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Introduction
How can the United States ensure that fundamental scientific breakthroughs
made in American universities and industry are translated into economic benefits
for its citizens? A number of observers connected with U.S. commercial
biotechnology fear that biotechnology may go the way of semiconductors, with
Japanese and other foreign-based firms reaping most of the economic benefits
generated by a high technology industry in which the breakthroughs and pioneer-
ing commercialization largely occurred within the United States. Along with
other factors, they point to differences in the treatment of intellectual property
rights (IPR) between the U.S. and Japan, suggesting that these disparities may give
Japanese firms active in biotechnology a long-term competitive edge.)
Commonly heard complaints about the Japanese system include the long
waiting period for patent awards and the narrow scope of claims granted by the
'See G. Steven Burrill and Kenneth B. Lee, Biotech 91: A Changing Environment (San Francisco,
Calif.: Ernst and Young, 1990), p. 28. Of companies surveyed on the factors affecting the
international competitiveness of U.S. biotechnology, 63% believed that foreign patent practices tilt
the global playing field against U.S. firms and only 10% saw the patent situation as a positive. Only
Wall Street's short-term focus was rated more negatively than patents in its impact on industry, at 74%
negative vs. 1 1% positive. Other parts of the survey show that firms generally credit the U.S. Patent
and Trademark Of rice (PTO) with moving in the right direction in instituting reforms that will benefit
U.S. biotechnology companies. See p. 62.
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Japanese Patent Office (JpO).2 While not discriminating against foreigners in a
narrow sense, the Japanese IPR environment may have a systematic bias against
innovators that discourages emerging U.S. biotechnology companies from mar-
keting products in Japan, facilitates the development of second and third genera-
tion products by Japanese firms, and allows these firms to access technology
developed by U.S. companies and universities at favorable prices through licens-
ing, marketing agreements and other mechanisms. The concern that the Japanese
IPR environment will shift in the direction of stronger protection for biotechnol-
ogy inventions only after Japanese firms demonstrate more of a capacity for
innovation is also frequently expressed by American companies.
Others, some in the legal profession, argue that the responsibility for difficul-
ties experienced by U.S. companies with IPR in Japan, in general as well as in
biotechnology, lies mainly with the companies themselves. Differences in patent
and legal systems can be expected to exist between countries until international
harmonization of some sort is achieved. Some international patent attorneys assert
that the success of American firms seeking to protect their innovations in Japan has
historically been proportional to the attention and resources they have devoted to
understanding and playing by the Japanese rules. In contrast to the extensive
efforts made by Japanese companies to learn and utilize the American patent
system, U.S. firms may in some cases pay insufficient attention to such matters as
obtaining effective Japanese representation and submitting properly translated
patent applications. Further, a number of experts argue that the U.S. patent system
presents more difficulties for foreigners than the Japanese system does.
Which of the above views more accurately captures reality? Do both views
carry some validity? The current and future impact of IPR on the development of
commercial biotechnology in the global marketplace is not a ratified academic
topic. A recent report by the President's Council on Competitiveness asserts
present American leadership in commercial biotechnology, and also sums up the
importance and promise of this relatively new field: "In the long run, because of
the pervasive role of biologically produced substances in everyday life, biotech-
nology has the potential to surpass the computer industry in size and scope."3 The
report also underscores the importance of intellectual property nghts, stating that
2For a discussion of objections to the Japanese patent system made by many Americans, see
Stephanie Epstein and James Matthew Jones, Intellectual Property at a Crossroads: Global Piracy
and International Competitiveness (Arlington, Va.: Congressional Economic Leadership Institute,
1990), pp. 87-95.
3The President's Council on Competitiveness, Report on National Biotechnology Policy (Wash-
ington, D.C.: President's Council on Competitiveness, 1991), p. 4.
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IPR is "one of the foundations for the successful operation of any innovative
market."4
Discussion of IPR and U.S.-Japan competition in biotechnology is complicated
by the fact that pertinent issues arise from a range of fairly specialized areas of
knowledge and expertise, including: 1) The financial and technological aspects
of the competitive environment; 2) The subtleties of patent law and enforcement
within the two countries; 3) The special questions that biotechnology itself raises
for IPR; 4) National and international trade law; 5) Differences in market and
regulatory structures between the U.S. and Japan, particularly in the pharmaceu-
tical industry; and 6) Overall trends in U.S.-Japan economic relations. In addition,
policies determined in a number of arenas have had and will continue to have an
impact on IPR and U.S.-Japan competition in biotechnology. The IPR environ-
ment for biotechnology is influenced by judicial decisions in the United States and
Japan, international patent harmonization talks, the Uruguay Round of General
Agreement on Tariffs and Trade (GATT) negotiations, legislation, and possible
changes in U.S. International Trade Commission (ITC) procedures.
Since a multitude of issues and policymakers influence the treatment of
biotechnology and the competitiveness of U.S. and Japanese biotechnology firms,
it is difficult to measure precisely the unique impacts of IPR policies. In addition,
legislation or other measures that attempt to use IPR in order to promote
international competitiveness in biotechnology may conflict with other goals of
U.S. policy.
Discussion of the impact of IPR on U.S. and Japanese biotechnology compa-
nies may be relevant to broader questions in U.S.-Japan competition in high
technology industries. Are U.S. competitive problems more a result of Japanese
unfairness or a lack of effort on the part of American firms? Is the structure of the
American biotechnology industry, with a multitude of small, financially weak
U.S. companies, the major cause of technology transfer to foreign purchasers?
How does the U.S. government balance concerns about competitiveness with its
longstanding commitment to support basic biomedical research in order to
improve public health? What, if anything, can the United States do to create a
"level playing field" when faced with conflicting goals and uncertain results?
While a complete examination of these larger questions is far outside the scope of
this study, they do form an important part of the environment in which policy
changes will be debated and implemented.
The focus here will be on the impact of intellectual property rights on the
competitive strategies and fortunes of Japanese and American commercial bio-
technology firms. It is not inevitable that the United States will dominate this
industry in the next century. Neither should the collapse of one more industrial
Ibid.. p. ~ 6.
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"domino" to Japanese competition be assumed. The treatment of IPR has a major
impact on product development, access to capital markets, and other aspects of the
competitive equation in this industry for firms and countries. Understanding this
impact is a basis for informed policymaking. Future international competitive
dynamics in biotechnology, and which countries and companies eventually reap
the economic benefits, will be determined to a significant extent by the course set
today by leaders in industry and government.
This report of a workshop organized by the Committee on Japan, with
assistance from the Office of Japan Affairs, brings together some of the highlights
of the discussions. Chaired by Dr. Hubert Schoemaker, Chairman and CEO of
Centocor, the workshop was designed to provide a forum to examine the experi-
ences of U.S. firms with the IPR environment for biotechnology in Japan, to
discuss the implications of the growing presence of Japanese firms in the United
States, and to evaluate future prospects and policy implications for the United
States. The report was reviewed by the workshop panelists, who offered many
useful insights, but it is not a consensus document.
Representative terms from entire chapter:
japanese firms
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