Japanese Supreme Court’s key decisions on cross-border patent infringement for network-related inventions

Network-related inventions are becoming more common due to developments in areas such as telecommunications, cloud computing, and the internet of things. In network-related inventions, some network entities, such as servers, are often located outside Japan. However, according to the principle of territoriality, the working act of a patented invention must be performed domestically. The question therefore arises as to whether infringement occurs when a part of the invention is implemented abroad.

For example, assuming that a competitor’s system clearly infringes your patent if the server and user device are located in Japan, can they avoid the infringement by simply moving the server overseas while still providing the same service to Japanese users?

On March 3 2025, the Supreme Court of Japan made two key decisions on cross-border patent infringement for network-related inventions. These decisions are favourable to patent holders and make the enforcement of patent rights on network-related inventions easier.

The Supreme Court seems to state that at least both technical and economic effects must occur within Japan by the implementation of a patented invention. Meanwhile, the rulings dismissed the appeal and upheld the Intellectual Property High Court (the IP High Court) judgments, but the apex court did not mention the norms of the IP High Court at some points, leaving room for interpretation in the Supreme Court ruling. In line with this, legislative discussions are also progressing, and this article will introduce these as well.

Please note that for the sake of clarity, certain details of the cases described below are omitted where necessary.

The Supreme Court decisions concern the following two related cases. In both cases, the same plaintiff sued the same defendant, and the subject patents are also related.

The patentee is Dwango, a Japanese IT company that is well known as a video platform operator. The defendant is FC2, a well-known provider of web services, including video distribution. FC2 is located in the US and provides a video streaming service to Japanese users from servers located in the US. Like Dwango’s video distribution service, it also has a feature where comments from viewers are streamed over videos.

Dwango filed two patent infringement lawsuits based on its patents against the video distribution service of FC2.

In FC2’s video streaming service, users need a dedicated player – implemented in a web browser using Flash technology – to view videos. The users follow these steps:

1. In response to a user accessing FC2’s webpage with a user device located in Japan, the user device downloads a set-up program and stores it in a cache of the user device;

2. The user device installs the program to implement the video player so that the user device can play a distributed video and display comments from other users;

3. The user device obtains a video and comments from the server of FC2 in the US in accordance with instructions in the program; and

4. The user device displays the video and the comments in a specific manner.

In two court cases, the plaintiff filed a lawsuit alleging that two different objects infringed on its patents. The target object of infringement in the first case (Case 1) is a set-up program, and the target object of infringement in the second case (Case 2) is a system including a user device and a server, which is created by installing the set-up program on the user device.

In both cases, the court found that the target objects (i.e., the program for setting up the video player and the system comprising the server and the user device) fall under the technical scope of the patented inventions and therefore the issue is whether the practising of the patented invention could be considered as practising in Japan.

Case 1 focuses on the transmission of a program. The issue is whether, when the patented program is transmitted by FC2’s server from overseas and the user downloads it to a user’s device, the transmission can be said to be performed in Japan even though a part of the transmission is performed outside the country.

Case 2 focuses on the generation of a system. The issue is whether, when a user downloads/installs a program from an overseas server and the user device and the overseas server constitute a patented system, the generation of the system can be said to be the creation of a system in Japan.

Concerning Case 2, some may wonder why “usage of the invention” was not argued as an infringement act. It is assumed that the plaintiff did not argue this for some reason, perhaps because the plaintiff may consider that “usage of the system” could give rise to issues involving multiple entities, or “usage of the server itself” could be considered as practising of the invention outside Japan. In any case, neither case deals with issues related to the use of programs or systems.

In both cases, the lower court judged that the act of providing services, including the transmission of the program and the generation of the system, does not infringe the patents. In particular, in Case 2, the lower court did not find infringement due to, simply, the servers of the defendant being located abroad. The court strictly applied the principle of territoriality.

However, in contrast to the decisions by the lower court, the IP High Court found infringement in both cases because the acts can be understood to be substantially performed in Japan, in consideration of, for example, the place where the effect of the invention is obtained. Although the defendant appealed the two cases to the Supreme Court, the apex court dismissed both appeals.

	Case 1 Japanese patent No. 4734471	Case 2 Japanese patent No. 6526304
District Court	Non-infringement found due to the program of the defendant not falling under the technical scope of the patented invention.	Non-infringement found due to the servers of the defendant being located abroad.
IP High Court	Infringement found due to the transmission of the program being substantially performed in Japan.	Infringement found due to the generation of the system being substantially performed in Japan.
Supreme Court	The Supreme Court dismissed the appeals in both cases.

In both cases, the Supreme Court first reconfirmed the principle of territoriality, stating that “the effect of a patent right in Japan is found only within the territory of Japan”. However, in Case 1, the Supreme Court stated the following: “In modern society where it is extremely easy to distribute information beyond the border through telecommunications networks, when programs, etc., are provided within the territory of Japan by being transmitted from outside the territory of Japan through telecommunications lines, the idea, in which simply because of the transmission being from outside the territory of Japan, the effect of Japanese patent rights is always excluded and the above provision does not fall under ‘provision through telecommunications lines’ (Japanese Patent Law, Article 2, Paragraph 3, Number 3), is contrary to the spirit of the Japanese Patent Law, which is to grant the patent holder the exclusive right to carry out the patented invention as a business, thereby contributing to the protection and encouragement of inventions and the development of industry. Therefore, even in such case, if considering the act in question as a whole, it is evaluated as substantially falling under ‘provision through telecommunications lines’ within the territory of Japan, and there is no reason to prevent the effect of Japanese patent rights from extending to that act. This principle is also understood to apply without difference to ‘transfer, etc.’ mentioned in Article 101, Paragraph 1 of the Japanese Patent Law.”

