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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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.

Copyright Ownership for Outputs by Artificial Intelligence

Copyright Ownership for Outputs by Artificial Intelligence One. Introduction I. From Machine Learning to Deep Learning, AI is Thinking   The famous philosopher, mathematician and physicist René Descartes from France in the 17th century said: “Cogito ergo sum”. This is considered a radical skepticism in the context of philosophy. When a philosopher raises the question that how one person can be sure of his/her existence, it is not about the feeling, cognition or experience with the world. Rather, it is about thinking.   Artificial intelligence works like interconnected human neurons, with the logics and algorithms built with codes and processed with high speed. The nutrient it requires is the massive amount of data. In the past, artificial intelligence only works according to the logical setup and instructions from developers. In the era of machine learning today, humans have empowered machines with the capability of processing. This is achieved not by writing comprehensive and exhaustive rules. Rather, it is by making machines able to figure out rules on their own. In other words, all we need to do is to prepare data. Machines can be trained to think and judge. Artificial intelligence will eventually generate its outputs and start to create contents.   Image recognition is a good illustration of how machine learning works, as part of the wider AI. The identification of cats is a classic example. A large number of pictures and photos of cats are provided, with descriptions of features to train machines. The purpose is to train machines into building their own criteria as to what cats are about. According to the Proceedings of the Seventh IEEE International Conference on Computer Vision in 1999, image recognition is processed with the technology similar with neurons for visual recognition by primates[1].   Twenty years on, machine learning (as part of artificial intelligence) has come a long way. The number of neural network models, built on neurons, has grown exponentially[2]. Deep learning has been developed with layers of neurons. There are links only between neighbouring layers to reduce the number of variables and enhance the speed of computing. In the context of machine learning, learning is about the selection of an optimal solution from multiple variables[3]. Big data is fed into the man-made neural networks constructed in the computers so that they are constantly trained and learning. Hung-yi Lee[4], a scholar specialized in artificial intelligence in Taiwan, provides a simple analogy for this technology. Machine learning is like a human brain with one layer of neurons; whilst deep learning works with many neurons and hence can learn on their own, make judgement and establish logics[5]. In other words, artificial intelligence is capable of analysing, identifying and decision-making on its own, and human is becoming less relevant in this process. Artificial intelligence is able to think. This is not only a factual description, but also a trigger to fundamentally change the legal institution of nations. II. Who Owns the Outputs Generated with Thinking?   Over the long run, whether the legal institution and the society are ready to give artificial intelligence “quasi” right of personality is a topic worth exploring. In the immediate term, what normative models should be used to define the ownership of copyrights for the outputs and creations by artificial intelligence?   The decision on copyright ownership has always been a hot topic in the field of intellectual property. The legal system in the U.S. describes the protected entity for copyright as “the fruits of the intellectual labor”. Article 798 of the Civil Code in Taiwan says, “Fruits that fall naturally on an adjacent land are deemed to belong to the owner of such land, except if it is a land for public use”. The fruit, i.e. outputs generated by artificial intelligence, also falls into the society of rules governed by rights and obligations. Of course, it is necessary to first define and regulate the entity that owns the rights. This begs many fundamental questions in the context of copyright laws. Who owns the rights? The developers (perhaps on a pro-rata basis), data owners, or the companies that provide infrastructure to developers? Once the boundary of imagination and reality is pushed further, the ownership of rights is no longer limited to human creators and may be extended to artificial intelligence. Moreover, it is possible for governments to insist that copyrights are only for human creations and the intellectual property created by artificial intelligence may fall into the public domain and hence fall unprotected legally, given the significance of public interest involved.   This paper explores the copyright ownership for the outputs generated by artificial intelligence by systemically observing the real-life cases in the industry. This is followed with an analysis on the perspectives from the European Union, the United Kingdom and the United States. The purpose is to examine the contexts and normative models of artificial intelligence and copyrights and finally develop a preliminary framework for the regulation of artificial intelligence now and the future. Two. Creativity Capability of Artificial Intelligence Is a Reality   With artificial intelligence and Big Data driving the development of industries, the exploration with the construction and normative models of the legal system should start with the reflection of social values, so as to achieve the purpose of social order with laws and regulations.   The construction of the legal system for technology should be anchored on the observation of facts, given the rapid advancement and evolution of emerging technologies. The fact today is that artificial intelligence is being used for art creations such as musical composition, poetry and painting. Developers train artificial intelligence with massive data and enable deep learning to grasp the essence of artworks in order to generate outputs. Whether the ultimate purpose is commercial profitability or not, most of these outputs have reached a certain level of quality. Below is a brief introduction of creative techniques and new business models of artificial intelligence in music composition, poetry writing, painting and news writing. I. Original Music Generated with Deep Learning: Fast and User-friendly   The vibrant development of the Internet has created an online celebrity economy. Youtubers, Internet personalities, cyberstars, Wanghong (or internet fame in Mandarin) produce films or release podcasts to attract the audience for direct/indirect and commercial/non-profit-seeking purposes. The production of such films and live broadcasting, or the creation of original online or PC games creates the demand for background music or sound effects. Ed Newton-Rex, who earned a bachelor of arts degree in music from University of Cambridge, founded JukeDeck[6] after he went to a computer science class in Harvard University. JukeDeck is an online music generator, developed with deep learning(as part of artificial intelligence). This paper believes that JukeDeck meets the industry demand with two offerings[7]: (I) JukeDeck Rapid generation of pleasant and unique music with deep learning The algorithm design by Ed Newton-Rex with artificial intelligence is different from the generation of background music and other music by the websites that use loop audio files. JukeDeck generates music pleasing to the ears with one tone at a time and avoids repetitions by analyzing musical forms, harmonies and tones with deep learning, so that the users in pursuit of originality and unique can acquire the musical materials within approximately 30 seconds, without worrying that they sound similar with others[8]. Greater flexibility in length to create bespoke styles and feelings JukeDeck offers flexibility in the length of music, up to five minutes depending on the preference of users. An extension is possible by mixing up different fragments. It is also possible to define musical styles and formats, e.g. piano, folksongs, electro and ambient music[9], as well as the feelings to be aroused, such as uplifting and melancholic. The music generated by deep learning is different from the free or paid music databases which use the so-called canned music and suffer the problems of mismatches between the film length and music length[10]. (II) Amper Music   Amper Music was founded by the Hollywood songwriter Drew Silverstein (founder/CEO), Sam Estes and Michael Hobe[11] with the ambition to take a step further from music generation by artificial intelligence. In the spring of 2018, the company raised another $4 million for the development of music composition with artificial intelligence, the expansion of international markets and the recruitment of more talents. In the press release, Drew Silverstein said, “Amper’s rapid growth is a testament to how the massive growth of media requires a technological solution for music creation. Amper’s value stems not only from the means to collaborate and create music through AI, but also from its ability to help power media at a global scale.”