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Sending Warning Letters to Trading Counterparties Along With a Patent Infringement Assessment Report Does Not Necessarily Constitute a Legitimate Exercise of Rights
Intellectual property rights are often asserted by sending warning letters or even publishing public notices. However, exercise of rights is not without boundaries. To prevent intellectual property right holders from affecting trading order by abusing their rights, the Fair Trade Commission (hereinafter referred to as the “FTC”) formulated the “Fair Trade Commission Disposal Directions (Guidelines) on the Reviewing of Cases Involving Enterprises Issuing Warning Letters for Infringement on Copyright, Trademark, and Patent Rights” (hereinafter referred to as the “Warning Letter Guidelines”) in 1997. To ensure fair competition, these Guidelines provide behavioral guidance for right holders who intend to issue warning letters, public notices, or other written forms to their own or competitors’ actual or potential trading counterparties to assert infringement of their copyright, trademark right, or patent right by their competitors. For example, if a patentee were to first commission a professional institution to assess the potentially infringing subject matter, obtain an assessment report and then notify a potentially infringing competitor to cease infringement either prior to or simultaneously with a warning letter to the patentee’s customers, such conduct could be deemed a legitimate exercise of rights in accordance with Item 3, Subparagraph 1, Paragraph 3 of the Warning Letter Guidelines.
However, in its Judgment No. 2025-Tai Shang-664 rendered on June 5, 2025, the Supreme Court held that even if a patentee complies with the requirements of the Warning Letter Guidelines and attaches an assessment report when sending a warning letter, such conduct does not necessarily guarantee that the act is entirely lawful, and may still be deemed an improper exercise of rights.
In this case, Company A owned an invention patent and believed that the products manufactured and sold by Company B infringed its patent right. Company A sent warning letters to Company B and its downstream manufacturers, and subsequently filed a patent infringement lawsuit against Company B. In response, Company B not only argued that its products did not infringe but also filed a counterclaim, asserting that Company A’s indiscriminate issuance of warning letters constituted unfair competition in violation of the Fair Trade Act. Upon appeal to the second instance, the Intellectual Property and Commercial Court (hereinafter referred to as the “IP Court”) rendered a second-instance judgment (Judgment No. 2023-MinJuangShang-29) finding that Company B’s products did not infringe. The IP Court further found that Company A had attached to its warning letters the Patent Gazette of the patent at issue and an infringement assessment report issued by a patent firm (hereinafter referred to as “Assessment Report A”), specifically described the content, scope, and specific facts of the alleged infringement of the patent right at issue, and had notified Company B to cease infringement either before or on the same day of issuing such warning letters to the customers. The IP Court held that such conduct complied with the relevant provisions of the Warning Letter Guidelines and constituted a legitimate exercise of rights in compliance with the Fair Trade Act. The IP Court also noted that although Company B had commissioned a patent firm to send a letter to Company A denying infringement, it did not attach a non-infringement assessment report detailing the comparison process (hereinafter referred to as the “Assessment Report B”), nor did it clearly indicate any specific and obvious errors in Assessment Report A. Therefore, the mere difference in conclusions between Assessment Reports A and B, or the fact that Assessment Report A was not issued by an institution listed on the Judicial Yuan’s reference roster, was insufficient to establish that Company A acted with intent or negligence to infringe. The IP Court thus overruled both parties’ appeals in the second instance.
Upon reviewing the appeals, the Supreme Court rendered Judgment No. 2025-Tai Shang-664, which adopted a different position from the IP Court’s second-instance judgment. The Supreme Court stated: “If an intellectual property right holder knows or, due to negligence, does not know that another enterprise has not infringed its intellectual property right, and does not act for the purpose of protecting its intellectual property right, but instead uses the intellectual property right as a tool to intimidate other competitors or their trading counterparties for the sake of unfair competition, and indiscriminately issues notification letters or warning letters, such conduct deviates from the legislative purpose of intellectual property rights to promote industrial development and cannot be regarded as a legitimate exercise of rights.... It cannot be said that, after an enterprise has followed the procedures set forth in Points 3 and 4 of the Guidelines, the act of issuing warning letters or notification letters is necessarily a legitimate exercise of rights.” The Supreme Court further pointed out that Paragraph 2, Point 5 of the Warning Letter Guidelines states: “If an enterprise issues a warning letter after following the procedures in Point 3 or Point 4, but the content involves restriction of competition or unfair competition, the FTC will review, based on the specific case, whether there is a violation of the Fair Trade Act.”
The Supreme Court indicted that, after Company A sent the letter, Company B responded with a notice letter stating that the two support plate mechanisms and swinging method of its product differed from Company A’s patented technology. The Supreme Court considered this to be a notification to Company A of the reasons why the product at issue did not fall within the claim scope of the patent at issue. However, after receiving such notification, Company A continued to send warning letters to other manufacturers; whether this constituted intentional or grossly negligent violation of the law protecting others and whether Company A should be liable to Company B for compensation for damages required further detailed examination. The Supreme Court further criticized the lower court for hastily concluding that Company A’s conduct constituted a legitimate exercise of rights involving no violation of the Fair Trade Act merely because Company A’s letters complied with the relevant provisions of the Warning Letter Guidelines. The Supreme Court therefore set aside and remanded this part of the original judgment.
From the above Supreme Court judgment, it can be observed that when a patentee sends a warning letter to a trading counterparty alleging that a competitor has infringed its rights, even if the formal requirements of the Warning Letter Guidelines are met—such as obtaining an infringement assessment report and notifying the competitor to cease infringement in advance or simultaneously—the patentee must still ensure that its infringement allegations are appropriate. In particular, when the competitor has responded to clarify doubts regarding infringement, the patentee should carefully evaluate the counterparty’s explanation and adjust its strategy accordingly, so as to prevent its actions from being deemed unlawful.