Bringing an end to a landmark patent suit in Japan, Nichia Corporation has reached a court-arbitrated settlement with its former employee, Nakamura Shuji, over a suit seeking reimbursement for the invention of blue LED (Light-Emitting Diode) technology in 1993.

The settlement entitles Nakamura to 608 million yen (US$5.9 million; US$1 = 102.42 JPY) for his contribution to the invention, and an additional 230 million yen (US$2.2 million) compensation for the delayed payment. The settlement is the largest ever paid to an employee for an invention in Japan, but it is dramatically lower than the 20 billion yen (US$195.4 million) that the Tokyo District Court ordered Nichia to pay Nakamura in January 2004. Nichia originally gave Nakamura an award of 20,000 yen (US$195).

The lower court's ruling sent shock waves through Japanese corporations, as it estimated Nakamura's invention was worth about 60 billion yen (US$586.1 million). Nichia appealed the ruling, and the Tokyo High Court negotiated a watered-down settlement in recognition of Nichia's claim that younger engineers contributed to the invention. It ruled that Nakamura's contribution to the blue LED patent amounted to only 5%, one-tenth of the lower court's ruling. These figures followed a precedent set in a patent suit between Ajinomoto Co. and an employee who invented an artificial sweetener.

The settlement relies on a hypothetical fee that Nichia would have earned had it licensed the patent to others. Moreover, because the dispute was resolved through a settlement, many details will not be disclosed to the public. For these reasons, it is unlikely that clear criteria for calculating the value of a patent will arise from this case. The high court's decision to expand the scope of the settlement to cover all of Nakamura's inventions was widely viewed as a concession to Nichia that would protect them from future suits. The high court argued that a reward for an invention should be enough to provide reasonable incentive to corporate scientists, but should not hinder a company's ability to compete globally under prevailing economic conditions. A revised Patent Law that will take effect in April in Japan will give companies a significant advantage in patent lawsuits so long as they set in advance rules regarding compensation to company researchers and demonstrate that employees were kept informed of such regulations.

A day after the settlement was publicized, Hitachi announced it would take steps to render its incentive program for employee inventions more transparent. Hitachi plans to give detailed reasoning behind reward decisions and establish an in-house arbitration committee that will hear employee petitions regarding compensation issues. Hitachi was previously ordered to pay an employee a sum equivalent to 20% of the profit it made from an optical disk technology that he invented.

Nakamura's invention paved the way for the commercialization of blue LED, which converts electricity into blue light. Blue LED revolutionized artificial light source technology by making it possible to display a whole spectrum of colors on a screen when blue LED is combined with red and green LED. Blue LED is used in a wide variety of devices from traffic lights to mobile phones to PC monitors.

Many in Japan had worried that the suit could become a harbinger of more to come and stand as a challenge to the traditional notion that employees should always defer to the company and that the fruits of an individual's labor are corporate property. Nakamura reluctantly accepted the settlement on the recommendation of his attorney, and insisted that the settlement was proof that the Japanese legal system is biased toward corporate interests.