News September/November 2008

TABLE OF CONTENTS

China - IP

China Website Sues the MPAA for Defamation after Settling a Piracy Case

Energizer Loses in U.S. Court against Chinese Manufacturers

Chinese Luxury Hotel Held Liable for Infringement by Tenant

Trademark Applications Skyrocket in China

China Food Safety Law in Drafting Stages

Taiwan - IP

Amendment to Taiwan Customs Procedures Takes Effect on September 1, 2008

Internet Service Provider (ISP) Liabilities Bill Under Review by the Taiwan

Legislative Yuan

TIPO’s Compulsory License of Patent Technology Rejected by High Court

China

Taiwan Applications Steady

TIPO to Develop Method for Protecting Famous Trademarks

China / Taiwan - IP

Taiwan and China on USTR’S Watch List

TAIWAN

Amendment to Taiwan Customs Procedures Takes Effect on September 1, 2008

An Amendment to Taiwan’s “Operational Directions for Customs Authorities” revises original procedural guidelines to better carry out border control enforcement, and provides improved legal clarifications for rights holders, importers, and exporters in the case of a goods seizure. The Amendment took effect on September 1, 2008.

Under the new amendment, rights holders may file a one-time extension request with the Directorate General of Customs (DGOC) if the rights holder has reasonable grounds for delay, but is unable to provide documentation proving infringement within three business days after receiving notice from the DOGC. The rights holder may send a written request for an extension. The longest possible extension is three days. If the complainant fails to produce substantive evidence of infringement within three business days, the Customs authority would release the goods after taking representative samples.

Similarly, importers and exporters can file a one-time extension request with the DOGC if the importer or exporter has reasonable grounds for delay, but is unable to provide documentation proving authorization within three business days of receiving notice from the DOGC. The importer may request an extension of three days at most, and the extension request must be sent via written letter. If the rights holder cannot provide evidence to verify that the goods are infringements, the goods will be released even if the importer fails to prove that the goods were produced with authorization. The old guidelines did not set a deadline for importers or exporters to provide documentation proving authorization.

The DOGC states the finalized amendment was made possible through consultation with government agencies, scholars, rights holders, and import and export associations. The amendment will clarify enforcement procedures and border controls, while reducing delays in international trade caused by customs seizures.

Internet Service Provider (ISP) Liabilities Bill Under Review by the Taiwan Legislative Yuan

The Internet Service Provider (ISP) Liabilities Bill, also known as the “Safe Harbor” Bill, seeks to define the liabilities of ISPs regarding infringers’ use of the Internet to distribute copyrighted material. Specifically, the Amendment states ISPs will not be held civilly liable to rights holders or ISP users after the removal of suspected infringing material, as long as the ISP sends an initial takedown notice to the alleged infringer and the ISP in good faith removes infringing material. Thus, ISPs are given a “safe harbor” from civil liability should they comply with the requirements of the Amendment. The bill, if approved by the Taiwan Legislative Yuan, contains new Articles to be added to the existing Copyright Law.

The bill calls for the creation of a “notice and takedown” mechanism to protect copyright holders’ rights and to curb online copyright theft. This mechanism would allow rights holders to inform ISPs about illegal use and to direct the ISP to remove the infringing material. ISPs can apply for exemption from liability after removing the material, provided that all laws were obeyed and infringing material was removed in a timely manner.

A counter-notification mechanism would also be added to protect Internet users’ rights. If an alleged infringing party’s material is subject to unwarranted removal, the alleged infringing party may send a written request to the ISP to restore the material. The alleged infringing party may also hold rights holders liable for damages incurred by the removal of the non-infringing material.

The amendment is still pending with the Taiwan Legislative Yuan, which completed its first reading of the bill on October 14, 2008. Generally, the Legislative Yuan upon a third reading will pass a bill.

TIPO’s Compulsory License of Patent Technology Rejected by High Court

China

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.

Taiwan Applications Steady

The number of trademark applications in Taiwan continues to hold steady around 65,000 each year, down from a high of 73,000 at the height of the dot-com boom in 1999. Foreign applications make up about one-quarter of the total applications. The US continues to be the second highest source of trademarks filed in Taiwan, with about 6 percent of the applications, above Japan’s 5 percent.