The Supreme Court made similar statements in Case 2. Concerning the condition that the practising substantially falls under “provision through telecommunications lines” within the territory of Japan, the Supreme Court mentioned the following two points:

• The effects of the invention are obtained in Japan; and

• There are no circumstances in which there is no economic impact on the patentee.

Regarding the “effects”, the Supreme Court said the following in Case 1: “Usage of each program installed in the terminal by the distribution enables users to view videos on [a] terminal located in Japan so that the display range of the videos and the display range of comments can be adjusted. […] [T]he fact that the location of the aforementioned server is outside the territory of Japan has no particular significance in relation to the production of such effects.”

From the above statement, the “effects” can be understood as a technical effect obtained from the implementation of the patented invention. In addition, this technical effect was found from the detailed description of the invention. In Case 2, the technical effect is also judged to be “improving entertainment merit in communication using the comment system”. Therefore, it can be said that if both the technical effect and the economic effect are obtained by the practising of the patented invention in Japan, the practising can be considered to be substantially performed in Japan.

As explained above, the Supreme Court dismissed the appeal by the defendant, so the decision of the IP High Court is now final.

Looking at the detail of the IP High Court decisions, although the direction of judgment is the same, they provided more detailed conditions than the Supreme Court decisions. For example, one of the IP High Court decisions mentions that the main function or the main constitutional element of the invention should be located in Japan, while the other IP High Court decision also mentions the condition of “whether the provision is controlled within Japan”. Under such additional condition, if all processing is performed outside Japan and the user device located in Japan merely displays images, it may be difficult to claim infringement.

The IP High Court mentioned the following criteria in Case 1:

• Whether the provision (transmission) is easy to be split into portions of the provision in Japan and outside Japan;

• Whether the provision is controlled within Japan;

• Whether the provision is for consumers located in Japan; and

• Whether an effect of the patented invention achieved by the provision occurs in Japan.

The IP High Court mentioned the following criteria in Case 2:

• Specific circumstances of the action to create the system;

• Functions and roles of each constitutional element of the invention in the system that exists in Japan;

• The location where the effects of the invention are achieved by using the system; and

• The impact that the use of the system may have on the economic benefits of the patentee of the patent invention.

Meanwhile, the Supreme Court decisions do not mention these conditions. Some experts opined that the apex court’s rulings, which give room for interpretation, are in anticipation of future changes in the law. In any event, in the current situation, it is appropriate to follow the decisions in accordance with the IP High Court’s rulings.

The key point is that, at least, the technical and economic effects have to be obtained in Japan. In addition, as said before, the two cases do not deal with the situation where all processing is performed outside Japan and the user device located in Japan merely displays images. These cases handle the situation where the user device needs to download a program to receive a service from overseas.

The direction of lawmaking is currently being discussed by the government and the Japan Patent Office (JPO). In fact, taking the opportunity presented by the above court cases, the JPO appears to be moving to amend the patent law. The document published by the Ministry of Economy, Trade and Industry Councils’ Intellectual Property Committee said that the following conditions may be required to determine whether an implementation of a patented invention is substantially performed inside the country (see the Patent System Subcommittee meetings on March 5, April 22, and June 4 2025):

• Both the technical effect and the economic effect of the invention have to be manifested domestically; and

• “Some” of the components of the patented invention have to be practised in Japan.

The first condition is similar to that in the Supreme Court ruling. The document said that most people agree with this condition.

The second condition is industry demand in view of an increasing need for freedom-to-operate searches. This condition is not revealed in the Supreme Court decisions, but similar conditions are mentioned in the IP High Court decisions.

Concerning the second condition, it can exclude, for example, the case when a claimed invention is a server, and the server is located outside the country but provides a service to Japanese users. In such a case, even if there is an economic impact on the patentee and the Japanese user enjoys the technical effects, such as “decreasing the difficulty of reading comments”, using the patented server abroad does not constitute Japanese patent infringement.

However, if a technical feature exists on the server side, it is generally common to recite a server claim. So, in consideration of the second condition, it may be effective to include a system claim even if the technical feature exists only on the server side. As previously mentioned, since the Supreme Court found the technical effects from the detailed description, it may be beneficial to briefly describe a technical effect achieved on a user device in a specification.

On the other hand, legal revisions regarding the place of implementation are being carefully discussed, as they may affect, for example, the place of implementation of prior use.

The decisions of the Supreme Court are favourable to patent holders and facilitate the enforcement of network-related inventions.

To say that an invention is substantially practised in Japan, it is at least necessary that the technical and economic effects of the invention be obtained in Japan. Therefore, it would be beneficial to briefly describe a technical effect achieved on a user device in a specification. Depending on future lawmaking, it may be effective to include a system claim even if the technical features exist only on the server side.