Antitrust Issue of Reasonable Royalty and Prohibition of Excessive Pricing in Taiwan

Antitrust Issue of Reasonable Royalty and Prohibition of Excessive Pricing in Taiwan

A proposed antitrust framework to determine a reasonable royalty

I. INTRODUCTION

  “Can, and should antitrust laws and authorities step in market prices?” - It has long been a controversial antitrust issue, especially when an antitrust case is involved with allegedly unlawful monopolization (or called abuse of monopoly in some countries), Intellectual Property (IP) rights (IPRs), reasonable royalties, and the complex and fast-changing technologies behind. It thus constitutes the tricky and challenging antitrust issue of reasonable royalty - “if a monopolistic firm is charging reasonable royalties or abusing its monopoly power?” Since the goals and regimes of antitrust are very different between Asia, the United States (the U.S.), and Europe, there are consequently various ways to deal with such issue.

A. China and its Per-Se Violation of Excessive Pricing

  Several countries in East Asia aim to protect fair competition and social public interests via antitrust laws, including some other non-competition-based goals.[1] China, Japan, Korea and Taiwan’s goals of antitrust all include protection of fair competition. China also articulates its goals to maintain public interests and promote socialist market economy. Japan also aims to promote the employment rate and the level of national income which are not competition-based goals. Furthermore, South Korea expresses its antitrust goal to achieve balanced economic development which is somehow tricky to judge. As a result of the concepts of fairness and non-competition interests, the antitrust issue of reasonable royalty can possibly lead to the determination of unfairly high prices and thus constitutes an unlawful per se violation of excessive pricing in East Asia.

  Take China as an example, China explicitly articulates the prohibition of charging unfairly high prices as a firm in dominant position.[2] Moreover, China has further stepped in determining “appropriate royalties” supposedly charged by licensors and has demanded foreign firms in China to charge lower royalty rates.[3] In Huawei v. InterDigital Technology Corporation (IDC), the court ruled that IDC charged Chinese firms unfairly high royalties and further held that the royalty rates of the Standard Essential Patents (SEPs) charged by IDC shall not exceed 0.019%. In the Qualcomm case in China, National Development and Reform Commission of China ruled that Qualcomm was charging unfairly high prices and demanded it to lower its royalty base.

  Additionally, China’s Anti-Monopoly Guidelines on the Abuse of Intellectual Property Rights published by the Ministry of Commerce of the People's Republic of China (MOFCOM) in March of 2017 were passed in the end of 2018.[4] While already waiting to be formally executed, these Guidelines had received comments regarding reasonable royalties – especially the antitrust violation of licensing IPRs at unfairly high prices with 5 listed factors to consider whether there is abuse of dominant position.[5] By pointing out the dangers of regulating price following with potential harms to competition, one of the comments encourages the Guidelines to have the relevant factors in terms of determining unfairly high prices, such as the prices of comparable licenses instead of any other irrelevant indicators.

B. European Commission (EC)[6] and its Per-Se Violation of Excessive Pricing

  While embracing free market economy and achieving social and political goals at the same time, EC prohibits unfairly high prices as unlawful per se by articulating “directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions” as abuse of market dominance.[7] The test to it started from the case United Brands (1978) which stipulates the difference between cost and price.[8]

  As the time came to the late 2000s, EC once said that “it takes no position on what a reasonable royalty is” in 2013 but later stated its option to act directly against excessive prices in 2016.[9] In 2017, the Copyright and Communication Consulting Agency/Latvian Authors Association (the AKKA/LAA case) was brought to the court for charging excessive fees for its exclusive right to license.[10] According to Article 267(a) of the Treaty on the Functioning of the European Union, the Court of Justice of the European Union (CJEU) shall have jurisdiction to give preliminary rulings concerning the interpretation of the Treaties. Given the questions referred to the CJEU in the AKKA/LAA case, the concept of excessive pricing therefore had the chance to be clarified further. [11] Three important principles established in this case are: (1) comparing the price at issue between the prices charged by other appropriate and sufficient comparators; (2) there is no threshold of what a royalty rate must be regarded as appreciably high, but a difference between rates must be both significant and persistent to be appreciable; (3) an analysis of fairness justification provided by the alleged dominant firm must be conducted.[12] The AKKA/LAA case reestablished and reaffirmed EC’s resolve to enforce prohibition of excessive pricing.

  As for the recent times, the Danish Competition Council found that the Swedish pharmaceutical distributor - CD Pharma had abused its dominant position by charging excessive prices for Syntocinon, ruling the price increase of 2000% unjustified.[13] The appeal against this decision is now pending. Many more excessive pricing cases are still ongoing within EU jurisdictions.

C. The U.S. and its Hands-Off Approach towards Pricing

  U.S., on the other hand, never did and does not prohibit monopoly or excessive pricing, and has been warning the great dangers and potential harms to competition resulting from regulating price.[14] The long-established principle of not regulating price, however, was shaken by U.S. Federal Trade Commission (FTC)’s complaint against Qualcomm for conducting unfair methods of competition in 2017.[15]

  U.S. FTC filed a complaint against Qualcomm in 2017, alleging Qualcomm violating the Federal Trade Commission Act. According to the complaint, customers accepted elevated royalties that a court would not determine fair and reasonable due to Qualcomm’s unlawful maintenance of monopoly. However, the complaint fails to explain what a reasonable royalty is and why Qualcomm charges more than it is supposed to be charging.[16] Furthermore, the dissenting statement of this case states that the theory adopted by FTC required proof of Qualcomm charging unfairly high royalties where there was failure of proving reasonable royalty baseline in the case.[17] In January of 2019, this case finally kicked off in a California courtroom and the outcome of it will definitely have tremendous impacts on every stakeholder. Later in May 2019, the United States District Court for the Northern District of California found that Qualcomm violated the FTC Act. The case is still ongoing.

D. Taiwan and its Unclear Attitude towards the Antitrust Issue of Reasonable Royalty

  So, where does Taiwan stand between prohibition of excessive pricing and the hands-off approach in the U.S.? In Taiwan, improperly setting, maintaining, or changing the price for goods or the remuneration for services as a monopolistic enterprise has long been unlawful per se since Taiwan’s Fair Trade Act (FTA) was enacted in 1991.[18] This unlawful per se violation is in fact Taiwan’s prohibition of excessive pricing. However, the attitudes of Taiwan Fair Trade Commission (TFTC) and the courts in Taiwan towards the antitrust issue of reasonable royalty can be switching. They have avoided the issue, left the issue for private contracting, resorted to Patent Act, and determined royalties for the involving parties.

  Antitrust cases involving the issue of reasonable royalty can be a matter of billion-dollar fines, tremendous costs of litigation, negative impacts on innovation and competition, and harms to consumers. Such important issue can no longer be neglected by Taiwan anymore. By focusing on the antitrust issue of reasonable royalty in Taiwan, this paper will begin with the past attitude and the current antitrust framework of reasonable royalty in Taiwan. Further, because Taiwan has been looking up to the U.S. and its patent law in terms of calculating reasonable royalty in patent infringement cases; this paper will then turn to the reasonable royalty approach in Taiwan and the U.S. respectively. Even though this paper does not support prohibition of excessive pricing, we hope the antitrust issue of reasonable royalty in any excessive pricing case in Taiwan will be properly and carefully dealt with. Therefore, based on the proposed methodologies in a 2016 paper[19], the core of this paper will be proposing a framework for Taiwan in order to give clearer directions on how to face the antitrust issue of reasonable royalty along with the potential violation of Article 9 of FTA.

II. THE PAST ATTITUDE AND THE CURRENT ANTITRUST FRAMEWORK OF REASONABLE ROYALTY IN TAIWAN

A. The RCA, Catrick, and Microsoft case - 1995 ~ 2003

  TFTC’s attitude towards the antitrust issue of reasonable royalty had long been unclear. In TFTC v. Radio of Corporation of America (RCA)(1995), RCA settled with TFTC for the accusation of charging improper royalties.[20]In TFTC v. Microsoft (2002-2003), Microsoft settled with TFTC after 10 months being accused of conducting excessive pricing. [21] However, the details of both settlements were never published. In the Catrick case (1998), a U.S. firm named Catrick was accused of improperly charging royalties.[22] TFTC attempted to resort to Patent Act but Patent Act at that time was silent on calculation of royalties. To play safe, TFTC did not interpret FTA or determine a reasonable royalty. Instead, TFTC left the issue to be solved under the principle of freedom of contract and closed the investigation.[23]

B. The CD-R Patent Pool Case – 2001~2015

1. Summary of the case

  Even being given 15 years of time, the antitrust issue of reasonable royalty still remained unsolved in the CD-R Patent Pool case (2001-2015). Upon the investigation from 1999, TFTC found that Philips Electronics NV (Philips) and other two companies had violated Article 10 of FTA with their unlawful concerted action and abuse of dominance in 2001.[24] Here is the background: The CD-R manufactures in Taiwan accounted for 80% of the global CD-R manufacturing output when the time the CD-R technologies were a worldwide industrial revolution. The price of CD-R was originally at around $60 per piece in 1990. It later went down to $0.20 per piece in 2000. However, the three enterprises in the case kept refusing to change the formula for calculating the license fee. Thus, the pricing issue here was that if the three monopolistic enterprises improperly maintained the formula for calculating the CD-R license fee by joint licensing and refusing to change the license fee even though the market conditions had changed drastically at that time.[25]

  After a series of appeals and retrials, TFTC again ruled that Philips violated Section 2 of Article 10 of FTA by abusing its dominant position and improperly maintaining the price for its jointly licensed technologies in 2015.[26] To everyone’s disappointment, TFTC again left the determination of reasonable royalty unsolved.

2. Fights over reasonable royalty between courts and TFTC

  The tricky thing is, administrative courts, TFTC, Intellectual Property Court of Taiwan (IP Court of Taiwan) held totally different positions in the CD-R case in terms of the antitrust pricing issue:

a. Taipei High Administrative Court (2003) [27]

The court reasoned that the license fees should be determined by competition and cost structure on principle. As a result, the determinants to reasonable royalties would be supply and demand in the market.

b. TFTC Decision No.095045 (2006) [28]

TFTC did not hold that the defendants’ pricing practice in violation of FTA. However, it stated its position in stepping in royalties - “Business value of patents varies due to maturity of technologies and market development. Therefore, patent holders should consider prices of final products, value of patents, and contributions made by licensees while determining reasonable royalties… It is inappropriate for the antitrust authority in Taiwan to step in royalties unless there is indication of illegal monopolization or cartel. “

c. Intellectual Property Court Appeal Case No.14 (2008) [29]

IP Court of Taiwan incorporated the concept of fairness in its decision by saying – “courts could only adjust the royalty rates in consideration of fairness towards both parties and other relevant factors in the contract.” Further, the court also said that it was not within TFTC’s jurisdiction to determine the reasonableness of the license fee charged by Philips.

d. TFTC Decision No. 098156 (2009)[30]

By revealing the prices of CD-R output, shipment of CD-R, change of market conditions within 10 years, and the 60 times higher royalty revenues earned by Philips, Sony and Taiyo Yuden, TFTC found that the profits earned by the three defendants were beyond expectation and estimation. In conclusion, TFTC again held in its 2009 decision that the three defendants violated FTA by not giving opportunities to negotiate over the CD-R license fee upon the easily perceived market changes.

e. Supreme Court of Taiwan, Case No.883 (2012) [31]

After the long fights between courts and TFTC for 10 years, Sony and Taiyo Yuden had stopped fighting and their cases were affirmed in 2011. As for Philips, they enjoyed a huge turning point in 2012 because the Supreme Court of Taiwan abolished IP Court of Taiwan’s 2008 verdict and ruled that the governing laws of the contracts between the involving parties were Dutch laws.

f. TFTC Decision No. 104027 (2015)[32]

TFTC did not get defeated and reached another decision against Philips in 2015. In the reasoning, TFTC first clarified that market prices should be determined by competition and cost structure. Then it claimed to still have the role to rule that Philips had been improperly maintaining the license fee of CD-R through abuse of dominance, refusals to renegotiate and earning excessive profits. To everyone’s disappointment, TFTC still left the determination of reasonable royalty unsolved.