[12]   Similar with JukeDeck’s appeal to the public, Amper Music’s artificial intelligence allows users with no musical experience to create real-time and order original music[13]. It supports all the media formats. All is required is the choice for rhythms, styles and musical instruments desired[14]. Meanwhile, Amper Music posits that its music is royalty free, and comes with a global, perpetual license when synced to the outputs. In other words, users do not have to worry about legal procedures or financial costs[15]. II. Writing Pens Take Flight: A Challenge to the Fundamental of Literary Creation and Trigger for Labor Transformation   Neuhumanismus (or Neohumanism) is about the achievement of self-mastery and humanity ideals through the study of classics. Compared with humanism, neohumanism places a greater focus on emotional expression and artistic creation. It also emphasizes the importance of language learning to self-realization of individuals.[16] After studying the works of 519 contemporary poets in the Chinese society, artificial intelligence has published modern poetry and made successful inroads to the world of literature traditionally driven by emotions and imaginations. In fact, it has posed a credible challenge to the human-centric humanism where only humans are endowed with the gift of artistic creativity. Artificial intelligence has been nominated for literary awards, evidenced of the quality of outputs generated by deep learning. With the support of massive data and analytics, it is only a matter of time for artificial intelligence to possess the literary creativity comparable to humans.   However, the concern for originality in literature and the issues surrounding plagiarism and copyrights are the key determinants that influence of literary creation by artificial intelligence. This begs the questions about the ethics of literary creation. It is necessary to start with an understanding of how artificial intelligence creates, before the analysis of ethical and regulatory frameworks. (I) Xiaoice’s Collection “Sunshine Misses Windows”   Xiaoice is the chatbot launched by Microsoft’s Software Technology Center Asia (STCA) in China in 2014. In 2017, Xiaoice published her collection of poems “Sunshine Misses Windows”[17], written by looking at pictures. The deep learning algorithms behind were co- developed by Wu Zhao-Zhong and Cheng Wen-Feng, two students in the Graduate Institute of Networking and Multimedia, National Taiwan University.   The artificial intelligence writes poetry with the following methodology[18]: Use of image recognition technology to identify the keywords in the pictures: The adoption of image recognition technology developed by Microsoft’s Software Technology Center Asia (STCA) to identify the nouns in the pictures such as the bridge, skies and trees and the adjectives that express feelings such as beautiful or annoying. Matching of keywords from the training database: The training data for the matching of keywords and poetry database was the works of a total of 519 contemporary poets since the 1920s. The purpose was to fill in the gap between keywords and training data. Generation of poems: deep learning trained in the language model with keywords to create poems Improvement of poems: literary professionals and readers invited to give ratings. Submission of writings as an anonymous author to improve Xiaoice’s capability.   The above is a summary of Xiaoice’s creative journey. Microsoft claims that the collection of poems was 100% written by Xiaoice, and it is the first collection of poems 100% written by artificial intelligence in history. The poems were not edited by humans and wrong characters were maintained as they were. The title “Sunshine Misses Windows” was also named by Xiaoice herself[19]. Despite all these, the originality and even the most fundamental “literality” of these poems are still questioned.   At the end of 2018, the Research Institute for Humanities and Social Sciences, Ministry of Science & Technology and National Taiwan University organized the forum “Culture and Technology II: AI’s Literature Dream — Sunshine Misses Windows. Does Humanity Have a Boundary?” The professor in the Department of Chinese Literature, National Taiwan University and the poet Tang Juan discussed Xiaoice’s works[20] and commented as a critic of contemporary poetry. Xiaoice uses extensively the same vocabulary (such as the beach). Unable to use punctures, she can only break sentences and lines. Most importantly, her writings do not reflect our times and real experience. In other words, Xiaoice’s poems do not possess the unique perspective and soul of poets and literary characters. This may be the outcome of her reading of works from 519 poets from the 1920s. As a result, she is not able to connect with our times and real life and finds it difficult to resonate the shared emotions of people today. Tang Juan’s comment is more than just about literature. It is also about the selection and sourcing of training data, a prerequisite for the development of artificial intelligence, as well as the cost and consideration for copyright licensing.   The research and development by corporates in artificial intelligence requires the corresponding and suitable training materials, particularly in the domain of literature. As commented by the poet Tang Juan, it requires extensive sources of contemporary works. It means the increasing difficulty to circumvent the works still protected by copyrights. If this cost consideration remains a hurdle, it is impossible to make improvements in further research. Put differently, the composition of training data is potentially a cost concern for copyright licensing. Before the legal system becomes well-developed and the establishment of consensus on the issues concerning training data, the possible infringement is an absolutely necessary balancing act for any robust developers and companies involved in artificial intelligence. (II) Yuurei Raita’s “The Day A Computer Writes A Novel”   In 2013, Nikkei started to offer the Nikkei Hoshi Shinichi Literary Award to outstanding short Si-Fi novels, as a tribute to the late science fiction writer Hoshi Shinichi[21]. Three years later, Yuurei Raita’s “The Day A Computer Writes A Novel” appeared on Nikkei’s list of acceptance for competition. Miss Yoko is the leading character in this 2000-character short sci-fi novel[22]. Raita-kun is in fact an artificial intelligence team “Wagamama artificial intelligence as a writer” led by Hitoshi Matsubara, President of the Japanese Society of Artificial Intelligence and a professor in Future University[23]. Below is a description of their deep learning techniques[24]: Analysis of writing styles from training data: The team provides training data as the learning basis for artificial intelligence. (For this competition, the data is approximately 1,000 short stories written by Hoshi Shinichi.) The purpose is to analyze the frequently used words, novel structures and characters. Resource integration by the team: The team integrates the analyzed data with online information, storyline programs, human emotions and settings, and decides on characters, contents and plots[25]. Researchers provide three instructions, i.e., when, the weather, doing what so that artificial intelligence automatically generates detailed and tangible contents. Automatic generation of new works: Artificial intelligence refines the details and polishes the texts, to generate the new story by Hoshi Shinichi with fragments such as: “The same temperature and humidity in the room is maintained as usual. Yoko sits idly on the sofa, dishevelled and playing a dull game uninterested.”   The procedures of novel contents generation described above indicate that artificial intelligence still relies on humans for setups and assistance. In contrast with the claim by the Microsoft team that Xiaoice is 100% artificial intelligence, the team in Japan confessed that artificial intelligence writing is still in a nascent stage.   