TIPS^®  Taiwan Intellectual Property Special

FTC Sustained the Ruling against Phillips

Following the Fair Trade Commission’s (FTC) cease and desist order in January, 2001, fining Philips, Sony and Taiyo Yuden for violation of the Fair Trade Law (FTL), Phillips filed administrative appeals to the Executive Yuan. The Committee of Administrative Appeals of the Executive Yuan vacated and remanded FTC’s ruling, and required FTC reissue a proper ruling in accordance with the appeal decision.

FTC reissued a ruling on April 14, 2002, sustaining its ruling against Phillips, Sony and Taiyo Yuden, fining NT$ 8 millions, NT$ 4 millions, and NT$ 2 millions respectively, and ordering these three companies cease the unfair practices. The ruling was based on the following grounds:

1. The market of CD-R products is a specific product market.

The market of the technology at issue can be determined by the market of the CD-R products. Since CD-R products are different from CD-RW, DVD, MD, and DCC in the application and technology, the cross-elasticity is low. Therefore, the intellectual property or technology used to manufacture the CD-R can be isolated as a specific market.

2. The three companies violated the restriction on concerted actions.

Although Phillips and the other 2 companies could develop relevant technologies independently, they were bound by the “Standard License Agreement for CD-R,” and practice package licensing, restraining competition inter se. Phillips claimed that CD-R manufacturers in Taiwan had options of individual licensing. However, according to relevant manufacturers, Phillips had adopted its international standard agreement, and there was no individual license available for licensees, excluding the possibility it claimed. Furthermore, the three companies appointed Phillips as the representative to draft and modify the license agreements, and licensees cannot approach any one of the three companies for individual licensing. Therefore, such a practice constitute concerted licensing and fix the terms and conditions of the CD-R license agreements, and violated Article 14 of the Fair Trade Law.

3. The three companies unduly fixed the license royalties by their monopolistic market advantage.

The patents owned by Phillips and the other 2 patentees are dominant technology. By concerted licensing, three companies monopolized the market of CD-R manufacturing technology, and accordingly constitute “monopolistic enterprises” of Paragraph 2, Article 5 of the Fair Trade Law. Monopolistic enterprises are prohibited from engaging in prices fixing. While the market price of CD-R dropped substantially, the manufactures’ requests of adjusting the licensing royalties were constantly refused. Such an undue price fixing behavior violated Paragraph 2, Article 10 of the Fair Trade Law.

4. The three companies abused their monopolistic market power.

During the process of negotiating the licensing agreements, Phillips, by its dominant position in the technology market of CD-R manufacturing, along with Sony and Taiyo Yuden, refused to provide important information of licensed patents, such as details, scopes, and terms of the patents, and requested licensees invoke all the invalidation litigation against patents at issue as prerequisite of licensing. Forcing licensees to take unfavorable agreements by dominant market position is an abuse of monopolistic power in violation of paragraph 4, Article 10 of the Fair Trade Law.

In view of the influence on the market of CD-R manufacturing technology by the three companies unfair practice, along with their motive, profits, size of businesses, and market powers, the ruling against Phillips, Sony and Taiyo Yuden in January, 2001 was sustained, with fines of NT$ 8 millions, NT$ 4 millions, and NT$ 2 millions respectively.