C. TFTC v. Qualcomm Incorporated (Qualcomm) (2015 - 2018)[33]

  In 2017, TFTC ruled that Qualcomm violated Article 9(1) of FTA[34] by refusing to license, imposing no license no chips policy, and conducting exclusive dealing. As for the pricing issue in this case, it was argued if the license fees charged by Qualcomm were unreasonably high and if the fees should be based on value of patents instead of net prices of manufactured phones. TFTC did point out the pricing issue in its reasoning but did not say much further. Instead, TFTC commented in the decision that Qualcomm had been enjoying excessive profits and stated that license fee was a matter of freedom of contract and negotiation.[35] After a series of fights between TFTC and Qualcomm, both parties agreed to settle in August 2018.[36] The Administrative Decision No. 106094 issued by TFTC was vacated with the replacement of the settlement[37] which Qualcomm agreed to invest hundreds of millions in Taiwan and on other matters.[38]

D. The Current Antitrust Framework of Reasonable Royalty in Taiwan

  The current antitrust framework of reasonable royalty in Taiwan in this paper is based on the latest version of Fair Trade Act of Taiwan which was amended in 2017 and the latest version of IP Guidelines of Taiwan which was amended in 2016.[39] There are three main steps in the current antitrust framework to deal with the reasonable royalty issue that suspiciously violates FTA in Taiwan.

1. Proper conducts pursuant to Intellectual Property Laws in Taiwan

  First, and most importantly, Article 45 of FTA excludes the application of FTA to all “proper conducts” pursuant to all IP Laws in Taiwan where TFTC does not give quite clear explanation of.[40] The reason behind such exclusion stated in the legislative rationale of Article 45 of FTA is problematic - “Copyrights, Trademarks, and Patents are monopoly rights endowed by IP laws. Therefore, FTA shall not apply to them by nature.” [41]

2. Guidelines on Technology Licensing Arrangements (IP Guidelines of Taiwan)

  Secondly, TFTC shall turn to review if IP Guidelines of Taiwan apply to any licensing practice in the case when it sees Article 45 of FTA not applicable.[42] IP Guidelines of Taiwan articulates a correct and fundamental principle while reviewing a technology licensing agreement – “TFTC does not presume market power resulted from owning a patent or know-how.”[43] Further, IP Guidelines of Taiwan do not articulate reasonable royalty or excessive pricing. Instead, the Guidelines make clear of the allowed and prohibited calculation methods for royalties. By recognizing the ease of calculation as efficiency, IP Guidelines of Taiwan basically allows the end product approach and the net sales approach to be applied in a technology licensing agreement as long as the licensed technology was indeed used by the licensee.[44] Notwithstanding, TFTC still has the power to find an antitrust violation upon finding of improper matters even if a licensor complies with Section C of Article 5 of IP Guidelines of Taiwan. [45]

3. Prohibited monopolistic conducts

  When neither Article 45 of FTA nor IP Guidelines of Taiwan applies to the case, the last step TFTC shall take towards reasonable royalty issue is to review if Section 2 of Article 9 of FTA applies - ” Monopolistic enterprises shall not engage in improperly setting, maintaining or changing the price for goods or the remuneration for services.” [46] Basically, it is the prohibition of excessive pricing in Taiwan. To be noticed, Article 9 of FTA can only be applied when there is one or more monopolistic enterprises involved.

4. Some issues under the current antitrust framework of reasonable royalty in Taiwan

a. Proper conducts pursuant to all IP laws in Taiwan.

Article 45 of FTA excludes the application of FTA to what so called “proper IP conducts.” Such exclusion is based on the idea that IPRs are monopoly rights – which is problematic.[47] The fact is - IPRs are exclusive rights instead of monopoly rights. IPRs do not necessarily confer monopoly power or induce more anticompetitive behaviors than other types of property. Moreover, exercising an IPR can be engaging in improper market conducts that lessens competition. In other words, what should be kept in mind is that a proper IP conduct may still possibly constitute an antitrust violation.

b. The maybe-violation in IP Guidelines of Taiwan.

IP Guidelines of Taiwan are basically friendly towards the end product and the net sales approaches for calculating royalties. However, Article 5 of the Guidelines still gives TFTC the power to find a “maybe” antitrust violation upon any improper matters. Such maybe violation makes the protection under IP Guidelines shaky and even not that useful.

c. No such thing as excessive profit.

One of the legislative reasons behind the prohibition of excessive pricing in Taiwan is that - “when a firm does not price its products based on reflection of the costs but intends to gain exorbitant profits, such improper pricing conduct would be the most effective way to exclude competition.” [48] Firstly, there is no such thing as an excessive or exorbitant profit in a free market economy when a price is determined by supply and demand which results in profits you earn accordingly. Secondly, instead of the profits, it should be the price or the pricing practice to be evaluated due to the purpose of excessive pricing violation.

d. Missing harms to competition.

Most important of all in any excessive pricing case – where are the harms to competition? It should be clear that unjustified profits are not what antitrust laws aim to punish but the anticompetitive market conducts that harm competition. Which is to say – if a monopolistic enterprise has been charging excessive prices through abuse of monopoly that generates harms to competition? With the ultimate goal of protecting the overall competition and consumers, there must be potential or actual harms to competition proven in any excessive pricing case. Such as higher prices, lower outputs, exclusion of competition, entry barriers, negative impact on innovation, or so.

E. The Reasonable Royalty Approach under the Patent Act in Taiwan

1. Damages as reasonable royalty

  Article 97(1) of Patent Act of Taiwan lists three approaches for calculating damages in any event of patent infringement.[49] One of the approaches is the reasonable royalty approach.[50] The so-called reasonable royalty is the royalty the licensee would have paid if there had been a negotiation instead of an infringement. In practical, any profit earned by the licensee from the infringement is excluded from the damages while adopting such approach. Since the infringing licensee saved the costs of negotiation and the licensor spent extra costs on patent infringement litigation, it is also recognized that damages calculated by adopting the reasonable royalty approach can be more than the royalty the licensee would have paid.[51]

2. Determinants and principles in a hypothetical negotiation over royalty

  After all, the reasonable royalty approach assumes a hypothetical negotiation over royalty between the licensee and licensor. There are still controversies over the determinants and principles to be applied while adopting such approach. Various considerations would possibly lead to drastically different reasonable royalties just like the NT$10 million and NT$1 billion damages in the Philips v. Gigastorage case. [52] Koninklijke Philips NV (Philips) brought a patent infringement lawsuit against Gigastorage Corporation (Gigastorage, a Taiwan-based manufacturer) at the IP Court of Taiwan in 2014, alleging that Gigastorage had been infringing their Taiwanese patent from 2000 through 2015 by manufacturing and selling DVD related products. The pricing issue here is how to calculate the damages and compensation of unauthorized utilization of the patent involved where the calculation methods and considerations would make big differences. IP Court of Taiwan awarded NT$10.5 million as damages based on reasonable royalty approach in the first trial. However, the same court of different judges later ruled that the damages should be over NT$1 billion according to unjust enrichment. The case was brought to the Supreme Court of Taiwan in 2017. In September 2018, the NT$1 billion judgement was remanded and now the IP Court of Taiwan is thus responsible for a retrial.[53]

  Nevertheless, the two most common determinants to a reasonable royalty under this approach are – licensing history and comparable patents. Interestingly and importantly, these two determinants are also taken into consideration by several antitrust jurisdictions in the world while dealing with the issue of reasonable royalty.

III. WHETHER TO REGULATE EXCESSIVE PRICING AND THE MONDERN REASONABLE ROYALTY APPROACH IN THE U.S.

A. Whether to regulate excessive pricing?

  Supply and demand are two key factors that determine a price in a free market. Profits are usually what encourage innovation and attract firms doing businesses in the first place. There is no doubt that a firm sets a price it believes to maximize its profits – which is profit maximization rule in economics. When a monopoly tries to manipulate or disturb the market by setting a lower or higher price that does not go along with profit maximization rule, here are some possible consequences: (1) new entries in the market trying to share the profits; (2) consumers might switch to substitutes of the product in order to pay less; (3) monopoly might lose profits that it would earn otherwise. Simply saying, a free market usually responds to market changes quite well and can function accordingly without too much disruption. Regardless of the free market mechanism, there are still many voices discouraging the prohibition of excessive pricing due to the inherent dangers of regulating prices – such as discouraging investment in research and development activities, impairing innovation, and ultimately harming consumers.[54]

  Along with the antitrust jurisdictions that prohibit excessive pricing by law, there are studies showing that prohibition of excessive pricing may benefit the market or – the consumers. A 2015 research finds that: “when economies of scale and entry barriers imply a great likelihood of dominant firms not subjecting to regulation but capable of charging supra-competitive prices, excessive pricing regulation is then important for smaller markets.”[55] A study in 2017 further examines the competitive effects of the prohibition of excessive pricing by applying two competitive benchmarks – retrospective benchmark and contemporaneous benchmark to assess the price charged by a dominant firm excessive or not. The study finds that the two benchmarks restrain the dominant firm’s behavior but soften the firm’s behavior when its competing with a rival. By setting certain factors homogeneous, a retrospective benchmark for excessive pricing benefits consumers. While under different circumstances, consumers are worse off and inefficient entries are created. Overall, the study indicates that the competitive effects of prohibition of excessive pricing vary as we consider various factors – such as the nature of competition, the expected fines, incentive to invest in research and development (R&D), cost of litigation and more. [56]

  As a whole, there are still a great number of concerns about potential dangers of regulating price. However, whether to regulate excessive pricing or not, the fundamental question to ask is still – “how to determine a reasonable price to assess if the price at issue is excessive?”

B. The Modern Reasonable Royalty Approach in the U.S.

  U.S. antitrust agencies do not prohibit excessive pricing. An IPR holder is free to charge a monopoly price just as a monopoly is free to earn its monopoly profits as long as the monopoly price and profits are not resulted from anticompetitive conducts that violate antitrust laws in the U.S. While saying that, U.S. still has a reasonable royalty approach developed under its patent law which is the law Taiwan has copied a lot from. [57]

  There are different methodologies for the reasonable royalty approach in the U.S., the most common one would be the hypothetical negotiation which was matured from Georgia-Pacific Corp. v. United States Plywood Corpin 1971 (Georgia-Pacific case), ruling that the proper damages in a patent infringement case as – “the amount that a licensor and the infringer would have agreed upon.” By adopting this hypothetical negotiation framework, the case eventually developed a list of 15 determinants as to a reasonable royalty: [58]

(1) The royalties received by the patentee for the licensing of the patent in suit, proving or tending to prove an established royalty.
(2) The rates paid by the licensee for the use of other patents comparable to the patent in suit.
(3) The nature and scope of the license, as exclusive or non-exclusive; or as restricted or non-restricted in terms of territory or with respect to whom the manufactured product may be sold.
(4) The licensor's established policy and marketing program to maintain his patent monopoly by not licensing others to use the invention or by granting licenses under special conditions designed to preserve that monopoly.
(5) The commercial relationship between the licensor and licensee, such as, whether they are competitors in the same territory in the same line of business; or whether they are inventor and promotor.
(6) The effect of selling the patented specialty in promoting sales of other products of the licensee; the existing value of the invention to the licensor as a generator of sales of his non-patented items; and the extent of such derivative or convoyed sales.
(7) The duration of the patent and the term of the license.
(8) The established profitability of the product made under the patent; its commercial success; and its current popularity.
(9) The utility and advantages of the patent property over the old modes or devices, if any, that had been used for working out similar results.
(10) The nature of the patented invention; the character of the commercial embodiment of it as owned and produced by the licensor; and the benefits to those who have used the invention.
(11) The extent to which the infringer has made use of the invention; and any evidence probative of the value of that use.
(12) The portion of the profit or of the selling price that may be customary in the particular business or in comparable businesses to allow for the use of the invention or analogous inventions.
(13) The portion of the realizable profit that should be credited to the invention as distinguished from non-patented elements, the manufacturing process, business risks, or significant features or improvements added by the infringer.
(14) The opinion testimony of qualified experts.
(15) The amount that a licensor (such as the patentee) and a licensee (such as the infringer) would have agreed upon (at the time the infringement began) if both had been reasonably and voluntarily trying to reach an agreement; that is, the amount which a prudent licensee who desired, as a business proposition, to obtain a license to manufacture and sell a particular article embodying the patented invention would have been willing to pay as a royalty and yet be able to make a reasonable profit and which amount would have been acceptable by a prudent patentee who was willing to grant a license.

