Daimler AG is the patentee of Taiwanese design patent D128047 "HEADLIGHTS FOR VEHICLES," with which several E Class vehicles are equipped. Taiwan's Depo Auto Parts Ind. Co. Ltd. manufactures and sells headlights compatible with the aforesaid E Class vehicles. Daimler filed a patent infringement suit with the Intellectual Property Court asserting their Design Patent against Depo’s manufacture and sale of the compatible headlights. The IP court subsequently ruled in August 2019 in favor of Daimler AG. In addition to damages of NT$30 million awarded to Daimler, Depo is henceforth strictly prohibited from manufacturing or selling any automotive headlight products compatible with the patented design.

 

While the amount of the damages awarded in this case is not particularly high, when compared with past cases of patent litigation in the IP Court, it was the actual judgment of the injunction—specifically the restriction of Depo's manufacture and sale of the infringing products—that shocked the industry at large. Local media predicted massive repercussions among automotive parts manufacturers worldwide. According to the court holding, protection by design patent could thoroughly prevent the manufacture and sale of compatible second-party aftermarket parts in the future. The holding does, however, greatly increase the value of Taiwan design patents. If patentees are able to strategically leverage the court holding, they could be situated to efficiently strengthen service quality of the entire parts and maintenance marketplace. Given Taiwan's position as a major center for global automotive parts manufacturing, the court holding promises a profound impact on patent application strategies for patentees across Asia and worldwide. Not only the automotive industry, but any field involving systems and component assembly would be wise to reflect on the jurisprudence of this holding and take full advantage of the resulting application strategy to secure design-based IP for their products, strengthening and securing their overall patent portfolios accordingly.

 

Apart from the traditional legal issues such as patent validity and infringement, the most significant and noteworthy aspects of this judgement lie in the determination of whether refusal to license by the patentee would violate the Fair Trade Act, Taiwan's antitrust law. According to the holding, Depo in fact does not preclude the possibility of paying royalties in exchange for Daimler's consent to continue producing and selling aftermarket automotive headlight products; Daimler, however, disagreed with the license.

 

In order to analyze the issue of refusal to license, the court firstly defines the “relevant market.” Depo seeks definition of their business as the "secondary maintenance market of automotive parts," an arena they consider as being wholly separate and independent from the automotive manufacturing and sales market. Daimler asserts that the automotive manufacturing and sales market is the main market, with the maintenance market secondary thereto, with both inseparably interacting. Parties build up their arguments on the basis of their own market definitions. Depo cites the lock-in theory, saying that once consumers buy automobiles, they will inevitably buy either the original replacement parts or aftermarket parts with shapes and specifications completely identical to those of the original. Therefore, if Daimler prevails, consumers have no choice in the market for parts purchase, with Daimler monopolizing the secondary maintenance market simply by virtue of having secured design patents. Further, Daimler argues that, with Taiwan's limited auto sales market, with small market size and fierce competition among brands, that Daimler's market share in Taiwan's automobile sales market is only 6-8%. Under the full competition in the main market, even if the secondary maintenance market has the so-called consumer lock-in effect, significant restriction of competition won’t really happen. The court ultimately agrees with Daimler's argument.

 

The conclusion of market definition has a crucial impact on the outcome of this lawsuit. Despite Depo's efforts to illustrate that manufacturing, marketing, and maintenance markets of commodities should be fully independent of each other, citing example product markets of photocopiers, elevators, and walkie-talkies, arguing that this case should be based on the secondary maintenance market alone, the Court remained unconvinced. Once the court decides to accept the principle of linkage between main and secondary markets, Daimler's market position and market strength will be drastically reduced, and the anti-competitive effect that may arise from the refusal of license will cease to exist. Market definition therefore assumes the entire focus of legal analysis for this case.

 

Depo repeatedly emphasizes that Daimler had promised, during German legislative proceedings in 2003, that it would not use design patents to impede competition in the spare parts market. Hence, Depo alleges that Daimler's commitment should be treated essentially the same as FRAND's, and should be similarly subject to the relevant jurisprudence. Depo claims accordingly that Daimler is obligated to license. Nevertheless, the Court takes the same view as the holding of the Cologne District Court of Germany on May 9th, 2017 and the subsequent decision of the Dusseldorf Court of Second Instance in this case. In first and second instance litigation in Germany, the courts refused to adopt Depo’s claim of analogous application of FRAND jurisprudence. The holdings in the two cases interpret Daimler's statement during the German legislative process as political commitment, which generates no effect like that of FRAND.

 

Unraveling the full text of the judgment thoroughly, I believe it is undoubtedly one of the most representative legal holdings from Taiwan’s Intellectual Property Court dealing with patent infringement in recent years, and is sure to have far-reaching impact and influence on application practice of design patents. Those who can make good use of the holding and revise their application strategy for design patents will see a distinct opportunity to gain competitive advantage.