Japanese-English Bilingual Attorney
Law Offices of William Herbert
William Herbert
5603 SW Hanford Street
Seattle, WA 98116
Phone +1.404.545.8274
info@wherbertlaw.com
 



Japanese Shareholders Seeing Red (July 1, 2010).

Historically, Japanese companies chose to hold their annual shareholders meetings in late June.  The Daily Yomiuri notes that over one thousand Japanese companies held their annual shareholders meeting on June 29, 2010.  This is the first year meetings have been held since new Japanese Financial Services Agency (FSA) revisions to the Cabinet Office regulations of the Financial Instruments and Exchange Law requiring companies to show greater accountablity and give greater weight to shareholder opionions went into effect. The regulations require companies to disclose executive remuneration of 100 million yen or more, thereby causing shareholders to question whether executive rewards are comensurate with company results, and also require companies to disclose how shareholders voted on each motion, thereby indicating how many dissentions there were to passed motions. 

Trends include great and, for the first time, quantifiable shareholder dissatisfaction with the election of certain board members, and the abolition of anti-takeover measures, many of which were introduced in 2007 with board pledges that the board would reconsider the measures in 2010. 

It is said that by holding annual shareholder meetings on one day, the likelihood that gansters can disrupt shareholder meetings was reduced. According to the Japanese National Police Agency, about 3,400 police officers were dispatched to the meetings to watch for gansters and "antisocial forces," who might try to extort money from the company by threatening to disrupt the shareholder meeting. 

 

 

On June 21, 2010, the Japanese Ministry of Justice released a translation of the Japanese Patent Attorney Act.

 

The June 9, 2010 online edition of the Newark Post contains an article regarding a former resesarch chemist for DuPont who has pleaded guilty to theft of trade secret. According to the plea agreement entered into by the scientist, DuPont considered the chemical process that increased the performance and longevity of Organic Light Emitting Diodes ("OLED") to be a trade secret, and took commensuate measures to protect the trade secret.  The chemist knew that the process was a trade secret, but e-mailed to himself a document that disclosed the protected chemical process.  The chemist also downloated the same document to a thumb drive, and uploaded it to his personal computer.  The chemist admitted in the plea agreement that he knew that his misappropriation of the trade secret would injure DuPont.

 

On June 9, 2010, Japan’s Fair Trade Commission (the “JFTC”) ordered three manufacturers of pull down metal doors to cease collusive activity and to pay a fine of over 5.5 billion yen for forming a cartel to fix the price of the doors. The JFTC also found that the companies had rigged bids submitted to construction companies in the Kinki region of Japan.
 
Fines were assessed against Tokyo-based Sanwa Shutter Corporation (approximately 2.7 billion yen) and Sanwa Shutter’s parent company, Sanwa Holdings Corporation (approximately 4 million yen); Tokyo-based Bunka Shutter Co., Ltd., (approximately 2 billion yen); and Osaka-based Toyo Shutter (approximately 6 billion yen).
 
According to the order issued by the JFTC, in 2008, the manufacturers worried that the price of steel used in their products would increase. In response, officers from each of the companies met on March 5, 2008 and agreed to increase the prices of heavy shutter doors and light shutter doors by ten percent across the board. The companies implemented the price increase April 1, 2008.
 
Also, the JFTC found that beginning in May of 2007 the companies exchanged information on the bids that they would submit when estimates were submitted to contracting companies in the Kinki region of Japan, thereby determining which of the door manufacturers would be awarded the contract.
 
Sanwa Holdings issued a formal statement, in which it stated that it needs time to consider the ruling by the JFTC, but indicated that it is considering appealing the order.
 
Bunka Shutter issued a formal statement in which it noted that it takes the JFTC order very seriously. The company indicated that it will not change its earnings forecast for the current accounting period.
 
Toyo Shutter issued a formal statement in which it pledged to bolster its corporate compliance efforts, indicated that it disagrees with the findings of the JFTC, and is considering how best to respond to the order.

 

 

William Herbert reports on case related to patented pharmaceutical products, antitrust and contractual arrangements. 