  The U.S. reasonable royalty approach and the calculation of reasonable royalty have been evolving since then. The Federal Circuit in a 2011 case held that the long-used and criticized 25 percent rule of thumb is fundamentally flawed for determining a baseline royalty rate in a hypothetical negotiation.[59] The rule suggests that 25% of the expected profits for the product that incorporates the IP at issue as a baseline royalty rate. Practically, the profits earned by the licensee and the revenues of the product are still often taken into consideration nowadays while applying the U.S. reasonable royalty approach.

  Further, the Ninth Circuit modified some factors in Microsoft Corp. v. Motorola Inc. (2012) which was a case involved with reasonable and non-discriminatory (RAND) commitment, standard essential patents (SEPs), and patent pool. [60] This case raised some important factors to determine a RAND royalty, such as RAND commitment and its purposes, SEPs’ contribution and importance, alternatives of SEPs to the adopted standard, and so on. Comparable patents play a very critical factor in this case in terms of calculating a RAND royalty. Also, it is important to notice that the function of a RAND commitment limits a SEP licensor to royalties that reflect their ex ante values instead of the incremental monopoly power provided by the standard.[61]

  In Ericsson, Inc. v. D-Link Systems, Inc. (2014), a modified version of the 15 factors was adopted after the Federal Circuit held that – not every factor from the 15 factors in Georgia-Pacific will apply to every case, and courts must instruct the jury on factors that are relevant in the case. Also, the burden of proof is on the implementer (or, the antitrust authority in an excessive pricing case) to establish a baseline royalty with evidence. That royalty then must be assessed to determine if it is excessive. [62]By adopting incremental value approach and incorporating apportionment, the Federal Court here provides a more complete guidance on how to calculate royalties for patents on RAND terms:[63]

(1) Importance of RAND commitment;
(2) Apportionment of patented features: the royalty for the patented technology must be apportioned from the value of the standard as a whole;
(3) Incremental value approach: the royalty must be based on the incremental value of the invention, instead of any value added by the standardization of the invention or the standard itself.

  Lastly, two factors that were not often discussed while determining a reasonable royalty were applied inPrism Technologies LLC v. Sprint Spectrum L.P. (2017) - previous settlement agreements and cost savings though infringement.[64] In conclusion, the modern reasonable royalty approach under U.S. patent law was evolved from the adopted 15 factors in Georgia Pacific case. The approach then has been developing along with changes of law, development of technology, adoption of SEPs, RAND and FRAND commitments, and more other relevant factors.

IV. A PROPOSED ANTITRUST FRAMEWORLK OF REASONABLE ROYALTY FOR TAIWAN

  Having articulated the past attitude and the current antitrust framework of reasonable royalty in Taiwan, we have pointed out some misunderstandings in the current framework. Having addressed the reasonable royalty approaches under the patent laws in Taiwan and the U.S., we also have found similarities in between – the hypothetical negotiation framework and relevant determinants. Even though there are concerns against prohibition of excessive pricing due to potential dangers of regulating price and supports towards ultimate protection of free competition, TFTC and the courts in Taiwan are still required by law to apply the prohibition of excessive pricing against IPRs for the current time being. Therefore, the most important section and the core of this paper now has come forward – which is a proposed antitrust framework composed of possible methodologies and clearer guidance for Taiwan to deal with the antitrust issue of reasonable royalty in an excessive pricing case.

  The proposed framework is based on the proposed methodologies in a 2016 paper[65] - which is to apply the hypothetical negotiation framework under U.S. patent law to determine a reasonable royalty or a competitive benchmark in an excessive pricing case. By applying the most relevant factors and adhering to important and correct principles in the case, a reasonable royalty as a baseline is thus determined to evaluate if the price at issue is excessive.

  Before articulating the proposed framework in a more detailed way, it is important to notice some basic differences between reasonable royalty in a patent infringement case and an excessive pricing case:

Table 1
Reasonable Royalty in between
a Patent infringement Case and an Excessive Pricing Case

 
Reasonable Royalty in an Excessive Pricing Case
Reasonable Royalty in a Patent Infringement Case
Base Country
Countries that prohibit excessive pricing. U.S.
Case Type
Antitrust case Patent infringement case
Governing Law
Antitrust (competition) law Patent law
Prohibited Action
A prohibited act of charging unfairly high price through abuse of monopoly. A prohibited act of unauthorized making, using, offering, or selling any patented invention.
The Reasonable Royalty Issue
Through determining a reasonable royalty to evaluate if a firm is charging excessive royalty through abuse of monopoly. Through determining a reasonable royalty to establish damages/compensation for the act of patent infringement.
Proof of Harm
Having found excessive pricing, competitive harms should be proved to establish an excessive pricing violation. Harm is proved after determining the reasonable royalty. Having proven the act of patent infringement, damages will then be determined based on reasonable royalty. Harm is proved to exist before calculating the damages.
Negotiation
There was negotiation over royalty before the lawsuit starts. There sometimes had no negotiation over royalty.
Reasonable Royalty Approach
Apply relevant factors to determine a reasonable royalty, then compare it with the price at issue to decide if the firm is charging excessive price through abuse of monopoly. Apply hypothetical negotiation framework to determine the royalty the licensor and the infringer would have agreed upon if there had been a negotiation instead of an infringement.
Relevant Factors
There are multiple and various factors applied in different countries, often not systematic or relevant. The 15 factors evolved from Georgia-Pacific, and some modified and new factors developed later on.

A. Step 1 – Important Principles to Keep in Mind Regarding the Antitrust Issue of Reasonable Royalty.

1. No presumption of monopoly power:

Ownership of IPRs does not necessarily confer monopoly power.

2. IP conducts may possibly constitute antitrust violations:

Enforcing IPRs or any seemingly proper IP conduct may still possibly constitute an antitrust violation, so that they shall not be excluded from the application of FTA.

3. No such thing as excessive profit in free market economy:

It is the pricing practice conducted by a monopolistic enterprise that should be evaluated in an excessive pricing case, instead of the profits the enterprise earns.

4. Harm to competition is and should be the key to establish an antitrust violation under Article 9 of FTA:

Simply charging a perceived excessive price or earning some unjustified profits does not automatically constitute an antitrust violation. It is the competition and consumers that we should protect in terms of any excessive pricing case. Thus, harms to competition and consumers should be proved – such as lower outputs, entry barriers, and negative impacts on innovation or R&D activities.

B. Step 2 – Compliance with Article 45 of FTA & IP Guidelines of Taiwan.

1. Firstly, all proper conducts pursuant to all IP laws in Taiwan are excluded to the application of FTA even though there is no clear explanation of what would be proper IP conducts.

2. If Article 45 of FTA does not apply in the case, we should turn to IP Guidelines of Taiwan to see if the involved market conducts or pricing practices would violate the Guidelines. If the Guidelines do not apply here, then we shall turn to Step 3 of the proposed framework.

C. Step 3 – If it is a Potential Excessive Pricing Case?

  Section 2 of Article 9 of FTA articulates - “Monopolistic enterprises shall not engage in improperly setting, maintaining or changing the price for goods or the remuneration for services.[66]

1. There must be a monopolistic enterprise.

2. The prices of goods or services or the pricing practices involved are reasonably challenged by the implementers or TFTC. [67]

D. Step 4 – When would a hypothetical negotiation have taken place?

  When it is a potential excessive pricing case under Section 2 of Article 9 of FTA, it is time to apply the hypothetical negotiation framework under patent law to determine a reasonable royalty within antitrust framework. While the first thought we come up with is usually “how much the parties would have agreed upon,” what we often ignore is that – “when would a hypothetical negotiation have happened? “The timeframe of the hypothetical negotiation is in fact highly related to what relevant factors we should consider in terms of determining a reasonable royalty. Such timeframe issue thus could cause huge impacts on the amount of damages in a patent infringement case and affect the competitive benchmark in an excessive pricing case. More clarifications are as follows:

1. In a patent infringement case:[68]

a. Pure ex ante approach:

By assuming the parties would have negotiated over the royalty before the infringement began, such approach reflects an ex ante negotiation in the absence of infringement based on the information available before the infringement. Two supporting reasons are: (1) preservation of incentives; (2) avoidance or lowering the cost of patent holdup.[69]

b. Pure ex post approach:

This approach sets the negotiation reached on some later date, such as the date of judgement or any time after the infringement. Such approach could possibly provide more available and provable information to determining a royalty but could also give the patentee more bargaining power when the patentee is holding an injunction against the infringer.

Figure 1 
Timeframes of the Hypothetical Negotiation Applying
Pure Ex Ante Approach and Pure Ex Post Approach

c. Contingent Ex Ante Approach:

Pros and concerns when applying pure ex ante and pure ex post approaches are out there to be noted. While a proposed approach claims to address the issues of patent holdup and bargaining power at the same time – which is called contingent ex ante approach. This approach sets the negotiation prior infringement reached contingent on the ex post information, arguing that ex post information provides a better measure for the true value of the patented technology. Further, it is said to be able to take new and changed circumstances into account in every individual infringement case. Here is a simple example presented in the paper:[70]  

(1) A $500,000 royalty might be agreed upon based on the parties’ expectation that the infringer would earn $1 million above what it would earn if it used the next-best available non-infringing patent.

(2) At the date of judgement, the infringer is proven to earn $1.5 million instead of $1 million. This $1.5 million earning would be the ex post information applied in an ex ante negotiation. On the other hand, if the proven earning is only $500,000, then the royalty the parties might have agreed upon would be lower.

(3) By applying contingent ex ante approach, it is argued that the patent hold-up would be avoided and the bargaining power between the parties would be balanced.

 

Figure 2
Timeframes of the Hypothetical Negotiation Applying
Contingent Ex Ante Approach

2. In an excessive pricing case:

Applying the hypothetical negotiation framework under patent law in an excessive pricing case is much more difficult on one matter – the timeframe discussed above. Some important reasons are as follow:

(1) Excessive pricing cases involve comparing a competitive benchmark with the price at issue, yet the prices in a case could be changing over time.

(2) There were already negotiations over royalty before an excessive pricing lawsuit starts.

(3) Involvement of FRAND and SEPs only make it more complicated to determine a reasonable royalty while facing the timeframe issue. E.g. the timing of a patent’s incorporation into a standard is critical and affects the value of the invention.

 

Figure 3
Excessive Pricing Case and the Timeframe Issue

E. Step 5 – If there are FRAND or RAND terms?

  Royalties negotiated on FRAND or RAND terms (FRAND royalties) can be and are usually different from those without. FRAND royalties may involve the following factors which often consequently affect royalties in real world:

1. FRAND obligations and terms: such as fairness, royalty free, grant back provision, exclusivity and other reciprocal terms.

2. Timing of the establishment of a standard: A patent may exist before the establishment of an industrial standard. As this patent is considered essential to a standard and also is included in such standard, the value of such patent – SEP usually goes up.[71]

3. Cooperation between SEP holders: the number of SEP holders and the number of SEPs included in a standard can be influential.

4. Other factors: standard setting organizations’ policies, threat of injunction, patent hold-up and hold-out, royalty stacking, other available and comparable technologies, and relationship between licensors and licensees.

F. Step 6 – Consider the Most Relevant Factors.

  No matter what approach or timeframe of hypothetical negotiation gets adopted in an excessive pricing case, the most relevant factors to consider in determining a reasonable royalty are as follow: 

1. Comparable patents

The best potential non-infringing alternatives should be the top determinant. What we usually consider as alternatives here are the existing patents in the marketplace since it would be impractical to include expired or invalid patents as comparable patents. But if we take the issue of the timeframe of a hypothetical negotiation into consideration, the status of the patents could be different – which means the hypothetical negotiation could have happened when there were more or less comparable patents. Undoubtedly, comparability is hard to judge. Loads of factors have been taken into account – technical and economic standpoints, the underlying technology, timing of the licensing, previous settlements or litigations, and other more.

