After losing its administrative litigation at the Taipei High Administrative Court in March this year, the Taiwan Intellectual Property Office has decided not to file an appeal. Though it respectfully disagrees with the High Court’s opinions, the TIPO will now officially bow out of the licensing conflict between Philips and Gigastorage, as the two parties have now reached a preliminary agreement.
The administrative litigation was the final result of years of conflict over pricing of CD-R and CD-RW royalties between Gigastorage Corp, a Taiwan compact disc producer, and Royal Philips Electronics NV. Gigastorage, believing that Philips’ CD-R and CD-RW royalty fees were unreasonable, had refused to pay royalties for over four years to Philips.
Gigastorage later applied to the TIPO to issue compulsory licenses, and in 2005, the TIPO issued the licenses. The ruling was surprising, as compulsory licenses are generally granted only for patented medicines, or music broadcasting, but not for industrial patents. The TIPO imposed compulsory licensing on five CD-R and CD-RW patents owned by Philips, raising eyebrows throughout the European Union.
In its decision, the TIPO agreed with Gigastorage regarding Philips’ royalty pricing. The sales price for CD-R and CD-RWs has nose-dived from US$5 to US$0.19 per disc, but Philips still maintained a fixed royalty per disc, instead of a percentage per disc as Gigastorage had wanted. The U.S. International Trade Commission and Taiwan’s Fair Trade Commission both agreed that the royalties should be lower.
Because Gigastorage and Philips could not reach a licensing agreement for a long period of time, the TIPO ruled to apply Articles 76 and 78 of the Patent Law, which allow a patentee to apply for compulsory licensing if a licensing agreement with reasonable commercial terms cannot be reached between the patent owner and patentee. However, the practice must be restricted to the domestic market. The Taiwan manufacturers were producing for export to world markets. The MOEA later affirmed the ruling when Philips appealed.
Under pressure from the EU, the Taiwan High Administrative Court overturned the TIPO’s decision. The Court argued that the specific price of royalties could not be used to invoke Articles 76 and 78 of the Patent Act, and that the entire licensing agreement must be considered in order to determine whether reasonable commercial terms and conditions existed.