On April 29, 2010, the United States Court of Appeals for the Second Circuit (the “Second Circuit”) issued a ruling in the Ciprofloxacin Hydrochloride Antitrust Litigation that continued a line of cases deciding the proper relationship between patent law, antitrust law, and contractual agreements involving patents.  The Second Circuit upheld a trial court’s holding of established law that agreements under which a patent holder pays an alleged infringer and the alleged infringer agrees not to enter the market with the sale of a product that would infringe that patentee’s patent do not violate current U.S. antitrust law. However, the Second Circuit indicated that a larger court should hear the issue, and invited the plaintiff-appellants to request a rehearing of the issue in banc so that the issue could be further considered.

The plaintiffs, which included retail pharmacies and labor unions, sued Bayer AG and Bayer Corporation (collectively, “Bayer”) as the holders of a patent on the active ingredient in the antibiotic ciprofloxacin hydrochloride (“Cipro”) and several manufacturers of generic Cipro, including Barr Laboratories, Inc. (“Barr”).
 
 
1.      Background
Bayer is the owner of the patent claiming the active ingredient in Cipro. The patent was scheduled to expire on December 9, 2003, but the patent had been granted an additional six months of pediatric exclusivity, until June 9, 2004.  In 1991, Barr, a generic manufacturer of pharmaceutical products, had hoped to manufacture a generic version of Cipro under the provisions of the “Hatch Watchman Act.”  Barr filed with the FDA an ANDA-IV (an “ANDA”), an application under which a generic manufacturer of an FDA approved patented pharmaceutical product seeks to receive approval to market a generic version of the product.  Filing an ANDA is itself an act of patent infringement, and is grounds for a patent holder to file suit for patent infringement. The first generic manufacturer to file an ANDA is granted a 180-day exclusive right to market its generic version of the product.  Even if the first filer of the ANDA does not, for whatever reason, receive marketing approval for the generic version of the product, subsequent filers of an ANDA do not receive eligibility for the 180-day marketing exclusivity.
 
Bayer sued Barr for patent infringement based on the filing of the ANDA.  Barr then entered into an agreement with other generic manufacturers of Cipro, agreeing to share with them the costs and benefits associated with the suit brought by Bayer.  In January 1997, Bayer and Barr entered into a “reverse exclusionary payment” (sometimes called a “pay-for-delay”) agreement.  Under this agreement, Bayer agreed to pay Barr to settle the lawsuit. Barr acknowledged the validity of Bayer’s patent and agreed not to enter the market with a generic version of Cipro.  In exchange, Bayer agreed to:
(1)   pay Barr $49.1 million immediately;
(2)   pay Barr between $12.5 million and 17.125 million for the remainder of the term of the patent, except for the six months before patent expiration; and
(3)   provide generic manufacturers a guaranteed license to sell brand name Cipro at a discounted rate for six months before the patent’s expiration.
 
2.      The Plaintiff’s Claims and the Trial Court’s Decision
In 2000, purchasers of Cipro, such as retail pharmacies and labor unions, filed antitrust suits against Bayer. The trial court dismissed these suits in favor of Bayer. The Second Circuit heard the appeal.  These purchasers claimed that the settlement between Bayer and Barr violated antitrust law because Bayer effectively paid potential competitors to refrain from challenging Bayer’s Cipro patent.  The purchasers also claimed that the settlement agreement was illegal because it allowed Barr to reclaim the 180-day marketing exclusivity period if a subsequent challenger was successful in having Bayer’s patent invalidated, and because the generic manufacturers had agreed not to file any ANDA certifications for products related to Cipro.
 
The purchasers of Cipro claimed that when Bayer paid Barr to withdraw its lawsuit challenging the Cipro patent, Bayer and Barr had essentially entered into a market-sharing agreement in restraint of trade, thereby damaging the purchasers of Cipro by causing them to pay illegally high prices for Cipro. 
 
