Q&A: key IP issues affecting licensing agreements in Taiwan

Intellectual property issues

Is your jurisdiction party to the Paris Convention for the Protection of Industrial Property? The Patent Cooperation Treaty (PCT)? The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs)?

Taiwan is not a party to the Paris Convention for the Protection of Industrial Property 1883 nor the Patent Cooperation Treaty 1970. However, since 1 January 2002, Taiwan, under the name of the ‘Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu’ (also called ‘Chinese Taipei’), has been a member of the World Trade Organization (WTO), of which the Agreement on Trade-Related Aspects of Intellectual Property Rights 1994 is Annex 1C of the Marrakesh Agreement 1994 establishing the WTO.

Can the licensee be contractually prohibited from contesting the validity of a foreign licensor’s intellectual property rights or registrations in your jurisdiction?

Paragraph 6.2(7) of the Guidelines on Technology Licensing Arrangements, promulgated by the Fair Trade Commission, provides that licensing arrangements shall not include certain conditions that are likely to lessen competition or to impede fair competition in relevant markets. One such condition is the restriction on the licensee’s right to challenge the validity of the licensed technology. Such a clause in a licence agreement that prohibits the licensee from contesting the validity of the licensor’s intellectual property rights (whether a foreign or local licensor) if such prohibition has the effect of lessening competition or impeding fair competition in relevant markets shall violate the Fair Trade Act and the licensor may be subject to civil, administrative or criminal liabilities.

What is the effect of the invalidity or expiry of registration of an intellectual property right on a related licence agreement in your jurisdiction? If the licence remains in effect, can royalties continue to be levied? If the licence does not remain in effect, can the licensee freely compete?

Paragraph 6.2(5) of the Guidelines on Technology Licensing Arrangements (the Guidelines) prohibits a licensing arrangement that restricts the licensee from free use of the technology of a patent or bestows on the licensor the right to claim royalties for the licence after ‘extinction’ of a patent, if such restriction is likely to lessen competition in relevant markets. This paragraph does not define the word ‘extinction’. However, a proper interpretation may refer to both ‘invalidity’ and ‘expiry of registration’ in relation to ‘extinction’.

However, paragraph 5(4) of the Guidelines provides that for the licensed technology already used, the licensee may be required to continue to pay a fee after the expiration of a patent, where the royalty is paid in instalments or on a post-paid (running royalty) basis, unless such requirement is found improper.

Paragraphs 6.2(5) and 5(4) of the Guidelines only refer to ‘patent’. They do not include other intellectual property. Therefore, a licence agreement restraining the licensee from the use of the technology or intellectual property other than a patent, or bestowing on the licensor the right to claim royalties after the invalidity or expiry of registration of other such technology and intellectual property, is still valid, unless such licence would create possible or actual restraint of competition or unfair competition in the relevant market, which makes the Fair Trade Commission treat such licence in the same manner as a patent.

Is an original registration or evidence of use in the jurisdiction of origin, or any other requirements unique to foreigners, necessary prior to the registration of intellectual property in your jurisdiction?

Patents, trademarks, circuit layouts and plant varieties are the rights that need registration with the appropriate government agency in accordance with the Patent Act, the Trademark Act, the Integrated Circuit Layout Protection Act and the Plant Variety and Plant Seed Act. However, no original registration, evidence of use or other requirements unique to foreigners is necessary prior to registration.

Can unregistered trademarks, or other intellectual property rights that are not registered, be licensed in your jurisdiction?

No specific laws or regulations prohibit licensing unregistered trademarks, patents, circuit layouts and plant varieties. However, the licensed unregistered trademarks, patents, circuit layouts and plant varieties will not be protected by the Trademark Act, Patent Act, Integrated Circuit Layout Protection Act or the Plant Variety and Plant Seed Act. In addition, should there exist other registered trademarks, patents, circuit layouts or plant varieties in Taiwanese jurisdiction, the use of such licensed unregistered trademarks, patent, circuit layouts and plant varieties may infringe on those registered trademarks, patents, circuit layouts and plant varieties.

