private law nature such as damages.

The fourth point is that both courts applied Japanese tort law to the claim for damages in this case. With regard to cross-border torts in which the alleged wrong-doer and the victim are situated in different jurisdictions such as transnational product liability11 or libel by mass media12, the lex loci delicti under very simple rules13 of Article 11 of Horei is ordinarily interpreted to be the law of the place where the victim suffered the damage, because torts occur when the damage happens and the central issue in torts is to enable the victim to recover his loss. Applying this interpretation to the above case, contrary to the above holdings of the courts, the law of the United States should be applied.

From the framework of extraterritorial jurisdiction, it is important to note that the extraterritoriality of the United States Patent Law is rejected in Japan as mentioned in the above second point.

III. Article 12 of the Hague Draft Convention

In October 1996, the Hague Conference on Private International Law decided to include in the agenda of the Nineteenth Session the question of jurisdiction, and the recognition and enforcement of foreign judgments in civil and commercial matters14. After several meetings of Special Commission, the Preliminary Draft Convention on Jurisdiction and Foreign Judgments in Civil and Commercial Matters was made on 30 October 1999 (hereinafter referred to the Hague Draft Convention). This draft is to be submitted to the Diplomatic Conference (Nineteenth Session) to be held in 2001/2002.

The Hague Draft Convention provides for the exclusive jurisdictions of particular States' courts in certain kinds of proceedings as follows:

"Article 12 Exclusive jurisdiction

1. In proceedings which have as their object rights in rem in immovable property or tenancies of immovable property, the courts of the Contracting State in which the property is situated have exclusive jurisdiction, unless in proceedings which have as their object tenancies of immovable property, the tenant is habitually resident in a different State.

2. In proceedings which have as their object the validity, nullity, or dissolution of a legal person, or the validity or nullity of the decisions of its organs, the courts of a Contracting State whose law governs the legal person have exclusive jurisdiction.

3. In proceedings which have as their object the validity or nullity of entries in public registers, the courts of the Contracting State in which the register is kept have exclusive jurisdiction.

4. In proceedings which have as their object the registration, validity, [or] nullity [, or revocation or infringement,] of patents, trade marks, designs or other similar rights required to be deposited or registered, the courts of the Contracting State in which the deposit or registration has been applied for, has taken place or, under the terms of an international convention, is deemed to have taken place, have exclusive jurisdiction. This shall not apply to copyright or any neighboring rights, even though registration or deposit of such rights is possible.

[5. In relation to proceedings which have as their object the infringement of patents, the preceding paragraph does not exclude the jurisdiction of any other court under the Convention or under the national law of a Contracting State.]

[6. he previous paragraphs shall not apply when the matters referred to therein arise as incidental questions.]"

Among many points to be resolved by the Diplomatic Conference, Article 12 (4), (5) and (6) are considered the most controversial provisions. The problem is whether or not the courts of the Contracting State in which the deposit or registration has taken place have exclusive jurisdiction in the proceedings concerning infringement of industrial property rights.15 Such proceedings often involve the question of the validity of the rights themselves as an incidental question. If one takes a position that such provision of exclusive jurisdiction should encompass infringement proceedings, then all proceedings concerning industrial property rights registered in one country should be filed to the courts of that country. One who wants to file lawsuits with regard to infringements of industrial property rights done in many countries by the same competitor should file an individual claim in each of the many countries involving the infringement. On the contrary, if one takes a view that such a provision on exclusive jurisdiction should not encompass infringement proceedings, then the plaintiff could file a single lawsuit in a court of the country where the defendant is habitually residing, claiming remedies with regard to every infringement done in many countries.

Although it would be necessary to discuss this issue more deeply in order to decide the position of the Japanese Government, experts in Japan seem to support the latter position in principle16. One of the critical points would be how the courts of a country should deal with a foreign patent as a matter of the merits in such infringement proceedings. In this respect, the act of state doctrine seems to play an important role to solve the problem as will be discussed in the next section.

