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Is It an Improper Exercise of Rights Violating the Fair Trade Act when a Utility Model Patentee Issues a Warning without Presenting a Technical Evaluation Report?
Current Article 113 of the Taiwan Patent Act provides that a utility model patent application shall only undergo a formality examination. In order to avoid an abuse of rights, the Patent Act has specifically established a system of “Technical Evaluation Report of Utility Model Patent," which allows both patentees and third parties to evaluate whether the concerned utility model patent meets the requirements for patentability. With regard to the role of “Technical Evaluation Report of Utility Model Patent," before the amendment of the Patent Act of May 2013, the original Article 116 provided that "when exercising a utility model patent, the patentee shall present the technical evaluation report of a utility model patent to issue a warning.” In May 2013, the Article was amended to the current wording which reads: “when exercising a utility model patent, the patentee shall not issue a warning without presenting the technical evaluation report of a utility model patent,” which has a different legal format and structure from that of the previous version. The rationale for the foregoing 2013 amendment indicates that “in order to prevent an abuse of rights...the old Patent Act provides that, when exercising a utility model patent, the patentee shall present the technical evaluation report of a utility model patent to issue a warning…the presentation of the technical evaluation report should be one of the elements to claim the patentee’s rights... If the technical evaluation report of a utility model patent is not presented when issuing a warning, the patentee shall not be entitled to claim his/her utility patent rights.” In addition to reiterating the legislative intent to "avoid an abuse of rights," such rationale further treats "the presentation of a technical evaluation report of a utility model patent" as a legal requirement for claiming a utility model patent right, which is different from the previous version which appears to only serve as a provision for attention, and has a significant impact on the legitimacy of the right holder's exercise of rights. Putting aside the scenario of whether or not a simple failure to present a technical evaluation report of a utility model patent in accordance with Article 116 of the Patent Act may be necessarily legally evaluated as an “abuse of rights,” the current Patent Act is actually silent on the legal effect of the scenario wherein a utility model patentee fails to present the technical evaluation report of a utility model patent but proceeds to issue a warning in accordance with the existing provision.
In this regard, the Taiwan Intellectual Property Office ("TIPO") has stated that: “while the Patent Act does not provide relevant supporting provisions for a patentee who proceeds to issue a warning without presenting a technical evaluation report of a utility model patent, such may be addressed in accordance with the relevant provisions of the Fair Trade Act.” (https://topic.tipo.gov.tw/patents-tw/cp-783-872381-a7836-101.html). Nevertheless, the Fair Trade Act is enacted in order to maintain trading order, not to simply “prevent an abuse of rights." It remains doubtful whether a simple failure to present a technical evaluation report of a utility model patent in accordance with Article 116 of the Patent Act should be "inevitably" regarded as a violation of the Fair Trade Act, or whether it should still be judged on a case-by-case basis.
Moreover, with respect to "the relevant provisions of the Fair Trade Act" to which the TIPO refers, it should be noted that there are the “Guidelines on the Reviewing of Cases Involving Enterprises Issuing Warning Letters for Infringement on Copyright, Trademark, and Patent Rights” (hereinafter referred to as “the Guidelines”) stipulated by the Fair Trade Commission (FTC) to address the act of issuing a warning letter to the trading counterpart. According to points 3[1] and 4[2] of the Guidelines, when an enterprise issues a warning letter to its business competitor’s trading counterpart(s), it should, in principle, conduct preparatory proceedings to fulfill its obligation in verifying the facts of the alleged infringement, and duly inform the recipient trading counterpart(s). For example, in case the enterprise issuing a warning letter has obtained a first instance judgment in favor of it, or has enclosed a patent infringement analysis report within said warning letter, it would basically be deemed as having met the requirements for said preparatory proceedings. If the rights owner does practice the foregoing provisions, the act of issuing a warning letter may then be recognized as “proper conduct of exercising rights” without being subject to the application of the Fair Trade Act. However, given that “presenting the technical evaluation report of a utility model patent” is one of the legal requirements to claim the utility model patentee’s rights in Article 116 of the Patent Act, if a utility model patentee fails to present the technical evaluation report of a utility model patent but proceeds to issue a warning against the trading counterpart(s), although it is in accordance with the provisions of points 3 and 4 of the Guidelines, it still remains doubtful whether such an act may be recognized as “proper conduct of exercising rights.”
With respect to the foregoing legal issues, the Supreme Court expressed specific opinions in its 2021 Tai Shang Zi No. 3113 Civil Judgment rendered on 5 August 2021 (first instance judgment: 2017 Min Gong Su Zi No. 14 Civil Judgment rendered by the Intellectual Property Right Court (IPC) on 5 June 2018; second instance judgment: 2018 Min Gong Shang Zi No. 3 Civil Judgment rendered by the IPC on 17 October 2019).
The plaintiffs in this case are trading companies A and B which sold the reverse folding umbrella products (hereinafter referred to as the "products in dispute") in major sales channels. However, the defendant C sent emails or warning letters to the plaintiffs’ partners with regard to the utility model patent in dispute without applying for a technical evaluation report of a utility model patent, and warned them not to sell the products in dispute, which caused the products in dispute to be pulled from the shelves. Plaintiffs A and B then requested C to stop such acts and claimed for damages suffered from the products in dispute being pulled from the shelves on the grounds that C violated the provisions of the Fair Trade Act. In this regard, C argued that he had already obtained a patent infringement analysis report of the products in dispute before issuing the warning letters to those trading counterparts, which is in compliance with the provisions of points 3 and 4 of the Guidelines, thus pertaining to “proper conduct of exercising patent rights.”