At least in literature types such as novels, artificial intelligence still needs appropriate guidance from humans for necessary writing elements, in order to generate and connect fragments to establish the finalized pieces. In general, artificial intelligence can only be held responsible for 20% of work[26]. However, the development of technology continues at its pace. When it is no longer easy to differentiate a piece of creative writing is by humans or by machines, the limitation of copyright protection to human’s creative works will be an obsolete approach. (III) Tencent: Robot “Dreamwriter”   The above two AI writing teams focus on creative literature. In China, Tencent has developed Dreamwriter to rapidly generate news products. In the 2018 International Media Conference in Singapore[27] hosted by the East West Center, a think tank in the U.S. at the end of June 2018, Tencent demonstrated its translation engine. Speakers spoke in Chinese and the engine did simultaneous translation into English shown on the projector screen[28].   Tencent’s artificial intelligence “Dreamwriter” project started as a push engine for news flashes such as sports events. It later extended into financial and economic data and reporting, a field with extensive data and conducive to AI development and ML acceleration[29]. Dreamwriter only takes half to one second to generate a piece of news. It can generate approximately 5,000 articles per day, equivalent to the output of 208 journalists. This implies a transformation of labor requirements in journalism. Human reporters will be involved in in-depth coverage that requires creativity, industry knowledge and judgement[30], whilst basic and factual reporting will be completed by artificial intelligence. III. Brave New Work for Paintings: Rights Ownership in the Presence of Sophisticated Deep Learning   In the autumn/winter of 2018, the Paris-based AI team Obvious presented “Portrait of Edmond Belamy”[31] in Prints & Multiples auction in New York. This painting was sold for a surprising high price of[32] $432,000 (or over NT$13 million)[33], as the first AI-generated painting being auctioned. The Obvious team focuses on Generative Adversarial Network (GAN)[34], a hot topic for the development of deep learning. (I) Technique to Improve Deep Learning: Generative Adversarial Network (GAN)   The GAN technique was developed by Ian Goodfellow[35] in 2014 to promote and enhance deep learning by massively reducing the amount of training data required and cutting down on human intervention, assistance and involvement[36].   The GAN method can be illustrated in a high level by referring to the classical example of the image recognition for cats previously mentioned. The neural network model (as a deep learning technique) enables artificial intelligence to learn how to identify cats from a massive volume of pictures of cats. However, it is necessary for humans to train the machine by providing signs and feature descriptions for each picture. In contrast, the GAN technique is about the training of two competing networks,[37] i.e., a generative network and a discriminant network[38]. The generative network is responsible for generating the pictures that resemble real cats (i.e. made-believe cats) and the discriminant network reviews and determine whether the pictures are authentic. The two networks enhance capabilities by competing with each other. The idea is to improve the learning and competence of deep learning[39]. (II) Application in the Art of Paintings   The GAN method can be used to generate paintings such as “Portrait of Edmond Belamy”. It can also identify fake paintings. Founder/CEO Jensen Huang of Nvidia, a leading artificial intelligence company, said in a forum that the GAN technique allows one neural network to paint the pictures in the Picasso style and the other network to identify images and paintings with unprecedented discriminant capabilities[40]. The seventh year of the Lumen Prize gave the biggest award to a nude portrait generated with the GAN technique[41]. The GAN applications have been mushrooming – turning a scribble into an art, a low-definition picture into a high-definition one, an aerial graph into a photo[42].   Below is a brief description of the concepts and procedures for the Obvious research team’s completion of “Portrait of Edmond Belamy”[43]: Analysis of portraits from training data: A total of 15,000 portraits from the 14th century to the 20th century as the training data Generative network vs. discriminant network: The generative network generates paintings on the basis of training data. The discriminant network seeks to identity the difference from human-created paintings in order to improve the capability of the generative network. This process continues until the discriminant network is no longer to tell a machine-created painting from a human-created painting. (III) Ownership of Rights to High Economic Value of Artworks   The winning of the Lumen Prize in the UK by the nude portrait generated by artificial intelligence and the surprisingly high auction price paid for Portrait of Edmond Belamy are the testimony of the artificial intelligence’s creative capability. The ownership of the right to the monetary value of these artworks is a topic worthy of exploration.   “The development team ‘Obvious’ for ‘Portrait of Edmond Belamy’ posits that if the author is the person who paints the painting, it is artificial intelligence. If the author is the person who seeks to convey a message, it is us[44]. The human’s role is being undermined as deep learning technology becomes increasingly sophisticated. Going forward, can artificial intelligence become the owner of rights? What should be the regulatory framework for now? At this juncture, this paper conducts an international comparison by examining how different governments consider the emerging legal issues. Three. Copyright Ownership of Works Created by Artificial Intelligence   The explanatory ruling by the Copyright Division, Intellectual Property Office, Ministry of Economic Affairs issued in 2018[45] has expressed the Taiwan government’s stance on the issue of whether the outputs generated by artificial intelligence can enjoy copyrights. Below is the summary: Presumption: Article 10 and Article 33 of the Copyright Law[46] stipulates that only natural persons or legal persons can be the owner of rights and obligations pertaining to creative works and enjoy the protection of copyrights. Positioning and logics: The outputs generated by artificial intelligence are the intellectual results expressed by machines created by humans. Machines are neither natural persons or legal persons and hence do not attract copyrights. Proviso: If the results are created with participation of natural/legal persons and the machines are being operated for analytics, the copyright of the results expressed should belong to the natural/legal persons concerned.   The above explanatory ruling seems to position artificial intelligence completely as a tool. However, the above example suggests an obvious trajectory for the creative journey for deep learning as an artificial intelligence technique. In the current stage and the foreseeable future, the description that robot analytics are straight mechanical operations is completely obsolete given that artificial intelligence is being applied in industry with dramatically reduced (or even completely without) human intervention and participation.   It is a worthwhile exercise to explore the international thinking regarding how the legal framework should address the ownership of rights for outputs generated with deep learning as an artificial intelligence technique and the derived services/products by either opening up new legal structures or simply extending on the existing system. I. European Union (I) European Parliament: Establishment of Electronic Personhood?   The European Parliament's Committee on Legal Affairs (JURI) passed a report on January 12, 2018 to provide suggestions to the Civil Law Rules on Robotics and urge the European Commission to set up laws and regulations governing robots and artificial intelligence by defining electronic personhood, similar with legal personhood for corporates as litigation entities for any issues associated with rights and obligations of artificial intelligence[47]. (II) Court of Justice of the European Union: Only Works Accomplished by Humans Eligible for Protection   The Court of Justice of the European Union’s landmark case Infopaq International A/S v. Danske Dagbaldes Forening[48]suggests that copyrights are only applicable for original works, with originality reflecting the “author’s own intellectual creation.” The general interpretation is that such works should reflect the author’s personality. Hence, only human authors meet this criterion[49]. The third paragraph of Article 1 of the Directive 2009/24/EC also clearly states that only works that are the authors’ own intellectual creation enjoys eligibility for protection[50]. (III) Data Protection: GDPR and Declaration of cooperation on Artificial Intelligence   The General Data Protection Regulation (GDPR) in European Union attracted significant attention among the companies active in the EU market in 2018. In fact, the GDPR provides comprehensive and representative regulations that have direct influence on technological development of artificial intelligence training, as well as legal protection and right construction on data, the crude oil for deep learning.   