TIPS^®  Taiwan Intellectual Property Special

Issuing Warning Letters to Customers May Raise Unfair Competition Issues

In May 2003, the Taiwan Fair Trade Commission (TFTC) issued sanction to two high-tech companies for failure to comply with necessary procedures before sending warning letters to competitors’ customers.

Article 88 of Patent Law (Article 84 after the amendment) states that in case of infringement, the patentee is entitled to demand a removal of the infringement, and, according to Article 45 of the Fair Trade Law, any proper conduct in connection with the exercise of rights pursuant to the provisions of the Copyright Law, Trademark Law, or Patent Law shall be exempted from the application of the Fair Trade Law. The exemption secured the patentees’ exclusive rights. However, a patentee may issue warning letters, accusing his/her competitor of patent infringement, to the competitor’s customers, intending to cast doubts in the customers and preventing them from doing business with the competitor. Under such circumstances, even if no infringement is found later, the competitor may not be able to survive in the market because of loss of business due to the accusation, and the damages it suffers can never be compensated for. Behavior of this kind not only constitutes unfair competition, but also impedes the development of the high-tech industry, which relies heavily on the protection of intellectual property.

In order to clarify what is the “proper conduct in connection with the exercise of rights pursuant to the provisions of the Copyright Law, Trademark Law, or Patent Law,” the TFTC promulgated the “Guidelines for the Review of Cases Involving Enterprises Issuing Warning Letters for Infringement on Copyright, Trademark, and Patent Rights” (the “Warning Letter Guidelines”). The Warning Letter Guidelines prescribe certain procedures an enterprise shall follow before sending warning letters to its competitor’s customers. The procedure is summarized below:

1. Where there is a judgement from the court of first instance, finding infringement on the IP rights:

Before sending a warning letter, a professional infringement assessment institution appointed by the Ministry of Justice and the Cabinet shall be retained to evaluate the accused product, and an infringement assessment report shall be obtained. Moreover, before the warning letter is sent, a request for removal the infringement shall be made to the manufacturer or distributor accused of infringement.

2. Where there is no finding of infringement from the court:

The warning letter must be accompanied by an infringement assessment report, not necessarily made by an appointed infringement assessment institution, and the contents of the warning letter should include a clear description of the right and scope, as well as concrete facts of the infringement, for a recipient of the warning letter to make a rational determination. Also, before the warning letter is sent, a request for removal of the infringement shall be made to the manufacturer or distributor accused of infringement.

However, if the enterprise has exercised all reasonable possible due diligence or the request for removal of the infringement is objectively impossible, the procedures may be regarded as having been properly followed. In addition, in the case where there is no judgement of infringement from a court (referring to above Item 2), regardless of whether the aforementioned procedures have been followed, the contents of the warning letter shall not contain the following statements, which violate the Fair Trade Law:

(1) Statements, with the intent to target a specific competitor, that prevent a customer from doing business with the competitor, or make customers of the competitor do business with the patentee, and therefore cause restraint of trade or unfair competition;

(2) False or misleading statements about the goods or services;

(3) Statements, with purpose of injuring the competitor, that are sufficient to damage the business reputation of the competitor;

(4) Statements that exaggerate or extend the scope of the intellectual property rights, false statements, accusing any infringement by the competitor or any other similar traders in the markets, or any other statement that is fraudulent or obviously unfair.