COLUMN ONE : U.S.-Japan Battle of the Patents : Japanese firms are no longer quick to settle American claims to lucrative inventions. They are sharpening courtroom defenses--and turning to an aggressive offense.

The jury listens intently as a lawyer for consumer electronics giant N. V. Philips grills Shunji Izumi, trying to prove that his Izumi Seiki electric razor manufacturing company knowingly infringed on Philips’ razor blade patents.

U.S. District Judge W. C. Gonner from the Southern District of New York presides, but the venue is a Tokyo auditorium filled with 300 businessmen. This is a re-enactment of a recent Florida patent trial, and each paid $500 to watch.

Japanese are flocking to such mock trials, featuring American judges and lawyers who have participated in actual cases, to learn about a seemingly terrifying American institution--the jury trial.

Fear of American litigation is not new here. For years, many of Japan’s largest corporations have been sending students to U.S. law schools and placing trainees in American law firms to learn more about the American system. As trade tensions between Japan and the United States mount, however, there is growing worry that Japanese corporations will become the victim of litigation that exploits ill feelings toward Japan to win huge jury awards.

Historically averse to confrontation, the Japanese have often sought to quietly settle disputes. But Japanese companies, believing opponents have taken advantage of them, have become indignant. Now they are learning to put up a fierce fight in court--often exploiting an armory of patents in their defense. Last year, four Japanese firms were among the five companies awarded the most patents in the United States.

“Patents are like bombs,” says an actor playing the role of a patent manager in a slick Fujitsu video put together to educate employees. “If you have a good bomb you are safe, but if your competitor has the bomb, you are in big trouble.”

The worst fears were confirmed when an American jury in February ordered Minolta to pay Honeywell $96 million for infringing on Honeywell’s patents in developing a Minolta autofocus camera.

Iwao Ogura, an engineering professor at Chiba University, saw something sinister in the way Honeywell waited to sue until almost a decade after Minolta had introduced its camera and built a huge new market. “It is like letting the pig fatten before sending it to slaughter,” Ogura told a weekly magazine.

“If those patents are interpreted so widely, even video cameras and industrial robots will be covered,” Toshiro Yamashita, president of camera maker Olympus, angrily told the Asahi Shimbun shortly after the ruling. “After the 50-year anniversary of Pearl Harbor . . . you can’t say the anti-Japanese feeling hasn’t spilled over into the courts.”

Four weeks ago, Loral Fairchild Corp. sued 30 companies--most of them Japanese--charging that they infringed on patents for making a sophisticated light sensor that is a key component in everything from photocopiers to fax machines to video cameras. Loral did not seek specific damages in its initial court filing, but industry observers expect it to seek at least a billion dollars for the use of patents set to expire next year. Companies named in the suit are among Japan’s elite: Matsushita, NEC, Sony, Sharp, Canon and Toshiba.

Most recently, a Los Angeles jury awarded $33 million earlier this month to an American inventor who said the video game vendor, Sega Enterprises, had deliberately infringed on his patent for a technique using low-frequency audio signals instead of video signals to display simple color images on a video screen.

Many Americans think the Japanese are “an easy target because they are risk-averse and tend to want to settle,” says Preston Moore, attorney with the Tokyo office of Morrison & Foerster, an international law firm that represents such major Japanese companies as Fujitsu.

And Japanese are seen as rich. “Some time ago, the railroads and the banks were the favorite targets,” said Moore, but now Japanese corporations are seen as having the deep pockets.

Some Japanese companies are quickly becoming battle-hardened.

Fujitsu recently shocked many in the Japanese business community when it chose to sue Texas Instruments rather than pay the high royalties the American company demanded for use of its key semiconductor patents. Most other Japanese chip makers already have settled with Texas Instruments.

“We did a lot of research and we feel strongly that we don’t infringe on their patents,” says Sadakazu Igeta, a patent lawyer with Fujitsu. “If we don’t think it’s right, we don’t compromise.”

Sega Enterprises decided to fight rather than settle the lawsuit over the technology used in its video games even though rival Nintendo had already settled a similar claim. “If you give in, there is a danger that similar unfair litigation will be filed,” says Koichi Nishikura, legal adviser to Sega.

Fighting in an American court, however, is still regarded as a courageous act by many in Japan. In a public television documentary on Sega’s decision not to settle, the narrator at one point says in ominous tones that “Sega’s opponent wasn’t just (the American inventor), it was the whole (American) society.”

