Intellectual Property Protection in Taiwan

By Laura W. Young, Esq.

After more than a decade, Taiwan is no longer one of the U.S.'s primary targets for retaliatory action for unfair trade practices.

In recent years, Taiwan's government quickly enacted legislation for the protection of intellectual property, and embarked on a massive public relations campaign. In just over a year, Taiwan's legislature enacted a new Trademark Law and Patent Law, both of which are currently under revision. In addition, Taiwan plans to amend its 1992 Copyright Law, as well as pass a new IC Chip Protection Act and a Business Secrets Law.

Taiwan is in an enviable position in comparison to most other newly industrialized nations. It has the second largest foreign currency reserve in the world, and its per capita gross national product growth was the third highest in the world over the past nine years. The consumer price index registered an increase of only 2.43% per annum over the same period. Its economy has normalized after a tumultuous period of labor disputes, currency swings, stock market and real estate run-ups beginning with the lifting of martial law in 1987.

Although R.O.C. laws are up to international standards, companies still encounter difficulties in protecting their rights. Here are just a few examples from 1994: 1) A Japanese game manufacturer's claims against an infringer were rejected by the Court after evidence mysteriously disappeared from the Public Prosecutor's storage facility, 2) A manufacturer of executive accessories' claims against an infringer were rejected by the Court based on the Fair Trade Commission's decision that consumers would not be confused by infringing items because they were less expensive than the legitimate goods.

At present, U.S. industry and government are temporarily satisfied by a flurry of legislative activity. Taiwan aspires to obtain international recognition and legitimacy by joining the World Trade Organization. In the first half of 1994, the Taiwan Courts convicted a proportionately larger number of infringers than in 1993, and issued stricter sentences. However, there was no corresponding reduction in the number and value of illegal goods seized by U.S. Customs which originated in Taiwan. Taiwan remains among the top 4 offending jurisdictions, with the third highest domestic value of goods seized. U.S.

Customs identified Taiwan as the primary source of seized computers and computer parts. Although Taiwan's rank with respect to the number of seizures remained the same, the value of goods seized increased by a remarkable 80% from 1993 to 1994. Whether Taiwan pirates will be deterred by the new laws remains doubtful. A few significant changes in the law are summarized below.

I. Copyright Law

The copyright bill submitted to the Executive Yuan contains several significant elements. It would abolish the copyright registration process altogether. Creative works have been protected upon creation since the 1985 Copyright Law, and this has applied to American nationals by virtue of the 1946 Treaty of Friendship, Commerce and Navigation between the U.S. and Taiwan. The bill would also reverse the presumption that a work-for-hire is owned by the employee unless otherwise agreed. That presumption, a last minute change by populist legislators in 1992, will be deleted, putting Taiwan in line with most other industrialized jurisdictions.

The bill would also abolish compulsory licenses on translations of foreign works. Under the 1992 law, any foreign language work not translated into Chinese within two years was legally available to anyone to translate into Chinese, subject to payment of a government-set royalty. In a somewhat disturbing move, the bill would also eliminate plate rights, a valuable property to those publishers specializing in reprints of public domain works.

An issue of particular interest to the film industry is retroactive protection of works whose term of protection have already expired under the laws in force at the time of the works' creation. Although the proposed revision to the law does not currently provide full retroactive protection in a manner consistent with international standards, the U.S. government is levying pressure on Taiwan to amend this provision so that Taiwan's law will conform with WTO requirements. Perhaps the most controversial issue in this new amendment is what is omitted: an article granting complete leasing rights to owners of audiovisual material. The government deleted the article due to the "negative reaction" of local businesses, and to the reported decrease in Taiwan of instances of audiovisual infringement.