TIPO to Develop Method for Protecting Famous Trademarks

In response to concerns raised by the European Union regarding the adequacy of intellectual property protection in Taiwan, TIPO officials have recently discussed plans to protect famous trademarks when they are used as infringers’ company and store names. The Ministry of Economic Affairs (MOEA) has stated before that there are currently no specific procedures on how to deal with a situation in which an infringer refuses to change its company’s name even after a trademark owner wins a lawsuit against the infringer based on Article 62 of the Trademark Law.

The MOEA is currently considering the addition of a provision to Article 10 of the Company Law that would help execute these judgments on trademark protection. This provision would give the MOEA authority to dissolve the infringer’s company, or require the company to change its registered name. Spokesmen for the European Commerce Department state that it hopes that the MOEA will create clear communication channels between its agencies, and have them coordinate with each other to check whether a company name infringes upon a famous trademark before approving a company name.

CHINA

China Website Sues the MPAA for Defamation after Settling a Piracy Case

In March this year, Jeboo.com sued the Motion Picture Association of America (MPAA) in the Beijing Intermediate Court for defamation, apology to rehabilitate Jeboo’s reputation, and damages of RMB1 million.

This is a surprising and aggressive action by the Chinese website, which was sued by five members of the MPAA for transmitting copyrighted movies through its website. The parties settled out of court and Jeboo paid damages to the movie companies, but the parties did not mention infringement or compensation in the settlement agreement.

After the settlement, the MPAA released a statement on their website stating that Jeboo stopped their copyright infringement and paid legal damages, and had gained illicit profits through piracy, which had hurt the healthy development of various legal Internet services. Jeboo.com believed that such a statement had severely injured its reputation and seriously harmed its business. It took legal action against MPAA this spring and the case was accepted by the Beijing Court.

With the rapid development of online services in China, and rampant piracy on Chinese websites, the result of this new defamation lawsuit and the response of MPAA will be a focus for all Chinese Internet enterprises and foreign companies.

Energizer Loses in U.S. Court against Chinese Manufacturers

In 2003, Energizer Holdings, Inc. claimed that fourteen Chinese manufacturers of zero-mercury-added alkaline batteries, which were sold in the U.S. market, infringed its U.S. Patent No. 5,464,709 patent (the “709 patent”). Energizer then filed a complaint with the International Trade Commission (ITC) in the U.S. to conduct a Section 337 investigation on their claims, and requested that the ITC forbid certain Chinese batteries and related products from entering the U.S. market. Under Section 337 of the Tariff Act of 1930, the ITC is authorized to conduct investigations into claims of infringement on U.S. intellectual property rights and other unfair trade practices regarding imports into the U.S., and to issue resolutions such as general or specific exclusion orders or cease and desist orders.

The Chinese parties, including the China Battery Industry Association, collectively responded and argued that the claims of the ‘709 patent were too extensive and violated Article 112 of the U.S. Patent Law, which requires that descriptions of inventions be clear and concrete.

In 2004, the ITC ruled that the ‘709 patent lacked definitiveness and invalidated the patent. The ITC required that Energizer give up claims 8-12 of their ‘709 patent, and ruled the same for its European patent for zero-mercury-added alkaline batteries. Energizer subsequently filed an appeal.

After two rounds of appeals, Energizer finally lost their case. On April 22, 2008, the U.S. Court of Appeals for the Federal Circuit ruled to maintain the ITC’s decision. This is the first time any Chinese enterprise has won in court against a foreign non-tariff barrier. The result will have significant impact on the development of battery manufacturing in China, and will open markets for Chinese manufacturers in the U.S.

Chinese Luxury Hotel Held Liable for Infringement by Tenant

Louis Vuitton Malletier, maker of iconic leather handbags toted by celebrities and socialites around the world, recently won a trademark infringement claim against a high-end Chinese hotel, which had allowed sales of counterfeit LV products in one of its hotel shops. In March 2008, the Dongguan Intermediate Court ruled that the hotel, Gladden Hotel of Dongguan City in Guangdong Province, and the shop owner were jointly liable for trademark infringement. Gladden Hotel and the shop owner were required to destroy the remaining counterfeit products and pay RMB100,000 (approximately US$ 14,500) in damages to LV.

