UH American Company Uncle Rice Essay

Instructor’s Guide
Negotiating Globally
IG Appendix 4.2.1
1
IG APPENDIX 4.2.1
CASE NICHIA CORPORATION VERSUS SHUJI NAKAMURA: THE BLUE LED
DISPUTE (STUDENT VERSION)
Venkat Gopikanth and Teri Prahl
(Used with permission of the authors)
This case analyzes a dispute between Nichia Corporation and
Shuji Nakamura, a scientist who, while employed at Nichia
in the 1980s and 1990s, made significant breakthroughs in
the development of blue LEDs (light-emitting diodes).
Nichia Corporation filed and obtained patents for blue LEDs
and reaped profits in the range of ¥120.8 billion (about
$120 million) over the lifetime of the patents. The company
awarded Nakamura a sum of ¥20,000 (about $200) for his
efforts, consistent with Nichia’s policy of rewarding
employees for patents.
In 2001 Nakamura sued Nichia over the ownership of the
patents and his compensation. A Tokyo court awarded him ¥20
billion (about $180 million). Nichia appealed, and the
court ordered the parties to negotiate. Nichia and Nakamura
settled in 2005 for ¥840 million (about $7 million).
On the surface, this dispute appears to be within a single
culture: Japan. Nakamura claimed rights to patents for the
blue LED technology. The company rejected the claim on the
grounds that it owned the patents because the work had been
done while Nakamura was an employee of Nichia. However, as
the dispute played out, a significant shift took place away
from traditional Japanese practices regarding ownership of
and compensation for patents. This shift began with
Nakamura’s filing the claim in the first place, moved on to
the Tokyo court’s several decisions, and ended with a
negotiated settlement that was made public and therefore
set a precedent for future settlements between Japanese
corporations and their employee inventors. Thus the case
provides insight into how influences from the global
society in which Japanese business is embedded are changing
the way Japanese firms conduct business.
BACKGROUND
Shuji Nakamura graduated from the University of Tokushima,
Japan, in 1977 with a degree in electrical engineering. He
obtained a master’s degree in 1979 and a Ph.D. degree in
1994 from the same university. He joined Nichia
Corporation, also located in Tokushima, in 1979. Nakamura
began working on blue LEDs in the 1980s. Despite resistance
from within the company, he persisted with his research and
Copyright © 2014 by Jimena Ramirez-Marin and Jeanne M. Brett
Instructor’s Guide
Negotiating Globally
IG Appendix 4.2.1
2
encouraged Nichia to file for patents on his work. Nichia
was granted those patents in 1993 and began producing blue
LED product that same year. By the late 1990s blue LEDs
were generating huge profits for Nichia Corporation. On the
basis of court records, this profit was estimated in the
range of ¥120.8 billion over the lifetime of the patents.1
Nakamura was paid his regular salary while at Nichia and,
consistent with Nichia’s internal policy, was paid a
special award of ¥20,000 (about $200) for his extraordinary
work on the blue LED. Nakamura gained an international
reputation in his field for this work. He has subsequently
been awarded Finland’s prestigious Millennium Technology
Prize for his ongoing work to make cheaper and more
efficient light sources. As of 2006 he was a professor of
engineering at the University of California, Santa Barbara.
NEGOTIATIONS
The case involved a series of disputes and negotiations
dating back to the 1980s.
Negotiation 1: Ability to Continue Development
Nakamura began disputing with Nichia in the 1980s to
receive funding to continue his research into the blue LED.
Management’s perspective at the time was that nothing
invented by Nakamura had ever sold, leading them to
question whether research into the development of the blue
LED should continue. In particular, Nakamura’s decision to
work with gallium nitride provided more reason for
management to question his decisions. At the time, gallium
nitride was considered to be unsuitable for LED
development, and no other company was pursuing this line of
development. Yet Nakamura continued his research using
gallium nitride despite direct orders from management to
work on other projects.
Nakamura believed that gallium nitride was the correct
material to be working with precisely because no other
company was working with it. From his perspective the lack
of sales of his previous inventions had nothing to do with
their technical capabilities, but with Nichia’s failures at
the development stage. Other companies with greater
financial resources and development expertise were better
than Nichia at turning basic science into products.
Nakamura had joined Nichia precisely because it would allow
him more freedom in choosing the area of research than he
would have had at a larger company; his salary and position
Copyright © 2014 by Jimena Ramirez-Marin and Jeanne M. Brett
Instructor’s Guide
Negotiating Globally
IG Appendix 4.2.1
3
were poor, a compromise that he had made in order to have
this freedom.2 But now, the freedom was being challenged.
