Saturday, October 21, 2017

Toyota forced to pay JPY 400 milion in back taxes due to failure to declare withholding tax on royalty to foreign companies

On October 13 2017, it was reported that Toyota was forced to pay JPY 400 million in back taxes by Tokyo Regional Taxation Bureau due to failure to declare withholding tax on intellectual property royalty to foreign companies. Toyota outsourced the development of rally cars to a subsidiary company in Germany and a Finnish company, and paid them JPY 2.6 billion for the development. The bureau recognized JPY 0.9 billion of the JPY 2.6 billion as IP royalty to be withheld. Toyota reportedly didn't get patent license from the foreign companies, but get some technologies and data for the development. And the bureau recognized such technology and data as 'knowledge with special technological value' for tax treatment.

When a company pays royalties to foreign companies for the use of their 'industrial property rights etc.' in Japan, it is required to withhold income tax payment for the foreign companies. The 'industrial property rights etc.' includes 'knowledge with special technological value' such as know-how and the like, according to the definition of 'industrial property rights etc.' in the circular notice for legal interpretation (161-34) [in Japanese].

Withholding Tax Guide 2017 [in English] page 34
6. Procedure for Withholding from Income Paid to Non-Residents or Foreign Corporations
(8) Any of the royalties or considerations listed below received from a person who performs operations in Japan pertaining to that operations
a. Royalties on or consideration for the transfer of rights concerning technology such as industrial property rights, production methods involving special technologies, or know-how

In case of a patent license agreement or a technology license agreement, it clearly identifies licensed rights and royalties. However, when some data is provided as part of development of something under a development agreement as here, it may not identify royalties on such data as distinguished from the development fee for other development activities. It would be desirable to list expense items carefully, so that you do not have to pay more taxes than necessary in response to findings by the bureau.

Saturday, October 14, 2017

Patent analysis reveals 1000+ Japanese engineers moved to Asian manufacturers

Increasing mobility of employment is recently highlighted in Japan to improve productivity and competitiveness of Japanese companies. Ironically, it seems to have been progressing, especially from Japanese companies to foreign companies.

Reportedly, at least more than 1000 Japanese engineers have moved from Japanese electronic manufacturers to other Asian manufacturers in about 40 years from 1976 to 2015. It was revealed by patent analysis, particularly by tracking inventors. According to the result of the analysis, 490 engineers moved to Korean companies from Japanese electronic companies such as Hitachi and Panasonic, while 196 engineers moved to Chinese companies. Many of such transferers reportedly lost their jobs to corporate restructuring from the 1990s onward but got well-paid job offers from Asian companies.

In recent years, the Japanese government has been concerned about a decline in Japanese company competitiveness due to technology leakage resulting from transfer of Japanese engineers to foreign companies. Then, it amended Unfair Competition Prevention Act in 2015 to strengthen the protection of trade secrets (Please see my previous article for more information.). Generally, retired persons have a responsibility to protect confidential information of the companies they used to work for. However, it is just not realistic to restrict the use of skills they acquired during the term of employment. Therefore, companies should obtain patents of valuable technologies developed by their engineers to secure exclusive use of the technologies even after they leave, and ensure return or discarding confidential information when they leave. Meanwhile, companies should be aware that they have the potential to accidentally obtain other companies' confidential information by hiring engineers who used to work for other companies, and get embroiled in dispute.

We live in a globalized world. Both companies and individuals can be active in the most suitable place. It's natural for engineers to want to work at a company which appreciates them. Both the government and companies should know that they require efforts to be chosen by great talent.

Monday, October 9, 2017

SoftBank enters technology transfer & scouting business

On October 4 2017, SoftBank Corp. announced that it signed a partnership agreement with Wellspring Worldwide Inc. to enter technology transfer and technology scouting business.

Wellspring is a Chicago-based solution provider for technology transfer, technology scouting, and intellectual property management. In partnership with Wellspring, SoftBank begins selling Wellspring's integrated management system 'Sophia' for academic institutions and 'Wellspring' for enterprises in Japan from November 2017. The users of 'Sophia' and 'Wellspring' can find technologies or intellectual properties, and transfer or license them through the use of 'Flintbox' which is an innovation marketplace provided by Wellspring. SoftBank can sell the Wellspring's system only in Japan. However, the customers in Japan must be able to approach overseas universities and companies through Flintbox.

In Japan, increasing companies have an interest in technology transfer or business matching business, as introduced in the previous article. Now SoftBank enters this business. It's interesting to see how SoftBank develops it.

Thursday, October 5, 2017

Japanese government asks for suggestions on guidelines for SEP license negotiation

On September 29, the Japanese government started discussing issues involved in licensing of Standard Essential Patents (SEPs) in accordance with Intellectual Property Strategic Program 2017 which was published in May 2017. The Intellectual Property Strategic Plan 2017 includes an examination of ADR system which is expected to  determine appropriate license fee on SEPs, considering SEPs becoming highly influential along with popularization of IoT (Internet of Things) technologies.

At the meeting on September 29, three economic groups - i.e. Japan Electronics and Information Technology Industries Association (JEITA), Japan Business Federation, and Japan Intellectual Property Association (JIPA) - made presentations on the issues on SEP licensing, which covered;

  • Problems of 'holdup' (i.e. forcing to pay excessive licensing fee) and 'holdout' (i.e. free-riding patents). The holdout problem is prevalent, the presenter answered to a question.
  • Approaches to SEP injunctions taken in the US and EU. Panasonic is introduced as a supporter of the safe harbor approach.
  • Suggestion of different approaches between good faith and bad faith parties; i.e. for good faith parties, negotiations by the parties should be respected, while, against bad parties (e.g. NPE), some sort of a quick, binding, and transparent solution system should be prepared.
  • NPE problem. The presenter gave an answer that it is not a serious problem in Japan as of today, but Japanese companies concern about future possibility.

Finally, the JPO explained about guidelines for SEP license negotiation which is scheduled for publication next year. It covers licensing negotiation method, reasonable royalty levels, and the like. The tentative outline of guidelines is below.

Under criticism of lack of expertise in licensing, the JPO wants to develop a world-class guidelines, thus it decided to ask for suggestions from home and abroad. The deadline of submission of your suggestions is November 10 2017. If you are willing to contribute, please see here for details.