As noted here, comparable patents are provided as evidence to determining a reasonable royalty – not to its admissibility. Further, here are more difficulties while looking for comparable patents:

a. Lots of technology-related royalties nowadays are negotiated on a patent portfolio basis using the end-user device as the royalty base. Both end-user based and portfolio based calculations make it harder to extract the value of an individual patent.
b. Cross-licensing or business relationships are sometimes built in exchange of patent licensing. It means that there sometimes has no cash payment involved to know the values of patents.
c. Should the allegedly comparable patents cover foreign patents?

2. FRAND royalties:

a. FRAND or RAND commitment and its importance.

b. Number of SEPs and number of SEP holders in a standard setting.

c. Proper apportionment:

By the reason that not all patents are created equal or of the same value, the value of an individual patent’s contribution to the standard and the end product is a critical factor when determining a FRAND royalty. As noted here for clarification, even though the Federal Circuit in the famous Ericsson v. D-Link case stated that a FRAND royalty should not include the value that a technology gains from simply being included in a standard, it should not be interpreted as a complete exclusion of any of a standard’s value. When a patented technology in fact creates values for a standard due to its inclusion, these values should definitely be considered as contribution and an important factor.[72]

G. Step 7 – Consider Other Factors

1. Other factors may possibly be considered

a. The terms and scope of the licensing agreement, as exclusive, non-exclusive, restrictive, or non-restrictive.

b. The nature and benefits of the technology or invention.

c. Licensor’s monopoly power, and its policies or programs to maintain or preserve such power.

d. Licensing history between the parties, and between the licensor and other firms.

e. Investments made to implement the technology or the standard.

f. Barriers to entry, it could be legal barriers, exclusive agreements, economies of scale, or network effect.[73] As for antitrust of excessive pricing in Taiwan, a paper suggests that entry barriers should be one of the keys to determine if TFTC should step in. That is to say - when there are entry barriers delaying or barring new entries in a market, TFTC should possibly have jurisdiction and a case according to the types of the barriers.

g. Royalty stacking and patent hold-up and hold-out.

h. Smallest saleable component rule: Institute of Electrical and Electronics Engineers (IEEE) amended its patent policy in 2015 and included the smallest saleable Compliant Implementation as an important consideration in terms of determining a reasonable royalty.[74]

2. Factors not recommended to be considered.

a. Profits earned from charging the allegedly excessive royalty.

b. The profitability, commercial success, popularity, advantages, utilities, and the sales of the patented products.

c. The value of the pure adoption of the standard.

d. Commercial and business relationships involved.

e. Other non-competition, non-patent-related, or pure business factors.

H. Step 8– Compare the Reasonable Royalty to the Alleged Excessive Price

1. The determined reasonable royalty is a baseline or what we call a competitive benchmark. It should not be a minimal royalty a patent owner can charge.

2. As for practicality, it is allowed to be more than just reasonable royalty to be compensated to the patent owner in a patent infringement case. Just like a firm can charge a price more than the cost of its product. Therefore, the price at issue should not be necessarily excessive when the determined reasonable royalty is greater than the alleged excessive price.

 

V. CONCLUSION

  Excessive pricing cases involving the antitrust issue of reasonable royalty can be a matter of tremendous cost of litigation, fines of billion dollars, and unimaginable potential harms to competition. The great dangers involved through regulating price can lead to negative impacts on innovation, industries, and consumers - consequently to the ultimate failure of protection of competition. Putting aside the doubts about the prohibition of excessive pricing, I respectfully propose an antitrust framework of reasonable royalty in this paper with a sincere goal to help Taiwan with the issue of reasonable royalty in any excessive pricing case in the future. Lastly, I sincerely address the most essential and ultimate principle of antitrust here, again - it is and should always be the competition that antitrust laws and agencies aim to protect, not competitors, prices or only the consumers.[75]

 

[1] Anti-Monopoly Law of the People’s Republic of China, Law Info China, http://www.lawinfochina.com/display.aspx?lib=law&id=0&CGid=96789 (last visited Aug. 6, 2019); The Antimonopoly Act, Japan Fair Trade Commission, http://www.jftc.go.jp/en/legislation_gls/amended_ama09/amended_ama15_01.html(last visited Mar.9, 2018); Monopoly Regulation and Fair Trade Act, Fair Trade Commission of Korea, http://www.moleg.go.kr/english/korLawEng?pstSeq=54772(last visited Aug. 6, 2019); Fair Trade Act, Fair Trade Commission of Taiwan, https://www.ftc.gov.tw/law/EngLawContent.aspx?lan=E&id=29 (last visited Mar.9, 2018).

[2] Anti-monopoly Law of the People's Republic of China §17(1), available at http://www.china.org.cn/government/laws/2009-02/10/content_17254169.htm (last visited Mar.12, 2018).

[3]Huawei Technologies Co. v. InterDigital Technology Co., Guangdong High Court Decision No.306 (2013), available at http://www.mlex.com/China/Attachments/2014-04-17_BT5BM49Q967HTZ82/GD%20verdict.pdf (last visited Mar.9, 2018);CLEARY GOTTLIEB STEEN & HAMILTON LLP, China’s NDRC Concludes Qualcomm Investigation, Imposes Changes in Licensing Practices (Mar. 16, 2015),
https://www.clearygottlieb.com/-/media/organize-archive/cgsh/files/publication-pdfs/chinas-ndrc-concludes-qualcomm-investigation-imposes-changes-in-licensing-practices.pdf (last visited Mar.9, 2018).

[4] THE MINISTRY OF COMMERCE OF THE PEOPLE’S REPUBLIC OF CHINA, Full text of the Draft of the Anti-Monopoly Guidelines on the Abuse of Intellectual Property Rights (2017), http://fldj.mofcom.gov.cn/article/zcfb/201703/20170302539418.shtml (last visited Mar. 12, 2018).

[5] Bruce Kobayashi, Douglas Ginsburg, Joshua Wright & Koren Wong-Ervin, Comment of the Global Antitrust Institute, Antonin Scalia Law School, George Mason University, on the Anti-Monopoly Commission of the State Council's Anti-Monopoly Guidelines against Abuse of Intellectual Property Rights, GEORGE MASON LAW & ECONOMICS RESEARCH PAPER, No.17-19, available at https://ssrn.com/abstract=2952414 (last visited Mar.12, 2018).

[6] European Commission is the competition authority within European Union.

[7] The Treaty on the Functioning of the European Union §102(a), available at https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:C:2016:202:FULL&from=EN (last visited Mar.12, 2018).

[8] United Brands Company and United Brands Continentaal BV v Commission of the European Communities, Case 27/76 (1978).

[9] Antitrust: Commission sends Statement of Objections to Motorola Mobility on potential misuse of mobile phone standard-essential patents- Questions and Answers, European Commission, http://europa.eu/rapid/press-release_MEMO-13-403_en.htm  (last visited Mar.12, 2018); see also Protecting consumers from exploitation-Chillin’ Competition Conference, Brussels, 21 November 2016, European Commission, https://ec.europa.eu/commission/commissioners/2014-2019/vestager/announcements/protecting-consumers-exploitation_en  (last visited Mar.12, 2018).

[10] Autortiesību un komunicēšanās konsultāciju aģentūra / Latvijas Autoru apvienība v. Konkurences padome, C-177/16 (2017).

[11] The Treaty on the Functioning of the European Union §267(a), available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:12008E267:en:HTML (last visited Mar.13, 2018).

[12] Miranda Cole, Kevin Coates & Siobhan L.M. Kahmann,  Welcome clarifications by the EU Court on the concept of excessive pricing, Covington & Burling LLP - Inside Tech Media (Sep. 15, 2017), https://www.insidetechmedia.com/2017/09/15/welcome-clarifications-by-the-eu-court-on-the-concept-of-excessive-pricing/ (last visited Mar.13, 2018).

[13] Martin André Dittmer & Sofie Kyllesbech Andersen, Recent decisions on excessive pricing, abuse of dominance, cartel penalties and gun jumping (2018), https://www.internationallawoffice.com/Newsletters/Competition-Antitrust/Denmark/Gorrissen-Federspiel/Recent-decisions-on-excessive-pricing-abuse-of-dominance-cartel-penalties-and-gun-jumping (last visited Jan. 17, 2019).

[14] Michal S. Gal, Monopoly Pricing as an Antitrust Offense in the U.S. And the EC: Two Systems of Belief About Monopoly? ANTITRUST BULLETIN, 49, 343-384 (2004), available at https://ssrn.com/abstract=700863 (last visited Mar.14, 2018).

[15] U.S. Federal Trade Commission v. Qualcomm Incorporated ( N.D. Cal. Filed Jan. 17, 2017), available at https://www.ftc.gov/system/files/documents/cases/170117qualcomm_redacted_complaint.pdf (last visited Mar. 14, 2018).

[16] Federal Trade Commission v. Qualcomm Incorporated, Case No. 5:17-cv-00220-LHK (D. Northern District of California, filed Feb.1, 2017).

[17] FAIR TRADE COMMISSION, Dissenting Statement of Commissioner Maureen K. Ohlhausen In the Matter of Qualcomm, Inc. (Jan. 17,2017), https://www.ftc.gov/system/files/documents/cases/170117qualcomm_mko_dissenting_statement_17-1-17a.pdf (last visited Mar. 2, 2018).

[18] Taiwan Fair Trade Act §9(1) (2017), available at: http://law.moj.gov.tw/Eng/LawClass/LawAll.aspx?PCode=J0150002 (last visited Mar. 2, 2018).

[19] Bruce H. Kobayashi, Douglas H. Ginsburg, Joshua D. Wright, and Koren W. Wong-Ervin, “Excessive Royalty” Prohibitions and the Dangers of Punishing Vigorous Competition and Harming Incentives to Innovate, CPI ANTITRUST CHRONOCLE, 4(3) (2016).

[20] Kung-Chung Liu, Interface between IP and Competition Law in Taiwan, THE JOURNAL OF WORLD INTELLECTUAL PROPERTY, 8(6), 735–760 (2005).

[21] Pei-Fen Hsieh, Antitrust Regulatory Measures Under the trend towards Bureaucratic Regulation- A Study on Consent Decree, FAIR TRADE QUARTERLY, 13(1), 166 (2005).

[22] Taiwan Fair Trade Commission, Meeting Minutes No.352 (1998).

[23] Hong Xuan, On principles in tackling technology license and market competition, 112-113 (2008).

[24] TAIWAN FAIR TRADE COMMISION, Meeting Minutes No.480 of Taiwan Fair Trade Commission (2001), https://www.ftc.gov.tw/upload/upload-90R480_REC.txt (last visited Feb. 7, 2018).

[25] Kung-Chung Liu & Vick Chien,  Analysis of and Comments on CD-R-related Cases: Focusing on Competition Law and Patent Compulsory Licensing Issues, FAIR TRADE QUARTERLY, 17(1), 2 (2005).

[26] Sony and Taiyo Yuden did not appeal against the administrative decisions in 2010; therefore their cases were affirmed before 2015. See TAIWAN FAIR TRADE COMMISSION, Administrative Decision No.104027 (2015), https://www.ftc.gov.tw/uploadDecision/269b6dff-a0fc-46a0-8512-ca5f716732bb.pdf (last visited Feb. 7, 2018).

[27] Taipei High Administrative Court, Philips Electronics NV v. TFTC, Decision No. 00908 (2003).

[28] TAIWAN FAIR TRADE COMMISSION, Administrative Decision No. 095045 (2006), https://www.ftc.gov.tw/uploadDecision/2005302-0950426_002_095d045.pdf (last visited Feb. 23, 2018).

[29] Taiwan Intellectual Property Court Appeal Case No.14 (2008), https://law.judicial.gov.tw/FJUD/data.aspx?ro=10&q=cd8bdbb8d80f8d587805c863b2e64c55&gy=jcourt&gc=IPC&sort=DS&ot=in  (last visited Aug. 6, 2019).

[30] TAIWAN FAIR TRADE COMMISSION, Administrative Decision No. 098156 (2009)  http://www.ftc.gov.tw/uploadDecision/faed94a8-34ce-4f8e-b59a-239a9eaece1d.pdf (last visited Feb. 23, 2018).

[32] TAIWAN FAIR TRADE COMMISSION, Administrative Decision No. 104027 (2015) https://www.ftc.gov.tw/uploadDecision/269b6dff-a0fc-46a0-8512-ca5f716732bb.pdf (last visited Feb. 26, 2018).

