On 22 June 2022, the Taiwan Taichung District Court held that licensors may be held liable for damages to licensees if they fail to pay patent maintenance fees during the valid period of a patent licence agreement.(1)
The two parties entered into a technology transfer and licence agreement for a health food in 2013. Under the agreement, the defendant transferred its know-how to the plaintiff and the plaintiff was granted a licence to use the defendant's patents, which were registered in Taiwan, Japan, the United States and the European Union.
The defendant failed to pay the maintenance fee for the patent registered in Japan and the patent expired in July 2014. The plaintiff filed a lawsuit against the defendant, requesting the return of unjust enrichment and damages.
The Court held that the agreement in dispute covered the licensed patents and the transfer of the know-how:
- the licensed patents allowed the plaintiff not only to legally implement the patents, but also to gain an exclusive market advantage; and
- the transfer of know-how empowered the plaintiff to obtain a leading technological advantage over similar products in the relevant industry.
Throughout the duration of the agreement, the defendant was liable for paying patent maintenance fees to the competent authorities of various countries to maintain the validity of the patents. The Court held that the defendant had no reason not to pay the patent maintenance fee, which caused the expiry of the patent registered in Japan.
The Court held that the defendant's failure to pay the fee constituted impossible performance as defined in the Taiwan Civil Code. The Court therefore stated that the plaintiff could request a refund of the patent licence fee of 1 million new Taiwanese dollars in accordance with article 226(1) of the Taiwan Civil Code. In addition, considering that the plaintiff had suffered from damages due to the invalidation of the Japan patent for the know-how in dispute, the Court determined that the plaintiff could claim additional damages of 1 million new Taiwanese dollars in accordance with article 222(2) of the Taiwan Civil Code. Consequently, the defendant was ordered to pay the plaintiff 2 million new Taiwanese dollars in total.
If a patentee (ie, a licensor) fails to pay a patent maintenance fee for reasons attributable to itself, resulting in the expiry of the patent, not only may the licensor have to refund the corresponding license fee, it may also be held liable to the licensee for damages. Therefore, patentees must pay attention to the payment of patent maintenance fees – particularly where such patents are licensed – to avoid the expiry of the patent and the obligation to pay damages to the licensee.
For further information on this topic please contact Tsung-Yuan Shen at Lee and Li Attorneys at Law by telephone (+886 2 2763 8000) or email ([email protected]). The Lee and Li website can be accessed at www.leeandli.com.
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