Are there any restrictions on the establishment of a business entity by a foreign licensor or a joint venture involving a foreign licensor and are there any restrictions against a foreign licensor entering into a licence agreement without establishing a subsidiary or branch office? Whether or not any such restrictions exist, is there any filing or regulatory review process required before a foreign licensor can establish a business entity or joint venture in your jurisdiction?
No laws restrict the establishment of a foreign business entity that wishes to enter into a licence agreement with local entities. In other words, a foreign licensor may conclude a licence agreement with local entities without establishing a subsidiary or branch office in Taiwan. Like a general foreign investor, a foreign licensor wishing to establish a business entity or joint venture in Taiwan shall comply with general requirements provided in the laws of Taiwan. Article 8 of the Statute for Investment by Foreign Nationals (SIFN) provides the application forms and documents for applying for investment in Taiwan.
The procedures for applying for the total amount of investment are provided in the Regulations Governing Verification of Investment Amount by Foreign Nationals. Prohibitive and restrictive requirements are provided in article 7 of the SIFN: the investor is prohibited from investing in the industries that may negatively affect national security, public order, good customs and practices or national health, and those that are prohibited by the law.
Should the foreign investor desire to invest in an industry in which investment is restricted by law, he or she shall obtain approval or consent from the competent authority in charge of such industry.
Kinds of licences
Forms of licence arrangement
Identify the different forms of licence arrangements that exist in your jurisdiction.
No specific laws or regulations provide the forms of licence arrangements. A licence agreement is a kind of contract under the Civil Code, which mainly provides that a juridical act (contract) that is not prohibited by laws or against public policy or morals is effective. Given this, an agreement involving any kind of intellectual property arrangements shall be acceptable under the laws of Taiwan.
Law affecting international licensing
Creation of international licensing relationship
Does legislation directly govern the creation, or otherwise regulate the terms, of an international licensing relationship? Describe any such requirements.
Generally speaking, a licence agreement, whether international or local, can be effectively made once it is legally concluded between parties under Taiwanese law relating to contract. However, the Guidelines on Technology Licensing Arrangements promulgated by the Fair Trade Commission (amended on 24 August 2015) set forth restrictions on some terms if such terms may lead to restrictive competition or unfair competition in the market.
The restrictions on such terms include:
- restrictions on research and development, manufacture, use, sale, or adoption of competitive technology on competing goods;
- restrictions on the use of the licensed technology or the trading counterparts of a licensee if it is to achieve the goal of market segmentation or if such restrictions are irrelevant to the scope of licensing;
- purchase or use of other patents or know-how not needed by the licensee;
- mandatory requirements that the licensee assign back exclusively to the licensor any improvements to the licensed patent or know-how;
- restrictions on the licensee’s free use of the licensed technology or required payment of fees or royalties after extinction of the patent or after the know-how has been publicly disclosed;
- restriction on the price at which the licensee may sell the goods manufactured with the licensed technology to a third party;
- limitation on challenging the validity of the licensed technology;
- refusal to provide the licensee with information on the content, scope or valid term of a patent;
- restrictions involving distinctions between regions in which the licensing is applicable within the territory of Taiwan during the valid term of a patent or regional restrictions on the use of know-how before the know-how is publicly disclosed or loses its status as a trade secret;
- ceilings of the quantity of goods that may be manufactured or sold by the licensee or the number of times the know-how or patented technology may be used;
- requirements that the licensee must sell goods through the licensor or a person designated by the licensor, etc; and
- requirements that the licensee pays licensing fees based on the quantity of the goods manufactured or sold irrespective of whether the licensee used the licensed technology.
What pre-contractual disclosure must a licensor make to prospective licensees? Are there any requirements to register a grant of international licensing rights with authorities in your jurisdiction?
Pre-contractual disclosure requirements are not imposed on a licensor in favour of its licensees, nor is pre-registration required with respect to any international licensing rights to be granted in Taiwan. However, article 62 of the Patent Act provides that parties that performed the patent licensing and failed to have the licensing entered and registered by the Registrar Office shall have no locus standi against any third party. The same requirements for trademark rights and circuit layout rights are provided in the Trademark Act and the Integrated Circuit Layout Protection Act. In other words, although the licensors and licensees of patents, trademarks and circuit layouts shall be legally bound by their licence agreements without first conducting any disclosure registration, such licence agreement cannot be asserted against any third party, unless it has been registered with the Registrar Office. The Registrar Office is the Intellectual Property Office of the Ministry of Economic Affairs.