[33] TAIWAN FAIR TRADE COMMISSION, Administrative Decision No.106094 (2017) https://www.ftc.gov.tw/uploadDecision/561633e4-42bd-4a4f-a679-c5ae5226966b.pdf (last visited Mar. 2, 2018).

[34] Fair Trade Act of 2017 §9(1), available at: http://law.moj.gov.tw/Eng/LawClass/LawAll.aspx?PCode=J0150002 (last visited Mar. 2, 2018).

[35] id, at Page 61-62.

[36] Settlement between TFTC and Qualcomm, TAIWAN FTC NEWSLETTER, August 10, 2018,
https://www.ftc.gov.tw/internet/main/doc/docDetail.aspx?uid=126&docid=15551 (last visited Nov. 30, 2018).

[37] TAIWAN FAIR TRADE COMMISSION, Record of Commission Meeting No. 1396 (Nov. 2018), https://www.ftc.gov.tw/upload/b0aa3b61-d0e7-41c4-b6a0-b1e6a472ee04.pdf (last visited Nov. 30, 2018).

[38] TAIWAN FAIR TRADE COMMISSION, Qualcomm’s Investment Plan under the Settlement, (Oct. 2018), https://www.ftc.gov.tw/upload/ee937bcf-68b9-4751-b2da-b636c46b0faa.pdf (last visited Nov. 30, 2018). 

[39] The latest amendment of the Fair Trade Act of Taiwan was proposed in the October of 2018, waiting to be reviewed. https://join.gov.tw/policies/detail/898e30a4-1ee8-491b-8c5a-5fbdbb5973f9 (last visited Jan. 18, 2019).

[40] See Fair Trade Act of 2017 §45:”No provision of this Act shall apply to any proper conduct in connection with the exercise of rights pursuant to the provisions of the Copyright Act, Trademark Act, Patent Act or other Intellectual property laws.”; available at http://law.moj.gov.tw/Eng/LawClass/LawAll.aspx?PCode=J0150002 (last visited Mar. 5, 2018); also see FAIR TRADE COMMISSION, Administrative Statement No. 02678 (2000),
https://www.ftc.gov.tw/internet/main/doc/docDetail.aspx?uid=225&docid=431 (last visited Mar.25, 2018).

[41] Legislative Rationales of Fair Trade Act of 1991, available at https://www.ftc.gov.tw/law/LawContent.aspx?id=FL011898 (last visited Aug. 6, 2019).

[42] Guidelines on Technology Licensing, Fair Trade Commission, https://www.ftc.gov.tw/internet/main/doc/docDetail.aspx?uid=163&docid=227 (last visited Aug. 6, 2019).

[43] id, §3.

[44] id, §5(C): “Stipulations that, for ease of calculation, fees for licensed technology that is part of a manufacturing process or that subsists in component parts are to be calculated on the basis of the quantity of finished goods manufactured or sold that employ the licensed technology, or the quantity of raw materials or component parts used that employ the licensed technology, or the number of times such materials or parts are used in the manufacturing process.”; see also §6(L): “Requirements that the licensee pay licensing fees based on the quantity of a particular type of good manufactured or sold irrespective of whether the licensee used the licensed technology.”

[45] id, §5: “The following kinds of technology licensing arrangement stipulations do not intrinsically violate the provisions of the Act on restraint of competition or unfair competition, with the exception of those improper matters to be found after reviewed in accordance with Point 5(C) and 5(D)…”

[46] Fair Trade Act §9(2): “Monopolistic enterprises shall not engage in any one of the following conducts… improperly set, maintain or change the price for goods or the remuneration for services,” available at http://law.moj.gov.tw/Eng/LawClass/LawAll.aspx?PCode=J0150002  (last visited Mar. 8, 2018).

[47] Douglas H. Ginsburg & Joshua D. Wright, Whither Symmetry? Antitrust Analysis of Intellectual Property Rights at the FTC and DOJ, COMPETITIN POLICY INTERNATION, 9 (2) (2013).

[48] Id.

[49] id, Section 1-3 of § 97(1).

[50] id, Section 3 of §97(1) :”the amount calculated on the basis of reasonable royalties that may be collected from exploiting the invention patent being licensed.”; see also The 2013 Amendment to Patent Act of Taiwan, List of Amendments to Patent Act of Taiwan, http://www.6law.idv.tw/6law/law2/專利法歷年修正條文及理由.htm#_%EF%BC%8E12%EF%BC%8E%E4%B8%80%E7%99%BE%E9%9B%B6%E4%BA%8C%E5%B9%B4%E4%BA%94%E6%9C%88%E4%B8%89%E5%8D%81%E4%B8%80%E6%97%A5%EF%BC%88%E5%85%A8%E6%96%87%E4%BF%AE%E6%AD%A3%EF%BC%89 (last visited Mar. 8, 2018).

[51] id.

[52] Intellectual Property Court of Taiwan Case No.38 (2014); see also Intellectual Property Court of Taiwan Case No.24 (2017); Chung-Lun Shen, Taiwan Supreme Court to Clarify Distinction between Patent Damages and Unjust Enrichment: Koninklijke Philips N. V. v. Gigastorage Corporation, IP OBSERVER, 18 (2017).

[53] <與飛利浦專利訴訟 國碩扳回一城>,經濟日報UDN,https://money.udn.com/money/story/5607/3393179 (last visited Jan. 19, 2019).

[54] Bruce H. Kobayashi, Douglas H. Ginsburg, Joshua D. Wright, and Koren W. Wong-Ervin, “Excessive Royalty” Prohibitions and the Dangers of Punishing Vigorous Competition and Harming Incentives to Innovate, CPI ANTITRUST CHRONOCLE, 4(3) (2016).

[55] Reena Das Nair & Pamela Mondliwa, Excessive Pricing revisited: what is a competitive price?, Presented at Conference: 1st ANNUAL COMPETITION AND ECONOMIC REGULATION (ACER) WEEK, SOUTHERN AFRICA (2015), https://www.researchgate.net/profile/Reena_Das_Nair/publication/290440699_Excessive_Pricing_revisited_what_is_a_competitive_price/links/5698d5f408ae34f3cf2070dd/Excessive-Pricing-revisited-what-is-a-competitive-price.pdf (last visited June. 5, 2018).

[56] David Gilo & Yossi Spiegely, The Antitrust Prohibition of Excessive Pricing, INTERNATIONAL JOURNAL OF INDUSTRIAL ORGANIZATION, Elsevier, vol. 61(C) (2018).

[57] 35 U.S. Code § 284.

[58] Georgia-Pacific Corp v. United States Plywood Corp, 318 F. Supp. 1116 (NY. S.D.N.Y. 1970).

[59] Uniloc USA, Inc. v. Microsoft Corp., 632 F. 3d 1292 (Fed. Cir., 2011).

[60] Microsoft Corp. v. Motorola Inc, 696 F.3d 872 (9th Cir. 2012).

[61] William H. Page,Judging Monopolistic Pricing: F/RAND and Antitrust Injury, TEXAS INTELLECTUAL PROPERTY LAW JOURNAL, 22, 181-208 (2014), available at http://scholarship.law.ufl.edu/facultypub/588 (last visited Mar. 28, 2018).

[62] Ericsson, Inc. v. D-Link Systems, 773 F.3d 1201 (Fed.Cir. 2014).

[63] Anne Layne-Farrar & Koren W. Wong-Ervin, An Analysis of the Federal Circuit's Decision in Ericsson v. D-Link,Competition Policy International, CPI Antitrust Chronicle, (1) (2015), available at https://ssrn.com/abstract=2669269 (last visited Mar. 29, 2018), see also Huntern Shu, Determination of royalties in Ericsson v. D-Link, Science & Technology Policy Research and Information Center (STPI) (2015), http://iknow.stpi.narl.org.tw/post/Read.aspx?PostID=10945 (last visited Mar. 29, 2018).

[64] Prism Technologies LLC v. Sprint Spectrum L.P., No.16-1456 (Fed. Cir. 2017).

[65] GINSBURG, KOBAYASHI, WONG-ERVIN & WRIGHT ET AL., supra note 19.

[66] Id.

[67] Fair Trade Act §7.

[68] Norman V. Siebrasse &Thomas F. Cotter, A New Framework for Determining Reasonable Royalties in Patent Litigation, FLORIDA LAW REVIEW, 68 (2016),
available at : http://scholarship.law.ufl.edu/flr/vol68/iss4/1 (last visited Mar. 29, 2018).

[69] U.S. FEDERAL TRADE COMMISSION, The Evolving IP Marketplace: Aligning Patent Notice and Remedies With Competition (2011), https://www.ftc.gov/sites/default/files/documents/reports/evolving-ip-marketplace-aligning-patent-notice-and-remedies-competition-report-federal-trade/110307patentreport.pdf (last visited Jan. 23, 2019).

[70] id. at 21.

[71] Standard-essential patents, COMPLETION POLICY BRIEF, 5 (2014).

[72] id. at Page17.

[73] Ma, Tay-cheng, Regulation of the Exploitative Abuse: Policy Initiative and Practical Dilemma, Fair Trade Quarterly 17(1) (2009).

[74] INSTITUTE OF ELECTRICAL AND ELECTRINICS ENGINEERS, IEEE-SA STANDARDS BOARD BYLAWS (2015),https://standards.ieee.org/about/policies/bylaws/sect6-7.html (last visited Jan. 22, 2019).

[75] Douglas H. Ginsburg & Joshua D. Wright, The Goals of Antitrust: Welfare Trumps Choice, Fordham LAW REVIEW, 81 (2013), available at https://ir.lawnet.fordham.edu/flr/vol81/iss5/9 (last visited Mar. 11, 2018).