They said that if Bayer and the generic manufacturers had not entered into the settlement agreement (1) Barr would have entered the market pending resolution of the patent litigation; (2) Barr would have prevailed in the litigation and entered the market; or (3) Bayer would have granted Barr a license to market a generic version of Cipro to avoid a trial on the patent’s validity. The trial court granted summary judgment for Bayer, Barr and the other generic manufacturers, recognizing the permitted adverse effects that patents have on competition, and noting that any adverse effects within the scope of a patent cannot be cured or mitigated by antitrust law. The purchasers of Cipro appealed. The Second Circuit heard the appeal and issued its ruling on April 29, 2010.
 
3.      The Second Circuit’s Ruling
The Second Circuit noted that the relevant provision of U.S. antitrust law, the Sherman Act, states that “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal,” and noted that the U.S. Supreme Court has interpreted this provision to mean that “unreasonable restraints” of trade are illegal. 
 
The Second Circuit went through the traditional “rule of reason” analysis that is applied to determine whether a particular conduct violates U.S. antitrust law. In general, first, the plaintiff bears the initial burden of showing that the defendant’s conduct “had an actual adverse effect on competition as a whole in the relevant market.” If the plaintiff satisfies this burden, the burden then shifts to defendant to offer evidence that its conduct had pro-competitive effects.  If defendant is able to offer such proof, the burden then shifts back to plaintiff, who must prove that any legitimate competitive effects could have been achieved through less restrictive alternatives.
 
The Second Circuit noted that the Federal Trade Commission (the “FTC”) had long insisted that reverse exclusionary payment settlements such as the one between Bayer and Barr violate antitrust law, and that the U.S. government had recently argued in an amicus curie brief that reverse exclusionary payment settlements may violate antitrust law. In contrast, many U.S. courts have held that the right to enter into a reverse exclusionary payment agreement falls within the terms of the right of all patent holders to exclude others from the subject matter claimed within the patent. 
 
The Second Circuit cited a previous case that it had heard, the Tamoxifen case, in which it had held that a settlement agreement does not exceed the scope of a patent where (1) there was no restriction on marketing non-infringing products; (2) a generic version of the branded drug would necessarily infringe the branded firm’s patent; and (3) the settlement agreement did not bar other generic manufacturers from challenging the patent. The Second Circuit noted that there was no evidence that the Cipro patent infringement lawsuit was a sham, or that the Cipro patent had been procured by fraud, and therefore, the only reasonable basis for distinguishing the Tamoxifen case would be if the purchasers of Cipro could demonstrate that the exclusionary settlement agreement exceeded the scope of the properly granted Cipro patent. The Second Circuit then held that the purchasers of Cipro could not establish this, because the Cipro patent was a “compound patent” that claimed the compound itself, rather than a formulation patent or delivery method patent. 
 
The court noted that compound patents by their very nature exclude generic versions of the compound claimed in the patent.  Therefore, the court noted, any generic version of Cipro would infringe Bayer’s patent, and Barr’s agreement to refrain from manufacturing generic Cipro would encompass only conduct that would infringe Bayer’s patent rights.
 
Finally, the Second Circuit noted that the U.S. government had filed an amicus curie brief in the case, in which the government argued that the prior Tamoxifen case was an incorrect decision, that the standard under which the Tamoxifen court had reviewed reverse exclusionary payment settlements for compliance with U.S. antitrust law was incorrect.  In its brief, the U.S. government argued that the Tamoxifen standard inappropriately permitted patent holders to contract their way out of the risk of patent invalidation through patent litigation, a risk that the patent law provides for. Taking this argument into account, the Second Circuit invited the purchasers of Cipro to request a rehearing of the issue in banc so that the issue could be further considered.
 
 
 William Herbert accepts appointment as Vice-Chair of the International Mediation Committee of the American Bar Association Section of International Law. (May 24, 2010). 

 

William Herbert accepts re-appointment as Vice-Chair of the Asia/Pacific Committee American Bar Association Section of International Law. (May 24, 2010).  

