IP Court’s New Decision on Enforcement of Utility Model Patent

Utility model (UM) patents 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 interests, 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). A UM patentee is liable to compensate the accused infringer’s damages if the UM is enforced without a TER and later revoked by the IP Office. ADDCN Technology Co., Ltd. v. HouseStore Co., Ltd., 107 Tai Shang 2360, Taiwan’s Supreme Court (Dec. 19, 2018) (see our report on this case).

In a judgment made in May 2020 by the IP Court, it was suggested that a TER can play a substantive role even in proving an alleged infringement is an intended or negligent act, which is a prerequisite for claiming patent infringement damages.  Sun v. Chiu et al, 109 Min Zhuan Su 10, Taiwan’s IP Court (May 2020). The judge (Judge Wei-Hwa WU) who penned this decision indicated that a UM patentee’s failure to present a TER (even if he or she has obtained a favorable one) when enforcing his or her UM patent is a positive factor for considering the accused infringer to be negligence free. 

The disputed UM for an anti-drill lock cylinder was filed in November 2014 and issued in March 2015, within roughly 4 months.  Around the same time that the patentee paid the issue fee he filed a TER request, an indication of his eagerness to enforce the patent. In August the same year, a TER in his favor was issued. The roughly five-month interval is normal but could have been shorter upon a filing of acceleration request (on the ground of an ongoing infringement, for example). Confident of the validity of his UM patent, the patentee started enforcement since 2016 by retaining lawyers to send demand letters to competitors, most of them being one-person-owned locksmith shops, including the 6 defendants in this reported lawsuit which was filed in early 2020.  However, according to the judge’s findings, “in the demand letters sent on behalf of the plaintiff by his lawyers, no mention was made on the TER, not to say presenting the TER with the warning letters. These warning letters did not contain any validity and infringement analysis report, either.”

More, according to the judge’s findings, the plaintiff did not make any patent marking, the legal consequence of which is that he was faced with a somewhat higher threshold for proving the defendants were negligent. Under Article 98 of the Patent Law, where no patent marking is made, the patentee shall bear the burden of proving that the accused infringer “knows or has a reason to know” the existence of the patent; failure to meet this burden results in loss of damages claim. 

We do knot know whether the absence of TER and validity and infringement analysis in the warning letters was part of a strategy or just a result of budget concerns or both, but we do know that this absence contributed to the judge’s holding that the plaintiff failed to meet the said burden of proof. Plus the defendants’ success in rebutting the plaintiff’s infringement assertion, the UM plaintiff lost the lawsuit. The judge pointed out:

While presenting a TER as a requirement for UM patent enforcement is for the purpose of thwarting UM patentees from sending warning letters irresponsibly, a TER also sets forth an objective starting point for the accused infringer to assess the patentee’s accusation.  In the present case, however, neither the warning letters nor the subsequent [pre-suit] settlement offer letters from the plaintiff made any mention of the TER or presented any validity and infringement analysis report.  Given the absence of any reasonably convincing evidence in support of the asserted validity of the UM patent and the patentee’s infringement allegation, the defendants were left in ignorance of whether their products infringed on the plaintiff’s patent which [according to the defendants’ then understanding] had only undergone formalities check and were hence of doubtful validity status. Therefore, the defendants lacked the asserted intention or negligence to infringe the patent … not to mention the patent was not infringed in actuality.
It should be considered as well that the defendants are all one-person-owned sole proprietorship of less than NT$ 100,000 in capital, engaged in businesses like selling and installing locks, copying keys, and making seals/stamps, etc.  When the defendants copy keys for their clients (all being common consumers), they have no knowledge of which sort of locks the keys actually work with. According to business customs, it is impossible for a locksmith to investigate whether the consumer’s key works with a patented lock cylinder, nor is it possible for a locksmith to know whether a key entrusted by a consumer is patented, unless the consumer actively reveals such information or the key itself bears a patent number.

Before Sun, it was widely thought that, even in a UM patent scenario, a written notice specifying the patent number was sufficient to establish the recipient’s knowledge of the patent and, even more, the intention to infringe suppose the recipient continued manufacturing or selling a product caught by the patent after receiving the notice.  However, in Sun, the judge adopted a different line of thinking, possibly because this is a case where the patent enforcement was against individuals or mini-sized entities with arguably limited knowledge about patent and patent law. Suppose the above-mentioned holdings in Sun will endure in the IP Court (which is possible especially if the patentee does not appeal), UM patentees might need to be more discreet in sending out warning letters.