After six years battling with his superiors regarding his
research, Nakamura escalated the dispute to the chairman of
Nichia—a friend of one of Nakamura’s professors—to get
approval to continue development and to receive funding for
the project. Approval was given because he was the only
person in the company who was producing new products, even
though his inventions were not making any money for the
company.3 Ultimately, Nichia gave Nakamura a $2 million
budget to work on his invention.
Negotiation 2: Patent Rights
The patent in question dates to 1991 and relates to a vapor
deposition technique that Nakamura used to produce indium
gallium nitride, the active layer in Nichia’s blue LEDs and
lasers. After commercializing the technology, Nichia’s
annual sales grew from just over ¥20 billion to ¥80 billion
in 2001, about 60 percent of which was generated by
nitride-based LED products. These figures reflect the fact
that blue lasers can increase the storage capacity of
compact discs and DVDs by a factor of four or five, and
that blue LEDs, in combination with red and green LEDs, may
replace conventional light bulbs.
In view of this success, Nakamura tried to negotiate with
Nichia Corporation for a greater reward, asking for ¥100
million ($1 million). These negotiations were unsuccessful,
and in 1999 Nakamura left Nichia.
Nakamura filed a lawsuit in August 2001, claiming ownership
of the patent and requesting ¥2 billion (about $200
million) in compensation. Under Japan’s patent law, an
employee owns a patent filed for while the employee is
working for a company, although the company also has rights
to use the invention.4 Japanese patent law also requires
companies to reward their employees for patents that are
transferred to the employer. Interestingly, Nakamura’s
filing of the suit against Nichia ran so counter to
Japanese norms that it made him persona non-grata in his
hometown.5
Nakamura’s primary goal in filing the lawsuit was to
license the technology to other firms and thus expand the
usage of the product and eliminate Nichia’s stronghold in
the industry.6 Nichia, however, had no interest in
releasing the patent, as it was realizing significant
profits from the technology. Nichia also took the position
that the patent was the company’s to do with as it wished,
Copyright © 2014 by Jimena Ramirez-Marin and Jeanne M. Brett
Instructor’s Guide
Negotiating Globally
IG Appendix 4.2.1
4
having paid its standard compensation for a patent award to
Nakamura.
The Tokyo court agreed with Nichia, stating that the patent
had been awarded to Nichia. It based its decision on the
belief that there had been a tacit contract assigning
ownership to the company. The news was not all good for the
company, though. In the same decision, the court left the
dispute open for further scrutiny, indicating that the
assignment of the patent in no way negated Nakamura’s claim
to reasonable compensation for his efforts.7
Negotiation 3: Patent Compensation
Japanese patent law allows for “reasonable remuneration” in
the event that the patent was assigned to the company for
which the inventor works and significant profits are
realized by the firm.8 Remuneration is to be determined by
a combination of the profits realized by the firm and the
amount of contribution made by the inventor. However, the
law does not address how to calculate this value. This was
the primary source of contention between Nichia and
Nakamura as well as other Japanese inventors and firms in
the same situation.
By ruling that Nakamura should receive compensation for his
invention, the court effectively indicated to both sides
that they should come to an agreement on the amount of the
reward. Unwilling or unable to agree, the two sides ended
up back in court. Nichia argued that Nakamura’s work was
part of a team effort, and that his invention was possible
only because of support from the company and other workers.
The district court did not agree, ruling that Nakamura’s
sole contribution to the invention was worth ¥60 billion
based on company sales and licensing fees. Nakamura had
only demanded ¥20 billion in the initial lawsuit, filed in
2001, so the court awarded him the full amount he had
sought. The company appealed.
In December 2004, the Tokyo High Court recommended that an
amicable settlement be reached between Nakamura and Nichia
without providing a ruling. However, the court said that
should the two parties not be able to reach agreement, the
court would provide a ruling on March 28, 2005. The high
court proposed a settlement cap of ¥600 million, apparently
out of concern over the effect that a larger amount would
have on Nichia’s financial health. “A company’s reward for
an employee’s invention should be offered within limits
that would keep the employer competitive,” said presiding
Judge Hisao Sato in recommending a settlement.9
Copyright © 2014 by Jimena Ramirez-Marin and Jeanne M. Brett
Instructor’s Guide
Negotiating Globally
IG Appendix 4.2.1
5
This time the parties settled. The amount, ¥843 million
(about $7 million) included ¥600 million for transfer of
the patent; the remaining ¥243 million was assessed for
delayed payment. The award also covered 159 other patents
that were developed by Nakamura, but held by Nichia.10 This
ruling effectively precluded future disputes between Nichia
and Nakamura.
