TIPS^®  Taiwan Intellectual Property Special

Guideline for Reviewing Cases Involving Patent Licensing Negotiation Announced

The Fair Trade Commission (the “FTC”) announced on January 18, 2001 the “Guideline for Reviewing Cases Involving Patent Licensing Negotiation” (the “Guideline”). The FTC indicated that the intent of the Guideline is to regulate the conduct of the patentee while licensing its patent to the licensee in order to avoid the unfair competition.

The FTC illustrated that as the increase of international transaction and technology licensing, the owners of intellectual property rights often attach restricted competition clauses in licensing agreement to boost their market power by taking the use of their monopoly technology. Such kind of clauses will thus produce restricted competition or unfair competition. In order to monitor and review the dispute resulting from technology licensing cases, the FTC enacted the Guideline, in which the FTC categorizes the clauses of technology licensing as three types: non-violation, in violation of, and the likelihood of violation of Fair Trade Law (“FTL”).

The Guideline shall be applicable to the licensing involving patent (including the patent which is outside of the Taiwan territory), know-how and trade secret. Pursuant to Section 5 of the Guideline, the following licensing clauses will not be deemed in violation of FTL: the restriction on the use and the scope of licensing, the limit of licensing term, the requirement of grant back licensing while the licensee improves the licensed invention, the requirement of duty of confidentiality, the minimum requirement of manufacturing quantity and sales, the requirement of the maintenance of the quality of the components to be used on the licensed products, the restriction of assignment or sub-licensing, and the restriction on the continuous use of licensed technology after the termination of the licensing agreement provided that such technology is a know-how or trade secret.

In contrast, the following licensing clauses listed in Section 6 of the Guideline will be deemed in violation of FTL: the agreement on the concerted action, the restriction on competition, tying arrangement and/or package licensing under Paragraph 6, Article 19 of the FTL, the restriction on the licensee’s trading counterparts, the compulsory licensing with respect to the products and/or service, the requirement of compulsory grant back license, the restriction on the use after the expiration of patent or the requirement of continuous payment of royalty after the expiration of patent, the restriction on the price, the restriction against the validity of the licensed patent, and the rejection of providing important transaction information with respect to the licensed patent or technology.

Section 7 of the Guideline lists the circumstances which have the likelihood of violation of FTL as follows: the restriction on the licensee’s marketing channel, the restriction on the licensee’s trading counterparts with respect to the materials and components of the products, the restriction on the licensing territory, and the discrimination on the licensing clauses without reasonable cause.

This Guideline is predicted to have crucial influence on the practice of technology licensing, which should attract great attention from the high tech manufacturers and the owners of the intellectual property rights.