II. Trademark Law

Under tremendous pressure from the U.S., Taiwan passed the long-awaited revised Trademark Law in November, 1993. Although effective shortly thereafter, its implementation regulations were not issued until July 15, 1994. Since that time, the forms, manuals and policies of Taiwan's trademark office, the National Bureau of Standards ("NBS"), have been revised. The Law improves protection for prior users of a mark, as well as easing requirements for those licensing, assigning, pledging, and registering marks. In addition, the law abolishes the burdensome restrictions on trademark assignment, licensing and sublicensing. U.S. licensors who were confounded by the old labyrinthine requirements will be pleased to learn that trademark licenses now need only be recorded not approved with the NBS. However, the Law reduces the maximum criminal sentence for infringement and affords less protection to famous but unregistered marks.

Buy-outs for prison sentences are back in effect. Article 62 of the new law reduces the term of imprisonment for trademark infringement from 5 years to 3 years or less. As a result, Taiwan again allows infringers to buy their way out of jail. Article 41 of the Criminal Code allows convicts to commute sentences of 6 months or less to nominal fines. In 1985, after the U.S. levied strong pressure on Taiwan due to inadequate enforcement of its Trademark Law, Taiwan increased the maximum sentence to 5 years so that commutation of sentences was no longer possible. However, infringers can again convert their prison sentences of 6 months or less to a fine of approximately U.S. $34 a day - a small cost of doing business.

The new law affords greater protection to bona fide prior users. Unregistered users who in good faith use a trademark on the same or similar goods prior to the registration of an identical or similar trademark will not be precluded from continuing such use because of the subsequent application. However, the new law eliminated express protection for famous but unregistered trademark. Such marks receive a lesser degree of protection under the provision prohibiting registration of marks that "are confusingly similar".

Taiwan now conforms with the international standards of recognizing trademarks as valuable commercial property which may be pledged as collateral, and of allowing for the registration of two new types of marks: certification marks and group marks. However, although Taiwan increased the fine for trademark rights violation from NT$150,000 to NT$200,000 (approximately US$7,700), the maximum fine remains inadequate.

Trademark applicants now face a new registration process. After years of complaints by U.S. and other foreign rights holders, Taiwan finally abandoned its local classification system, comprised of 107 classes, in favor of the 42 class international system. However, the NBS now requires a very specific listing of goods for each trademark application. Only the items listed on an application will be covered by a registration. It is worth noting that the NBS is inclined only to accept goods specifically listed in its Trademark Manual, and often generates costly office actions by requiring supplementary documentation in support of items not listed in its manual. Items not listed must be identified by submitting catalogs, product samples or other such materials to prove the nature of the products. By granting protection only to items listed, the NBS is able to generate a larger number of applications per class and thus higher revenue.

U.S. trademark owners should be aware that the NBS now requires evidence of use for each item listed on a registration certificate prior to granting renewals. If sufficient evidence is not provided for certain items, they will be deleted. In addition, general terms and phrases, such as "and all other goods belonging to this class" are no longer acceptable. The NBS requires that applicants specifically list each item and provide evidence that it was used within 3 years prior to the date of expiration.

IV. Patent Law

Taiwan promulgated its new Patent Law on January 21, 1994 under heavy pressure from the U.S. The Law allows patents on food, beverages, micro-organisms, and new uses for products, all of which were previously excluded under the government's social policy. In addition, the duration of terms for new invention, new utility model, and new design patents have been increased to twenty, twelve, and ten years, respectively. However, the new Law, in several significant respects, undermines protection. In addition, although the Enforcement Rules were only issued on October 3, 1994, new revisions to the statute were already before the legislature by January 1995. Taiwan hopes to revise the Law to increase its eligibility to enter the WTO. One major point of concern for U.S. industry is the elimination of the imprisonment penalties for new invention patent infringements, which are mostly held by foreigners, while imprisonment penalties for violations of new utility model and new design patents, primarily held by Taiwan nationals, were maintained. The result is an indirect form of discrimination against foreign rights owners.

The introduction of proposed revisions so soon after the promulgation of the law should signal patent owners to be wary in protecting their rights on Taiwan, as should new areas of concern such as patent marking, patent priority, and parallel imports. Patent marking poses the greatest risk for the unwary. A patent owner who fails to mark the patent certificate number on the patented articles or packaging cannot claim damages from infringement.

