Taiwan's Supreme Court's New Decision on Contract Manufacturers' Infringement Liabilities

One feature of Taiwan's Patent Law (and its entire IP laws) that many patentees find interesting is the lack of indirect infringement. To seek remedies against suppliers (mostly contract manufacturers, or CMs) of essential element of a patented invention, patentees need resort to the Civil Code rules regarding the liabilities for assisting torts. Under the Civil Code, liabilities of an assistant (like a CM) are established if the following requirements are met: the existence of another party (like a buyer of the CM) having been proved to be a direct infringer, the assistant's assisting conduct, the proximate causation between the assistance and the tortious result, and the assistant's negligence or intention behind its conduct. 

This substitute provided by the Civil Code is of course less ideal than the contributory liability principles adopted by other jurisdictions as the US and Japan. However, this gap can be gradually mitigated by court decisions, as judges have the power to have the interpretation of said prerequisites of assistant's liabilities recalibrated in real cases towards a direction more friendly to patentees. Judges are also willing to do this, as this helps Taiwan keep abreast with the international trend before the next round of patent law amendment takes form to embrace the contributory liability principle (a momentum is growing in this aspect though). The most recent initiative is a decision issued by Taiwan's Supreme Court in the end of January 2019 addressing how “assistants' intention/negligence” should be determined. Zhuang v. Kuan Sheng Aluminum Mold Co., Ltd., 107 Tai Shang 1781 (2019 Taiwan St. Ct.). 

The disputed patent in Zhuang related to a grid plate-tightening device for water barriers, an invention said to meet the needs of residents in Taiwan's coastal area affected by typhoon floods.  The alleged infringing products were assembled and sold by an end seller, which had been separately sued and proved to be directly infringing the patent. A great portion of the components of the end products, however, were produced by a CM, and it was the CM that was sued in Zhuang under the theory of assistant's liability.  

Interestingly, the CM did not contend much on whether the components it supplied were essential to the patent, or, to rephrase it in the assistant's liability context: whether it actually assisted the direct infringer with the manufacturing. Instead, the CM argued that the mental state requirement was lacking: “we do not specialize in water barrier productions and we have no R&D group. Other than relying on the buyer's non-infringement guarantee letter (provided after the CM received the patentee's warning letter), we had no ability to look into whether the water barrier along with the affiliated components we supplied was patent infringing.” This line of argument was accepted by a second instance panel of the IP Court, a result quite welcome by small and medium-sized CMs as they hereby had conceivably a better chance to get released from the duty to verify whether the components they supply are used to infringe a patent. At least, these CM will be allowed to rely upon buyers' guarantee to establish a lack-of-negligence contention. Or is it really the case? 

The Supreme Court's answer is in the negative: “The Respondent (the CM) is not objectively unable to analyze whether the infringement allegation of the Petitioner (the patentee) is true, and to get an analysis is not difficult at all. The Respondent cannot evade the verification duty by simply relying on its buyer's assertion and then continue its contract manufacturing for the buyer.” The IP Court's decision was therefore revoked and remanded for further investigation into whether the CM was negligent or willful in helping the buyer with infringing the patent. 

As the decision suggested, whatever their business size, CMs shall take responsibility for their own conduct and their infringement liabilities shall be determined independently of direct infringers' activities – these are the same ideas that give birth to the contributory liability theory.  Although it still takes time for the contributory liability theory to take roots in Taiwan's IP law regime, the Supreme Court's decision in Zhuang made a noticeable progress in clearing the field of patent law for that borrowed theory to grow.