Copyright does not need registering with the appropriate government agency under the Copyright Act. Therefore, copyright can be licensed without any registration.

Are there particular requirements in your jurisdiction to take a security interest in intellectual property?

Generally, there is no particular requirement for a security interest in intellectual property in Taiwanese jurisdiction.

The Patent Act, the Trademark Act, the Integrated Circuit Layout Protection Act and the Plant Variety and Plant Seed Act provide that the party who fails to have the pledge on a patent, trademark, circuit layout or plant variety registered with the correct registrar office shall have no locus standing against third parties. As such, although the pledgor and pledgee of the patent, trademark, circuit layout or plant variety shall be legally bound by their pledge agreement, such an agreement cannot be asserted against a third party, unless registered with the Registrar Office.

Can a foreign owner or licensor of intellectual property institute proceedings against a third party for infringement in your jurisdiction without joining the licensee from your jurisdiction as a party to the proceedings? Can an intellectual property licensee in your jurisdiction institute proceedings against an infringer of the licensed intellectual property without the consent of the owner or licensor? Can the licensee be contractually prohibited from doing so?

Generally, a foreign owner or licensor of intellectual property can institute proceedings against a third party for infringement in Taiwan without first obtaining the licensee’s consent or joining the licensee as a party to the proceedings.

As regards the institution of proceedings by a licensee, the Patent Act, Trademark Act, Copyright Act, Integrated Circuit Layout Protection Act and Plant Variety and Plant Seed Act have provisions governing this issue. However, their provisions vary slightly.

The Plant Variety and Plant Seed Act provides that an exclusive licensee may take legal action against third-party infringement. The Patent Act and Trademark Act have the same provision, but further provide that the exclusive licensee may take such legal actions unless otherwise provided for in the licence agreement. As such, the licence agreement may prohibit the licensee of a patent or trademark from instituting such proceedings.

The Integrated Circuit Layout Protection Act also provides that an exclusive licensee may take legal action against third-party infringement. However, such actions shall be subject to three conditions:

• that the owner of the integrated circuit rights has been notified of the actions to be taken by the licensee;
• that the owner fails to take action; and
• that there is no contrary provision in the licence agreement.

As such, if the licence agreement is silent on this issue and the owner of the integrated circuit rights does not institute proceedings against an infringer after it has been informed of the licensee’s proposed actions, the licensee may institute such proceedings itself.

The Copyright Act provides that an exclusive licensee may exercise rights in the capacity of economic rights holder and perform litigious acts in its own name. The economic rights holder may not exercise rights within the scope of an exclusive licence.

Can a trademark or service mark licensee in your jurisdiction sub-license use of the mark to a third party? If so, does the right to sub-license exist statutorily or must it be granted contractually? If it exists statutorily, can the licensee validly waive its right to sub-license?

The issue of sub-licensing by a trademark or service trademark licensee is provided for in article 40 of the Trademark Act as follows:

• unless otherwise provided in a licensing contract, an exclusive licensee is entitled, within the scope of the licence, to sub-license the registered trademark to another person; and
• a non-exclusive licensee shall not sub-license the registered trademark to another person, unless the trademark owner or the exclusive licensee consents to the sub-licensing.

If intellectual property in your jurisdiction is jointly owned, is each co-owner free to deal with that intellectual property as it wishes without the consent of the other co-owners? Are co-owners of intellectual property rights able to change this position in a contract?

The regulations on the exercise of the right under the co-ownership of intellectual property vary depending on the type of intellectual property right.

Under articles 64 and 65(1) of the Patent Act, except for exploitation by each of the co-owners, the patent right shall not be assigned, entrusted, licensed, pledged or abandoned without the consent of all the co-owners. And no co-owner may assign, entrust or establish a pledge on his or her own share without the consent of all the other co-owners.

