Impact of the Supreme Court Decision on Cross-Border Patent Infringement

On 3 March 2025, the Supreme Court of Japan handed down a landmark ruling in the Dwango vs. FC2 patent infringement case, ruling in favour of Dwango (dismissing the appeal). This decision is highly significant as it clarifies the extraterritorial application of Japanese patent rights to digital services provided from overseas. The contents of the case and the judgement are summarised below.

Overview of the Case

Dwango, the operator of the “Niconico” video streaming platform, held patents covering a system for displaying user comments over videos. FC2, a U.S.-based company, provided a similar service to Japanese users via servers located abroad. The key issue was whether FC2’s activities constituted patent infringement under Japanese law, despite the servers being outside Japan.

There were two separate cases:

Case 1 (Patent No. 4734471): Involved a program controlling comment display on videos.
Plaintiff (Practitioner): FC2
Defendant (Patent Owner): Dwango

Case 2 (Patent No. 6526304): Concerned a comment distribution system connecting multiple devices and servers.
Plaintiff (Applicant): FC2
Defendant (Patent Owner): Dwango

FC2 argued that because its servers were located outside Japan, its actions did not fall within the jurisdiction of Japanese patent law.

Key Findings of the Intellectual Property High Court Decision

The Intellectual Property High Court ruled in favor of Dwango, establishing key criteria for determining patent infringement in cross-border digital services:

Case 1 (Program Transmission):

• Sending programs from a foreign server: direct infringement.
• The act of producing the terminal (sending the program from a foreign server and installing it to complete the terminal): indirect infringement.
• The transmission was deemed infringing based on:
  1. Indivisibility: The transmission (provision) of the service could be easily separated into domestic and foreign components.
  2. Control in Japan: Japanese users controlled the service.
  3. Target Audience: FC2’s service was specifically directed at Japanese consumers.
  4. Effect in Japan: The invention’s benefits were realized in Japan.

Case 2 (System Production):

• The production of a system involving foreign servers and domestic user terminals constituted: direct infringement.
• Infringement was determined based on:
  1. Nature of the act: How the system was created and used.
  2. The function of domestic component: The roles played by system elements located in Japan
  3. Effect location: Whether the invention’s impact was achieved in Japan.
  4. Economic consequences: Whether the system affected the Japanese patent holder’s financial interests.

The Supreme Court’s Decision

In both cases, the Supreme Court upheld the Intellectual Property High Court’s decision and dismissed FC2’s appeal. The ruling emphasized:

• If patent rights do not extend to cases where part of the components of an invention is merely located outside Japan, or where a program is merely transmitted from outside Japan, it would be inconsistent with the purpose of the Patent Law, which is to protect and incentivize inventions that contribute to industrial development.
• If the system as a whole is considered, and the transmission of a program or the act of installing a system is considered to be equivalent to the production of a system, it is understood that patent rights extend to such cases.

Implications for Intellectual Property and Digital Services

This ruling has far-reaching implications for businesses offering digital services across borders. Notably:

• Patent protection is not limited by server location: Companies can no longer evade Japanese patent laws by simply hosting their services on foreign servers.
• Increased enforcement against cross-border infringement: Japanese patent holders may now have stronger legal grounds to take action against infringing foreign companies.
• Potential revisions to patent law: Discussions are underway to clarify and codify these principles in Japanese patent law.

Conclusion

This decision marks a major shift in Japanese patent law by extending the reach of patent rights to international digital services. Moving forward, companies operating cloud-based or online services targeted at Japanese users must carefully assess their patent compliance. We will continue to monitor legislative developments and provide updates on this evolving legal landscape.