EPILOGUE
Nakamura’s invention is widely considered to be worthy of a
Nobel Prize. At one point in the course of these events, he
observed, “If this situation continues, researchers will
flee to work overseas and Japan’s status as a top science
country will decline.”11 As a result of this and other more
recent disputes, many companies in Japan are reevaluating
their systems for compensation to inventors. Internal
guidelines are now being made part of corporate policy so
that both parties know, in advance, how much of the profits
will be shared with the inventor. While policies are
unlikely to remove all disputes, they should reduce the
frequency and ferocity of them.
The Japanese government is also making changes. Section 35
of the Patent Law has been amended to avoid costly lawsuits
by ensuring that any prior contractual agreements are
respected12 and arbitration is considered when an award is
challenged.13 The following is the relevant section of
Japanese patent law, current as of 2006:14
Article 35: Employee Inventions (1) An employer, a
legal entity or a state or local public entity
(hereinafter referred to as the “employer, etc.”)
shall have a non-exclusive license on the patent
right concerned, where an employee, an executive
officer of a legal entity or a national or local
public official (hereinafter referred to as the
“employee, etc.”) has obtained a patent for an
invention which by reason of its nature falls
within the scope of the business of the employer,
etc. and an act or acts resulting in the invention
were part of the present or past duties of the
employee, etc., performed on behalf of the
employer, etc. (hereinafter referred to as an
“employee invention”), or where a successor in
title to the right to obtain a patent for an
employee invention has obtained a patent therefore.
(2) In the case of an invention made by an
employee, etc. which is not an employee invention,
any contractual provision, service regulation or
Copyright © 2014 by Jimena Ramirez-Marin and Jeanne M. Brett
Instructor’s Guide
Negotiating Globally
IG Appendix 4.2.1
6
other stipulation providing in advance that the
right to obtain a patent or the patent right shall
pass to the employer, etc. or that he shall have an
exclusive license on such invention shall be null
and void. (3) The employee, etc. shall have the
right to a reasonable remuneration when he has
enabled the right to obtain a patent or the patent
right with respect to an employee invention to pass
to the employer, etc. or has given the employer,
etc. an exclusive right to such invention in
accordance with the contract, service regulations
or other stipulations. (4) The amount of such
remuneration shall be decided by reference to the
profits that the employer, etc. will make from the
invention and to the amount of contribution the
employer, etc. made to the making of the invention.
CONCLUSIONS
It is evident from this case that rights- or power-based
arguments do not create integrative agreements. Nakamura
and Nichia Corporation had the potential to negotiate an
integrative agreement, but by relying on rights- and powerbased arguments the negotiations generated a series of
disputes and lawsuits. In the final analysis, both sides
might have created more value by following an interestsbased approach. Nakamura might have received reasonable
compensation early on and might have stayed with the
company to further enhance their research efforts. Nichia
might have paid less and avoided the huge interest charges
awarded by the court and chosen to use Nakamura as their
ambassador for attracting future top talent and enhance
their reputation in the market place. However, if Nakamura
had not challenged Nichia in the Japanese courts, the
changes in Japanese patent law may never have occurred.
DISCUSSION QUESTIONS
1. Do you think Nakamura’s primary interest in filing the
lawsuit was financial compensation? What other
interests might Nakamura have had in pursuing his
claim with Nichia ten years after the patents had been
filed? How are Nakamura’s interests consistent or
inconsistent with Japanese cultural values?
2. What rights arguments might Nakamura have made during
the initial pre-lawsuit negotiations with Nichia? How
are these rights arguments cultural?
3. What power options did Nakamura have in his dispute with
Nichia? How are these strategic options cultural?
Copyright © 2014 by Jimena Ramirez-Marin and Jeanne M. Brett
Instructor’s Guide
Negotiating Globally
IG Appendix 4.2.1
7
4. What were Nichia’s positions and interests in this
negotiation with Nakamura?
