TIPS^®  Taiwan Intellectual Property Special

The CD-R Package Licensing of Philips, Sony and Taiyo Yuden Ruled in Violation of the Fair Trade Law
 

The Fair Trade Commission (“FTC”) on January 11, 2001 ruled that, the CD-R package license of Philips, Sony and Taiyo Yuden constituted the misuse of dominant power and concerted action which violate Articles 10 and 14 of the Fair Trade Law (“FTL”). The FTC also ruled that Philips, Sony and Taiyo Yuden should cease the unlawful conduct and should be punished with a fine of NT$8 million dollars, NT$4 million dollars, and NT$4 million dollars, respectively.

The FTC indicated that in order to globally license their patents, Philips, Sony and Taiyo Yuden (collectively, Philips) deployed package licensing—Sony and Taiyo Yuden license their own patents to Philips first, then Philips licenses all of their patents as a pool to the licensee and collects the royalty on behalf of Sony and Taiyo Yuden. The Petitioner claimed that Philips’s coercive joint licensing involved the following unfair competition conducts: 1) concerted action and illegal package licensing; 2) the princing or calculation of royalty; 3) collecting royalty under package licensing that encompassed patent which would expire earlier than the expiration of the licensing agreement; 4) unlawful tying arrangement; and 5) refusal to provide important transaction information with respect to the licensed patent.

The FTC held that the package licensing conducted by Philips will influence the supply and demand of the products, trading and service in the relevant market, because Philips, Sony and Taiyo Yuden are in a parallel level. Moreover, the patents and technology regarding CD-R are owned and/or controlled by Philips. Therefore, Philips has the monopoly power in the relevant market because any CD-R manufacturer and distributor in the world shall obtain Philips licenses first. Through the joint licensing arrangement, the manufacturer has no right to directly seek for patent license from Sony and Taiyo Yuden, which restricts the manufacturer’s transaction. Moreover, the concerted action of Philips failed to apply for the FTC’s prior approval and thus violated Article 14 of the FTL.

The FTC concluded that Philips is a monopoly enterprise because the joint licensing arrangement enables Philips to enjoy the dominant power in the patent and technology at issue to exclude other enterprise from competition. According to the licensing agreement provided by Philips, the royalty would be 20% to 30% of the sale price of the CD-R products, since the market value of CD-R products was rapidly decreased in the past years. Even if the local manufacturers request repeatedly that the calculation method of royalty should be adjusted to reflect the market, Philips refused to make appropriate amendment. The FTC found that Philips’s refusal to revise the calculation method of royalty to reflect the curve of supply and demand is a misuse of its dominant power.

Moreover, during the sessions of negotiation between the manufacturers and Philips, Philips refused to provide the potential licensee with important transaction information regarding the patent, such as the expiration date of each patent, the specific patent to be used in the licensee’s product, and the involved claims of each patent. Rather, Philips simply provided about a hundred patent numbers and names which are registered in the United States and Japan. The FTC ruled that Philips’s above conducts is a misuse of its dominant power.

Finally, on January 18, the FTC indicated in its press release that Philips, Sony and Taiyo Yuden are requested to desist from the illegal conducts, including concerted action and misuse of dominant power. Yet, Philips shall not refuse to license its patents to the Taiwanese manufacturer.