Court Affirms Infringement of
Mercedes-Benz’s Designs for Car Headlights

On August 16, 2019, the IP Court made an important judgment holding Taiwanese car parts manufacturer DEPO infringing the German Daimler AG company’s design patents for headlights. DEPO was accused of the manufacture and sale of aftermarket auto headlights which were compatible with the Mercedes-Benz E Class model. The IP Court found the accused products to be similar to the design patents and hence ruled DEPO to be liable for damages amounting to TWD 30 million (about USD 1.1 million at that time). Injunctions were also granted. DEPO appealed the judgment.

Almost three years later, the Intellectual Property and Commercial Court (“IPC Court”) released a judgment of second instance on July 14, 2022 to affirm most of the lower court’s opinion except for the matter of reducing the monetary damages.[1] Mercedes-Benz Group (formerly Daimler AG) won again.[2]

The IPC Court firstly reviewed the validity challenge and conducted an infringement analysis. The IPC Court found that Mercedes-Benz’s design patents at the center of the dispute did not violate the double patenting principle nor did they fail to meet the enablement requirement. Furthermore, they lawfully claimed priority to German applications. The evidence presented by DEPO was not sufficient to find lack of novelty or creativeness. As it delved into the comprehensive comparison between the design patents and the accused products, the Court found that the commonly shared features were more likely to attract the attention of consumers, whereas the different features were either inconspicuous or miniscule and therefore deemed to be insignificant in terms of the overall visual effect. Hence, the IPC Court concluded that DEPO’s accused products infringed Mercedes-Benz’s design patents.

Another critical question in the case was whether Mercedes-Benz had engaged in activities which were detrimental to their competitors in the market.

DEPO’s first defense was to complain that, by only being allowed to buy original spare parts, Mercedes-Benz car owners were essentially and unfairly “locked in” to use Mercedes-Benz’s repair services. The IPC Court denied this argument, stating that Mercedes-Benz did not have an advantageous status of monopoly in the aftermarket for selling spare parts. Going into more detail, the IPC Court adopted the “system competition” theory in reasoning that the primary market for selling whole vehicles and after markets for spare parts are highly correlated. According to this theory, assumingly with a readily available “flow of information” on spare part prices, consumers should be aware of the cost of a car plus the approximate total maintenance cost for the foreseeable lifetime of the car.[3] Hence, the primary and after markets are interconnected to constitute one relevant market. When the competition in the primary market is sufficiently strong, the competitive pressure will translate to the aftermarket. As the evidence revealed, Mercedes-Benz faced intense competition by enjoying only 6-8 percent of the market share by volume of automobiles sold in Taiwan, which suggests no market dominance whatsoever. The strong competition in the primary market and consumers’ freedom to choose alternative car brands were good indicators that the aftermarket was similarly competitive. Thus, Mercedes-Benz did not possess market power in either the primary or the after markets for spare parts.

DEPO’s further attempt to assert Mercedes-Benz’s refusal of a license to be discriminative in nature was also denied. The IPC Court pointed out that, as the design patent owner, Mercedes-Benz did not bear an obligation for committing a license. Besides, DEPO could have acquired a patent license from car brands or OEMs other than Mercedes-Benz. On account of Mercedes-Benz’s low market share, criticizing the company’s decision to refuse a license as being discriminative would not be justifiable.

As a final defense, DEPO alleged that a German guild of automobile manufacturers had once made a collective promise in 2003 that they would not compete against independent spare part makers. Besides, Mercedes-Benz had been silent from enforcing patent rights for more than a decade, which could have implied consent for DEPO to engage and invest in the development of its aftermarket products. Regrettably, the IPC Court found the German announcement to be no more than political in character and there were not any estoppels of not to sue.

Finally in the assessment of damages, DEPO turned the tables slightly. The damages after the trial amounted to TWD 30 million, this being the sales revenue of TWD 23 million multiplied by a factor of 1.295. However, the IPC Court in the appellate review allowed a deduction of further costs and fees, or the indirect costs, from the infringement revenue. Hence, DEPO’s gross profit yield was reduced to about TWD 12 million. With a punitive multiplier of 1.5, the IPC Court awarded an amount of approximately TWD 18 million (around USD 0.6 million). The IPC Court’s calculation amounts to a deduction of approximately 40% from the previous award.

Aftermath

DEPO hosted a press conference on July 18 to announce its decision to take its appeal to the Supreme Court for the third instance. DEPO addressed the imminent necessity for legislative efforts to be made regarding auto part repair exemption in Taiwan. In what appeared to be an attempt to attract attention, DEPO stressed—perhaps menacingly—that, in the absence of a repair clause being introduced into the law, it would choose to uproot all of its business establishments from Taiwan and then relocate to China, Malaysia or other countries where the repair clause is in place.

Despite these complaints from DEPO, TIPO refrained from taking action to change the design law, particularly with regard to automobile parts. The Director General of TIPO gave a reminder that a public hearing had been held the previous year by TIPO, the Legislative Yuan (the parliament), the Fair Trade Commission, and other organizations. No consensus was reached as to the enactment of the repair clause. Several conflicting factors—such as local industry development and foreign investment incentives—need to be fully studied before a conclusion dedicated to the harmonized interests of all parties can be reached. What is more, even if Taiwan adopts immunity for aftermarket spare parts, the problems would not be entirely resolved because these products remain at risk of infringement when they are exported overseas. Lastly, the Director General emphasized that a win-win solution would ultimately involve acquiring a license from the patent owner in order to avoid lawsuits involving manufacture, shipping or other related activities.

A number of domestic IP practitioners openly revealed their comments that strongly support TIPO. However, no official statements were released from the Taiwan Patent Attorney Association.

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