Below are a few examples: Article 20 on data portability: The data subject has the right to receive his/her personal data from the data controller in a structured, commonly used and machine-readable format. This helps the industry to establish metadata and forms the basis of the database for artificial intelligence training. The consistency of metadata will enhance the training. Article 22 on automated individual decision-making The data subject has the right not to be subject to a decision based solely on automated processing. The data controller must lay down suitable measures to safeguard the data subject’s rights. Article 35 on data protection by design and by default This article provides the legal protection of large-scale and systematic monitoring of public and open areas with artificial intelligence and strikes a balance between the use of personal data and the interest of data subjects.   On top of the GDPR, the 24 member states of the European Union signed the Declaration of Cooperation on Artificial Intelligence in 2018, in order to enhance access to public sector data for the digital single market. II. United Kingdom (I) Copyright Law: Source of Laws for Program Developers to Obtain Copyrights   The copyright laws are stipulated in the Copyright, Designs and Patent Act (CDPA) 9 (3)[51]. It forms the source of the laws that grant copyrights to the developers of computer-generated works. Article 178 of the CDPA defines computer-generated works as the outputs generated by machines without human authors[52].   In contrast with the Court of Justice of the European Union’s decision that only human authors are eligible for copyright protection, the UK government opens up another door by specifying that program designers can obtain copyrights even if creative sparks come from machines[53]. This system is considered the most efficient because it enhances incentives for investments[54]. (II) Public Sector: Open up Government Data   The UK government also opens up its data by posting all the official statistics on the website www.data.gov.uk. The Digital Economy Bill provides the legal framework for government agencies to use each other’s data for the benefit of the public, so as to effectively address the issues surrounding frauds and debts and improve the real-timeliness and accuracy of national statistics.   As part of the Brexit preparation, the UK government has created its own GDPR (2018) to ensure the continued smooth cross-border operations of companies after Brexit. As it offers higher protection of consumers’ data and information, it is worthwhile to refer to the UK GDPR as a template for legal systems and rights frameworks. III. United States (I) U.S. Copyright Office: Only Intellectual Achievements of the Human Mind Eligible for Protection   The case law originated in 1991——Feist Publications v. Rural Telephone Service Company[55]confirms that copyrights protect the creative powers of the mind. In the Naruto v. Slater (2016)[56] case, the court determines that the photos taken by a monkey are not eligible for copyright protection. Article 313.2 of the implementation guidelines of the Copyright Act issued by the U.S. Copyright Office specify that the works created without human authors are not protected by the Copyright Act. The amendment to Article 313.2 in 2017 states clearly that the U.S. Copyright Act only protects the intellectual achievements of the human mind[57]. The U.S. Copyright Act 503.03(a), titled “Works-not originated by a human author” also states that only works created by a human author can register for copyrights[58]. (II) Employment Principle: Enhanced Incentives and Investment Willingness   The above court judgements and the implementation guidelines of the U.S. Copyright Act indicate that the U.S. Copyright Office does not confer non-human copyright[59]. However, the U.S. judicial rulings have allowed “the work made for hire provision” as exception to the creative authors, in order to encourage corporate investments. The 1909 amendment to the U.S. Copyright Act included the hired employees as authors. Unless otherwise agreed, “the author or proprietor of any work made the subject of copyright by this Act, or his executors, administrators, or assigns, shall have copyright for such work under the conditions and for the terms specified in this Act”. A typical example is the news agency’s employment of full-time journalists to produce editorials. The works by employees are a company’s key copyright assets[60]. (III)Employment/Sponsorship Principle if Realized in Taiwan: Companies Investing in Works to Obtain Copyright Protection   Article 11 of the R.O.C. Copyright Act stipulates the ownership of the right to the works of employees on a case-by-case and factual basis. The decision is based on the nature of work, e.g., completion under the employer’s instructions or planning, the use of the employer’s budgets or resources. It is not necessarily related to the work hours or locations. In principle, the employee is the author of the works completed by him/her on the job. However, the employment contract supersedes if it specifies that the employer is the author. On the other hand, if the employee is the author, the intellectual property belongs to the employer. The contract supersedes if it specifies that the employee enjoys the intellectual property. Article 12 is about sponsorship and commissioning. Unless specified by the contract, the sponsored owns the intellectual property of his/her works and the sponsor has the right to use such intellectual property[61]. In sum, the ownership of the right to the outputs generated by artificial intelligence is similar with the employment/sponsorship principle. It is not set in the vacuum of legal contexts.   Therefore, the scholar in Taiwan Lin Li-Chih suggests that the employment principle in the U.S. may be adopted. She posits that when certain conditions are met, artificial intelligence may be treated as the author, so that the outputs generated by artificial intelligence can be protected and the investing research institutes or corporates can own the works[62]. As both legal persons and natural persons can be authors in Taiwan, Lin Li-Chih proposes this approach to resolve disputes given the massive value to be created by artificial intelligence for different applications and the potential lengthy legislative process or laws disconnected from industry expectations. The idea is to avoid the human author requirement from hindering industry investments and innovations for works generated by artificial intelligence[63]. According to the employment/sponsorship principle, deep learning as an artificial intelligence method can be inferred to as the author and then teams and companies that develop the algorithms should own the intellectual property of the works. This will serve as the legal foundation for intellectual property protection. Four. Conclusion: Legal System and Policy Framework for Emerging Technologies I. Construction of Laws and Regulations on a Rolling Basis According to the Reality of Emerging Technologies   Every law has its purpose, and the contents of laws depend on their regulatory objectives. However, such contents should be anchored on facts, in order to align the intended purposes. This is particularly the case for the laws and regulations governing emerging technologies because such laws and regulations should capture the fact of technological developments. The most straightforward and fundamental approach to relax the control of the existing legal mechanism is via communication, coordination and understanding. It can be initiated with more dialogues between the government agency responsible for the construction of the legal environment and the industries and the public as subjects of the laws and regulations.   Regulators may wish to come up with dedicated laws for the comprehensive coverage of emerging technologies given the lack of understanding about the technology and the sweeping effects of the technology. However, not all technologies require special legislations. According to Frank H Easterbrook’s article “Cyberspace and the Law of the Horse” published by the University of Chicago’s legal journal, it is advised to properly categorize and analyze existing laws and regulations and apply the suitable ones to new technologies for issues surrounding intellectual property, contracts and torts, as if from the Law of the Horse to the Law of Cyberspace[64]. Similarly, the ownership of copyrights associated with artificial intelligence and the governance of emerging technologies such as autonomous driving and robots may be dealt in this way.   