Under articles 40-1(1) and 90(1) of the Copyright Act, the copyright shall not be exercised without the consent of all the co-owners; no co-owner may transfer its own share to a third party or establish a pledge of its share in favour of a third party without the consent of all the other co-owners. Nevertheless, the other co-owners shall not refuse consent without a legitimate reason. And, each co-owner may separately demand remedies from the infringer and claim damages based on its share of copyright ownership.

Under articles 28(1) and 46(1) of the Trademark Act, any licence, sub-licence, transfer, abandonment of, or pledge on the right in a co-owned trademark or any transfer of or pledge on the share thereof shall be with the consent of all the co-owners, provided, however, that no consent is needed if such right or share is transferred by succession, compulsory execution, court’s judgment or pursuant to the provisions of other laws.

Under article 21(1) and (2) of the Integrated Circuit Layout Protection Act, any assignment, licence or pledge of the circuit layout rights or the share thereof shall be with the consent of all the co-owners. The other co-owners shall not refuse consent without a legitimate reason.

Under article 28 of the Plant Variety and Plant Seed Act, without the consent of the co-owners of two-thirds or more of the shares in a plant variety right, no co-owner shall assign his or her own share, license others to exercise such a share, or create a pledge on such a share; provided, however, that if the co-owners have agreed otherwise, the terms of such an agreement shall govern.

Given the above, except for the shares in a plant variety right of which the co-owner may change its position in a contract, the assignment, entrustment, licence, pledge or abandonment of other intellectual property rights are prohibited or limited by the laws.

Is your jurisdiction a ‘first to file’ or ‘first to invent’ jurisdiction? Can a foreign licensor license the use of an invention subject to a patent application but in respect of which the patent has not been issued in your jurisdiction?

Taiwan is a ‘first to file’ jurisdiction. When two or more applications are filed for the same invention, only the application filed first may be granted an invention patent, except if the priority date claimed by the later application is earlier than the filing date of the earlier application. Further, article 59.1(3) of the Patent Act provides that the effect of an invention (or a utility model) patent right shall not extend to situations where, prior to filing for a patent, the invention has been used in this country, or where all necessary preparations have been completed for such a purpose, provided, however, that this provision shall not apply where knowledge of such an invention was obtained from the patent applicant within 12 months prior to applying for the patent and the patent applicant has made a statement concerning the reservation of his or her patent right therein.

No specific laws or regulations prohibit a licensor from licensing the use of an invention subject to a patent application but in respect of which the patent has not been issued.

Can the following be protected by patents in your jurisdiction: software; business processes or methods; living organisms?

If a software invention (either process or the combination of software and device) includes ‘technical character’, such an invention will be a patentable subject matter in Taiwan. The ‘technical character’ is defined as a way to solve a problem, which is not limited to the technical problem but may include any type of application problems or life issues.

Business processes or methods per se are not patentable. However, if a business process or method is implemented by utilising the technologies in a computer; namely, the technology at issue is not the business process or method itself but is an execution method that uses the hardware of a computer so as to achieve a business purpose or to perform a business function, it is patentable. If said technical means has further technical character instead of merely using a computer resource, said technical means is patentable.

For example, ‘bidding activity’ is a purely commercial activity and is not a statutory subject matter for patent protection. Nevertheless, if an invention is related to ‘a utilisation of network technology to achieve bidding activity’, such an invention may be patentable. In addition, if said network technology is not merely a utilisation of hardware resources, such network technology will be patentable.

Biological material can be protected by patents. ‘Biological material’ denotes any material containing genetic information and capable of reproducing itself or being reproduced in a biological system, which includes carriers, plasmids, bacteriophages, viruses, germs, fungi, cell strains of animals or plants, tissue cultures of animals or plants, protozoa, unicellular algae, etc.

Is there specific legislation in your jurisdiction that governs trade secrets or know-how? If so, is there a legal definition of trade secrets or know-how? In either case, how are trade secrets and know-how treated by the courts?

