The Supreme Court ruled on March 3 that even if a company has servers abroad, it can still be held liable for services violating patents concerning online video distribution that were obtained in Japan.
Presiding Judge Koichi Kusano of the court’s Second Petty Bench issued its first-ever ruling on the matter, saying, “If an infringing activity is substantially carried out in Japan, it constitutes a violation of Japanese patent rights.”
The case was filed by Dwango Co., the Tokyo-based operator of the video-sharing site Nico Nico Douga.
Dwango holds several patents related to a feature that displays user comments flowing horizontally over a playing video.
The company sued U.S.-based FC2 Inc., which offers a similar video service, seeking an injunction and damages for patent infringement.
Patent rights follow the principle of territoriality, meaning they are only protected in the country where they are registered.
Under a strict interpretation, simply hosting servers abroad could allow companies to bypass Japanese patent protections.
However, the Supreme Court took a more flexible approach, considering the realities of online services.
The ruling was unanimous among all four justices.
The Second Petty Bench said that allowing companies to bypass regulations by using overseas servers contradicts the purpose of patent law, which is to promote industrial development.
It ruled that patent rights extend to activities that are “substantially conducted within Japan.”
The court added that FC2’s service was intended for Japanese users and that the location of its servers abroad was not a significant factor.
Given the potential economic losses to Dwango, the court concluded that FC2 had infringed on its patents.
FC2 had argued that it had not violated Japanese patent rights because its servers were located in the United States.
But the lower court had already rejected this claim.
The Intellectual Property High Court had ruled in favor of Dwango in two lawsuits, ordering FC2 to halt its service and pay damages.
The Supreme Court’s decision confirms Dwango’s victory.
Following the ruling, Dwango issued a statement, saying, “We filed lawsuits because we think protecting Japanese technology is extremely important.”
“The Supreme Court’s decision providing clear guidance is highly significant,” the company said.