This is a surprising judgment considering that the hotel only seemed to be leasing rental space to the infringer and did not directly participate in sales. However, the Court found specific circumstances that made the hotel particularly culpable for contributory infringement. While Gladden rented the space to an individual for an independently operated sole proprietorship, hotel staff members were often involved in the daily operations of the store, and employees that worked in the store wore Gladden Hotel uniforms. The hotel’s seal was even affixed on the shop’s invoices and receipts, thus identifying the store with the hotel. Moreover, the Court found that Gladden should have enforced the specific provisions in its rental contract with the store owner that prohibited sales of counterfeit products and should have demanded the store owner to cease selling the counterfeit products when hotel management became aware of the activity.

LV’s award is quite high for IP lawsuits in China, and suggests that the Court wanted to warn other luxury hotels that they would be held liable for infringement if they leased their shops to infringers. The Court noted that some infringing vendors take advantage of consumers’ trust in luxury hotels to sell fake products in hotel lobbies. As a high-end hotel, the Court concluded, Gladden Hotel should have had better judgment and its actions have degraded the public’s confidence in other similar luxury hotels, which will result in negative social effects.

It is unclear, however, whether the Court’s opinions will apply to non-hotel properties and future cases that are similar in nature. One question that should be of particular interest to foreign companies wishing to protect their marks in China is whether companies will be able to successfully prosecute general property managers for renting spaces to infringing vendors or manufacturers.

It seems that so far landlord liability cases have not changed the atmosphere. The management of Beijing’s famous Silk Street market are not deterred. Their website’s home page still describes the market as, “notorious among international tourists for their wide selection of counterfeit designer brand apparels” (https://www.silkstreet.com/).

Trademark Applications Skyrocket in China

At its national conference, the Industry and Commerce Administration announced that, as of November 2007, trademark registrations in China increased by over 29 percent over the previous year. The total number of trademark registrations has now reached over three million. This year, the Trademark Office registered and certified 197 well-known or famous marks.

Currently the China Trademark Office is handling over 700,000 trademark applications. Foreign applicants filed 103,000 trademark applications last year, which represents a 6.1 percent increase over the previous year and accounts for 14.5 percent of the total number of trademark applications in China.

International trademark applications originating from China have also increased. According to World Intellectual Property Organization (WIPO) statistics, of the 38,471 trademarks registered through the Madrid Protocol system in 2007, 1,444 were Chinese applications. This represents an 8.7 percent increase over the 2006 figures.

Enforcement of trademark rights in China has also increased according to latest figures. Last year, 41,000 trademark infringement cases were investigated and 143 cases were transferred to judicial agencies for further review.

These general trends suggest that the Chinese are becoming more aware of intellectual property rights, and indicates that the Chinese market may be primed for an influx of more products and services in the future.

China Food Safety Law in Drafting Stages

In April, the National Peoples Congress Standing Committee disclosed a draft of the Food Safety Law—a revision to a decades old food safety and sanitation code—for public comment. A final draft of the law is expected to pass in June 2008.

In response to international concerns about safety inspections on China’s food exports, the NPC drafted a law that establishes responsibility for tainted products at several levels of government, and clarifies safety codes at the State and local level. While State and local agencies will be required to supervise safety inspections, manufacturers will be held liable for the quality of their food.

The law imposes increased penalties for producers of tainted products. Producers may have their manufacturing equipment and materials confiscated in addition to receiving a fine of between 10 to 20 times the cost of producing the food. The producer’s business license can also be revoked under this new law. One of the more startling penalties the law imposes is that producers may receive up to lifetime imprisonment for criminal charges. The wide range of penalties allows supervising agencies great flexibility in dealing with cases of contaminated and unsafe food.

One additional provision of the law allows customers to sue producers for damages up to 10 times the sales price of the food product in addition to other damages. This provision was added to encourage customers to report illegal activities. However, the amount is still minimal, and middle class consumers are unlikely to find it worthwhile to sue for 10 times the price of a can of fruit, for example.

China / Taiwan - IP

Taiwan and China on USTR’S Watch List

On April 25, 2008, the Office of the United States Trade Representative (USTR) published its annual “Special 301” Report on intellectual property rights protection by U.S. trading partners. This year, it placed 46 countries on its Priority Watch List, Watch List, or Section 306 Monitoring List. Appearance on one of these lists is considered a trade sanction, and flags certain countries as investment risks.

This year, China appears on the Priority Watch List, and Taiwan appears on the Watch List. The USTR will proceed with an out-of-Cycle review this summer for Taiwan to affirm the development of IP protection and related enforcement procedures in Taiwan. Taiwan and China have generally been on one of the lists every year for the past 20 years.