Further, the Plant Variety and Plant Seed Act has the same locus standi provision on plant variety rights. Its relevant registrar office is the Council of Agriculture.
Are there any statutorily- or court-imposed implicit obligations in your jurisdiction that may affect an international licensing relationship, such as good faith or fair dealing obligations, the obligation to act reasonably in the exercise of rights or requiring good cause for termination or non-renewal?
The Fair Trade Act governs antitrust matters and may be related to the obligations affecting an international licensing relationship. The Fair Trade Act provides that this Act shall not apply to any proper conduct in connection with the exercise of rights pursuant to the provisions of the Copyright Act, Trademark Act or Patent Act. However, in the event that such licence is considered to have possible or actual restraint of competition or unfair competition in the relevant markets, such licence agreement would likely constitute violation of the Fair Trade Act and the licensor shall be subject to civil, administrative or criminal liabilities.
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 neither a party to the Paris Convention for the Protection of Industrial Property 1883 nor a party to 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.
Invalidity or expiry
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’.
On the other hand, 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 such other 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.
Requirements specific to foreigners
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 not be asserted against a third party, unless registered with the Registrar Office.
Proceedings against third parties
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.
Jointly owned intellectual property
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 right under the co-ownership of intellectual property vary depending 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.
First to file
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.
Scope of patent protection
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 resource, 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.
Trade secrets and know-how
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.
With respect to ‘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.
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 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.
Perpetual software licences
Does the law in your jurisdiction recognise the validity of ‘perpetual’ software licences? If not, or if it is not advisable for other reasons, are there other means of addressing concerns relating to ‘perpetual’ licences?
No specific laws or regulations prohibit the validity of ‘perpetual’ software licences.
Are there any legal requirements to be complied with prior to granting software licences, including import or export restrictions?
There are no legal requirements to be complied with prior to granting software licences. No specific laws or regulations impose import or export restrictions on software.
Restrictions on users
Are there any legal restrictions in your jurisdiction with respect to the restrictions a licensor can put on users of its software in a licence agreement?
No specific laws or regulations govern this issue. It is acceptable under Taiwanese law that an agreement includes a contractual restriction prohibiting its licensees from carrying out any form of reverse engineering or decompiling of a software program, or from making backup copies.
Royalties and other payments, currency conversion and taxes
Is there any legislation that governs the nature, amount or manner or frequency of payments of royalties or other fees or costs (including interest on late payments) in an international licensing relationship, or require regulatory approval of the royalty rate or other fees or costs (including interest on late payments) payable by a licensee in your jurisdiction?
Only the Guidelines on Technology Licensing Arrangements, promulgated by the Fair Trade Commission, govern the payment of royalties.
According to paragraph 5(4), in principle, it is acceptable under the Fair Trade Act for a licence agreement to provide that the licensee shall continue to pay fees after the expiration of the patent term for use already made of the licensed technology and to provide that, in the event of public disclosure of the know-how through no circumstance imputable to the licensor, the licensee must continue to pay agreed fees, unless:
- such an arrangement is considered to cause possible or actual restraint of competition or unfair competition in the relevant markets (paragraph 6.2(5));
- under the licence agreement, the licensee shall pay licensing fees based on the quantity of a particular type of goods manufactured or sold irrespective of whether the licensee used the licensed technology, which is likely to restrain competition or impede fair competition in relevant markets (paragraph 6.2(12)); or
- the licensing arrangement, without justification, gives discriminatory treatment to licensees with regard to licensing fees, where such discriminatory treatment would be likely to restrain competition or impede fair competition in relevant markets (paragraph 6.4).
No specific laws or regulations require regulatory approval of the rate, amount or interest of royalty payable by a licensee.
Are there any restrictions on transfer and remittance of currency in your jurisdiction? Are there are any associated regulatory reporting requirements?
Since 1987, the Central Bank of China, Taiwan (CBC), has deregulated the foreign exchange controls on capital movements. At present, total annual remittance not exceeding NT$5 million by a natural person and total annual remittance not exceeding NT$50 million by a juridical person may proceed directly through authorised banks by filling out relevant foreign remittance declaration forms. If the remittance exceeds the aforementioned amount, then such remittance requires the CBC’s prior approval.
