Zeitschrift für Japanisches Recht

Anti-competitive Clauses in Know-how Agreements
FTC Decision of October 13, 1995

Christopher Heath

I. Introduction

Decisions by the Japanese Fair Trade Commission on the exercise of intellectual property rights or know-how are a rare breed. In fact, there has been only one formal and one informal decision before the one recorded here. The formal decision concerned a production cartel of concrete makers¹. The other decision concerned a trade association that had bought some patents and utility models and licensed them only to those members who agreed to certain production limits². Certainly not much for a country with vivid activities in technology transfer such as Japan.

In order to clarify the Dos and Don'ts in licensing agreements on know-how and patents, the Fair Trade Commission in 1989 enacted a fairly elaborate guideline. It distinguishes between white clauses that do not contravene antitrust provisions, gray clauses that may do so under certain circumstances and black clauses that are almost always anti-competitive³.

II. The Asahi Denka Decision

The case concerned a know-how agreement whose two licensors were Japanese companies, Asahi Denka and Oxylon. Licensee was a Taiwanese company called Chôshun or Nagaharu. The know-how involved concerned a process of industrial mollification by using epoxy. The contract with Asahi Denka was concluded in April 1981 and had expired 10 years later, while the contract with Oxylon was concluded in April 1993 also with a 10-year period and thus was still in force. The FTC took offense against a post-contractual clause restricting the export of machines using this method to Japan. Even after the expiration of the contract, the Taiwanese company should not be able to sell products involving the secret technology to Japan, where Oxylon was assigned exclusive rights. Yet, the contract did not restrict the Taiwanese company to freely use the know-how after the contractual period: In fact, the know-how was rather sold than only licensed. This, as it turns out, makes out the difference in regard of the anti-competitive behaviour.

III. Legal and Practical Implications

The case has a number of interesting aspects worth mentioning.

1. The Fair Trade Commission in Japan (hereafter FTC) is responsible for upholding the rules of fair competition. It derives the power and jurisdiction from the Anti-Monopoly Act, enacted in 1947 under the American occupation. The Anti-Monopoly Act gives the FTC boldy defined powers that require additional regulations by the FTC in order to directly apply to entrepreneurs. In order to comply with its mandate, the FTC has enacted a set of general regulations against anti-competitive acts from 1982, and on the basis of this, additional regulations concerning different fields of competition. In its regulation on patent know-how licensing of 1989, the FTC has basically been concerned about competition being hampered by excessive obligations against licensees. In order for the regime of intellectual property rights (and know-how that is) to increase competition, any obligations that go beyond the scope of intellectual property rights and know-how protection are regarded with suspicion. This is especially true for dealing arrangements on exclusive and restrictive terms (conditions that restrict the licensee in its dealings with third parties or in third markets), as well as restricting further research and developments in the area of the licensed technology. Although this looks as a protection of the licensee, in fact it is not. The licensee is protected only insofar as such restrictive terms reduce competition as such. The aim is not to protect licensees, but to protect competition.