In Japan Intellectual Property Rights Go To The Employers The case of Professor Nakamura who invented modern LED lighting technology

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WASHINGTON – It is a given that the new “knowledge economy” is driven by clever innovators who are in large part motivated by the hope of making a lot of money once their critical new chip, 3-D printing device, nanotechnology diagnostic system, or whatever else they may be working on is tried, tested, validated and finally patented.

Making money 

There is an obvious connection between the incentives to pursue new knowledge and a legally binding intellectual property (IP) protection system that rewards the successful innovator with a patent. The patent says: “I did this. You cannot copy it. If you want to make this, you have to pay me. Or, if the conditions are right, I may sell my patent to you”. 

No patents? 

Imagine a world in which innovations would not be protected by patents. You come up with something, and a major corporation simply steals the idea and runs with it. You made the effort, and you get nothing.

In such circumstances, what would be the financial incentive to keep experimenting? By the same token, why would venture capital firms bankroll budding innovators if their products could not enjoy patent protection?

In Japan it is different 

Well, in Japan, until recently there was a situation that to some extent resembles the above scenario. There is enforceable patent protection in Japan. Except that it benefits the inventor’s employer, and not the inventor himself. And do keep in mind that in Japan the appropriate set up is not to be self-employed. Most people, including innovators, are employed by a company.

Professor Nakamura and LED 

This is what we get from a The Financial Times profile of Shuji Nakamura, (Bright idea pioneer shining a light on innovation in Japan, December 29, 2015). Nakamura is the scientist who created blue LED lighting. He came up with his LED prototypes and subsequent refinements while employed by Nichia Corporation.

Well, given the way things were organized in the 1990s in Japan, Nichia got the credit and Nakamura got essentially nothing. Incredible but true. And apparently this is not an isolated case. In the still prevailing Japanese work place culture, the employee is devoted to his/her employer. Amazingly enough, this means that all what he/she produces while working for a given company becomes the property the company. Sure, there may be some recognition for outstanding contributions. But these are usually tokens.

Nakamura got an education about intellectual property rights, stock options, and more while visiting the US. Still, it took him a long time to appreciate the gigantic level of exploitation considered to be the norm in Japan.

Unprecedented lawsuit 

It took him additional time to sue his former employer to get compensation for his LED related inventions. Do keep in mind that this type of litigation was and is almost unheard of in Japan. Employees do not sue their bosses.

With his lawsuit, Nakamura broke all the rules and the unwritten loyalty code that places the interests of the company ahead of anything else.

Nakamura won his court case, even though the amount of the initial award ($ 200 million) was cut down very substantially (to only $ 8 million) after an appeal.

Well, Nakamura made his point. He should have benefited from his extremely important disruptive innovation, even though he produced it while employed by Nichia.

How can this unfair system work? 

In all this, what is truly extraordinary is that Japan managed to become a world class high-tech economy while everybody was following these medieval employee loyalty rules which provide almost no financial incentives for creative employees.

But the Nakamura case shows that now there are cracks in the system. Most likely there are many others just like him who resent being robbed of the fruits of their creativity.

Stagnation 

For sure there are many reasons behind Japan’s prolonged stagnation. But lack of clear financial incentives for innovators must be a factor. After all, just like Nakamura, many Japanese scientists now travel abroad, especially to America. They have a chance to learn about IP protection. They can see that in America making money is the primary driver for people who set up shop trying to come up with the next “Big Thing”.

Protecting the status quo

And yet, notwithstanding all this, according to the FT story, the Keidanren, the powerful Japanese business organization, is heavily lobbying the government to keep things pretty much as they are. From their standpoint the old system works just fine.

Well, it may work for them; but not for the innovators, and ultimately not for the country.

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