Patentee Using a Straw Man
Not Eligible to Invalidate its Own Patent

Appointing a nominal opponent in what is metaphorically termed a “straw man,” is quite a popular strategy in a patent invalidity proceeding, especially when the real controlling party behind the curtain wishes to conceal its identity for various business purposes. In February of 2020, Taiwan’s Supreme Administrative Court made a judgment affirming a lower court’s decision to hold that a patent invalidation raised by a patentee using the disguise of a designated nominal person was unlawful in accordance with the Patent Act.

The Supreme Administrative Court’s decision is the result of a case which began with a matter involving the theft of trade secrets, the genesis of which was competition between two major players in Taiwan’s optoelectronic industry, Largan Precision Co. Ltd. (“Largan”) and Ability opto-Electronics Technology co. Ltd. (“AOET”). Prior to 2012, four  employees of Largan resigned from that company, having invented a kind of block-associated multi-needle dispenser device. Immediately upon resigning from their positions at Largan, the four former employees joined AOET, which later filed for a utility model patent for the device, which was granted as No. M438320 titled “dispensing needle head structure” on July 9, 2012 (the ‘320 utility model). Largan subsequently sued AOET for trade secret misappropriation and won. As a consequence, the Taiwan Intellectual Property Court granted an injunction against AOET from any disposals of the ‘320 utility model.

On August 14, 2014, an unknown individual named Chian-Chung Lu (“Lu”) raised an invalidity action (Case “N01”) before the Taiwan Intellectual Property Office (“TIPO”) against the ‘320 utility model. Upon learning of Lu’s action, Largan requested to join the N01 proceeding by asserting itself as the true owner of the invention in dispute. However, TIPO rejected Largan’s request. On September 26, 2014, Largan raised another invalidity action (Case “N02”) on the grounds that it was the true owner of the invention in dispute according to Articles 71(1)(3) and 71(2) of the Taiwan Patent Act.

The decision for case N01 was rendered first on March 22, 2017. The ‘320 utility model was found invalid on the basis that it lacked inventive step. The N01 decision further impacted the N02 proceeding, which was deemed moot on May 5 of 2017 since the ‘320 utility model was cancelled. Largan sought remedy against the N01 decision. After the trial, the IP Court ruled in favor of Largan, reversing the N01 decision.¹ Lu appealed it to the Supreme Administrative Court, which rendered a judgment in favor of Largan again and dismissed Lu’s appeal.

An invalidation proceeding is a post-grant public review mechanism established to inspect the quality of a patent. Any person may make a request for such a proceeding according to Article 71(1) of the Taiwan Patent Act. However, there is one exception. “Any person” does not include the patentee him or herself due to the nature of a two-party rivalry. In an invalidation proceeding, both the patentee and the opponent are required to participate. Under TIPO’s supervision, the patentee defends the validity of its own patent while the opponent seeks to prove that the patent in dispute is invalid. The opponent submits the grounds of invalidity accompanied by any related evidence and reasoning. In order to prove that the patent in dispute is valid, the patentee must rebut the opponent’s claims through the use of counter evidence and/or arguments. When a claimed ground for invalidity of a patent in dispute in association with evidence and reasoning is rejected (which will be effective against any third party)the disputed claim(s) will survive ne bis in idem; in other words, no legal action can be instituted with respect to the disputed claim(s) again for the same cause. Therefore, an invalidity action raised by the patentee him or herself will be inadmissible because it will deprive the opportunity for a public review.

During the trial, the court rejected the idea that Lu had any real involvement in the N01 case. Evidence showed that Lu had filed four invalidation cases over the past three years against patents of diverse and unrelated fields of technologies ranging from wheat flour compositions to DRAM. Lu’s choices of targets were random in nature, unlike those of a normal scientific expert who would have one or more related specialties with which to involve him or herself. Furthermore, while Lu’s physical address on paper was Taipei City, his entry and exit records revealed that he frequently entered and exited Taiwan through Kaohsiung City. More importantly, records revealed that Lu earned no income in Taiwan from 2013 to 2015. According to other financial documents, AOET appeared to have borne the entirety of the litigation costs throughout the proceedings, including the cost to hire a patent law firm. All of this information indicated that Lu was merely a nominal person in the N01 case, serving as a proverbial straw man, meaning that his actions regarding the patent in dispute were done at the behest of AOET.

The straw man strategy is frequently employed in invalidations in Taiwan, often when the competing parties wish to ease the degree of possible consequences,  such as being exempt from criminal and civil liabilities. The straw man’s actions in the ‘320 utility model case indicates an intent to avoid the court’s injunctive relief, which ordered AOET not to dispose the same patent. As the Patent Act prohibits the patentee from invalidating its own patent, this case signals that it may no longer be possible for any entity to use a straw man to evade this ban.