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Whether the effect of Taiwan Fair Trade Act is extendable to patent infringement Cease & Desist letters based on foreign patents for foreign market products
When a patent infringement dispute arises, it is common for patentees to consider the option of sending Cease & Desist letters to the alleged infringer's current or potential trading counterparts, as such action may exert pressure on infringers with higher efficiency and lower expense. Nonetheless, once the patentee abuses such issuance, said action may lead to the restriction of competition or unfair competition, resulting in a possible violation of Article 25 of the Taiwan Fair Trade Act. The Fair Trade Commission thus formulated the "Fair Trade Commission Disposal Directions (Guidelines) on the Reviewing of Cases Involving Enterprises Issuing Warning Letters for Infringement on Copyright, Trademark, and Patent Rights" as early as 1997, establishing standards for intellectual property rights holders to follow when issuing such letters to their competitors' trading counterparts.
Advancements in communication technologies and developments in multinational patent strategies introduce uncertainties regarding the jurisdiction of the Fair Trade Act and the aforementioned guidelines. This includes situations where claims of infringement of foreign patents arise due to competitors selling products intended for foreign markets. The Intellectual Property and Commercial Court (the IPC Court) addressed this issue in 112(2023)-Min-Gong-Su No. 1 Civil Judgment of December 26, 2023.
In this case, both Plaintiff (Company A) and Defendant (Company B) were chip manufacturers in Taiwan. Defendant, owner of the disputed US patent alleged that chips contained in laptop products manufactured and sold by a third party, Company C (also a manufacturer in Taiwan) on the US market potentially infringed on the disputed US patent. Defendant accordingly commissioned purchase, deconstruction, and analysis of the laptop product on the US market, and subsequently issued Cease & Desist letters to Company C and the US subsidiary thereof, claiming infringement on its US patent thereby.
Plaintiff is the chip manufacturer for the noted laptop products and asserts no possibility of infringement, since the disputed US patents were previously deemed invalid by the United States Patent and Trademark Office due to non-payment of fees. Although rights were subsequently reinstated, according to the provisions of the US Patent Law, intervening rights applied during this period. Therefore, Plaintiff argues that Defendant has violated the provisions of the Fair Trade Act with this claim.
Defendant argued that the Cease & Desist letter was directed at products infringing on disputed US patents on the US market, unrelated to the market in Taiwan. The actions of the Defendant in the noted jurisdiction had no effect on the domestic (Taiwan) competition order and, therefore, were not subject to application of the Taiwan Fair Trade Act.
The IPC Court, in the aforementioned judgment, found the following.
1. Given that Article 5 of the Fair Trade Act states, "the term 'relevant market' refers to the area or scope in which a business engages in competition for a specific product or service," and, in terms of economics, determination of such "relevant market" is based on the extent of possible substitution of goods and differences in the sales area thereof. Definition of a relevant market is to be determined by consideration of both the product and geographic markets. The product market refers to the range of goods or services with high demand or supply substitution in terms of functionality, characteristics, use, and/or pricing. The geographic market refers to the area in which trading counterparts of a business that provides a specific product or service can easily choose or switch among trading partners. In addition to consideration of the two market types, characteristics of the individual case and impact of time factors on the specific market scope need also be assessed.
2. Plaintiff and Defendant are both semiconductor manufacturers in Taiwan. Plaintiff provides its chips to module manufacturers, who assemble the same for sale to the end product brand company, Company C. Company C's US branch is a related enterprise established locally. Transaction barriers to Company C acquisition of noted products are shallow, enough so that the US and Taiwan can be considered a single market.
3. As Plaintiff and Defendant have a high degree of overlap in the relevant product range and are both chip manufacturers Taiwan, they are clearly in a competitive relationship. Therefore, Defendant's issuance of the aforementioned Cease & Desist letter could potentially impede availability of alternative supply for chips produced by the Plaintiff. Moreover, chip applications are widely used and cannot be restricted to a specific geographical region in terms of sales, being part of the global market supply chain rather than limited to a discrete geographic area. Therefore, Plaintiff argues that the actions of Defendant in issuing the aforementioned Cease & Desist letter to the customers of Company C's US branch, among other terminal brand customers, have had direct impact on Plaintiff's market for manufacturing and selling chips in Taiwan and US. Therefore, the Plaintiff asserts that application of the Fair Trade Act is justified.
4. According to Article 30 of the Fair Trade Act, "If a business violates the provisions of this Act and causes harm to the rights and interests of others, it shall be liable for damages." In this case, Defendant was unable to exercise disputed US patent rights during a specific period. Therefore, issuance thereby of Cease & Desist letters during this period violated the provisions of Article 25 of the Fair Trade Act. As a result, the court ruled that Defendant should be held liable for damages in this regard.
Accordingly, it can be seen that even if a patent infringement Cease & Desist letter is based on a foreign patent and targets products circulating in foreign markets, under certain circumstances, the IPC Court may still agree with application of the Fair Trade Act and require attention to the provisions of relevant principles.