Trade secrets are governed by the Trade Secret Act. According to article 2 of this Act, the term ‘trade secret’ shall mean any method, technique, process, formula, programme, design or other information that may be used in the course of production, sales or operations, and also meets three requirements:

• it is not known to persons generally involved in this area;
• it has economic value, actual or potential, owing to its secretive nature; and
• its owner has taken reasonable measures to maintain its secrecy. Infringement of trade secrets may incur civil liabilities pursuant to the Trade Secret Act and the Civil Code and criminal liabilities pursuant to the Criminal Code.

Regarding ‘know-how’, a definition provided in paragraph 2(3) of the Guidelines on Technology Licensing Arrangements promulgated by the Fair Trade Commission is similar to that in the above Trade Secret Act: know-how means ‘methods, technologies, manufacturing processes, formulas, computer programs, designs, or other types of information that may be used in production, marketing, or management’ that meet the three requirements as set forth in article 2 of the Trade Secret Act. Although this definition is provided by the Guidelines, which are not laws and that are for the purpose of antitrust issues, it is still acceptable by the courts.

Under articles 195-1, 242.3 and 344.2 of the Code of Civil Procedure, the Taiwan courts treat trade secrets and know-how as follows:

• where a party’s means of attack or defence involves the privacy or a business secret of either party or a third person, the court may, on motion, order the hearing not be held in public;
• where the documents in the dossier involve the privacy or business secret of the party or a third person and a grant of the application for inspecting, copying or photographing such documents will likely result in material harm to such person, the court may, on motion or on its own initiative, deny or restrict such an application; and
• a party has the duty to disclose to the other party the documents that are created regarding matters relating to the action; provided, however, that where such documents involve the privacy or business secret of a party or a third person and the disclosure may result in material harm to such a party or third person, the party may refuse to produce such documents.

Article 14 of the Trade Secrets Act and article 9 of the Intellectual Property Case Adjudication Act have similar provisions as articles 195-1 and 242.3 of the Code of Civil Procedure. Further, article 11 of the Intellectual Property Case Adjudication Act provides that where a party to a proceeding holds trade secrets, the court may, upon motion, issue a confidentiality preservation order (CPO) upon the other party and its agents. The person subject to such CPO shall not use the trade secrets for purposes other than those related to such proceeding, nor shall he or she disclose the said trade secrets to those not subject to the CPO.  Article 14-1 of the Trade Secrets Act has a similar provision: A prosecutor investigating a trade secret case may issue a CPO to the suspects, defendants, victims, complainants, agents ad litem, defence attorneys, witnesses or other associated persons having access to the investigation contents.

Does the law allow a licensor to restrict disclosure or use of trade secrets and know-how by the licensee or third parties in your jurisdiction, both during and after the term of the licence agreement? Is there any distinction to be made with respect to improvements to which the licensee may have contributed?

According to paragraph 5(7) of the Guidelines on Technology Licensing Arrangements, promulgated by the Fair Trade Commission, it is acceptable in a licence agreement to have stipulations that, during the licensing period or after the expiration of the term of the licensing arrangement, impose on the licensee the obligation to maintain the secrecy of any know-how that retains the status of a trade secret, unless such requirement is found improper.

No specific laws or regulations govern the disclosure or use of improvement contributed by the licensee. However, if a licence agreement prohibits or restricts the licensee from such disclosure or use, such prohibition or restriction is valid unless the Fair Trade Commission holds that the licensor in such licence agreement is considered to have possible or actual restraint of competition or unfair competition in the relevant markets.

What constitutes copyright in your jurisdiction and how can it be protected?

According to the Copyright Act, the author of a work shall enjoy copyright upon completion of the work without any registration. A ‘work’ means a creation that is within a literary, scientific, artistic or other intellectual domain, including oral and literary work, musical work, dramatic and choreographic work, artistic work, photographic work, pictorial and graphical work, audiovisual work, sound recordings, architectural work and computer programs.

Copyright is protected through the imposition of civil and criminal liability on the infringer. In other words, the copyright holder may demand removal of infringement of its rights, demand prevention of the infringement where there is a likelihood of infringement and claim for damages against the infringer. Also, the copyright holder may file a criminal complaint against the infringer with the court.

Law stated date

Give the date on which the information above is accurate.

1 January 2021