Taxation of foreign licensor
In what circumstances may a foreign licensor be taxed on its income in your jurisdiction?
In general, royalties are subject to income tax of 20 per cent. If the licensor is located in a country that has tax treaties with Taiwan, the tax rate could be reduced to 10 per cent or 15 per cent. Double taxation could be avoided if an applicable tax treaty exists. According to the Income Tax Law, all income generated or originated in Taiwan is subject to income tax.
Nevertheless, the Rules Governing the Applications for Exemption from Income Tax on Royalty and Technical Service Fees Collected by Foreign Profit-Seeking Enterprises from Manufacturing Industries, Technical Service Industries and Power-Generating Industry, promulgated by the Ministry of Finance, provide that when a foreign enterprise licenses to a Taiwanese manufacturing enterprise the right to practise or use a patent, trademark or know-how (or all of the above), the royalties that the foreign enterprise receives under the arrangement could be exempted from income tax, provided that the exemption is approved by the Ministry of Economic Affairs.
Competition law issues
Restrictions on trade
Are practices that potentially restrict trade prohibited or otherwise regulated in your jurisdiction?
Trade restriction is governed by the Fair Trade Act. Article 20 of this Act provides that five kinds of conduct, each likely to lessen competition or to impede fair competition, must not be undertaken by any enterprise. The forbidden acts are as follows:
- causing another enterprise to discontinue supply, purchase or other business transactions with a particular enterprise for the purpose of injuring such particular enterprise;
- discriminating against another enterprise without justification;
- preventing competitors from participating or engaging in competition by inducement with low price, or other improper means;
- causing another enterprise to refrain from competing in price, or to take part in a merger, concerted action, or vertical restriction by coercion, inducement with interest or other improper means; and
- limiting its trading counterparties’ business activity improperly by means of the requirements of business engagement.
Because the licence of intellectual property is unique in terms of trade restriction, the Fair Trade Commission promulgated the Guidelines on Technology Licensing Arrangements, which govern and categorise the types of restrictions as well as their legal status.
Are there any legal restrictions in respect of the following provisions in licence agreements: duration, exclusivity, internet sales prohibitions, non-competition restrictions and grant-back provisions?
Restrictions on duration, exclusivity, grant-back and non-competition in a licence agreement relating to patents and know-how are governed by the Guidelines on Technology Licensing Arrangements promulgated by the Fair Trade Commission.
It is acceptable in a licence agreement to have stipulations that restrict the term of a licence arrangement that falls within the term of validity of the patent itself or restrict the term of such licence arrangement prior to public disclosure of know-how that, through under no circumstances imputable to the licensor, has been disclosed and has lost its status as a trade secret, unless such restriction is found improper (paragraph 5(2)).
A licence agreement shall not include certain conditions that are likely to lessen competition or to impede fair competition in relevant markets, such as:
- restrictions on the licensee with respect to scope of use of the licensed technology or trading counterparts in order to achieve the goal of market segmentation or other goals irrelevant to the purpose of licensing (paragraph 6.2(2)); or
- requirements that the licensee must sell goods through the licensor or a person designated by the licensor (paragraph 6.2(11)).
Internet sales prohibitions
No specific laws or regulations prohibit a licence agreement from the restriction of internet sales. However, if a technology licensing agreement is between parties who are in competition, and through such agreement they jointly restrict trading regions, thus mutually restricting each other’s business activities in a manner sufficient to influence the functions of the relevant market, such technology licensing agreement should be prohibited (paragraph 6.1).
A licence agreement shall not include certain conditions that are likely to lessen competition or to impede fair competition in relevant markets, such as the restriction on competitive activities by the licensee with respect to research and development, manufacture, sale of competing goods or utilisation of competing technology during or after the expiration of the term of the licensing arrangement (paragraph 6.2(1)).
It is acceptable in a licence agreement to have the stipulation that the licensee shall grant a non-exclusive licence to the licensor with respect to any improvements in, or new applications of, the licensed technology, unless such restriction is found improper (paragraph 5(5)). The licence agreement will not be held void merely owing to the lack of consideration.
A licence agreement shall not include a mandatory requirement that the licensee assign back exclusively to the licensor any improvements to the licensed patent or know-how that is likely to lessen competition or to impede fair competition in relevant markets (paragraph 6.2(4)).
