Warning Letters Based on Foreign Patents May Be Subject to Fair Trade Act

Article 25 of the Taiwan Fair Trade Act provides that no enterprise shall have any deceptive or obviously unfair conduct that is able to affect trading order.  According to the directive Guidelines of the Fair Trade Commission (FTC) on this Article, “obviously unfair” here refers to “engaging in market competition or commercial transactions by obviously unfair means.”  The Guidelines enumerates some types of obviously unfair conduct, one of them being “inappropriate issuance of warning letters alleging intellectual property rights infringement,” namely “sending warning letters or other written statements to [an enterprise’s] own or other enterprise’s trading counterparts or potential trading counterparts alleging that the other enterprise infringes its copyrights, trademarks, or patent rights.” 

The question is: if such a warning which would otherwise violate the above-mentioned regulation is based on a foreign patent, will the Taiwan Fair Trade Act still be applicable?  The Intellectual Property & Commercial Court (the “IPC Court”) recently rendered a judgment addressing this issue (2023 Min Gong Su Zi No. 1 Civil Judgment).

Facts Asserted by the Plaintiff—the Accused Infringer

According to the plaintiff’s assertions, in May 2022, they and their customer ASUS received a warning letter from the defendant, respectively.  In the letter, the defendant alleged that the chip manufactured by the plaintiff and used in ASUS’s E410M laptop infringed the US Patent No. 7,812,409 owned by the defendant. 

On September 14, 2022, the defendant sent another warning letter to the US branches of GIGABYTE, another customer of the plaintiff, and ASUS respectively, alleging that the chip used in GIGABYTE’s X570 AORUS Elite motherboards and ASUS’s E410M laptops infringed the US Patent No. 7,629,634 also owned by the defendant. On October 21, 2022, the defendant sent the third round of warning letter, this time only to the US branch of ASUS, reiterating the contents of the second warning letter. 

The plaintiff, however, believed that the chips in question did not fall within the scope of either patent, and thus claimed that the defendant’s act of issuing warning letters to non-manufacturers violated Article 25 of the Taiwan Fair Trade Act.  To strengthen the legality of the application of the FTA in this case, the plaintiff stressed that the defendant is a competing chip manufacturer also based in Taiwan; the two parties’ primary business activities are both focused on power semiconductor components design and manufacture, and their chips are applied in again identical or related fields including mobile phones, laptops, TVs, power supplies and other electronic products. 

The Defendant’s Contention

The defendant argued that the warning letters sent by its US lawyer were aimed at selling products that infringe the ’409 Patent and ’634 Patent.  The market involved was therefore the US and had nothing to do with the Taiwan market.  Even though the first warning letter was sent to the plaintiff and ASUS located in Taiwan, the target market involved remains unchanged, hence no effect on the market competition in Taiwan.

The IPC Court’s Opinion

The IPC Court held that the relevant market regulated by the Fair Trade Act in this case should include Taiwan, and that the Taiwan Fair Trade Act is applicable for the following reasons:

  1. Deriving from the concept of competitiveness in economics, the term “relevant market” in the FTA, especially its area or range, is to be interpreted based on the scope of substitutability of the product/service at issue, along with the territory of sales.  As such, the relevant market in a case like this should be determined by considering the product market and geographic market.  Product market refers to the area where the goods/services at issue are considered to have high demand/ supply substitutability in terms of functionality, features, uses or prices.  Geographic market refers to a region where trading counterparts of certain goods or services provided by an enterprise can easily choose or switch to other trading partners.  In addition, where applicable, the court may consider the time factor that shows impacts on a relevant market.
  2. In this case, the US branches of ASUS and GIGABYTE which the warning letters directly addressed are related enterprises and maintain close ties with their head offices which are ASUS and GIGABYTE.  As such, the transaction barriers for either US branch to obtain the aforementioned chip products from ASUS and GIGABYTE are very low, and this fact in turn merits the plaintiff’s argument that the US and Taiwan should be deemed as a single market in this case.
  3. The 2022 annual reports of the two parties show that they have a high degree of product overlap and are direct competitors, given that both are chip manufacturers having headquarters in Taiwan.  The defendant’s act of sending warning letters may affect the plaintiff’s supply substitution of the disputed chips outside Taiwan.  Moreover, in view of the wide range of chip applications, the actual supply chain market should be global rather than limited to a narrow geographic area, and this transnationality is especially pronounced in this case given the fame and market position of Taiwan’s semiconductor industry.  Therefore, the defendant's act of sending warning letters to terminal manufacturers, such as ASUS and the US branches of ASUS and GIGABYTE, can hardly be regarded as not having any impact on the plaintiff’s market for manufacturing and selling chips in Taiwan and the US. 

Takeaway from this case

This judgment shows that a warning letter based on a foreign patent and even sent to a foreign entity may still be subject to the application of the Taiwan Fair Trade Act, as long as Taiwan is a relevant market passing the combined test of product market and geographical market.  When applying this test, the court may consider factors that include barriers for related enterprises established in foreign countries to obtain related products, whether the parties have a high degree of product overlap, restrictions on sales area of related products, and whether the supply chain market is global, etc.