The above analysis on the legal regimes in the European Union, the United Kingdom and the United States highlights two issues concerning the regulation of artificial intelligence and the development of legal environments. The growing sophistication of deep learning will enhance the capability of artificial intelligence in thinking, analysis and creation, with human intervention expected to be reduced to almost zero. The legal regime governing emerging technologies cannot stand in the way of technological and industry development or incentives for investment, as originally intended by the intellectual property laws. A balancing act is required.   This paper thus suggests two models: Forward-looking approach to label rights ownership with legal articles This is the route taken by the UK government, by directly amending the intellectual property laws to specify that intellectual property of artificial intelligence belongs to program developers. It is the most efficient approach of paving the way for technological development by providing incentives to companies and developers. Adoption of the employment/sponsorship principle in conjunction with safe harbor clauses Another approach is without touching on the sensitive issue of law amendments. Judicial rulings or administrative interpretations by competent authorities are gradually released in the context of existing laws. A temporary solution is introduced with the adoption of the employment/sponsorship principle with corresponding templates and references for contract construction in the industry. This can work in conjunction with safe harbor clauses in the long run, by slowly converging the diversity of opinions and perspectives from corporates, government agencies and academic/research institutions. Adjustments by tightening or loosening on a rolling basis should be made in order to work out the optimal boundary and establish the basis for legislation in the next stage. II. Data as a Prerequisite for Artificial Intelligence Training   In Taiwan where the legal environment is not yet ready or clear, the ownership of intellectual property for outputs generated by artificial intelligence also involves the potential licensing royalties for the sourcing of training data.   It is worth noting that the use of data for artificial intelligence may affect the basic human rights due to discrimination or bias resultant from training data or algorithms. Therefore, it is necessary to enhance transparency and the protection of human rights conferred by the constitution with corresponding legal systems and ethical frameworks such as due process and fairness principle[65]. The other critical issue is the training database required for artificial intelligence applications. The government should provide more open data as a policy to support technology development in the corporate world or at research organizations. It is also necessary to make government information the structured metadata in order to enhance the efficiency and quality of research outputs. This is to facilitate added value by private sectors with data as an infrastructure provided by the government. Put differently, the government opens up structured data to empower the research and development of artificial intelligence; whilst the private sectors offer professional technology and development capabilities.   In terms of promoting data openness and applications, the government assumes greater accountability in the balancing between data use and data protection, the two equally important public interests. As an island of technology, Taiwan should look beyond the horizon of skies and oceans in the era where information and data flows without borders. The Taiwan government should establish the capability in data openness, protection and control by joining international forums. For instance, the government can apply with the APEC to join the Cross-Border Privacy Rules System in order to encourage regional collaborations in data control and construct datasets with the resources of the country. It is important to focus on the process of data collection, processing, analysis and utilization and ensure policies are implemented with the protection of civil and human rights such as the Right to Know, the Right to Withdraw and Citizen Data Empowerment. [1] David G. Lowe, Object Recognition from Local Scale-Invariant Features, Proceedings of the Seventh IEEE International Conference on Computer Vision, https://ieeexplore.ieee.org/stamp/stamp.jsp?arnumber=790410 (last visited Dec. 27, 2018) excerpt from “These features share similar properties with neurons in inferior temporal cortex that are used for object recognition in primate vision”. [2] AI Lesson 101: Illustration of 27 Neural Network Models, Tech Orange, January 24, 2018, https://buzzorange.com/techorange/2018/01/24/neural-networks-compare/ (last visited on December 27, 2018) [3] Chen Yi-Ting (Bachelor’s Degree from Department of Physics, National Taiwan University, currently a PhD candidate in Department of Applied Physics, University of Stanford), Artificial Intelligence Starts with Neurons, May 3, 2018, https://case.ntu.edu.tw/blog/?p=30715 (last visited on December 27, 2018) [4] Hung-yi Lee’s personal profile at http://speech.ee.ntu.edu.tw/~tlkagk/. Currently teaching in Department of Electric Engineering, National Taiwan University; previously a guest scientist in MIT's Computer Science and Artificial Intelligence Laboratory (CSAIL); specialization in machine learning and deep learning [5] Chen Yan-Cheng, Who Is Likely to Lose Jobs in the Era of Artificial Intelligence? Experts Explains the Professional Skills in Demand for Deep Learning, December 26, 2018. https://www.managertoday.com.tw/articles/view/56859 (last visited on December 27, 2018) [6] Details available on JukeDeck’s official website at https://www.jukedeck.com/(last visited on January 11, 2019) [7] In addition to the leverage of two key features of artificial intelligence, JukeDeck is also very friendly to creative teams in need of musical materials in terms of royalties, fee structures, UI/UX design. The company offers free downloads to non-commercial users. An individual or a small group (of fewer than 10 people) can enjoy five free downloads each month and pay $6.99 per song for the sixth download and above. Large groups (of ten people or more) should pay $21.99 for each download. [8] DIGILOG Authors, “A Nightmare for Musicians? AI Online Music Composer System – JukeDeck, DIGILOG, June 2, 2016, https://digilog.tw/posts/668 (last visited on January 2, 2019) [9] Laird Studio, Let the Online Music Composer Jukedeck Produce Unique Background Music for Your Films or Games! March 8, 2016, https://www.laird.tw/2016/03/jukedeck-jukedeck-bgm.html (last visited on January 10, 2019) [10] As above. [11] Amper Music’s official website at https://www.ampermusic.com/(last visited on January 10, 2019) [12] GlobeNewswire, Amper Music Raises $4M to Fuel Growth of Artificial Intelligence Music Composition Technology, March 22, 2018, https://globenewswire.com/news-release/2018/03/22/1444796/0/zh-hant/Amper-Music%E7%B1%8C%E8%B3%87400%E8%90%AC%E7%BE%8E%E5%85%83%E4%BB%A5%E6%8E%A8%E5%8B%95%E4%BA%BA%E5%B7%A5%E6%99%BA%E8%83%BD%E7%B7%A8%E6%9B%B2%E6%8A%80%E8%A1%93%E7%9A%84%E7%99%BC%E5%B1%95.html (last visited on January 10, 2019). This round was led by Horizons Ventures, with Two Sigma Ventures, Advancit Capital, Foundry Group and Kiwi Venture Partners. This brings the company's total investment to $9 million. [13] GlobeNewswire, same as above [14] Smart Piece of Wood, Free Online Composer Enabled by AI, Amper Music, March 1, 2017, Modern Musician,https://modernmusician.com/forums/index.php?threads/%E5%85%8D%E8%B2%BB%E7%B7%9A%E4%B8%8A%E5%B9%AB%E4%BD%A0%E4%BD%9C-%E7%B7%A8%E6%9B%B2%E7%9A%84%E4%BA%BA%E5%B7%A5%E6%99%BA%E8%83%BD%EF%BC%9Aamper-music.225650/ (last visited on January 10, 2019) [15] GlobeNewswire, same as Note 12 [16] Fang Yung-Chuan, Neohumanism, National Academy for Educational Research, http://terms.naer.edu.tw/detail/1312151/(last visited on January 10, 2019). Neohumanism emerged in Europe in the 18th and 19th century, against rationalism and utilitarianism advocated by the enlightenment movement. Neohumanism argues that the value of things is not hinged on practicality. Rather, it stems from the things themselves. Humanity is precious not because of rationality, but resultant from emotional satisfaction in life. Cultures are originated by the spontaneous activities of humanity, on the basis of emotions and imaginations. [17] Synopsis by books.com.tw, who sells online Xiaoice’s “Sunshine Misses Windows”, the first collection of poems generated by artificial intelligence in history, August 1, 2017, China Times Publishing Co. https://www.books.com.tw/products/0010759209 (last visited on January 13, 2019) [18] Wong Shu-Ting, AI Talents in Taiwan Find Stage in China: NTU Students Participate in R&D That Empowers Microsoft’s Xiaoice to Write Poetry by Looking at Pictures, BusinessNext, June 6, 2017, https://www.bnext.com.tw/article/44784/ai-xiaoice-microsoft(last visited on January 10, 2019 [19] Synopsis by books.com.tw, same as Note 17 [20] The organizer did not provide handouts from the speakers. The summary was based on the author’s note. [21]Lin Ke-Hung, “More Than Playing Chess. AI Writes Novels Too. AI Novel Passes Preliminary Screening for a Novel Award! Reading at Frontline, https://news.readmoo.com/2016/03/25/ai-fictions/(last visited on January 10, 2019) [22] Ou Tzu-Jin, “2,3,5,7,11..?AI-written Novel in Japan Nominated for a Literary Award, April 7, 2016, The News Lens , https://www.thenewslens.com/article/38783(last visited on January 10, 2019) [23] TechBang, AI Team in Japan Develops Robots That Write Short Stories and Participates in Literary Competitions, TechNews, March 28, 2016, http://technews.tw/2016/03/28/ai-robot-novel-creation/(last visited on January 10, 2019) [24] Ou Tzu-Jin, same as Note 20 [25] TechBang, same as Note 21 [26] Lin Ke-Hung, same as Note 19 [27] The title of the forum was “What is News Now?”