IV. The Act of State Doctrine

The Act of State Doctrine under the law of the United States is defined as follows: "In the absence of a treaty or other unambiguous agreement regarding controlling legal principles, courts in the United States will generally refrain from examining the validity of a taking by a foreign state of property within its territory, or from sitting in judgment on other acts of a governmental character done by a foreign state within its own territory and applicable there."17 As indicated, this doctrine has been predominantly applied to expropriation of private property by a foreign government.18 However, this doctrine has also been applied to other types of cases where the validity or effect of a governmental act of foreign state in its territory is in question.19

Similar theories as this doctrine can be found in other countries. In Japan, the Tokyo High Court applied in 1953 a very similar doctrine to the question of the validity of the Iranian Government's expropriation of crude oil situated in Iran20. The plaintiff in this case was an English company, the Anglo-Iranian Oil Company, and the defendant was a Japanese oil-refining company, Idemitsu Kosan Co. Ltd. The defendant bought crude oil in Iran and brought it to Japan after the expropriation was made by Iranian Government. The plaintiff attached the crude oil claiming that it belonged to the plaintiff. The court held that, with regard to such an expropriation within the territory of Iran, "there is no established principle under international law for a court of a state to hold invalid the effect of the law legislated properly by a foreign state." Although there has been no other case concerning the act of state doctrine in Japan, it is considered to be possible for this doctrine to encompass other kinds of public activities of a foreign state.

As patents are considered to be artificial fruits created by a public act of state, it seems to be possible for the act of state doctrine to apply to the question of the validity of a foreign patent. This idea could resolve the controversy over the exclusiveness or non-exclusiveness of the jurisdiction over the proceedings concerning patent infringements. It would be hard for a registering state to recognize effects of a foreign judgment, which holds invalid the effect of the patent of the registering state, even between parties to the foreign litigation. According to the act of state doctrine, foreign courts must decide the case of the infringement of a foreign patent on the condition that they cannot invalidate the patent validly registered in the foreign state. As far as this condition is met, the state where the patent is registered would find no difficulty to recognize such a foreign judgment.

V. Conclusion

Although it is necessary to consider more deeply based upon discussion with wider range of perspectives, the conclusions of this paper are as follows:

(1) The extraterritoriality of United States Patent Law has been denied by Japanese courts, and such a conclusion should be supported by the territorial principle of the patent system taken by Japanese law. This conclusion can also be supported by the act of state doctrine, under which the validity of the act of a foreign state, that is the foreign patent in this case, should be respected as far as the effect is concerned within the territory of the state of registration. See (3).

(2) Japanese courts have admitted its judicial jurisdiction over the case of infringement of a foreign patent. This means that Japanese case law would support the deletion of the word "infringement" from Article 12 (4) of the Hague Draft Convention. This, however, does not mean that a court of a state can hold invalid the effect of foreign patent as an incidental decision in the proceedings concerning the foreign patent infringement case. See (3).

(3) A court of a state, admitting its jurisdiction over a foreign patent infringement case, should respect for the validity of the foreign patent within the territory of the registering state under the act of state doctrine. This solution would be able to reinforce the adoption of my second conclusion above that is to delete the word "infringement" from Article 12 (4) of the Hague Draft Convention.

Endnotes

  1. 35 U.S.C.sec.271: "(a) Except as otherwise provided in this title, whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefore, infringes the patent.
    (b) Whoever actively induces infringement of a patent shall be liable as an infringer.
    (c) Whoever offers to sell or sells within the United States or imports into the United States a component of a patented machine, manufacture, combination or composition, or a material or apparatus for use in practicing a patented process, constituting a material part of the invention, knowing the same to be especially made or especially adapted f or use in an infringement of such patent, and not a staple article or commodity of commerce suitable noninfringing use, shall be liable as a contributory infringer.
    (d) ---"

  2. See, e.g., Honeywell, Inc. v. Metz Apparatewerke, 509 F.2d 1137 (1975)(Tough patent laws of the United States do not have extraterritorial effect, active inducement may be found in events outside the United States, if they result in direct infringement in the United States.).

  3. Tokyo District Court, Judgment on 22 April 1999, 1006 Hanrei Times 257 (1999).

  4. Article 33 of the Horei, Law No.10, June 21, 1898 as amended by Law No.27 of 1989: "The application of a foreign law designated to govern in accordance with this Act shall be refused if such application is contrary to public order or good morals."

  5. Article 11 of the Horei: "(1) The creation and effect of claims arising from management of affairs without mandate, unjust enrichment, and unlawful acts are governed by the law of the place where the facts giving rise to the claim occur.
    (2) As to unlawful acts, the preceding paragraph do not apply where facts occurring in a foreign country are not unlawful under Japanese law.
    (3) Even if facts occurring in a foreign country are unlawful under Japanese law , the injured person shall not recover damages or have any other remedy not available under Japanese law."

  6. Tokyo High Court, Judgment on 27 January 2000, 1027 Hanrei Times 296 (2000).

  7. Article 32 of the Horei: "If a case is to be governed by the national law of a person, and that law designated Japanese law as governing, the case shall be governed by Japanese law except where the national law is designated to govern by Article 14 (either by its own terms or mutadis mutandis by virtue of Article 15, paragraph 1 and Article 16 or by Article 21."