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All of the information and advises were collected and analyzed and formulated into a set of guidelines which basically covers the whole cycle of intellectual property management right starts from its creation, protection, maintenance and exploitation. The types of intellectual property rights managed include patent, trade mark, copyright and trade secret. A hearing for the draft guidelines was held in 2004. A pilot study was done by selecting eight representative domestic companies in 2005. All the public opinions, comments and advises from the trial companies were collected and used to revise the draft guidelines. The revised guidelines were then formally promulgated on March 23, 2007. The project then entered into a full “promotional stage” where the Science and Technology Law Centered entrusted by The Industrial Development Bureau of the Ministry of Economic Affairs was responsible for promoting the project. As the fundamental objective of TIPS is to assist companies to establish an effective internal intellectual property management system at relatively low cost, the whole system was developed based upon the ISO 9001:2000 Quality Management Standard. Since the ISO standards are widely recognized and adopted by many Taiwanese enterprises, for an enterprise with ISO system implemented, TIPS can be easily integrated into the existing ISO standards, conflicts between these two systems will be minimized and it will only require minimum organization structural changes and implementation costs. Further, by incorporating the PDCA (Plan-Do-Check-Action) model and “process-oriented approach” of ISO 9001:2000, the IP management processes implemented within an enterprise possess the feature of being able to be continuously improved. 2. The “Promotional Stage” In order to facilitate the promotion and draw more public attention to TIPS, various supplementary measures were introduced: (1) Free on-line self-assessment tool A collection of 50 questions is provided on the TIPS website3. Once a company has registered as a member of TIPS (simply by filling up some details about the company), it can use these questions to self-assess the effectiveness and adequacy of its existing (if any) IP management infrastructure. After the company has completed all the questions, the on-line tool would automatically generate few suggestions relating to the management of intellectual property based on the answers provided by the company. The company can also find out how they stand among all the enterprises which have taken the assessment previously. The on-line self-assessment tool is the initial step for those companies wanting to know more about TIPS. Once they realize that they are far behind the requirements of an effective IP management system, they can then move on to the next stage to implement TIPS. (2) On-Site Diagnostic and Consulting Service Once a company has completed the on-line self-assessment questions, it is then eligible to apply for a more detailed assessment of its internal IP management infrastructure conducted by a qualified IP service consultant. The IP service consultant will interview the managers responsible for managing IP related matters within a company and check relevant internal policies and documents. Concrete advises in relation to the implementation of TIPS will be given based on the inadequacies and problems uncovered during the on-site visit. The cost for the diagnostic and consulting service is fully covered by the government. (3) Model Companies Every year since 2004, some model companies are chosen as “demonstrative” companies for the implementation of TIPS. For instance, a total of 14 enterprises were selected as model companies this year. Among these companies, 3 “clusters of enterprises”, each of which contains 3 companies were chosen. The so-called “cluster of enterprises” is a group of companies that can be constituted by companies providing similar products or services within the same industry, or companies having the relationships as suppliers and consumers or companies within the same corporate structure. The introducing of implementing TIPS through “cluster of enterprises” is a promotion strategy that aims to disseminate the TIPS project more effectively and efficiently. For these selected model companies, certain percentage of the cost for implementing TIPS is subsidized by the government. (4) Certification After an enterprise has fully implemented TIPS, they can then apply for certification. All the prescribed documents must firstly be sent to the TIPS working team which is responsible for all the administrative works of TIPS. After a formality check, 2 or 3 (depending on the size of the enterprise) IP experts will be chosen to conduct an on-site inspection to determine whether the newly implemented IP management system meets the minimum requirements of TIPS. If the experts are satisfied with the inspection result, a certificate for the compliance of TIPS will be issued by the Industrial Development Bureau (IDB) of the Ministry of Economic Affairs. The certificate serves as government’s assurance to the public that the certified enterprise has at least the minimum ability (evaluated in accordance with government’s standard) to manage and protect its intellectual property. (5) IP Management Courses Three types of courses are provided to train IP management personnel. The basic course is an introductory course, which covers the basic principles of TIPS. The intermediate course called The Practical Implementation Course covers more detailed explanations of TIPS and how it can be implemented into the enterprise. Any person who has completed this course and passed the test will receive a certificate. The advance course called Self-Assessment Course teaches students how to evaluate and determine whether their newly developed IP management system conforms to the TIPS requirements. Again, a person who has completed this course and passed the test will receive a certificate. In order for an enterprise to be eligible to apply for a certificate for the compliance of TIPS, the enterprise must firstly furnish a self-assessment report to be completed by a “qualified person”. Such “qualified person” is the person who has successfully obtained the certificate for the completion of Self-Assessment Course. 3. Achievement The TIPS project has received wide recognition since it first launched in year 2004. To the end of 2008, 297 enterprises have completed the on-line self-assessment questions; 73 companies have received on-site diagnostic and consultation services; 618 persons have taken the IP management courses; 45 enterprises have successfully obtained the certificates for the compliance of TIPS and more than142 enterprises have either completed or in the middle of implementing TIPS. Benefits of implementing TIPS as reported by TIPS implemented enterprises are summarized as follows: (1) Company A: Implementing TIPS provides an assurance that Company A has adequate ability to protect the technology secrecy belongs to its international client. Company A thus obtained a new purchasing order worth more than NT$ 100 million. (2) Company B: TIPS assists in enhancing the level of trust on the company’s ability to protect its international client’s confidential information. A new purchasing order worth NT $ 30 million is placed by such client. (3) Company C: Through systematic IP management and IP inventory audit, Company C starts to formulate a plan for licensing out its non-core IP assets. (4) Company D: The alignment of R&D and business strategies required by TIPS ensures the accuracy of the R&D direction. The systematic way of managing the R&D projects also reduces the R&D phase to 45 days, saving R&D expenditure by 10%. (5) Company E: Implementing TIPS helps Company E to formulate a more clear and definite IP mapping strategy. Company E plans to implement TIPS into its whole corporate group in 2008. (6) Company D: Systematic IP management has reduced the number of litigation allegations. Company D plans to implement TIPS into every business unit within its corporate structure in 2008. 4. Proposed New Features of TIPS In answering to the responses receiving from the TIPS implemented enterprises, two new measures are going to be launched in 2009. First, enterprises with effective IP management system and strategies are encouraged to write up an Intellectual Property Management Report summarizing their business, R&D and IP management strategies as well as their accumulated IP assets. Second, an Experience-Sharing Platform is going to be established where enterprises can freely exchange their experiences of managing IP and how to formulate an effective IP management strategy. III. Recent Development of Taiwan’s IP Protection Environment Year 2008 can be said to be a significant year for the history of IP development in Taiwan where three completely new legislations have taken effect this year. The Intellectual Property Court Organization Act4 and the Intellectual Property Case Adjudication Act5 were both promulgated on March 28 2007 and effective as of July 1 under which a new IP Court was established with new laws to govern the adjudication of IP cases. The Patent Attorney Act which governs the qualification and registration of a new patent attorney profession was promulgate on July 11 2007 and effective as of January 11 2008. It is believed that through the commencement of these three new legislations, the accuracy, consistency as well as efficiency of resolving IP-related disputes in Taiwan are going to be significantly improved. A short introduction for each of the three new legislations is provided below: 1. New IP Court A new IP Court was established pursuant to the Intellectual Property Court Organization Act and began to hear cases on July 1 2008. This Court is given jurisdiction to hear first and second instances of a civil action, first instance of an administrative action and the second instance of a criminal action for matters concerning IP rights. For examples, interests arising under the Patent Act, the Trade Mark Act, the Copyright Act, the Trade Secret Act, the Optical Disk Act, the Species of Plants and Seedling Act, the Fair Trade Act and the Regulation Governing the Protection of Integrated Circuits Configurations. Unlike previously, where the validity issues must be determined by the administrative court, the newly established IP Court can hear and decide the validity of an intellectual property right at issue. This will significantly improve the efficiency of resolving an IP dispute. Eight experienced judges were chosen to sit on the bench of the IP Court. Since most IP related matters involve complex technical issues, nine technical examination officers with various technical backgrounds from the Taiwan Intellectual Property Office were chosen to assist and provide their technical expertise and opinions to the IP Court judges. 2. New Laws Governing IP Litigation (1) Litigation procedures The Intellectual Property Case Adjudication Act prescribes rules for adjudicating IP-related disputes. The Act recommends to try an IP infringement case through a 3-step processes. First, to determine the validity of an IP right. Second, to determine whether an IP right has been infringed and finally, to calculate the damages. The IP Court may at any state dismiss the case if it finds the IP right at issue is invalid or not infringed. In order to avoid unnecessary efforts spent on determining whether an IP right is infringed if such right is in fact invalid, the Act requires the IP Court to determine whether a right is infringed only after the invalidity defense raised by the defendant is dismissed. (2) Preliminary injunction The Intellectual Property Case Adjudication Act also introduces the criteria used by the US courts to determine whether a preliminary injunction order should be granted. Before the enactment of this new Act, the requirements for granting preliminary injunction in Taiwan were quite loose as the court could grant a preliminary injunction order without firstly reviewing the merit of the case. The new adopted US criteria require the judges to determine the likelihood of success on the merits of the case; whether a substantial threat of irreparable damage or injury would be caused if injunction is not granted; the balance of harms weighs in favor of the party seeking the preliminary injunction and the impact of the decision on public interest. As the criteria become stricter, it is believed that less preliminary injunctions will be granted. A plaintiff seeking a preliminary injunction order in the future shall put in more efforts in preparing evidences and reasons arguing that an injunction maintaining the status quo is necessary. (3) Protective orders (as to confidential information) As most IP litigation cases involve matters concerning confidential information or trade secrets, which are often crucial for the survival of an enterprise, the Intellectual Property Case Adjudication Act introduces a protective order into practice to preserve the confidentiality of specific information given by parties to the suit or a third party. A party to the suit or a third party can apply to the court to issue a protective order restraining the accessibility to the protected confidential information and restraining those who have accessed to the confidential information from disclosing it to others. Any intentional violation of the protective order is subject to a criminal liability. It is expected that by introducing the protective order, confidential information or trade secret holder may become more willing to reveal such information, which may assist improving the accuracy of resolving the disputes between parties. (4) Improved evidence preservation procedure Unlike the US court system, Taiwan, a civil law country, does not have discovery or Markman hearing procedures. Before the enactment of the Intellectual Property Case Adjudication Act, even though a judge can ask the parties to preserve evidences for the use of the trial, the judge is however, given no authority of compulsory execution. A party can refuse to comply with the judge’s request without any legal consequence. The new Act now provides compulsory execution of an evidence preservation order. Parties who are subject to the evidence preservation order are obligated to comply with the order. Furthermore, the judge may also request assistance from technical examiners or police department to provide advises. 3. New Patent Attorney Profession The Patent Attorney Act sets the requirements for becoming a qualified patent attorney in Taiwan. According to the Act, patent attorneys should be specialized in both technology and patent regulations. A candidate must firstly pass the Patent Attorney Eligibility Examination, followed by a period of prevocational training, such candidate is then able to register with the Taiwan Intellectual Property Office and join the Patent Attorneys Association. It is hoped that by introducing the new patent attorney profession, the quality of patent applications will be improved and thus reduce the ever increasing workload of patent examiners. IV. Conclusion The initiative of the TIPS project, the establishment of the IP court and the newly implemented patent attorney system all demonstrate the government’s determination to create a more sound and efficient environment for the protection of intellectual property. The overwhelming success of the TIPS project evidenced by the number of enterprises implementing the system indicates that Taiwanese companies are self-motivated, able to see the importance of intellectual property as their main source of competiveness and are ready and willing to move into the next stage of “innovative” management. It is believed that through the government’s pragmatic and foresight policies coupled with the adventurous and hard work spirits possessed by the local enterprises, Taiwan will eventually reach its goal of becoming a “green silicon island”, creating another “economic miracle”. Along with Singapore, Hong Kong and South Korea. http://www.asianinfo.org/asianinfo/taiwan/pro-economy.htm (last visited: 12/31/2008) TIPS website: http://www.tips.org.tw/ http://www.taie.com.tw/English/970520a.pdf (last visited: 12/3132008) http://www.taie.com.tw/English/970520a.pdf (last visited: 12/3132008)

A Survey Study on the Intellectual Property Management amongst Taiwanese Companies