The first instance court of this case decided in favor of the plaintiffs’ requests and considered that C violated the Guidelines because C failed to present the patent infringement analysis report when sending the warning letters, nor did C notify the potentially infringing manufacturers before or at the same time when sending the warning letters. After the defendant appealed to the second instance court, the second instance court reversed the unfavorable part of the first instance judgment against C because it considered that C indeed obtained the patent infringement analysis report before sending the warning letters, and plaintiff A was also aware of the infringement dispute before C’s letters, and therefore, C’s conduct complied with point 3 of the Guidelines and was considered “proper conduct of exercising rights.” After the plaintiffs A and B appealed to the Supreme Court, the Supreme Court reversed the second instance judgment and held that the presentation of the technical evaluation report of a utility model patent is the premise for a "proper exercise of rights" under Article 116 of the Patent Act, the rationale for which is summarized as follows.
1. Article 116 of the Patent Act states that “when exercising a utility model patent, the patentee shall not issue a warning without presenting the technical evaluation report of a utility model patent.” Such provision not only intends to prevent the utility model patentee from abusing his rights, but also explicitly states that the presentation of the technical evaluation report of a utility model patent is one of the elements required to claim the utility model patentee’s rights. If a utility model patentee fails to present a technical evaluation report of a utility model patent before issuing a warning, such acts are difficult to be considered proper conduct of exercising rights.
2. According to the legislative intent of Article 45 of the Fair Trade Act, warnings must be made in accordance with Article 116 of the Patent Act so that such acts can be considered proper conduct of exercising rights, which is not subject to the Fair Trade Act.
3. The patent infringement analysis report referred to in point 3 of the Guidelines is an analysis to determine whether patent infringement has occurred, which is made on the basis that the patent in dispute has validity, and such report is obviously different in nature from the technical evaluation report of a utility model patent, which aims to complement patent validity. Therefore, the patent infringement analysis report cannot be used as a substitute for the technical evaluation report of a utility model patent.
4. The preparatory proceedings stipulated in points 3 and 4 of the Guidelines only serve as a procedure to confirm the infringement of rights, and are not sufficient to replace the technical evaluation report of a utility model patent, which should be presented by the utility model patentee to prove the validity of his/her patent rights. Consequently, the practice of the said preparatory proceedings is not sufficient to supplement the deficiency of the element in issuing a warning as specified in Article 116 of the Patent Act.
5. If an enterprise issues a warning against its competitors' infringement of a utility model patent without presenting a technical evaluation report of said patent, which is sufficient to affect trading order and cause unfair competition, it is natural that the Fair Trade Act shall apply.
In other words, the Supreme Court seems to hold that if a utility model patentee fails to present a technical evaluation report before issuing a warning, even if the patentee has practiced the preparatory proceedings required in the Guidelines, the patentee’s conduct should still be regarded as an abuse of rights and will constitute a violation of the Fair Trade Act. It remains to be observed whether the opinion becomes a steady point of view under court practice.
[1] Point 3 of the Guidelines: “Where an enterprise has practiced one of the following proceedings before issuing a warning letter, the conduct of said enterprise is considered as a proper one in connection with the exercise of rights pursuant to the provisions of the Copyright Act, Trademark Act, or Patent Act:
1. said enterprise is affirmed by the judgment of the first instance court that its copyright, trademark or patent has been infringed;
2. said enterprise is recognized as the one whose copyright has been infringed after the mediation of the Copyright Review and Mediation Committee; and
3. said enterprise sends the subject matter(s) that are likely to infringe the patent to a professional organization for analysis, obtains a patent infringement analysis report, and notifies the manufacturer(s), importer(s) or agent(s) that are likely to infringe the patent before or at the same time when issuing warning letters in order to stop the infringement.
Where an enterprise fails to practice the latter part of Paragraph 1, Subparagraph 3 regarding the notification of stopping the infringement, but has taken procedures of legal remedy beforehand, or has fulfilled its reasonably possible duty of care, or it is physically impossible to make such notification, or has specific evidence sufficient to prove that the party to be notified is aware of the infringement disputes, said enterprise shall be deemed as having practiced the notification proceedings for stopping the infringement.”
[2] Point 4 of the Guidelines: “where an enterprise has practiced the following proceedings for affirming the infringement of rights without violating the provisions of Articles 20, 21, 24 and 25 of the Fair Trade Act before issuing a warning letter, the conduct of said enterprise is considered as proper in connection with the exercise of rights pursuant to the provisions of the Copyright Act, Trademark Act, or Patent Act:
1. said enterprise has requested to stop the infringement via notifying the manufacturer(s), importer(s) or agent(s) that are likely to infringe the patent before or at the same time when issuing warning letters; and
2. said enterprise clearly indicates, in the warning letter, the content and scope of the copyright, trademark or patent, and the specific facts of infringement (such as when, where and how the patent in dispute was manufactured, used, sold or imported) to a sufficient extent so that the recipient is fully aware that the patent in dispute is likely to be infringed.
Where an enterprise fails to practice the preceding Paragraph, Subparagraph 1 regarding the notification of stopping the infringement, but has taken procedures of legal remedy beforehand, or has fulfilled its reasonably possible duty of care, or it is physically impossible to make such notification, or has specific evidence sufficient to prove that the party to be notified is aware of the infringement disputes, said enterprise shall be deemed as having practiced the notification proceedings for stopping the infringement.”