Copyright © 2014 by Jimena Ramirez-Marin and Jeanne M. Brett
Instructor’s Guide
Negotiating Globally
IG Appendix 4.2.1
8
NOTES
1. “Blue LED Dispute Settlement Viewed as Epoch-Making;
Firms Move to Set Up a System for Fair Valuation of
Employee Inventions,” Japan Brief, Foreign Press
Center [Science and Technology] January 13, 2005,
available at
http://www.fpcj.jp/old/e/mres/japanbrief/jb_41.html.
2. C. Kitada, “Blue About Japan,” J@pan Inc., July 2001.
3. “Nichia’s Shuji Nakamura: Dream of the Blue Laser
Diode,” Science Watch, February 2000, available at
http://engphys.mcmaster.ca/undergraduate/outlines/4e03
/Nichia%20%27s%20Shuji%20Nakamura%20Dream%20of%20the%2
0Blue%20Laser%20Diode.htm.
4. T. Whitaker, “Laser Pioneer Loses Court Battle,”
Physicsweb, September 24, 2002, available at
http://physicsworld.com/cws/article/news/2002/sep/24/l
aser-pioneer-loses-court-battle.
5. Kitada, “Blue About Japan.”
6. R. Pool, “Nichia Dispute ‘Will Soon Be Settled.’”
Optics.org, February 22, 2002, available at
http://optics.org/articles/news/8/2/22.
7. Y. Hara, “Court Rules That Nichia, Not Inventor, Owns
Blue LED Patent,” EETimes, September 20, 2002,
available at
http://www.eetimes.com/showArticle.jhtml;jsessionid=5z
MNSLBU3A5DCQSNDLRCKHSCJUNN2JVN?articleID=18307551.
8. H. C. Wegner, “The 2004 Japan Employed Inventor Law
Amendments,” 2004.
9. “Blue LED Inventor to Get 843 Million Yen,” The Japan
Times, January 12, 2005, available at
http://www.howardforums.com/showthread.php/542039Blue-LED-inventor-to-get-843-million-yen.
10. “Blue LED Dispute Settlement Viewed as Epoch-Making:
Firms Move to Set Up a System for Fair Valuation of
Employee Inventions,” Japan Brief, Foreign Press
Center [Science and Technology] January 13, 2005
http://www.fpcj.jp/old/e/mres/japanbrief/jb_41.html.
11. M. Shimbun, “Inventors Cheer, Companies Jeer,”
Mainichi Daily News, February 3, 2004.
12. Wegner, “The 2004 Japan Employed Inventor Law
Amendments.”
13. “Blue LED Dispute Settlement Viewed as Epoch-Making:
Firms Move to Set Up a System for Fair Valuation of
Employee Inventions,” Japan Brief, Foreign Press
Center [Science and Technology] January 13, 2005,
available at
http://www.fpcj.jp/e/mres/japanbrief/jb_41.html.
Copyright © 2014 by Jimena Ramirez-Marin and Jeanne M. Brett
Instructor’s Guide
Negotiating Globally
IG Appendix 4.2.1
9
14.
Y. Tani, “Current Status of Employee Inventions in
Japan,” Tani & Abe Patent Attorneys, 2002, available
at http://www.taniabe.co.jp/e/infomation/mainpatent009.html.
Copyright © 2014 by Jimena Ramirez-Marin and Jeanne M. Brett
Table of Contents
Executive Summary …………………………………………………………………………………………………….3
Introduction: Why this company should export……………………………………………………………..4
Export Policy Commitment Statement ………………………………………………………………………….5
Mission/ Vision …………………………………………………………………………………………………………..6
Short Term Goals ………………………………………………………………………………………………………..6
Long Term Goals …………………………………………………………………………………………………………7
Situation/ Background Analysis …………………………………………………………………………………..7
Business Model …………………………………………………………………………………………………………..8
Resources inside the firm …………………………………………………………………………………………….9
Resources outside the firm ………………………………………………………………………………………..10
Marketing Component …………………………………………………………………………………………..11-16
Import Declaration …………………………………………………………………………………………………17-19
Marketing Strategy ………………………………………………………………………………………………..20-22
Product ……………………………………………………………………………………………………………………20
Price ……………………………………………………………………………………………………………………….21
Place ……………………………………………………………………………………………………………………….21
Promotion ………………………………………………………………………………………………………………..22
Tactics: Action Stems ………………………………………………………………………………………………..22
Export Budget ……………………………………………………………………………………………………………23
Implementation Schedule …………………………………………………………………………………………..24
Background Data on Target …………………………………………………………………………………..25-28
APA bibliography ………………………………………………………………………………………………….29-30
Appendix ………………………………………………………………………………………………………………30-33

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