IP-related court rulings
Have courts in your jurisdiction held that certain uses (or abuses) of intellectual property rights have been anticompetitive?
Yes. A prominent case related to a concerted action on royalties of patent licence was held by the Intellectual Property Court (IP Court) in June 2016. Three companies respectively owned some patents related to CD-R. They put these patents in a pool and authorised one of them to manage the patent pool. Any licence of such patents shall be made through such patent pool. As the CD industry underwent a recession, licensees requested the licensors to lower the amount of royalties. The three patent owners took a concerted action, declining to make any adjustment in the royalties. They were therefore fined by the Fair Trade Commission. Later, the IP Court held that the three patent owners’ joint maintenance of royalty amount was improper and anticompetitive, and sustained the Fair Trade Commission’s imposition decision.
Indemnification, disclaimers of liability, damages and limitation of damages
Are indemnification provisions commonly used in your jurisdiction and, if so, are they generally enforceable? Is insurance coverage for the protection of a foreign licensor available in support of an indemnification provision?
Indemnification provisions are commonly used in contracts in Taiwan and they are enforceable. Insurance coverage for the protection of a foreign licensor is available in support of an indemnification provision.
Waivers and limitations
Can the parties contractually agree to waive or limit certain types of damages? Are disclaimers and limitations of liability generally enforceable? What are the exceptions, if any?
The parties can contractually agree to waive or limit certain types of damage. Responsibility for intentional or gross negligent acts, however, shall not be waived in advance.
Right to terminate
Does the law impose conditions on, or otherwise limit, the right to terminate or not to renew an international licensing relationship; or require the payment of an indemnity or other form of compensation upon termination or non-renewal? More specifically, have courts in your jurisdiction extended to licensing relationships the application of commercial agency laws that contain such rights or remedies or provide such indemnities?
No specific laws or regulations impose such conditions. However, under the Civil Code of Taiwan, where there is a definite term for an agreement, termination without cause before the expiration may constitute breach of contract and the breaching party shall indemnify or compensate the other party. Where there is no definite term for an agreement, a party complying with the terms and conditions for termination, if any, can terminate the agreement without being liable for indemnity or compensation.
There is no specific commercial agency law in Taiwan. The Civil Code of Taiwan governs the general transaction relationships, which shall include the licensing relationships. Therefore, a party terminating the licence agreement before its expiration or without complying with the terms and conditions for termination shall indemnify or compensate the licensee.
Impact of termination
What is the impact of the termination or expiration of a licence agreement on any sub-licence granted by the licensee, in the absence of any contractual provision addressing this issue? Would a contractual provision addressing this issue be enforceable, in either case?
If a licence agreement grants a sub-licence but fails to address the period of time for such sub-licence, the termination or expiration of the licence agreement will mean that the sub-licensee loses the right to use the technology previously sub-licensed by the licensee. In other words, the licensor may, after the termination or expiration of the licence agreement, demand that the sub-licensee stop using the sub-licensed technology, but the sub-licensee may in turn claim its loss against the sub-licensor in accordance with the sub-licence agreement.
It is acceptable under Taiwanese law that the parties can contractually agree to let the sub-licence maintain its effectiveness after the termination or expiration of the licence agreement.
Impact of licensee bankruptcy
What is the impact of the bankruptcy of the licensee on the legal relationship with its licensor; and any sub-licence that the licensee may have granted? Can the licensor structure its international licence agreement to terminate it prior to the bankruptcy and remove the licensee’s rights?
The impact of the licensee’s bankruptcy would be on the collection of royalties payable to the licensor. Under the Bankruptcy Act, the bankrupt’s debts are the creditor’s ‘bankruptcy claim’. The outstanding royalties (ie, the licensor’s claim) are one of the bankrupt’s (licensee’s) debts. The royalties not yet due shall become due upon the court ruling granting a petition for bankruptcy (bankruptcy ruling). All of such royalties become one portion of the bankruptcy claim. The Bankruptcy Act provides that upon the court’s bankruptcy ruling, the bankrupt shall not dispose of its own assets (ie, the bankrupt licensee shall not make any payment for royalty to the licensor). All of the bankruptcy claim shall be settled through the proceedings provided by the Bankruptcy Act. Thus, the licensor may collect its royalties by proportionately parcelling out the licensee’s assets under the bankruptcy proceedings.
