Learning about Patent Infringement and the Importance of Territoriality from the Dwango vs FC2 Litigation Case

In today’s globalized business environment, protecting intellectual property rights is crucial for maintaining a company’s competitive edge. This is particularly a pressing agenda in the IT realm, where technological innovation is rapid, and patent infringement issues arise frequently. Companies must understand the concept of patent rights and their scope of application to properly safeguard their own technology and ideas, in pursuit of securing a competitive advantage.

On March 3 2025, the Supreme Court of Japan drew significant attention in the Dwango and FC2 litigation case, when it ruled that Japanese patent rights protection extend to infringement acts by FC2, which hosts its servers in the United States, .

This article will explain the basic concepts of patent infringement, the principle of territoriality, and the case study of the lawsuit between Dwango and FC2. It will also explore how companies should protect their patent rights under Japanese law.

What is Patent Infringement?

A patent is an exclusive right granted to protect a new invention, which is granted to inventors or companies that have applied to the Patent Office and passed the examination. Patent holders have the right to exclusively use and sell their invention for a certain period, usually 20 years.

Definition of Patent Infringement

Patent infringement refers to the unauthorized manufacturing, use, sale, import or export of a patented invention without the permission of the patent holder. If infringement is recognized, the patent holder can claim damages and seek an injunction to stop the infringement.

The following cases can be considered as patent infringement:

• Technical scope infringement: Unauthorized use of technology that falls within the scope of the patent claims.
• Infringement under the doctrine of equivalents: Use of technology that is substantially the same as the patented invention.
• Indirect infringement: Providing parts or materials for the use of the patented invention, thereby constitutes infringement.

Territoriality in Patent Law

Territoriality means that patent rights are granted under the laws of each country and have effect only within the territory of that country. For example, a patent obtained in Japan is only valid within Japan and does not have effect in other countries.

The principle of territoriality in patent rights has the following implications on businesses:

• Patents must be obtained country by country: Companies expanding globally need to obtain patents separately in each country.
• Limited enforcement: Even if a patent is valid in Japan, it cannot directly address infringements occurring abroad.
• Risk of international litigation: Businesses operating across multiple countries need to understand each country’s patent laws and manage risks accordingly.

Applying Territoriality in the Dwango vs. FC2 Litigation Case

In two lawsuits concerning whether the acts of U.S.-based FC2, which provided similar services via overseas servers, infringed upon the patent rights of Dwango Co., Ltd., the operator of the video streaming service “Niconico Video,” the Second Petty Bench of the Supreme Court of Japan made its first decision on March 3, 2025 that such conducts constituted infringement

Background of the Litigation

Dwango Co., Ltd. is the operator of Niconico Video and holds patented technology for a comment display feature. However, FC2 operated a video streaming platform with similar functionality via servers located overseas.

Key Issues in the Litigation

FC2 provided services to users in Japan from video streaming servers located in the United States. Dwango filed a lawsuit claiming that as long as the service is provided within Japan, Japanese patent rights should be applied.

Judgments of the Intellectual Property High Court and Supreme Court

The Intellectual Property High Court made the following judgments in its decision:

• Even if the servers are located overseas, Japanese patent rights are applicable.if the service is provided within Japan
• The court recognized that FC2’s service infringed upon Dwango’s patent.

On March 3, 2025, the Supreme Court dismissed FC2’s appeal, confirming Dwango’s victory.

Reference: Supreme Court of Japan Case Reports | Reiwa 5 (2023) No. 2028 Patent Infringement Injunction Request Case

Reference: Supreme Court of Japan Case Reports | Reiwa 5 (2023) No. 14 Patent Infringement Injunction Request Case

The Impact of Court Decisions on Corporate Activities in Japan

Under the principle of territoriality, patent rights are granted under the laws of each country, which necessitates the obtainment of patents in every country they operate and carefully consider the possibility of exercising those rights in each jurisdiction.

In the Dwango and FC2 litigation case, in spite of FC2 having servers overseas, Japanese patent rights were applied because the provision of services within Japan was deemed significant enough. This decision underscores the importance for companies to go beyond the mere obtainment of patents, understanding the legal interpretations of the countries where those patents apply, and structuring their business models accordingly.

In the realm of internet-based services particularly, where not only physical locations but also the residency of users and the manner of service provision are taken into account, an international perspective is essential in the formulation of patent strategies. Companies are expected to take steps to maximize their use of intellectual property rights within the framework of territoriality and secure a competitive advantage.

Conclusion: Consult Experts for Intellectual Property Strategies

Understanding patent infringement and the principle of territoriality forms the foundation of a company’s intellectual property strategy. The Dwango and FC2 litigation case indicates that the scope of territoriality is expanding. Businesses operating globally need to adopt flexible and robust responses based on the patent laws of each country.

To adequately protect intellectual property and maintain competitiveness, companies must reacknowledge the importance of patent strategy and ensure thorough risk management. It is advised to consult with professionals such as attorneys for intellectual property strategies, in order to receive the best advice based on the latest case law.

Guidance on Measures by Our Firm

Monolith Law Office is a law firm with extensive experience in both IT, particularly the internet, and legal matters. In recent years, intellectual property rights such as copyrights and patents have garnered increasing attention, and the necessity for legal checks has grown accordingly. Our firm provides solutions related to intellectual property. Please refer to the article below for more details.

Areas of practice at Monolith Law Office: IT & Intellectual Property Legal Services for Various Companies