William Herbert Contributes to Intellectual Property portion of Japan chapter in "A Legal Guide to Doing Business in the Asia-Pacific" (May 2, 2010)
William Herbert contributes to book A Legal Guide to Doing Business in the Asia-Pacific published by the American Bar Association on May 10, 2010.  The book is a primer for those who do not typically focus on business transactions in Asia, but whose business strategies take or have recently taken them to the Asia-Pacific region. The section I authored provides a comprehensive survey of intellectual property (patents, trademarks, copyrights, and trade secrets) in Japan.
 
Doing Business in Japan: Seminar on Japanese Aerospace (March 5, 2010)
On March 17, 2010 from 8:00 am to 10:00 am, the Washington State Department of Commerce and Washington state aerospace companies held an informational seminar on the Japanese aerospace sector. William Herbert attended this event. Advanced registration is required. Information may be found here.
 
Japanese Business Law: Bic Camera Shareholder Files Shareholders' Derivative Suit (March 3, 2010) 
In early February, Japanese newspapers reported that a Nara Prefecture accountant has filed a shareholders’ derivative suit related to recent financial irregularities by Bic Camera, Inc., a large Japanese retailer of household appliances. The derivative suit was filed in the Tokyo District Court against nine current and former directors of the company who were involved in the transaction in question. 
The suit alleges that the directors’ negligence led to an order by Japan's Financial Services Agency (the "FSA") that the retailer pay the fines for the irregularities.  Many Japanese experts are watching this case with great interest to see if the plaintiff will succeed in claims against individual directors for fines and penalties assessed against the entire company.  Many have expressed doubts that it will be possible to recoup from individual directors fees assessed against a corporate entity.

Early last year, the FSA imposed a fine of approximately 250 million yen on the retailer.  Japan’s Securities and Exchange Surveillance Commission (the “SESC”) had found that in 2002 the retailer had sold its head office building and other properties to an affiliated special purpose company.  The retailer continued using the facilities, paying rent on the premises.  In October 2007, the retailer received a dividend of about 4.9 billion yen when it repurchased the properties and the special purpose company was disbanded.

The retailer then reported the proceeds as profit in its semiannual earnings report for the period through February 2008.  The SESC found that under applicable accounting rules, the proceeds of the sale should not have been reported as profit, partly because the appraised value of the properties involved had been inflated. The SESC further found that selling assets to an affiliated company should be characterized as loans, rather than as profit.  In January, 2009 Bic Camera Inc., corrected its earnings reports and recognized a group net loss of 2.1 billion yen for the year to the previous August 31, instead of 4.1 billion yen in profit as had earlier been reported.

 

 

On June 9, 2010, Japan’s Fair Trade Commission (the “JFTC”) ordered three manufacturers of pull down metal doors to cease collusive activity and to pay a fine of over 5.5 billion yen for forming a cartel to fix the price of the doors. The JFTC also found that the companies had rigged bids submitted to construction companies in the Kinki region of Japan.
Fines were assessed against Tokyo-based Sanwa Shutter Corporation (approximately 2.7 billion yen) and Sanwa Shutter’s parent company, Sanwa Holdings Corporation (approximately 4 million yen); Tokyo-based Bunka Shutter Co., Ltd., (approximately 2 billion yen); and Osaka-based Toyo Shutter (approximately 6 billion yen).
According to the order issued by the JFTC, in 2008, the manufacturers worried that the price of steel used in their products would increase. In response, officers from each of the companies met on March 5, 2008 and agreed to increase the prices of heavy shutter doors and light shutter doors by ten percent across the board. The companies implemented the price increase April 1, 2008.
Also, the JFTC found that beginning in May of 2007 the companies exchanged information on the bids that they would submit when estimates were submitted to contracting companies in the Kinki region of Japan, thereby determining which of the door manufacturers would be awarded the contract.
Sanwa Holdings issued a formal statement, in which it stated that it needs time to consider the ruling by the JFTC, but indicated that it is considering appealing the order.
Bunka Shutter issued a formal statement in which it noted that it takes the JFTC order very seriously. The company indicated that it will not change its earnings forecast for the current accounting period. 
Toyo Shutter issued a formal statement in which it pledged to bolster its corporate compliance efforts, indicated that it disagrees with the findings of the JFTC, and is considering how best to respond to the order.
 

 

 

 

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