. It attracted over 300 journalists and media experts from the U.S. and Asia Pacific to discuss media phenomena today. Detailed agenda available at East West Centre’s official website at https://www.eastwestcenter.org/events/2018-international-media-conference-in-singapore(last visited on January 10, 2019) [28] Jason Liu, “Robot Writer, Transformation of South China Morning Post, State Monitoring, International Media Conference Day 1, China, Medium, June 25, 2018, https://medium.com/@chihhsin.liu/%E5%AF%AB%E7%A8%BF%E6%A9%9F%E5%99%A8%E4%BA%BA-%E5%8D%97%E8%8F%AF%E6%97%A9%E5%A0%B1%E8%BD%89%E5%9E%8B-%E5%9C%8B%E5%AE%B6%E7%9B%A3%E6%8E%A7-%E5%9C%8B%E9%9A%9B%E5%AA%92%E9%AB%94%E6%9C%83%E8%AD%B0day1-%E4%B8%AD%E5%9C%8B-c9c20bd00d75(last visited on January 10, 2019) [29] Jason Liu, same as above [30] Jason Liu, same as above [31] First Time Ever in the World!AI-Created Portrait, Sold at Christie's Auction for NT$13.34 Million, Liberty Times, October 26, 2018, http://news.ltn.com.tw/news/world/breakingnews/2592633(last visited on January 10, 2019) [32] The selling price is 40x higher than the expected price. The buyer’s identity is unknown. Chang Cheng-Yu, “First Time Ever! AI-Created Portrait Auctioned at Christie’s for NT$13.34 Million, October 26, 2018, LimitlessIQ,https://www.limitlessiq.com/news/post/view/id/7241/ (last visited on January 10, 2019) [33] Lin Pei-Yin, Does the NT$10m Worth AI Portrait Have Intellectual Property?” Apple Daily, Real-Time Forum, November 29, 2018, https://tw.appledaily.com/new/realtime/20181129/1475302/(last visited on January 10, 2019) [34] Jamie Beckett, What Are Generative and Discriminant Networks? Hear What Top Researchers Say, Nvidia, May 17, 2017, https://blogs.nvidia.com.tw/2017/05/generative-adversarial-network/(last visited on January 10, 2019) [35] Jamie Beckett, same as above. Ian Goodfellow is currently a Google research scientist. He was a PhD candidate in the Université de Montréal when he came up with the idea of generative adversarial networks (GAN). [36] Jamie Beckett, same as above [37] Jamie Beckett, same as above [38] Chang Cheng-Yu, same as Note 32 [39] Jamie Beckett, same as Note 34 [40] Video for the speech: GTC 2017: Big Bang of Modern AI (NVIDIA keynote part 4), link at https://www.youtube.com/watch?v=xQVWEmCvzoQ (last visited on January 10, 2019) [41] Wu Chia-Zhen, AI-Generated Nude Portrait Beats Real People’s Works by Claiming the UK Art Award and Prize of NT$120,000, LimitlessIQ, October 15, 2018 https://www.limitlessiq.com/news/post/view/id/7070/(last visited on January 10, 2019) [42] Jamie Beckett, same as Note 34 [43] Chang Cheng-Yu, same as Note 32 [44] Chang Cheng-Yu, same as Note 32 [45] The explanatory ruling by the Copyright Division, Intellectual Property Office, Ministry of Economic Affairs, Email 1070420, issued on April 20, 2018, https://www.tipo.gov.tw/ct.asp?ctNode=7448&mp=1&xItem=666643(last visited on January 2, 2019). The discussion was in response to the training outcome of voice recognition patterns based on analytics of the 1999 Citizen Hotline voice data. [46] According to Article 10 of the Copyright Law, authors enjoy copyright at the time of the work completion. Article 33 stipulates that copyright for legal-person authors lasts 50 years after the first publication of the work concerned. [47] Yeh Yun-Ching, Birth of New Type of Legal Right/Liability Entity ─ Possibility of Robots Owning Copyrights According to 2017 Proposal from European Parliament, IP Observer - Patent & Trademark News from NAIP Issue No. 190, July 26, 2017 http://www.naipo.com/Portals/1/web_tw/Knowledge_Center/Laws/IPNC_170726_0201.htm (last visited on January 2, 2019) [48] C-5/08 Infopaq International A/S v. Danske Dagbaldes Forening. [49] Andres Guadamuz, Artificial Intelligence and Copyright, WIPO MAGAZING, October 2017, https://www.wipo.int/wipo_magazine/en/2017/05/article_0003.html (last visited on January 19, 2019). [50] The article indicates that “A work should be protected in “the sense that is the authors’ own intellectual creation. No other criteria shall be applied to determine its eligibility for protection”. [51] Excerpt from the original legal article: in case of a literary, dramatic, musical or artistic work which is computer-generated, the author shall be taken to be the person by whom the arrangements necessary for the creation of the work are undertaken. [52] Excerpt from the original legal article: generated by computer in circumstances such that there is no human author of the work. [53] Andres Guadamuz, supra note 49. [54] Id. [55] Feist Publications v. Rural Telephone Service Company, Inc., 499 U.S. 340 (1991). “the fruits of intellectual labor that are founded in the creative powers of the mind.” [56] Naruto v. Slater, 2016 U.S. Dist. (N.D. Cal. Jan. 28, 2016). [57] The 2014 version of Article 313.2 provides a list of the examples not eligible for the U.S. Copyright Act protection. These include the works generated by the nature, animals or plants and the works purely generated by machines or machinery at random, without any creative inputs or intervention from humans. The examples given are photos taken by a monkey and murals painted by an elephant. The 2014 version establishes that works not created by humans are not eligible for copyright protection. The 2017 version takes a step further with more specific and straightforward wording. [58] Copyright Act 503.03(a): Works-not originated by a human author. In order to be entitled to copyright registration, a work must be the product of human authorship. Works produced by mechanical processes or random selection without any contribution by a human author are not registrable. Thus, a linoleum floor covering featuring a multicolored pebble design which was produced by a mechanical process in unrepeatable, random patterns, is not registrable. Similarly, a work owing its form to the forces of nature and lacking human authorship is not registrable; thus, for example, a piece of driftwood even if polished and mounted is not registrable. [59] Andres Guadamuz, supra note 49. [60] Lin Li-Chih, An Initial Examination of Copyright Disputes Concerning Artificial Intelligence —— Centered on the Author’s Identity, Intellectual Property Rights Journal, Volume 237, September 2019, pages 65-66 [61] The legislative rationale for Article 12 of the R.O.C. Copyright Act: The sponsor and the sponsored are typically in a more equal position for the works completed with sponsorship. It is different from the situation where the works are completed by an employee by using the hardware and software offered by the employer and receiving salaries from the employer. Therefore, the ownership of copyrights depends on the contract between the sponsor and the sponsored regarding the investment and sponsorship purposes. Unless otherwise specified by the contract, the sponsor typically provides funding because of his/her intention to use the works completed by the sponsored. Therefore, the intellectual property should belong to the sponsored. [62] Lin Li-Chih, same as Note 60, pages 75-76. Further reference of the principle used in the U.S. system: Annemarie Bridy (2016), The Evolution of Authorship: Work Made by Code, Columbia Journal of Law, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2836568. Also the same author (2012), Coding Creativity: Copyright and the Artificially Intelligent Author, Stanford Technology Law Review, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1888622. [63] Lin Li-Chih, same as Note 60, page 76 [64] Frank H Easterbrook, Cyberspace and the Law of the Horse, 1996 U. CHI. LEGAL F. 207. [65] Please refer to State v. Loomis, 317 Wis. 2d 235 (2016).