  8. See, the Tokyo District Court, Judgment on 12 June 1953, Kakyu Minji Saibanreishu, Vol.4, No.6, p.847. In this case, the infringement of foreign patent law done in that foreign country was disputed in Japanese court. The court held that, in accordance with Article 11 of the Horei such foreign law should be applied but dismissed the claim for damages on the ground that the double actionability test was not satisfied with. Indeed that Article 11(2) of the Horei requires the activities should also be judged under Japanese law, this holdings has been criticized by the many commentators to the effect that this double actionability test requires that there must be the category of the torts in Japan and the patent infringement is one of the categories of torts in Japan. In any event this case is the only case where the patent infringement done in the foreign country under such foreign law was disputed in Japan.

    Incidentally, the double actionability test has been used in England until 1996 but it was abolished in that year. As de lege ferenda, it is a common view among the academics that Article 11(2) should be abolished. See, The Study Group of the New Legislation of Private International Law, "Draft Articles on the Law Applicable to Contractual and Non-Contractual Obligations (2)", Japanese Annual of International Law, No.40, pp.57-60 (1996).

  9. E.g., Nobuhide Otomo, Case Note, Jurist, No.1171, at 109 (2000); Kazunori Ishiguro, Case Note, Shiho Hanrei Remarks, 2000(ge), p.153 (2000).

  10. E.g., Akira Saito, Case Note, Heisei 11 Nendo Juyo Hanrei Kaisetsu, at 301 (2000).

  11. See, the Hague Conference on Private International Law concluded the Convention on the Law Applicable to Products Liability, signed in 1973, taking into effect in 1977. Eight European countries are the parties to the convention. Japan has not signed it.

  12. For example, in the Tokyo District Court Judgment on 28 August 1989, 1338 Hanrei Jiho.121, an article in a Japanese monthly journal issued in Japan allegedly violated a Japanese person's honor who lives in California. No judgment was delivered on the issue of choice-of-law, because, in this case, the Japanese court denied its jurisdiction over the claim filed by the publisher for declaratory judgment because it was not liable for any claim by a person living in California-living person about whom the article was written. And, in the Tokyo District Court Judgment on 30 September 1992, 825 Hanrei Times 193, a Japanese professional jockey who was racing in Malaysia filed a lawsuit for damages against a Japanese newspaper publisher whose article in its paper allegedly libeled the plaintiff. The court did not distinguish between the damage caused in Malaysia and that caused in Japan nor mentioned the choice-of-law problem at all. It ordered the defendant to pay money in accordance with Japanese law. See, Deguchi, Kokusai-shiho jo ni okeru Meiyo Kison (Libel in Private International Law), Jochi Hogaku, Vol.38, No.3, p.131 (1995).

  13. According to Articles 4 through 6 of the Hague Convention on the Law Applicable to Products Liability as mentioned in note 4, such deliberate stage-by-stage connection method (alternative Anknupfung) is adopted as follows: Suppose the habitual residence of the person who directly suffering damage is in the country A, the principal place of business of the person claimed to be liable is in the country B, the place where the product was acquired by the person directly suffering damage is in the country C and the place of injury is in the country D. At the first stage, if A=B or A=C, then the law of A applies. Otherwise, at the second stage, if D=A, D=B or D=C, then the law of D applies. Otherwise, at the third stage, unless the claimant chooses the law of D, the law of B applies.

  14. This project was originally proposed by the United States in May 1992. Feasibility studies and preparatory works have since been done and the positive report was submitted to the Committee on General Affairs.

  15. Report of the Special Commission, drawn up by Peter Nygh and Fausto Pocar (Prel. Doc. No 11 for the attention of the Nineteenth Session)(2000), at 73.

  16. The Institute of Intellectual Property of Japan, Chiteki Zaisan Funso to Kokusaisiho jou no Kadai ni kansuru Chousa Kenkyu (Report on Intellectual Property Disputes and Private International Law) (2000).

  17. Section 443 (1) of the Restatement Third on the Foreign Relations Law of the United States (1986).

  18. See, the most famous case, Banco National de Cuba v. Sabbatino, 376 U.S. 398 (1964).

  19. See, the first case in the United States mentioning this doctrine, Underhill v. Hernandez, 168 U.S. 250 (1897), where claim for damages for assault and detention by a foreign military commander was in question.

  20. The Tokyo High Court Judgment on 11 September 1953, Kosai Minshu, Vol.6, No.11, p.702. The defendant won the case.

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