J. Kitty Huang Chien-Shan Chiu Background In order to provide insight into intellectual property (IP) awareness, the status quo as well as potential hardship and demands arise over IP management, STLC was commissioned by IDB (Industrial Development Bureau) to conduct a survey study in June 2010. In this article, we provide briefings on the contents, research methodology and major findings of this study. About the research The survey questionnaire was sent by means of emails or posts to a total of 1000 business establishments randomly generated from the registration data facilitated by the Ministry of Economic Affairs. This was also the first time that such a survey has been envisaged on such a comprehensive scale, covering businesses located around Taiwan with the aim being to produce an in-depth analysis into IP management in various industries including manufacturing, precision machineries, photonics, bio-medicals, info-techs, semiconductors etc. Sixty-five percent of the respondents have less than fifty employees and the overall response rate achieved was 13.1%.1 A continuing need to strengthen IP awareness is required The first section of the questionnaire dealing with IP awareness gauged respondent companies IP knowledge and understanding through a series of questions relating to IP law and practice. When asked whether formal registration was necessary to obtain a range of intellectual property rights (IPRs), over 70% of companies replied with correct answers, namely patents, designs and trademarks. However, through other questions at a more advanced level, the responses revealed a general lack of knowledge in IP law and hence a continuing need to strengthen IP awareness is required. For instance, overall 70% of companies know that obtaining patents will require formal registration, yet surprisingly even of these over 50% incorrectly thought the manners of patent utilization, such as making products, will not result in infringing others IPRs. This result arguably suggests that respondents are in the main unaware that a patent does not give the patent owner the right to exploit the patented invention himself, but rather, he has only the “exclusive right” to stop others from doing so. For another instance, whilst 32% of respondents inaccurately thought that a formal registration is required to obtain copyrights, nonetheless this does not equate to the result being a near 70% of companies have a full and correct knowledge in regard to copyright. When faced with a slightly more obscure question of who would own the copyright in commissioned work (such as website creation) in the absence of a contract, 26% of companies didn’t know and 30% answered incorrectly. On the same token, though only 10% of respondents erroneously believed that trade secrets would require a formal registration, when asked whether the company’s client list may be a trade secret, the number of correct replies (61%) drops sharply when compared to the previous one. Though intended as a question to discriminate at the upper levels of trade secret awareness, the replies are more likely to reflect a lack comprehension of the subject among Taiwanese companies. The important message arise from the overall scales in the first section of the survey is that the need for IP awareness promotion and enhancement amongst companies in Taiwan still exists. Lack of IP expertise is a major barrier In the second section of the questionnaire companies were asked a series of questions which were intended to measure the status quo through the extent of IP management practices. Perhaps one would agree that the issue of perceptions of the importance of IP to a company is greatly linked to how effective it manages them. When asked to indicate reasons as to why IP is important to their business, the replies were rather polarized. The two most popular reasons were “means to differentiate from competitors” (33%) and “to prevent infringement” (30%). The distinction between the two is clearly that the former reason is relatively active and strategic whilst the latter is perceived to be passive and defensive. On the other hand, “to retrieve the cost of R&D” (4%) and “to attract more investors” (5%) are least likely to be seen as the reasons why IP is important to them. The results may suggest that generally speaking, Taiwanese companies tended not to utilize their IP to generate revenues nor correlate them with the business strategies, but rather, see them more of a shield to avoid infringement. Companies were asked what IPRs they own and the most common ones are trademarks (21%) and utility patents (20%), with invention patents (14%) being the third on the rank. In contrast only 2% of respondent companies own copyrights. While such result may be attributed to the overall structure of the industry, it may also link to the observation that most companies not merely lack the comprehension of copyrights but may also not be aware of owning such IPR. Furthermore, it is also surprising to find that 45% of respondents do not own any IPRs. The absence of IPRs within these companies is perhaps a key indication of poor awareness and inactive management of IPRs amongst many Taiwanese companies. To measure the extent of IP management is not easy as the intensity of it differs both by sector and by size. Therefore, the task is achieved through 9 questions designed on the concept of PDCA (plan-do-check-act) process which would allow the respondents to review and find out any inadequacy in their IP management as they proceed. One would expect that those companies with effective IP management would take care to evaluate the various IPRs required at different time intervals. Whilst all of the answer choices are considered to be “important timings”, for example “when planning for new skills/products/business” and “when further investment in IP would enhance defense (such as infringement prevention); yet the results revealed that over 60% of the companies did not perform such evaluation at whatever timing. This may suggest that in general, companies in Taiwan are inadequately concerned with the evaluation process within their management of IP. Such a result may consequently make them ignoring means to prevent infringement (such as checking competitors’ IPRs and prior-art search) or pay attention to regulation updates. Effective IP management indisputably requires certain monetary inputs. Companies were asked whether they have regularly spent on obtaining and maintaining IPRs the firm owns, and remarkably only about 36% of respondents answered this question. In addition the companies were asked about how much they spent on “application fees”2,“incentives offered to inventors”, “spending on HR” and “other expense”. Only a paltry 6% of all respondent companies spent on all the abovementioned categories and mostly up to the amount of NT$100,000 (roughly USD$3300) per each. Linked with the spending on IPRs is perhaps whether companies have designated staff responsible for managing IPRs or have a separate IP department. Again, 70% of respondents replied negatively to this question and only 10% of some larger companies (with over 200 employees) have specific personnel or department designated to assume this responsibility. The results may indicate a general lack of expertise in managing IPRs as a barrier to leveraging full value of them as well as making proper legal decision in the event of IP related disputes Companies were asked how to protect their IPRs through a variety of methods of protection though the majority (over 72%) didn’t implement any of them. The most highly identified method being “protect core skills by patents”, however, only 35% of companies adopted such protection. Furthermore, roughly 76% of the companies did not conduct training in IP issues for employees, and over 75% did not attempt to assess the efficiency of their management of IP. The explanation to the above is conceivably a general lack of IP expertise due to inadequate monetary inputs as well as perceived high costs for IP specialists within the company. The results ultimately reflect an inefficient execution of IP management in the massive Taiwanese companies. Most companies have only limited resources The final aspect of IP management that has been surveyed is the hardships occurred and accordingly the resources sought to solve them. When asked what are the major difficulties in the process of managing IP, the most common answers were “high expenditure on filing and maintenance” (18%), “lack of professional advice” (15%) and “regulatory complexity” (15%). These results are arguably all related to the facts already discussed in the afore-mentioned paragraphs. In general, the survey revealed that most companies have only limited resources and therefore highly demand external aids such as government funding or projects to help soften the hardships and improve their management skills. Accordingly, “unifying resources for enhancing IP management through a mutual platform” (22%) and “facilitate industry peer networks” (21%) being the most popular resources sought. Furthermore, 14% of the respondents indicated their urge to receive “on-site expert assistance”, and a remarkable 90% of the respondents have never been aware of the TIPS (Taiwan Intellectual Property Management System) project, which is one initiated by the government to help companies set up a systematic IP management system. As a result, efforts to promote the TIPS project should be further devoted as the initial step to assist companies strengthen their IP awareness and management skills. Conclusion The results of the survey present the status quo of IP management amongst the companies in Taiwan which is proportionally consistent with their IP awareness as well as hardships and resources sought. The present study shows what one might expect, that is larger companies tend to be more IP aware and have greater resources to manage their IPRs, whilst the rest of others (especially SMEs) are in the main inadequately aware of IP, which is crucial to enhance active IP management within and throughout their firms. While various resources are highly demanded, perhaps the government should firstly take steps to promote that awareness within and throughout their organizations. Linked with this is the second important point which is that further promotion of the TIPS project should be aimed at not only enhancing IP awareness but also assisting companies to better manage their IPRs. IP management is essential to preserve IP created by companies and the TIPS system would enable companies to foster and strengthen key aspects of IP management such as conduct training in IP issues for employees, evaluate various IPRs required, etc. Some of the complementary measures as such expert consultations and TIPS networks or seminars would also help to alleviate some of the hardships encountered in the process of managing IP. On the other hand, like the “Survey on Business Attitudes to Intellectual Property” being conducted yearly in Hong Kong since year 2004, it is suggested that the present survey research or the alike to be continually carried out to assist promoting IP awareness within Taiwan industry. Finally, we would like to thank everyone who contributed to this survey research and hope that it provides valuable insight into the goals originally proposed. 1.The survey resulted in 157 replies from which 26 of them were nullified by false or incomplete answers. 2.Application fees” include fees occurred from exploring inventions up to application and maintenance, which also include attorney fees.

Yearly Update on the Progress of the TIPS Project – summary of a research report on corporate investors’ view on introducing a corporate IP disclosure framework

Chien-Shan Chiu Background In the era where inventions drive the economy, the ability to create, capture and protect these inventive ideas has become vital for a corporation to stay competitive and sustain profit growth. Various government policies have been implemented in order to stimulate inventions and to strengthen the ability to protect these inventions through effective use of intellectual property (“IP”) rights. For the past few years, the TIPS (Taiwan Intellectual Property Management System) project has been promoted extensively aiming to increase public awareness towards IP rights and to assist local companies to establish a systematic and comprehensive IP management system. Over the years, the TIPS project has received wide recognition and positive feedbacks, and many TIPS-implemented companies are ready for the next challenges. After an extensive research, the project proposes to follow the international trend of encouraging companies to make better and more disclosure of intangible assets that are not often shown in the traditional financial statements1 . Local companies with effective IP management system and strategy are encouraged to compile an “Intellectual Property Management Report” summarizing its business, R&D and IP management strategies as well as their accumulated IP assets. In order to compile an Intellectual Property Management Report, a company is advised to re-identify its intellectual property, re-think about its strength and weakness in every aspect and where necessary, the company may also need to re-conduct a market, technology trend or competitor’s analysis, through which it is believed that a better and more effective IP strategy will be re-formulated. Formulating a well-planned corporate strategy that takes into account various IP issues is one of the main reasons for introducing the corporate IP disclosure framework. Promoting the disclosure of IP-related information so that the management efforts, visions and true capabilities of a corporation can be fully disclosed and recognized is the second major reasons for introducing the corporate IP disclosure framework. This essay begins with a brief update on the yearly progress of the TIPS project, follows by a summary of the research report on corporate investors’ view on initiating a framework for enhancing disclosure of corporate IP-related information. The research report contains the result of a survey conducted between April and June this year (year 2009), consisting questions to uncover local investors’ view and attitudes towards corporate IP, and to identify kinds of IP-related information required when making an investment decision as well as to find out to what extend local investors would support the government’s initiative on promoting a corporate IP disclosure framework. Update on the Yearly Progress of the TIPS Project In order to facilitate the promotion of TIPS, several supplementary services have been introduced (fees and expenses are fully or partially subsidized by the government this year) : (1) Free On-Line Self-Assessment Tool; (2) On-Site Diagnostic and Consulting Service (selected companies were fully subsidized); (3) “Demonstrative” Model Companies (selected companies were partially subsidized); (4) IP Management Courses (partially subsidized); (5) On-Site Auditing (for the Conformance of TIPS requirements) and issuing of the TIPS Compliance Certification (fully subsidized) . To the end of 2009, 401enterprises have completed the on-line self-assessment questions; 93 companies have received on-site diagnostic and consultation services; 847 persons have taken the IP management courses; 64 enterprises have successfully obtained the certificates for the compliance of TIPS and more than 299 enterprises have either completed or in the middle of implementing TIPS. Summary of the Research Report on Corporate Investor s’ View on Introducing a Corporate IP Disclosure Framework Even though it is clear that the idea of encouraging corporations to disclose non-financial information has started few decades ago in Europe and are currently being vigorously promoted by many major countries, we believe that in order to facilitate smooth promotion of the new IP disclosure framework, it is important to find out the local investors’ views and attitudes towards IP and to know how investors see the role of IP can play in a local corporation. Hence a survey was conducted at the initial stage of preparing the new corporate IP disclosure framework in Taiwan. The survey was sent via both mails and emails to 357 corporations, including venture capital firms; trust, investment consulting or management firms; security corporations, financial institutions and banks. More than one set of survey questionnaires could be distributed in one corporation to be filled by investors/analysts that are specialized in investing different industrial sectors. As a result, a total of 495 set of questionnaires were distributed.. Basic Data The survey was conducted between April to June 2009. At the end of June, a total of 150 investors/analysts responded which equals to a 33% response rate. Most of the survey respondents specialized in investing in various industrial sectors which include: semi-conductor; telecommunication; electronic components; 3C products; IT; optical; biotechnology; pharmaceuticals; new energy resources; media; creative and culture and traditional manufacturing industries. Around 50% of the survey respondents have more than 5 years’ experience in investment; among them, 23% of the survey respondents have more than 10 years’ investment experience. Investors recognize the importance of IP A remarkable 94% of the survey respondents recognized that the ability to create, protect, manage and exploit IP has become an essential element for a company to stay competitive and sustain growth in today’s market environment. 88% of the survey respondents believe that companies with more or better IP assets are more likely to generate profits and 91% believe that such companies are more likely to survive in this ever-increasing competitive environment. Yet, 94% of the survey respondents agreed that not only a company should actively create IP assets, but the ability to exploit and thus extract value from the accumulated IP assets is what makes a company stand out among the others. Taking a step further, the survey result reveals that the respondent investors believe a company with effective and well-planned IP strategy is likely to: – Enhance its market competitiveness (84%); – Raise its overall corporate value (71%); – Maintain its market position (55%); – Increase its profitability (32%); – Affect its share price (30%); – Assist investors in evaluating such company’s managerial ability and performance (29%) as well as evaluating its future growth potential (28%). IP-related information influences investors’ investment decisions Given that most investors see the ability to create, manage and exploit IP assets as well as having a well-planned IP strategy are crucial for the survival of a company, 82% of the survey respondents indicate that IP-related information has been considered when making an investment decision. Furthermore, 85% of the survey respondents think that they will place greater emphasis on IP in assessing companies in the future. Indicators that used to assess/evaluate a company Most often used IP-related indicators identified by the survey respondents when making investment decisions are: – Core technology and its market competitiveness (77%) – Research ability (experience and achievement) (73%) – IP protection and management measures (41%) – IP strategy (align with overall corporate strategy and market/technology characteristics) (40%) – Ability to fully utilize self-owned IP assets (38%) – R&D expenditure and investment (35%) – No. of IP assets (35%) – Time taken for competing products to enter into the market (33%) – Cost of maintaining IP assets (19%) Ratio of intangible assets as to the overall corporate value (19%) : 20% of the survey respondents indicated that they have turned down investment in the past for inadequate IP awareness of the target companies. List of local companies with good and effective IP strategy The survey respondents were asked to name local Taiwanese companies which in their mind have most effective and sound IP strategy. Taiwan Semiconductor Manufacturing Company (TSMC), Foxconn, United Microelectrc (UMC), HTC, Acer are the top 5 most named companies given by the survey respondents. Having good quality of patents (such as essential or new technology patents); detailed and complete patent map; sound IP strategy; brand and professional IP/legal department are cited as the reasons that impress these investors. Inadequacy of public available IP-related information While most investors acknowledge the importance of IP and take into account various IP-related indicators when making investment decisions, 76% of the survey respondents expressed that currently, the amount of IP-related information disclosed by companies are not sufficient for them to make an informed investment decision. When a question asking the survey respondents to identify the channels by which they obtained their desired IP-related information, the results were quite spread out. 45% of the survey respondents relied on asking the top managers directly; 43% relied on annual report; media and news (35%); website (34%); industrial journals (25%); competitors (15%) and other private channels (15%). It appears that various sources were used but no particular source provides sufficient information. Indeed, a remarkable 91% of the survey respondents believe that if there are more channels provided for corporations to disclose their internal IP information, more accurate assessment of the corporate value can be made. Support government’s initiative of promoting IP reporting framework Further, 73% of the survey respondents expressed their willingness to support the government’ s initiative of encouraging local companies to disclose their IP-related information. In relation to the initiation and promotion of the corporate IP disclosure framework, 64% of the survey respondents responded that it would be better to adopt a voluntarily disclosure policy and decide whether to switch to mandatory disclosure later; 22% think that only a voluntarily disclosure policy should be adopted followed by 14% of the survey respondents who believe that the government should adopt a mandatory disclosure policy from the start. When the survey respondents were asked to provide suggestions to facilitate the promotion of the corporate IP disclosure framework, the following suggestions were picked by the survey respondents: – Provide valuation tools to assist investors in assessing and analyzing IP related information (40%); – a central platform to collect and display all the complied IP management reports (21%); – lists of compulsory items to be disclosed in the report (21%); and – regulate the frequency of updating the contents of the report (15%). Conclusion Based on the results of the survey, we can conclude that the local investors’ view and attitude towards IP are similar to those in overseas. Majority of the investors (> 90%) see IP as valuable tools that could assist companies to create profits and sustain growth in today’s competitive market. While most of the investors (82%) have taken into account relevant IP information when making investment decisions, 76% of the survey respondents expressed that the amount of corporate IP-related information disclosed by companies are insufficient for them to make informed investment decisions. This is an important message that local companies should pay particular attention. It is hoped that through the introduction of the corporate IP disclosure framework, more adequate corporate IP information will be disclosed to assist investors in making better and accurate investment decisions. Consequently, a company’s true capabilities, managerial efforts and the intangible assets created upon can thus be fully appreciated and reflected on its market value. 1 Various national and institutional initiatives addressing the disclosure of corporate intellectual assets are currently being promoted vigorously at the international level such as Japan’s “IA based Management Report, (METI)”; Denmark’s “Intellectual Capital Statement (MSTI)”; European Union’s “Guidelines on Intangibles, MERITUM project”; U.S.’s “EBR 2.0 (Enhance Business Reporting Consortium)”; and The World Intellectual Capital/Assets Initiative (WICI) is currently working on developing a voluntary global framework for measuring and reporting corporate performance.

