The Small and Medium Enterprise Agency (SMEA) in Japan has been working on optimizing transactions between companies. However, improper business practices still exist between SMESs and large companies, and problematic cases have been identified in IP transactions as well. In view of such circumstances, the SMEA issued the “Guidelines for IP Transactions” in March 2021. The Guidelines were prepared with the objectives of protecting IP assets and know-how owned by SMEs and avoiding potential issues caused by large companies that leverage their superior position to illicitly acquire the IP assets of SMEs. The key points of the Guidelines are explained hereafter.

Prior to Transaction

When considering whether or not to start a business with an SME, a large company shall not force an SME to disclose any confidential information. If a confidentiality agreement is established, it must be a bilateral confidentiality agreement under which the SME’s business activity shall not be unreasonably restricted.

Prototype Production

If a large company asks an SME to build a prototype, the large company shall make a reasonable payment to the SME for not only the actual cost of the prototype but also the technologies owned by the SME. Since building prototype usually requires the know-how of the SME, the large company shall not duplicate it and/or disclose it without permission from the SME.

Joint Development

The ownership of the outcome of joint research and development by a large company and an SME should be determined, in principle, based on the level of contribution of each party. If the outcome is assigned solely to the large company regardless of the level of contribution, a reasonable payment for the outcome shall be paid to the SME. In addition, even if the outcome is assigned solely to the large company, the large company should consider the possibility that the contributing SME may wish to use the outcome of the joint research and should allow the SME the freedom to use it by, for example, granting a license free of charge.

Outsourcing Production

If a large company outsources production to an SME, the large company shall not request the SME to disclose confidential technical information beyond a scope that is considered to be reasonable in light of the purpose of outsourcing. When the large company receives such technical information from the SME, the large company shall make a reasonable payment to the SME. The large company shall not request the SME to disclose, for example, a blueprint of a mould, and in the case the large company obtains such information from the SME, the large company shall make a reasonable payment to the SME. The large company shall not obtain such confidential information by using factory audits as an excuse.

Intellectual Property

A large company shall not interfere with an SME’s IP activities such as filing a patent application, if the large company and the SME are not in a direct business relationship and/or the patent application at issue is related to the outcome that was independently developed by the SME. The large company shall not force the SME to conclude an assignment or a free license for IP assets belonging to the SME.

Liability for IP Infringement

With regard to work performed by an SME on the instructions of a large company, the large company shall not force the SME to accept liability for IP infringement accused by a third party.

From SHIGA International Patent Office

November 2021