TIPS^®  Taiwan Intellectual Property Special

First Patent Compulsory License in Taiwan

Taiwan Intellectual Property Office (TIPO) recently issued a compulsory license
to Gigastorage for 5 patents related to CD-R of Phillips, through the expiration of the
patent term of said 5 patents.

Although the compulsory licensing provision is not new, it is rarely used in our
jurisdiction. Pursuant to Article 78 of Taiwan Patent Law, under either of the
following circumstances, the TIPO may, upon application, grant compulsory license
to applicant (of such compulsory license): 1) for non-profit seeking use in case of
national emergency or to improve the welfare of the public; or 2) where the applicant
is unable to reach an agreement under a reasonable commercial condition for a certain
period. Even without the prescribed situation, the TIPO may still grand a
compulsory license, upon application, in the event that the patentee has imposed
restrictions on competition or has committed unfair competition, as confirmed by a
judgment given by a court or a disposition made by the Fair Trade Commission of the
Executive Yuan (Taiwan Cabinet).

In the Gigastorage case, the price of CD-R has decreased from US$ 5 per unit to
US$ 0.19 per unit between 1997 and the middle of 2003. However the royalty rate
for the CD-R related patents remained a fixed amount for each unit as in the early
stage. Gigastorage had tried to negotiate the royalty fees for over a year, but failed.
Therefore, an application for compulsory licensing was filed with the TIPO.

The TIPO believes that, while the market price of CD-R decreased rapidly, it is
unreasonable to maintain a fixed royalty rate, and therefore grant the compulsory
license. However, according to Article 78, the practice of patent licensed under the
compulsory licensing should be limited to supply the domestic market. As a result,
the CD-R manufactured under the compulsory licensing by Gigastorage must not be
exported for the foreign market.