But are Japanese companies really hapless victims of the American legal system?

“Japan is greatly exaggerating the extent to which Japanese companies are being especially targeted in lawsuits,” says Robert Stern, a Silicon Valley patent attorney who until recently was on the board of the American Intellectual Property Assn. When Japanese do find themselves in court, he says, they hire the best litigators, the “best samurai in the forest,” and frequently go on to win their cases.

Many Japanese companies are even using American courts as a strategic weapon against competitors. Sega recently filed a copyright-infringement suit against a small American software company that makes competing games for Sega video game machines. Nintendo has asked the International Trade Commission to bar Taiwanese software companies from importing unlicensed games for its machine.

Japanese companies also aggressively lobby for their views on patent issues in Washington. “They are actively involved in controlling public policy on intellectual property issues. They know far more about our patent system than the U.S. does about Japan,” Stern says.

Nevertheless, Japanese face distinct disadvantages in U.S. courts where cultural differences can be misinterpreted, even by jurors struggling to be fair and objective.

“Japanese tend to smirk and giggle when they’re nervous,” says Dan Gallipeau, a psychologist with Litigation Sciences, Inc., a Los Angeles-based trial consulting firm. They also tend to pull back when lawyers come close to the witness stand, avert their eyes and give the impression they are dodging questions. This makes them appear less trustworthy, he adds.

Japanese engineers will often play down their achievements or attribute them to group effort, undercutting the significance of their own patents. “The American mind-set is that . . . if you are not bragging, then maybe your innovation isn’t so important,” Gallipeau says.

The sharply different patent systems in the United States and Japan are also a disadvantage for the Japanese. U.S. patents are harder to get approved but often come with broader protections. The Japanese patent office accepts patents even if they represent relatively minor improvements on a product, but then tends to interpret them narrowly. America grants the patent to the person who can prove he invented something first. Japan works on the basis of who filed the patent first.

While American patent applications are kept secret until the patent is granted, the Japanese system is closer to the Europeans’ in which applications are open to public view, often for years, before a patent is granted. Texas Instruments, for example, did not receive its basic patent on the integrated circuit in Japan until 1989, 29 years after it was filed.

To bolster their chances of winning in U.S. courts, Japanese companies are hiring consulting firms like Litigation Sciences. “We help prepare the witnesses and show them the strengths and weaknesses of their case,” says Gallipeau. One juror sentiment Japanese can often depend on, Gallipeau says, is a profound respect among Americans for the quality of Japanese products.

Still, when Japanese businessmen face American courts for the first time, they find the experience frightening and confusing--and particularly fear the discovery process that requires them to hand over mountains of documents, many containing trade secrets.

Because Japanese courts have no discovery process, companies “either keep too many records or disregard records that would be of benefit to them,” says Mieko Yamaguchi, a Japanese attorney who runs her own international law firm and edits a journal about trends in foreign patent law. “Japanese companies also document conversations they wouldn’t record if they had a lawyer advising them,” he adds.

In the long run, Japan’s most powerful weapon may be its growing portfolio of patents.

Fujitsu is considered to be among the Japanese companies most knowledgeable about the American legal system, in large part because of its long copyright battle with IBM in the early 1980s. The company has launched a companywide campaign to get its 8,000 engineers to file more patent applications. Last year, the staff generated 10,000 patent applications in Japan for the company. Fujitsu has also dramatically increased its patent filing in the United States, filing about 600 applications with U.S. officials last year--six times more than five years ago.

Fujitsu also is beginning to look at litigation as a strategic weapon. “We used to take the view that we make money by selling products so let’s not worry about the patents. . . ,” lawyer Igeta says. “(Now) we think of patents as our defense, as strategic weapons. Since we are spending a lot of money and we have the rights, it may become inevitable that we will file more lawsuits.”

Japanese corporations’ large portfolios of patents already have come in handy in warding off lawsuits.

When Motorola sued Hitachi some years ago for infringing on its microprocessor technology, Hitachi sifted through its patents, found a case where Motorola had infringed on Hitachi technology and countersued. Each side won its suit. But Hitachi emerged the winner, using its own victory as leverage for a less onerous settlement of the litigation brought by Motorola. Such battles often result in cross-licensing agreements.

But cross licensing works only when both sides are manufacturers. In a growing number of cases, Japanese manufacturers face lawsuits brought by inventors who have no incentive to enter into cross-licensing agreements, and insist on royalty payments. Analysts say such cases account for much of the increased litigation.