The Demand of Intellectual Property Management for Taiwanese Enterprises

Science & Technology Law Institute (STLI), Institute for Information Industry has conducted the survey of “The current status and demand of intellectual property management for Taiwanese enterprises” to listed companies for consecutive four years since 2012. Based on the survey result, three trends of intellectual property management for Taiwanese enterprises have been found and four recommendations have been proposed with detail descriptions as below. Trend 1: Positive Growth in Intellectual Property Awareness and Intellectual Property Dedicated Department/Personnel, Budget and Projects 1.Taiwanese enterprises believe that intellectual property plays an important role 74.18% of Taiwanese enterprises believe that intellectual property can increase economic value and 58.61% of those believe that it can effectively prevent competitors from entering the market. Source: created by project team members Graph 1 The benefit of intellectual property for the company 2.Taiwanese enterprises increase investment in the dedicated department and full time personnel for intellectual property Nearly 80% of listed and OTC companies set up full time personnel for intellectual property and over 50% of those have established dedicated department to handle its business that is higher than 30% in 2012. Source: created by project team members Graph 2 Specialized Department or personnel for intellectual property by year 3.Taiwanese enterprises plan budget for intellectual property each year 81% of respondent companies plan certain budget for intellectual property each year. Among the expenses items, the percentage of 90.95% for intellectual property application is the highest. Next are 58.29% for inventor bonus payment and 56.28% for intellectual property education training. Source: created by project team members Graph 3 Taiwanese enterprises plan budget for intellectual property each year Trend 2: Insufficient Positive Activation for Intellectual Property 1.Interior intellectual property personnel is seldomto be involved in the core decision making in Taiwanese enterprises Based on the importance and difficulty of intellectual property, most items in the area of high importance and difficulty are demand of professionals and practical experiences (e.g.: lack of interior talent, do not understand international technology standard and specification, lack of platform to obtain experiences and cases). Only application time is for administrative procedure of Intellectual Property Offices. Therefore, it is known that intellectual property department of respondent companies lacks experienced talents. Source: created by project team members Graph 4 Importance and difficulty of intellectual property In addition, most of the jobs of intellectual property personnel are “keeping close cooperation and communication with R&D department”, “coordinating issues relevant to intellectual property between departments” and “keeping close cooperation and communication with marketing or sales department” instead of “R&D strategy involvement” and “marketing and operation strategy involvement” (see Graph 5). Therefore, it is demonstrated that the work of intellectual property personnel is mainly for providing coordination and assistance to other departments other than corporate strategy with intellectual property as basis. Maybe it is the reason for insufficient activation and lower investment of intellectual property in the business. Source: created by project team members Graph 5 The job of intellectual property department or personnel 2.Insufficient positive activation for intellectual property in Taiwanese enterprises It is shown that 60% of firms are without and did not obtain technology transfer (among which the traditional manufacturing sector has the highest percentage). 22.95% of firms are without but obtained technology transfer and 4.51% of those are with but did not obtain technology transfer. In addition, most of the jobs of intellectual property are administration other than activation such as treatment of authorization contract and transaction and sending warning letter of infringement. Therefore, it is assumed that intellectual property is not the key for profitability in the business. 3.Taiwanese enterprises with higher R&D expenses ratio intend to have more positive activation of intellectual property Although the entire firms are not positive for activation of intellectual property, it is found that enterprises with higher R&D expenses ratio (the ratio of R&D expenses / total operating expenses is higher than average) intend to have more positive activation of intellectual property. For example, intellectual property department with higher R&D expenses ratio involves more in the decision making of R&D strategy in the business. Compared with the enterprises with higher R&D expenses ratio, the enterprises with lower R&D expenses ratio also has higher ratio in the absence and failure of technology transfer. (see Graph 6) Source: created by project team members Graph 6 Presence and achievement of technology transfer in the different sector 4.Most of Taiwanese enterprises R&D on their own so to lack of introduction experience of external R&D results Among the survey, nearly 90% of firms R&D each item on their own except the copyright part with lower percentage of 78.5%. 15.89% of it is from outsourcing development and 13.08% of it is from authorization. In addition, the outsourcing development and authroization of invention patent part have higher percentage which is 17.34% and 15.61% respectively. However, the speed of self R&D can’t meet the speed of product elimination nowadays. Therefore, under global open competition, corporate may try to cooperate with universities and research institutions to speed up R&D progress. Table 1 Source of Intellectual Property Right Source: created by project team members Further, among the services s that corporate ask for assistance from government, there are high demand for promotion of cooperation between industrial, academic and research sectors as well as assistance provided by academic and research institution to enhance corporate’s R&D ability. Based on this, it is clear established that a smooth access can help enterprises to cooperate with academic and research institutions for R&D instead of doing it on their own. Source: created by project team members Graph 7 The Government Policy for Intellectual Property 5.Taiwanese enterprises focus only on patent and trademark but ignore trade secret and copyright From the intellectual property items enterprises possessed each year, it is found that trademark has the highest percentage (over 80% for four-year average) and next items are invention patent and utility model patent. The awareness that corporates have on intellectual property is only limited to patent and trademark. They overlook that their core ability may be protected by trade secret and copyright. Source: created by project team members Graph 8 Owned IP right Trend 3: Increasing Demand on International Intellectual Property Service 1.The overseas intellectual property risk Taiwanese enterprises faced greatly varies from sectors Among the 2015 survey, 85% of respondent firms developed to overseas. Under which the highest percentage is 79.81% for overseas sale then 56.25% for self-establishment of overseas factory for manufacturing. Furthermore, the percentage of outsourcing in traditional manufacturing sector is the highest than that of other industries which 77.36% of traditional manufacturing firms established overseas factory for manufacturing. The percentage of overseas sale in pharmaceutical and livelihood sector is 91.3% and slightly higher than that in other industries. The result shows that different industry will select different overseas development strategy based on its sector characteristics and R&D difficulty. Source: created by project team members Graph 9 The overseas intellectual property risk As a whole, the highest risk that might be occurred from enterprises developed overseas is leakage of trade secrets. Next risks are 47.12% for being accused of product infringement and 42.31% for patent being registered. Further, the risk control greatly varies from different sector. The risks that industry and commerce service sector regards are quite different from other sectors. For example, its risk of dispute of employee jumping ship or being poached which accounted for 50% is higher than that of other sectors. In addition to the three common risks mentioned above, information and technology sector believes that there might be risk of patent dispute which accounted for 35.29% and is higher than that of other sectors. Source: created by project team members Graph 10 The overseas risk control which might be occurred by enterprises 2.The most dissatisfied part that Taiwanese enterprises have to the intellectual property outsourcing service is insufficient experiences on the treatment of international affairs Based on the 2012 and 2013 data, the too expensive fees is the primary factor that intellectual property outsourcing service didn’t meet the demand. However, from the 2014 and 2015 survey result, the experiences on the treatment of international affairs became the primary factor. It is shown that enterprises increase demand for international intellectual property work but current services from providers can’t satisfy it. From survey data, it is found that different sector has different demand on overseas development. Among which the pharmaceutical and livelihood sector has higher demand on the management of overseas trademark use, investigation of overseas infringement risk, contract of overseas patent authorization, contract of overseas trademark authorization, contract of overseas technology transfer and contract of overseas mutual R&D (See Graph 11). Source: created by project team members Graph 11 The outsourcing professional resources unsatisfied with demand – annual comparision Recommendation 1: Taiwanese enterprises shall build intellectual property creation strategy based on a variety of intecllectual property rights Enterprises may apply for patent, trademark, trade secret and copyright. For instance, brand management can be conducted with trademark and copyright and core technology or service can be protected by patent and trade secret instead of using trademark or patent alone as primary strategy. Recommendation 2: Provide Taiwanese enterprises with assistance of overseas intellectual property consultation 85% of respondent firms have overseas business which greatly varies from different sector so to accompany with different overseas intellectual property risk. Therefore, government may provide enterprises with the information of overseas intellectual property and even real time consultation services of overseas intellectual property risk which is the requirement to be satisfied immediately. In addition, the actual overseas intellectual property demand of enterprises can be found through this introduction of consultation services. To satisfy enterprises’ demand, service providers may need to improve their ability together. Recommendation 3: Build cooperation access of industry, academics and research to assist Taiwanese enterprises to enhance R&D ability Under the fast-evolved and competitive environment, enterprises shall not only depend on their own R&D. Moreover, they shall leverage the R&D result of academic and research institutions to improve so to make subsidy of those institutions from government have real impact on them. Therefore, there is demand of cooperation between industry, academics and research. The cooperation access between them should be built to achieve synergy of R&D. Recommendation 4: Experienced professionals of intellectual property are requried to be cultivated and demand of intellectual property human capital is needed to be expanded for Taiwanese enterprises Enterprises lack of experienced professionals of intellectual property. This demand could be satisfied only through on-the-job training for large personnel other than new graduates of department of intellectual property. Furthermore, enterprises can make department of intellectual property contribute its professional services into R&D and marketing strategy through design of organization work procedure to reduce risk of intellectual property they have to face.

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