One provision of the law states that "A patentee...shall have the exclusive right to prohibit others from...utilizing, selling...[or] importing articles made directly by using the patented method without the consent of the patentee." Creating a conflict within the statute, another provision essentially permits the parallel importation of patented goods, in direct contradiction to the position the U.S. has long held in its negotiations with Taiwan. The latter provision states: "[Exclusive] patent rights...shall not apply to the use or re-sale of patented goods which were previously manufactured and sold by the patentee or someone authorized by the patentee...not limited to within the country (R.O.C.)." In an attempt to ward off possible opposition from the U.S., the legislators included an additional proviso which states: "The area where the sale can take place shall be determined, pursuant to the facts, by the court." The legislators simply defer this problem to the courts.

V. Integrated Circuit Layout Protection Law

On December 28, 1994, Taiwan's Legislature finished the first reading of the draft Integrated Circuit Layout Protection Law ("ICLP"). The ICLP was a core issue during the 1992 US-TAIWAN intellectual property negotiations. The ICLP and the Business Secrets Law are the two remaining pieces of IPR legislation on the U.S.' list of demands.

The draft ICLP represents yet again Taiwan's efforts to conform to GATT and international standards. However, the current draft does not have criminal penalties, nor does it restrict reverse engineering. Furthermore, the current draft sets the maximum statutory compensation at NT$ 5 million (approximately US$200,000) for infringement. This figure is both arbitrary and low. With investment often running into the billions, such a low level of compensation does not serve as an adequate deterrent to infringement, although it is high when compared to the copyright statute.

VI. Conclusion

From 1992 to date, Taiwan made impressive legislative strides and developed a solid apparatus for the protection of intellectual property. Proposed amendments to its 1992 Copyright Law, 1993 Trademark Law and 1994 Patent Law, in concert with the forthcoming Integrated Circuit Layout Protection Act and Business Secrets Law could bring Taiwan into conformity with international standards and result in a successful bid to join the WTO. However, unless there is a fundamental change in behavior by enforcement authorities on Taiwan, familiar complaints regarding lax enforcement will inevitably arise within the next two years, despite fresh ink on the law books. It is almost certain that local officials will interpret the new statutes in ways unforeseen by the American officials promoting those protections.

Endnotes:

1. Partner, Wang & Wang, San Francisco - Taipei; J.D. from Boalt Hall School of Law; Frequently lecture and publish on developments in Taiwan.

2. Taiwan has been the subject of U.S. delegations on protection of intellectual property since 1984, and has been on the "Special 301" list of worst offending jurisdictions ever since its creation in 1988.

3. Taiwan's China News Agency, January 3, 1995.

4. Taiwan's China News Agency, January 1, 1995.

5. In the 1994 round of 301 designations, the United States Trade Representative moved Taiwan to the less severe Watch List in recognition of its efforts in late 1993 and early 1994. It appears that US industry complaints against Taiwan in 1995 will be even fewer than in 1994.

6. 473 prison sentences were issued in 1993 versus 336 in the first half of 1994. While most sentences have been and are now 6 months or less, and thus commutable to nominal fines, the number of sentences of 1-2 years in the first half of 1994 was greater than for all the years in the previous decade.

7 . U.S. Customs Service Fiscal Year 1994 IPR Seizures, Trade Analysis Staff, November 2, 1994.

8. Article 96-98 of the proposed revision does not provide full retroactive protection in a manner consistent with GATT's Trade Related Aspects of Intellectual Property.

9. Article 37, item 7 and Article 62, item 1 of the 1985 R.O.C. Trademark Law specifically granted protection to famous foreign trademarks.

10. Article 37, Item 7, 1993 R.O.C. Trademark Law.

11. Article 56, Paragraph 2, 1994 R.O.C. Patent Law.

12. Article 57, Paragraph 1, Item 6, 1994 R.O.C. Patent Law.