Lawrence L. Lee Associate Professor Shih-Hsin University School of Law ( 臺灣世新大學法學院 )

Lawrence L. Lee

Associate Professor

Shih-Hsin University School of Law

(臺灣世新大學法學院 )

1. Introduction 2. Legal framework between IPR and Competition

Law 3. Cases Studying

uncompleted procedure of issuing a warning letter Misuse of one Company Name Abuses of a monopolistic position by patent holders

4. Conclusion

There has been a very complex relationship between intellectual property rights and competition laws. IPR generally grant monopoly rights ; competition laws prohibit monopolistic conduct and business restrictions in principles.

Therefore, how to keep the best balance between IPR and competition is a very important issue. At the same time, it’s also the common goal of the authorities of the competition law of different countries.

In Taiwan, the legislation of Fair Trade Law ( FTL) perplexes the complicated relationship between intellectual property rights and competition laws. On one hand, the FTL enforces the protection of IPR; on the other hand, the FTL punishes the anti-competitive behavior of the owner of IPR, such as unduly restraining the licensee.

And just like other countries, the Fair Trade Commission (FTC) of Taiwan has being working on drawing a clear line between proper exercise and abuse of IPR under competition law.

This presentation focus on the relationship of competition law and the partial exercise of IPR—a warning letter sent by the owner of IPR

Article 45 of FTL regulates that “No provision of this Law shall apply to any proper conduct in connection with the exercise of rights pursuant to the provisions of the Copyright Law, Trademark Law, or Patent Law.”

According to the wording of this article, a proper exercise of IPR won’t apply to the FTL . On the contrary, any improper exercise of IPR will be very likely to treated as anti-competitive behavior.

However, the authority of the FTL is not the authority of IPR Law but the FTC. In other words, the FTC has the absolute power to review if the IPR is exercised properly in Taiwan even though the FTC will consider about the opinions of Taiwan Intellectual Property Office （ TIPO), the authorities of IPR Law.

Therefore, if the owner of IPR will received administrative fines while breaching the monopoly position, for example "Philips" CD-R Case: Abuses of a monopolistic position, cartel and compulsory patent licensing which will be a case study in this presentation.

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A owner of IPR could issue warning letters to any enterprise that probably infringe his IPR. However, such warning or notifications would cause anti-competitive effect.

In this regards, The FTC has completed the regulation “Guidelines for the Review of Cases Involving Enterprises Issuing Warning Letters for Infringement on Copyright, Trademark, and Patent Rights” (GWLR) as the judgment standard for such cases since May 14,1997.

The FTC has made some decisions to cases which breached the GWLR.

Case 1: uncompleted procedure of issuing a warning letter

When Wen Ting Co., Ltd., after introducing its super set computer software program on Nov. 19, 1997, received a letter from Dynalab Inc. through attorney that if the new products involve the typeface technology under the "Loon Tin Character Bank" or "Wen Yen Card" - Dynalab's 38830 patent, there is a likely patent infringement.

However, before sending out the letter, Dynalab had not obtained the super set software program in hand or asked experts to verify whether the new software indeed caused infringement on its due exercise of No. 38830 patent rights.

Without these verifications, Dynalab's circulation of the letter to its competitor's trading counterparts, whom as a result might terminate cooperation with Wen Ting, is an unfair competition act.

The FTC's investigation found that even at the time of circulating the letter, Dynalab was uncertain whether Wen Ting's super set contains the Chinese character typeface set No. 1 and No. 2 might cause an infringement to its patent. Dynalab also showed no intention to clarify that the letter was simply to serve as a notice or to proceed onto due process to have experts to verify the software in question. Such act of circulating the letter was obviously for competition purposes only with an attempt to disrupt the normal business operation of Wen Ting.

In considering the entire content of the letter in question, FTC deemed that Dynalab's act was more than sending a notice, but an act that might affect effective competition by possibly impairing the quality, price and services of others, which is obviously unfair to competitors. Such an act deserves condemnation for its poor business ethics, and violates the Article 24 of the FTL. The FTC thus applies Article 41 to give this decision.

Case 2: uncompleted procedure of issuing a warning letter

Princeton Biomedical Technology, Inc. ("PBT"), the patent owner of a pregnancy test kit, sent warning letters to many franchised drugstores requesting those stores not to sell its competitor's products since those products were found guilty in the infringement of its patent pursuant to a verification report. Although PBT specified the particulars of its patent and detailed the alleged infringement of its competitor in the aforesaid warning letter.

The FTC held that if the patent owner found his right 'being infringed, he should exercise his exclusive right by filing a lawsuit pursuant to the Patent Law, rather than coercing or harassing the competitor's trading partner not to trade with said competitor by a warning letter. The FTC further concluded that PBT should have demanded the competitor to cease the illegal behavior prior to the issuance of the warning letter.

Without first requesting the competitor to cease the illegal behavior, PBT's warning letter caused its competitor losing trading opportunities. Accordingly, the FTC ruled that PBT's conduct was an "obviously unfair act against the competitor's trading partners," which prevented the above trading partners from freely and independently deciding whether to engage in transactions.

