Breweries Battle Over Intellectual Property and Innovation in Japan

Springtime visitors to Japan will be welcomed by the country’s spectacular cherry blossoms and gorgeous weather but also by a relentless barrage of online, print and television beer commercials. Spring is the season when major Japanese breweries make a concerted effort to campaign for beer consumers’ hearts and minds, encouraging them to enjoy their respective products during that quintessential Japanese social event, the “hanami” (cherry blossom viewing) party. Hanami usually involves a picnic party with friends, family or colleagues under cherry blossom splendor, accompanied by copious amounts of food and beer.

This spring’s battle of the beers promises to spill out from under the cherry blossoms and into Japanese courtrooms as a result of patent lawsuit over non-alcoholic beer. Battle lines were drawn when the high-profile dispute between two of Japan’s biggest beer breweries, Suntory Holdings and Asahi Beer, came quickly to a head with the first hearing of Suntory’s patent infringement lawsuit at the Tokyo District Court on March 10, 2015. The following will examine this patent infringement case and recent intellectual property developments fermenting in Japan which together confirm that Japanese corporations are increasingly likely to initiate patent infringement lawsuits against defendants in Japan, thereby shattering the myth of the reluctant Japanese litigant.

Suntory v. Asahi

According to a press release from Suntory dated March 10, 2015, the company filed a lawsuit with the Tokyo District Court against competitor Asahi in January 2015, seeking the suspension of sales and production of non-alcoholic, beer-flavored drinks and claiming that Asahi infringed its Japanese Patent No. 5382754 (“the ’754 Patent”) when the competitor sold its “Asahi DRY ZERO” non-alcoholic beer beverage. According to the press release, the two beer giants could not resolve the infringement issue through negotiations after Suntory filed the suit against Asahi.

The Suntory ’754 Patent is titled “pH-adjusted non-alcoholic beer with low extract content” and is directed specifically to “a beer-taste beverage with a low total amount of an extract component(s), having a pH adjusted to a specific range to provide the robust feel to the beverage.”

The patent was filed on May 27, 2013. Sensing that the invention was important, Suntory requested accelerated examination of the application on August 5, 2013 and it was registered by the Japan Patent Office on October 11, 2013.

At the first hearing of the patent infringement proceeding on March 10, 2015, Asahi, Japan’s second-biggest seller of such beverages after Suntory, urged the court to reject the claim, arguing that the ’754 Patent was invalid as its non-alcoholic, beer-flavored beverage was “obvious” and could be “easily made” from existing technology. It waits to be seen how Asahi’s invalidity defense will fair in this ongoing battle of the breweries.

Large Beer Consumption Market

The progress and outcome of this headline grabbing patent infringement litigation will undoubtedly keep legal observers brimming with anticipation during the hanami season and beyond.

Japan is ranked 7th largest in the world in terms of annual consumption of beer. It has a very mature and competitive market with dominant domestic players and a high innovation rate. The Suntory v. Asahi infringement case is just one piece of evidence of this competitiveness and innovation. The Japanese beer market is categorized according to type — regular beer, low malt beer or “happoshu” (bubbling spirits and beer-like alcoholic beverages). While there has been a trend over the past few years by the younger generation to move away from beer and alcohol generally as a result of the rising popularity of low-alcohol beverages such as “chuhai” (shochu-based beverage), the high-end, premium beer segment is still gathering attention and drawing interest in craft beer.

The overall beer market in Japan is estimated to be worth 1 trillion yen (US$8 billion). Beer is an extremely popular beverage amongst Japanese, as the following chart illustrates. Beer possesses the lion’s share of all alcoholic beverages consumed in Japan, surpassing even the famed indigenous liquor, sake.

^{Source: National Tax Agency (March 2014)}

However, it is also very apparent from the above chart that the Japanese beer market has steadily declined as domestic consumption has nearly halved over 20 years. The decline could be attributed to general economic stagnation and recessions in the country and the rapid aging of the Japanese population. Given that this may be the case, it is not inexplicable that brewers would look to innovation and even resort to litigation to preserve their market share.

Demand for non-alcoholic, beer-flavored drinks has been expanding in recent years amid the decline in beer sales, with an increasing number of people abstaining from drinking alcohol for health reasons. Suntory holds the largest share in the domestic market for non-alcoholic, beer-flavored drinks, with sales of its alcohol, calorie and carbohydrate-free, beer-flavored beverage “ALL-FREE” totaling 7.2 million cases in 2014. Asahi has second spot in the domestic market, with sales of 6.3 million cases of “Asahi DRY ZERO” in 2014.

“Healthy” Non-Alcoholic Beer

Another example of innovation in the beer industry saw Japan certifying its first ever beer-like, non-alcoholic beverages for specified health use on February 18, 2015. Japan has a growing, lucrative multi-billion dollar market for health food and drink as a result of the increasing health consciousness of Japanese consumers. In this environment, companies have developed non-alcoholic, beer-like drinks with health benefits. The Consumer Affairs Agency, the Japanese regulatory authority tasked with certifying food and drink products with health benefits, approved two beer-like nonalcoholic beverages as foods with government-certified health benefits.

This is the first time the agency has officially recognized non-alcoholic beers as such health products. The two beverages were Sapporo Breweries Ltd’s “Sapporo Plus” and Kao Corp.’s “Healthya Malt Style”. The label on “Sapporo Plus” indicates that the dietary fiber in the beverage works to “moderate” the absorption of sugar, while the label on “Healthya Malt Style” indicates that it contains abundant tea catechin to facilitate easier fat-burning. Both products have yet to be launched for public sales in Japan as of March 2015.

In 1991, Japan’s unique health food regulatory regime — FOSHU (Foods for Specified Health Use) was launched by the Ministry of Health, Labor and Welfare, under which branded products with health functional ingredients are individually approved and authorized to carry their various health claims. The Japanese certified health drinks market has expanding rapidly in scale, driven as mentioned by rising health awareness among consumers. It is estimated to be worth $20 billion in 2014. Rising medical costs and growing health concerns are causing the higher-aged population to be more aware of what they are eating and drinking. That being the case, beverage producers are seizing the opportunity to urge this demographic towards purchasing health certified beverages, and the prospect of enjoying a drink of certified, healthy, non-alcoholic beer while viewing beautiful cherry blossoms might just be a premise that would appeal to these consumers.

Intellectual Property Litigation Trends

The Suntory-Asahi beer patent lawsuit discussed is emblematic of a larger trend which has witnessed a surge in intellectual property litigation from 20 years ago, shattering the perception that Japanese companies are litigation shy. Traditionally, much has been made of the importance of “wa”, i.e. harmony, peace, and tranquility as the pre-eminent concerns of Japanese society and businesses by and large. Yet even traditional ideals have had to make way in an industry which is increasingly threatened by the rapid advance of low-cost foreign competitors and has seen domestic rivals shedding their aversion to litigation and heading to court to enforce their patents. The following statistics would seem to confirm that this is the case.

The battle of the breweries is indicative of the wider trend of Japanese companies displaying a new enthusiasm for enforcing their intellectual property rights through litigation. This has become a necessary rule of doing business and maintaining a competitive advantage in the Japanese marketplace, rather than an exception.