Introduction
Background of the Dwango case
DWANGO Co., Ltd. is a Japanese entertainment technology corporation which is best known for developing and managing Niconico which is an innovative video sharing website enabling users to make real time comments displayed right on the video as it plays. DWANGO owned two Japanese patents for this invention: No. 6526304 for “comment distribution system” and No. 4734471 for “display device, comment display method, and program”. FC2, Inc., an American company, offered Japanese users an almost identical video streaming service, including the feature of synchronized comment display, using the servers situated completely outside Japan. The patent infringement cases were filed in 2016 and 2019 and claimed that FC2 was infringing DWANGO’s patented inventions while being shielded by the Pacific Ocean. The question that arose was – can a Japanese patent be infringed by a foreign entity whose servers are not situated within the borders of Japan ?
The Journey Through the Courts
Relying on an absolute application of the concept of territoriality, i.e., the idea that patent rights subsist only in the territory of the patent granting State, the Trial court dismissed the case filed by DWANGO because FC2’s servers were based in the US. The invention could not be said to have been produced or used in Japan, if one of its vital elements was based abroad.
However, DWANGO appealed and the case reached the Intellectual Property High Court (IP High Court) which is the specialized appeals court in charge of intellectual property matters in Japan. On May 26, 2023, the IP High Court overturned the ruling of the lower court and decided that infringement could be found across borders, provided that the service in question could not be considered as divisible; it was targeting Japanese users; it was being controlled by Japanese users; it was designed to target Japanese consumers and its effect were felt in Japan.
The judgment rendered by the Supreme Court of Japan on March 3, 2025, unanimously upheld the decisions of the IP High Court in the two cases. In the four-judge bench of the court, it was held that even though certain acts towards the creation of the system had been undertaken beyond the borders of Japan and the server was housed in the United States, it could be reasonably inferred from the perspective of the system as a whole that the patent was “substantially implemented” in the jurisdiction of Japan.
The reasoning applied in Japan
The reasoning of the Supreme Court was based on four cumulative aspects. Firstly, the physical presence of the terminals and the users in Japan, i.e. the end points of the patented invention were physically present in Japan. Secondly, the technical effect of the invention was achieved in Japan, i.e. the comments getting synchronized so that they do not overlap and synchronized according to the time when the comments were posted was achieved on domestic terminals. Thirdly, the foreign location of the server was not relevant in any way, as the foreign location of the processing server was an incidental aspect of the service. Fourthly, the economic impact on the patent holder in Japan was evident, since FC2’s service competed with DWANGO in Japan.
Dwango’s Parallels with NTP v. RIM
Legal commentators have described this dispute as Japan’s version of a famous patent suit in America, ie, NTP, Inc. v. Research In Motion, Ltd., decided by the U.S. Court of Appeals for the Federal Circuit in 2005 (BlackBerry case). In that case, the court had to decide whether RIM’s use of its relay servers located in Canada could protect it from liability for infringement of U.S. patents with regard to functionality of its e-mail system provided to users in America. The Federal Circuit held there to be infringement because the “use of a claimed system occurs at the location where the benefit is derived.” The similarity between Dwango and NTP, Inc. cases is striking because in both instances, a foreign corporation used overseas technology infrastructure to deliver services to the citizens of the country and tried to argue that the use of such overseas infrastructure would prevent any infringement in the domestic country, and both courts rejected such an argument.
The way forward
The Supreme Court’s ruling has already led to legislative actions being taken. Discussions in the Japan Patent Office and the Intellectual Property Committee of the Ministry of Economy, Trade and Industry with respect to amending the Patent Act regarding the definition of the test for cross-border infringement have been under way. Following the discussions which took place in March, April and June 2025, the emerging legislation will define infringement as one where both the technical and economic effects of the invention are produced locally, and the patent invention itself is performed in part in Japan, which largely reflects the Supreme Court’s own considerations.
In terms of litigation strategy, Japanese patent holders will now be able to go after foreign digital service providers that operate in the Japanese market without any physical presence in Japan and it might behoove patentees to ensure that their claims are drafted to cover the distributed architecture systems. The former server location defense for foreign defendants becomes impossible, and defendants will have to defend themselves either by showing that there are no technical effects of the invention in question that take place in Japan or that there is no economic effect of the invention on the patentee. Both of those defenses are factually tough to prove when the product is being sold to the Japanese public.
Conclusion
The landmark decision of the Japanese Supreme Court in Dwango v. FC2 constitutes a radical shift in terms of the relationship between Japanese patent law and the framework of the internet in today’s world. Through the adoption of the “substantially implemented in Japan” standard on the basis of functional effects rather than geographic location of servers, Japan becomes one of the countries like the United States which have realised that twenty-first century realities necessitate rethinking the traditional territorial approach of the previous century. The message is clear for everyone – there is no patent moat across the Pacific Ocean.
Author : Rabia Wali, In case of any queries please contact/write back to us via email to [email protected] or at IIPRD
References
- Ryuka A, ‘Dwango v FC2 (Machine Translation: Sup Ct, 2025)’ (RYUKA & Partners, 27 October 2025) https://www.ryuka.com/en/news/ip-news/patents/25592/ accessed 27 June 2026.
- NTP, Inc v Research In Motion Ltd 418 F 3d 1282 (Fed Cir 2005).
- Hogan Lovells, ‘Japan: Supreme Court Decision—Closing a Loophole for Patent Infringements in Cross-Border Network Systems’ (11 March 2025) https://www.hoganlovells.com/en/publications/japan-supreme-court-decision-closing-a-loophole-for-patent-infringements accessed 25 June 2026.