Case 3 Misuse of one Company Name FTC’s Disposition of Misuse of Melchers’s Company

Name Earns Praise of Taiwan’s IPR Protection Efforts from Foreign Enterprises.

The Fair Trade Commission (FTC) disposes the case involving misuse of the company name, Melchers, the name of the well known long-established German trading company. The FTC’s decision is regarded the manifest of Taiwan’s effort in protecting the IPR held by foreign enterprises.

　

The FTC disposed of the case at the end of December 2007. The case involves misuse of Melchers’s company name by Ta-Yih Development & Trading Corp. (Ta-Yih) Ta-Yih labeled the name Melcher on each of the manual motor tools it manufactures and sells and such practice leads the consumer to confuse Ta-Yih’s said tool products with the BOSCH tool products Melchers is authorized to distribute. The FTC impose upon Ta-Yih a TWD0.5 million fine for engaging in such unfair practice.

　

Melchers, a reputable international trader distributes mainly German products. It is the general distributor of the BOSCH tools. Melchers is the specific portion of the company name, not a registered mark. Ta-Yih, the respondent, used Melchers to label and market its own product which is identical to the products Melchers sells with a view to deceiving the consumer at the expenses of Melchers’s reputation and business.

　

According to Melchers Taiwan, the FTC gave Melchers a fair and just decision. To foreign based businesses in Taiwan, FTC’s decision equals to a declaration of Taiwan being a reliable environment for foreign investments where there is sound legal protection of intellectual property rights as same to the PRC.

Case 4: Abuses of a monopolistic position by patent holders

In 1992, three CD manufactures, Philips, Sony and Taiyo Yuden have pooled their patents together and started to jointly license the pooled patents through a Joint Licensing Agreement in 1992 with one royalty formula: 3% of the net sales price and not lower than 10 Japanese Yen.

Source: Kung-Chung Liu, The Taiwanese "Philips" CD-R Cases: Abuses of a Monopolistic Position, Cartel and Compulsory Patent Licensing (January 1, 2010)

Philips was designated as the sole contact for licensing the pooled patents. Taiwanese manufacturers secured licenses from Philips in around 1996 and managed to occupy 80% of CD-R’s world market in 2003.

While the market price of CD-Rs dropped drastically, the minimum royalty of 10 Japanese Yen represents unbearable burdens, Philips et al refused to accommodate the repeated requests from Taiwanese licensees to lower the minimum royalty of 10 Japanese Yen to reflect the falling prices of CD-Rs.


In 2000, Princo et al, Taiwanese CD-R manufacturers, accused Philips et al of abusing their monopoly power in the CD-R market through patent pooling and the JLA to demand excessive royalties, of engaging in cartels by bundling patents and by licensing in packages, of tying in patents that have already expired and of obscuring information about the patents to be licensed.


On 20 January 2001 the TFTC found that Philips et al had a joint monopoly power in the CD-R patent-licensing technology market: they own all the important patents for the manufacture of CD-Rs, any production and sales of CD-Rs in the world must acquire license from them; they therefore have an overwhelmingly superior position to exclude competition and enjoy a worldwide monopolistic status


Philips et al. were also found by FTC to be elusive about important trading information, such as the contents, scope, terms and number of patents they individually owned. Moreover, TFTC found defendants’ demand that licensees withdraw their invalidity applications against defendants’ patents as a precondition for concluding the licensing contracts was an improper exercise of patent rights.

All of these amounted to a so-called exploitative abuse of monopoly power and therefore violated Article 10(4) of the Fair Trade Act. On 11 August 2005 the Taipei Administrative High Court also concurred with FTC on its finding. Source: Kung-Chung Liu, The Taiwanese "Philips" CD-R Cases: Abuses of a

Monopolistic Position, Cartel and Compulsory Patent Licensing (January 1, 2010)

Taiwanese Fair Trade Commission found in those cases abuses of a joint monopolistic position and cartels among Philips et al. TFTC imposed NT$8 million, NT$4 million, and NT$2 million fines on Philips, Sony and Taiyo-Yuden respectively in one administrative decision （ not three administrative decisions ） and found itself unable to render an “affirmed-in –part, vacated-in-part” decision and instead compelled to rescind TFTC’s decision as a whole.


1. Law protects the right of IPR not the holder of IPR.

2. FTC mainly jobs maintain a fair market which TIPO mainly works protect the owners of IPR from infringement.

3. The FTC’s judgment is not actually involved in the substantial content of IPR.

4. The FTC’s judgment is not responsible for deciding if the IPR is damaged.

5. The key points of the FTC’s judgment is whether the IPR owner has obeyed the necessary procedures (GWLR 3 )(Acts Constituting a Proper Exercise of Rights Pursuant to the Copyright Law, Trademark Law, and Patent Law) and whether the content of the warning letter is clear(GWLR 4).

For further discussion, I can be reached at [email protected]

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Lawrence L. Lee Associate Professor Shih-Hsin University School of Law ( 臺灣世新大學法學院 )