The Bankruptcy Act in Taiwan does not govern the licence relationship. However, it is acceptable for a licence agreement to provide that in the event that a petition for bankruptcy is filed with the court by either the licensee or any of its creditors, the licensor has the right to immediately terminate the licence agreement without compensating the licensee.
Should the licensee grant a sub-licence to a third party and the licensee become bankrupt, the legal relationship between the licensor and the licensee is as stated above. As regards the sub-licence, in view of the legal relationship between the licensee and the sub-licensee under which the licensee is a ‘licensor’ who is entitled to claim royalties against the sub-licensee, the analysis on the impact will be in line with question 34.
Impact of licensor bankruptcy
What is the impact of the bankruptcy of the licensor on the legal relationship with its licensee; and any sub-licence the licensee has granted? Are there any steps a licensee can take to protect its interest if the licensor becomes bankrupt?
The impact of the licensor’s bankruptcy would be on the intellectual property right itself. The Bankruptcy Act provides that all of the bankrupt’s assets are bankruptcy assets. The bankrupt forfeits his or her right to manage and dispose of the bankruptcy assets and all of the bankruptcy assets shall be handed over to the receiver. The creditors may proportionately parcel out the bankruptcy assets under the bankruptcy proceedings. And, the receiver shall not transfer copyright or patent right to a third party without the consent of bankruptcy supervisor.
As the intellectual property right is one of the bankruptcy assets, it may be proportionately parcelled out by the creditor under the bankruptcy proceedings.
On the other hand, the licence relationship would not be changed merely owing to the licensor’s bankruptcy. However, if the licensed intellectual property right is transferred to a third party (assignee) under the bankruptcy proceedings, the licensee shall not claim any licence right against the assignee. Nevertheless, according to the Patent Act, Trademark Act, Integrated Circuit Layout Protection Act and Plant Variety and Plant Seed Act, if the licence for the patent right, trademark right, circuit layout right and plant variety right has been recorded in the competent authority, the licensee may claim its licence right to any assignee.
Governing law and dispute resolution
Restrictions on governing law
Are there any restrictions on an international licensing arrangement being governed by the laws of another jurisdiction chosen by the parties?
The parties to an international licensing arrangement may freely choose the governing laws and no specific laws or regulations provide any restrictions on it.
Contractual agreement to arbitration
Can the parties contractually agree to arbitration of their disputes instead of resorting to the courts of your jurisdiction? If so, must the arbitration proceedings be conducted in your jurisdiction or can they be held in another?
The parties can contractually agree to arbitration of their disputes and the arbitration proceedings can be conducted in either Taiwan or any other jurisdiction.
There are some arbitration institutions established under the laws, among which the Chinese Arbitration Association, Taipei, established under the Arbitration Law is the most used either in the general dispute or IP dispute.
Would a court judgment or arbitral award from another jurisdiction be enforceable in your jurisdiction? Is your jurisdiction party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards?
A foreign judgment or arbitral award, after an application for recognition has been granted by the court, shall be enforceable. A foreign judgment shall be recognised, except in any of the following circumstances:
- where the foreign court lacks jurisdiction pursuant to Taiwan law;
- where a losing defendant failed to take actions in the court proceedings, unless the notice or summons of the initiation of action had been legally served in a reasonable time in the foreign country or had been served through judicial assistance provided under Taiwanese law;
- where the performance ordered by such judgment or its litigation procedure is contrary to Taiwanese public policy or morals; or
- where no mutual recognition exists between the foreign court and Taiwan.
Taiwan is not party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958. However, the Taiwanese court may still grant an application for enforcement of a foreign arbitral award if the country where the arbitral award is made reciprocally recognises the arbitral awards of Taiwan.
Is injunctive relief available in your jurisdiction? May it be waived contractually? If so, what conditions must be met for a contractual waiver to be enforceable? May the parties waive their entitlement to claim specific categories of damages in an arbitration clause?
Injunctive relief in Taiwan includes four kinds of actions: permanent injunctions, provisional injunctions with provisional attachment, preliminary injunctions and temporary restraining orders. Because each of them is a type of ‘right to suit’, which is protected by the Taiwan Constitution, the injunction relief may not be waived contractually.
It is acceptable for the parties to waive their entitlement to claim specific categories of damages in an arbitration clause.