Taiwan Intellectual Property Survey Report 2023

Taiwan Intellectual Property Survey Report 2023 2024/06/27 Innovation & Intellectual Property Center, Science & Technology Law Institute (STLI), Institute for Information Industry has conducted the survey of “The Intellectual Property Survey Report” to listed companies since 2012. The Intellectual Property Survey Report 2023 on Taiwan's Listed and Over-the-Counter Companies was released in February 2024. Among the 331 publicly listed companies surveyed in 2023, the information technology sector had the largest representation, accounting for 44% (145 companies). This was followed by the manufacturing sector at 27% (90 companies), the pharmaceutical and livelihood sector at 18% (58 companies), and the industrial and commercial services sector at 11% (38 companies). Data source: Innovation & Intellectual Property Center, Science & Technology Law Institute (STLI), Taiwan Intellectual Property Survey Report 2023. Fig. 1 types of industry Based on the survey result, three trends of intellectual property management for Taiwanese enterprises have integrated 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 More than 70% of companies believe that intellectual property can enhance product/service value, help profitability, and protect research results/core competitiveness. Specifically, 72% believe that intellectual property can enhance product/service value and help profitability, and 78% believe it can protect research results/core competitiveness. Additionally, 65% of companies believe that intellectual property can protect and enhance brand value, and 65% believe it can reduce the likelihood of disputes and infringements with others. Data source: Innovation & Intellectual Property Center, Science & Technology Law Institute (STLI), Taiwan Intellectual Property Survey Report 2023. Fig.2 The benefit of intellectual property for the company 2.Taiwanese enterprises maintain investment in the dedicated department and full time personnel for intellectual property 33% of listed companies set up full time personnel for intellectual property and over 32% of those have established dedicated department to handle its business that is higher than 35% in 2023. Data source: Innovation & Intellectual Property Center, Science & Technology Law Institute (STLI), Taiwan Intellectual Property Survey Report 2023. Fig.3 Department or personnel for intellectual property by year 2. Taiwanese enterprises plan budget for intellectual property each year 79% of enterprises have invested a certain amount of funds this year in acquiring, maintaining, and managing intellectual property. By industry, the information technology and pharmaceutical/livelihood sectors have a higher proportion of investment in related expenses, both exceeding 80% Data source: Innovation & Intellectual Property Center, Science & Technology Law Institute (STLI), Taiwan Intellectual Property Survey Report 2023. Fig. 4 fixed budget for intellectual property each year Trend 2: Taiwanese enterprises are willing to disclose their intellectual property information to the public, which can have a positive impact on the company. 1. Enterprises have a positive attitude towards disclosing intellectual property information. 72% of enterprises believe that disclosing intellectual property helps external parties objectively assess the company's value and competitiveness. This is followed by highlighting brand value (52%) and improving the internal management and control of intellectual property. By industry category, 77% of manufacturing companies believe it helps external parties objectively assess the company's value and competitiveness, which is higher than other industries. In the business services sector, 81% believe it helps highlight brand value, a significantly higher proportion. Data source: Innovation & Intellectual Property Center, Science & Technology Law Institute (STLI), Taiwan Intellectual Property Survey Report 2023. Fig. 5 Benefits of disclosing intellectual property management information for enterprises 2. The main channels for public disclosure are company annual reports, sustainability reports, and intellectual property management plans The proportion of companies disclosing intellectual property plans in annual reports reaches 72%. Additionally, approximately 39% and 38% disclose in sustainability reports or intellectual property management plans, respectively. The proportion disclosed in company marketing and promotional materials is 29%, while the proportion in English-language sustainability reports is 20%. Data source: Innovation & Intellectual Property Center, Science & Technology Law Institute (STLI), Taiwan Intellectual Property Survey Report 2023. Fig. 6 Channels for publicly disclosing corporate intellectual property management information Trend 3: Taiwanese enterprises use various types of intellectual property rights to protect their core competitiveness. 1. Trade secrets are considered crucial by enterprises but are less commonly owned forms of intellectual property Enterprises consider trademark rights, invention patents, utility model patents, and trade secrets to be more important, each with an importance score above 4. Design patents and copyrights are considered somewhat less important, each with an importance score of 3.8. However, there is a gap between the importance and the ownership rates of some types of intellectual property. The importance and ownership rates are consistent for trademarks, with an importance score of 4.5 and an ownership rate of 88%. Patents have an importance score of 4.7 and an ownership rate of 70%. Trade secrets have an importance score of 4.6 and an ownership rate of 49%. Copyrights have an importance score of 3.8 and an ownership rate of 30%. Data source: Innovation & Intellectual Property Center, Science & Technology Law Institute (STLI), Taiwan Intellectual Property Survey Report 2023. Fig. 7 Owned and Importance of Various Intellectual Properties 2. The priority of using intellectual property rights varies across different industries Patents are used to protect important assets by the largest proportion of companies, about 86%. This is followed by trademarks at 77%, trade secrets at 66%, and copyrights at 33%. By industry, the order is consistent in information services, manufacturing, and pharmaceutical/livelihood industries: patents, trademarks, trade secrets, and copyrights. In the business services sector, the order is trademarks, trade secrets, patents, and copyrights. Data source: Innovation & Intellectual Property Center, Science & Technology Law Institute (STLI), Taiwan Intellectual Property Survey Report 2023. Fig.8 which type of intellectual property rights do companies use to protect important assets The complete survey report can be accessed in the Taiwan Intellectual Property Management System (TIPS) website. The download link is https://www.tips.org.tw/body.asp?sno=BGCHDC#460

Korea “Strategies for an Intellectual Property Powerhouse to Realize a Creative Economy” Overview

Background Since 1990, many countries like United States, Japan and EU understand that intellectual properties create higher value added than tangible assets do so these countries respectively transformed their economic types to knowledge-based economy so as to boost economic growth and competitiveness. For example, Japan has legislated “Intellectual Property Basic Act” in 2002 and established “the Intellectual Property Strategy Headquarters” in 2003. United States legislated “Prioritizing Resources and Organization for Intellectual Property Act (PRO-IP Act)” in 2008. China also announced “National Intellectual Property Strategic Principles” in June, 2008. Following the above international tendency of protecting intellectual properties, Korea government has promoted intellectual property related policies and legislated related acts since 2000, such as “Technology Transfer Promotion Act” in 2000, policy of supporting patent disputes settlements and shortened the length of patent examination procedure in 2004. Besides, on June 27, 2006, the Presidential Advisory Council on Education, Science and Technology (PACEST) announced “Strategy for Intellectual Property System Constructing Plan.” However, these policies or acts mainly focus on the protection and application of patent rights, not relate to other kinds of intellectual property rights such as trademark right, copyright etc. Until 2008, in order to advance the ability of national competition, Lee Myung-bak government had established “Presidential Council on National Competitiveness (PCNC)”. For the vision of transforming to the intellectual property based economy, the PCNC held its 15th meeting on July 29, 2009. The meeting, held at the Blue House, was attended by the president, the Chairman, and members of the Council. One of the agenda of the meeting is strategies for an intellectual property (IP) powerhouse to realize a creative economy. Three goals of the strategies includes being IP Top 5 nations (U.S., Japan, EU, Korea and China), improving technology balance of payments deficits, and enhancing the scale of copyright industry. Next, this study will introduce details of Korea IP related strategies for our nation’s reference. Introduction Korea IP strategy consists of 3 aspects (creation and application, law and regulation, infrastructure) and 11 missions. And the contents of 11 missions cover the creation, protection and application of intellectual property rights (patent, copyright, trademark, plant variety etc), namely the whole life cycle of intellectual property rights. Through announcement of IP Strategies, Korea hopes to protect intellectual property rights from every aspect and makes IP as essential driving force for national economic growth. 