The Supreme Court of Taiwan recently renders a seminal decision clarifying the prerequisites of enforcing a UM patent. ADDCN Technology Co., Ltd. v. HouseStore Co., Ltd., 107 Tai-Shang 2360 (Taiwan S.Ct. Dec. 19, 2018).
Utility model (UM) patents, accounting for roughly a quarter of all annual patent applications in Taiwan, are issued without substantive examination as to novelty and inventive step. Therefore, the presumption of validity does not apply to UM patents. To balance the UM patentee's exclusive rights and public interest, the Patent Law provides that, when enforcing a UM patent against an alleged infringer, the patentee is required to present a technical examination report (TER). In its essence, a TER is a search report issued by the IP Office, but it is only issued upon a request which can be made by any person.
However, failure to present a TER when enforcing a UM patent does not give rise to immediate legal consequences. Pursuant to Article 117 of Patent Law, only when the IP Office revokes an enforced UM patent which is not endorsed by a TER and not enforced with due care, shall the patentee be held liable to compensate for the alleged infringer's damage.
As a result, the Taiwan IP Court does not dismiss a UM patent lawsuit absent a showing of a TER. More than that, the prevailing interpretation of Article 117 the IP Court judges used to adopt is remarkably favorable to the patentee. Under their interpretation, obtaining a favorable TER is just one of many possible forms of due care a UM patentee is required to pay before enforcing its patent. Other alternative forms of due care include, for instance, reliance on an analysis report provided by a professional IP firm, which may also exempt the patentee from the Article 117 liability. In short, according to the IP Court's traditional interpretation, the critical requirement of Article 117 rests more on the term "due care" than on "TER", even though the two terms are juxtaposed in parallel in the text of Article 117.
This line of interpretation, however, is rejected by the Supreme Court in ADDCN v. HouseStore. The UM patent at issue in that case is owned by the CEO of HouseStore, pertinent to a "mobile electronic device for management of rental and sale of real asset." In the absence of a TER, HouseStore accused (and later sued) ADDCN of patent infringement in 2014, the accusation being made and disseminated through various channels including a press conference held by HouseStore. The only evidence HouseStore showed to prove its due care in the enforcement was an infringement analysis report provided by an IP firm. As a countermeasure, an invalidation action against the UM patent was filed and won by ADDCN, which subsequently sued HouseStore for damages in reliance of Article 117 of the Patent Law. Following its traditional opinion as described above, the IP Court, in both the first and second instances, ruled in favor of HouseStore the UM patentee.
The IP Court's decision was reversed and remanded by Taiwan's Supreme Court. The Supreme Court held that, as the plain wording of Article 117 indicates, presenting a TER to the accused infringer is a prerequisite for enforcing a UM patent, no less important than showing due care has been paid. This interpretation, said the Supreme Court, finds strong support from the legislative notes of Article 117 which reveal the legislators' intention was to aggravate, rather than mitigate, the onus of proof rested with the UM patentee, as a safeguard to prevent the UM system from being abused.
The case has now been remanded back to the second-instance panels of IP Court, the subsequent decisions of which shall follow the above interpretation delineated by the Supreme Court. Whatever the final outcome of this case will be, the landscape of patent law has been greatly changed in aspects of enforcement of a UM patent. After ADDCN, an outside opinion, however diligently rendered, will not be deemed as capable of replacing a TER (but may still be useful to prove an infringement accusation is formed with due care). An accused infringer, upon receipt of a warning letter based on a UM patent, now has every right to request the patentee meet its burden of presenting a TER if it is not enclosed with the warning letter.