1. Creation and Application Aspect First, although the quantity of intellectual property rights (IPRs) of Korea is rapidly increased in recent years, the quality of intellectual property rights is not increased equally. Also, most of researchers do not receive appropriate rewards from R&D institutions, and then it might reduce further innovation. As above reasons, Korea IP strategy indicated that the government will raise “invention capital” to exploit, buy researchers’ new ideas, and make those ideas get legal protection. That is, the government will set up non-practicing entities (NPEs) with private business. The NPEs would buy intellectual properties from R&D institutions or researchers, and then license to enterprises who have need. After licensing, NPEs will share royalty which obtained from enterprises (licensees) with researchers appropriately. Besides, in order to encourage university, public R&D institutions to set up “technology holdings”, Korea government had amended “Industry Education and Corporation of Industry, Academic and Research Promotion Act”. The amendments are loosening establishment conditions of technology holdings, such as minimum portion of investment in technology has been lowered from 50% to 30%, and broadening the scope of business of technology holdings. 2. Law and Regulation Aspect Secondly, in aspect of law and regulation, in addition to encouraging creation of good quality of IP, Korea considers that intellectual property rights are needed to be protected legally. Therefore, the IP strategy especially pointed out that Korea would follow the example of Japan to legislate their own “Intellectual Property Basic Act”. According to Korea “Intellectual Property Basic Act”, it should establish a “Presidential Council on Intellectual Property”. The main work of this Council is planning and promoting intellectual property related policies. There are 5 chapters and 41 articles in Korea “Intellectual Property Basic Act”. The Act like Korea IP strategy is divided into three parts, that is, “creation and application”, “protection” and “infrastructure”. In fact, the legislation of Korea “Intellectual Property Basic Act” embodies the policies of IP strategy. Further, according to Korea “Intellectual Property Basic Act”, “Presidential Council on Intellectual Property” is to integrate IP related affairs of the administrations into one action plan and promote it. Moreover, according to Korea “Intellectual Property Basic Act”, the government should make medium-term and long-term policies and basic plans for the promotion of intellectual properties every 5 years and adjusts policies and plans periodically as well. Through framing, enacting and adjusting policies and plans, Korea expects to create a well-living environment for the development of intellectual property. 3. Infrastructure Aspect Thirdly, even if good laws and regulations are already made and more government budget and human resource are invested, Korea is still deficient in well-prepared social infrastructure and leads to the situation that any promoting means of intellectual properties will be in vain. With regard to one of visions of Korea IP strategy,” being IP Top 5 power (U.S., Japan, EU, Korea and China)”, on the one hand, Korea domestic patent system should harmonize with international intellectual property regulations that includes loosening the conditions of application and renewal of patent and trademark. On the other hand, the procedure of patent application conforms to the international standard, that is, the written form of USA patent application becomes similar to the forms of world IP Top 3 power (U.S., Japan and EU) and member states of Paten Law Treaty (PLT). At the same time, Korea would join “Patent Prosecution Highway (PPH)” to enable Korea enterprises to acquire protection of patent rights around the world more rapidly. In addition, about the investigation of infringement of intellectual property rights, Korea IP strategy stated that it would strengthen control measures on nation border and broaden IP protection scope from only patent to trademark, copyright and geographical indications. Besides, Korea uses network technology to develop a 24-hour online monitoring system to track fakes and illegal copies. In addition to domestic IP protection, Korea enterprises may face IP infringement at overseas market, thus Korea government has provided supports for intellectual property rights disputes. For this sake, Korea choose overseas market such as Southeast Asia, China, and North America etc to establish “IP Desk” and “Copyright Center” for providing IP legal consultation, support of dispute-resolving expenses and information services for Korea enterprises. Korea IP strategy partially emphasizes on the copyright trading system As mentioned above, one of visions of Korea IP strategy is “enhancing the development of copyright industry”. It’s well-known that Korea culture industries like music, movie, TV, online game industries are vigorous in recent years. Those culture industries are closely connected to copyright, so development of copyright industry is set as priority policy of Korea. In order to enhance the development of Korea copyright industry, a well-trading environment or platform is necessary so as to make more copyrighted works to be exploited. Therefore, Korea Copyright Commission has developed “Integrated Copyright Number (ICN)” that is identification number for digital copyrighted work. Author or copyright owners register copyright related information on “Copyright Integrated Management System (CIMS)” which manages information of copyrighted works provided by the authors or copyright owners, and CIMS would give an ICN number for the copyrighted work, so that users could through the ICN get license easily on “Copyright License Management System (CLMS)” which makes transactions between licensors and licensees. By distributing ICN to copyrighted works, not only the licensee knows whom the copyright belongs to, but the CLMS would preserve license contracts to ensure legality of the licensee’s copyright. After copyright licensing, because of characteristic of digital and Internet, it makes illegal reproductions of copyrighted works easily and copyright owners are subject to significant damages. For this reason, Korea Ministry of Culture, Sports and Tourism (MCST) and Korea Intellectual property Office (KIPO) have respectively developed online intellectual property (copyright and trademark) monitoring system. The main purpose of these two systems is assisting copyright and trademark owners to protect their interests by collecting and analyzing infringement data, and then handing over these data to the judiciary. Conclusion Korea IP strategy has covered all types of intellectual properties clearly. The strategy does not emphasize only on patent, it also includes copyright, trademark etc. If Taiwan wants to transform the economic type to IP-based economy, like Korea, offering protection to other intellectual property rights should not be ignored, too. As Taiwan intends to promote cultural and creative industry and shows soft power of Taiwan around the world, the IP strategy of Taiwan should be planned more comprehensively in the future. In addition to protecting copyrights by laws and regulations, for cultural and creative industry, trading of copyrights is equally important. The remarkable part of Korea IP strategy is the construction of copyright online trading platform. Accordingly, Taiwan should establish our own copyright online trading platform combining copyright registration and source identification system, and seriously consider the feasibility of giving registered copyright legal effects. A well-trading platform integrating registration and source identification system might decrease risks during the process of licensing the copyright. At the same time, many infringements of copyrights are caused because of the nature of the modern network technology. In order to track illegal copies on the internet, Taiwan also should develop online monitoring system to help copyright owners to collect and preserve infringement evidences. In sum, a copyright trading system (including ICN and online intellectual property monitoring system) could reinforce soft power of Taiwan cultural and creative industry well.

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