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In-depth treatment of selected topics in Taiwan law for legal professionals

A ray of hope for transnational same-sex marriage rights in Taiwan

This is a translation of the original Mandarin Chinese article by Kai-yu Chang, which can be found here. Translation by Paul Cox.

How Things Stand Now in Taiwan

In 2017, Taiwan’s Constitutional Court held unconstitutional the provisions of Taiwan’s Civil Code that do not allow two persons of the same sex to create a union of exclusive nature for the purpose of living a common life. The Court gave the legislature two years to amend the law or issue new legislation to protect equal rights to freedom of marriage. In 2019, Taiwan became the first country in Asia to legalize same-sex marriage with the promulgation of the Act for Implementation of J.Y. Interpretation No. 748.

Persisting Inequality Under the Current System

Although same-sex marriage has been legalized in Taiwan, in practice, this legal protection is not yet available to all couples: some transnational same-sex couples remain unable to register marriages. The reason is that a majority of the local household registration agencies responsible for registering marriages have interpreted Article 46 of the Act Governing the Choice of Law in Civil Matters Involving Foreign Elements (hereinafter, the “Choice of Law Act”) to mean that if a marriage is not allowed under the national law of one of the parties, the marriage cannot be formed.[1] The result of this interpretation is that if a Taiwanese national wishes to marry a same-sex partner who is a foreign national, and that foreign partner is from a country whose law does not recognize same-sex marriage, the household registration office will refuse to legally register their marriage in Taiwan.

Some may take the view that this interpretation by the household registration agencies does not violate the right of equality because Article 46 applies both to same-sex and opposite-sex marriages. Nevertheless, the application of the article has resulted in de facto inequality, causing Taiwanese to suffer discriminatory treatment, based on their sexual orientation, in their ability to exercise freedom of marriage. Given that most of the world’s countries recognize opposite-sex marriage but not same-sex marriage, a Taiwanese national who is heterosexual does not have to worry about what the law of their partner’s country dictates. Indeed, the household registration office is not going to make any special examination of whether that country’s law recognizes heterosexual marriage. But a gay Taiwanese national does not enjoy protection of their marriage rights unless the law of their partner’s country also recognizes same-sex marriage. This is a de facto inequality in the current system and arguably is an infringement of the constitutionally protected rights of equality and freedom of marriage..

Redressing the Inequality

Equality advocacy groups have proposed various methods for resolving the predicament described above. One possibility would be to amend the Choice of Law Act to exclude the application of Article 46 in same-sex marriages, so that all transnational same-sex couples would be entitled to marry lawfully in Taiwan, without needing to worry about whether the other country recognizes same-sex marriage.

Short of amending the law, it has also been proposed that Taiwan’s executive branch could issue an interpretive order stating that Article 46 of the Choice of Law Act does not apply to same-sex marriages; or, stating that, based on an exclusion provision in Article 8 of the same Act (discussed in more detail further below), the laws of countries that do not recognize same-sex marriage will no longer be applied.

Finally, it has been suggested that, after all other possible avenues of remedy have been exhausted, Taiwan’s constitutional court could be petitioned to declare the current marriage provisions of the Choice of Law Act unconstitutional, thus protecting the rights of transnational same-sex couples to marry.

Actual Case

It was the case of Mr. Chi Chia-wei, whose attempt at registering his marriage with his same-sex partner was rejected in 2013, that ultimately led to the Constitutional Court interpretation holding the prohibition of same-sex marriage unconstitutional. But when, after the legalization of same-sex marriage, Mr. Chi and his Malaysian partner went to the household registration agency to register their marriage, they were rejected once again, this time on the grounds that the law of Malaysia does not recognize same-sex marriage.

Chi Chia-wei and his partner filed an administrative appeal with Taiwan’s executive branch, but the appeal was unsuccessful. They then brought litigation in administrative court, asking the court to void the outcome of the administrative appeal. They prevailed in the litigation, and the High Administrative Court issued Administrative Judgment No. 108-Su-1805 ordering the household registration authorities to register Mr. Chi and his partner’s same-sex union.

Comments on the Taiwan High Administrative Court Judgment

The Taiwan High Administrative Court Judgment cited above holds that the administrative agency contravened Taiwan’s public order and boni mores in its refusal to register Chi Chia-wei and his Malaysian partner’s marriage on the grounds that Malaysian law does not recognize same-sex marriage. The Court holds the agency’s rejection decision unlawful under Article 8 of the Choice of Law Act, which provides, “Where this Act provides that the law of a foreign State is applicable, if the result of such application leads to a violation of the public order or boni mores of the Republic of China (Taiwan), that law of the foreign State is not applied.”

The High Administrative Court judgment further explains that in J.Y. Interpretation No. 748, the Constitutional Court had already expressly held that same-sex marriage is a constitutionally protected basic right of the public, and Taiwan law already contains express provisions recognizing the right to same-sex marriage. The court thus concludes that it is already an established part of Taiwan’s legal order that two partners of the same sex may lawfully marry, regardless of whether the law of another country recognizes same-sex marriage.

The Court therefore held that the agency’s refusal to register Chi Chia-wei and his partner’s marriage based on Article 46 of the Choice of Law Act contravenes the public order and boni mores of Taiwan, and so, under Article 8 of the Choice of Law Act, the law of the foreign country should not be applied. Based on this reasoning, the Court voided the agency’s decision, and issued its judgment favoring the plaintiffs on this issue.

Impact of the Judgment and Progress on Legislative Amendments

Although the Taiwan High Administrative Court held in the judgment cited above that the result of applying Article 46 of the Choice of Law Act violates the public order and boni mores of Taiwan and adjudicated in favor of Chi Chia-wei, court judgments in Taiwan’s system are binding only on the case at hand. So, this judgment does not bind administrative agencies across the board in cases with analogous circumstances. Other transnational same-sex couples are unable to rely on this judgment to successfully register their marriages. Indeed, other cases addressing the issue of transnational same-sex marriage registration are also currently making their way through the courts.

Meanwhile, regarding progress on legislative amendments, the Civil Department of Taiwan’s Judicial Branch on 22 January 2021 announced a draft amendment adding the following proviso to Article 46 of the Choice of Law Act: “However, if the application of the national law of one party would result in inability to form the marriage, and the other party is a national of the Republic of China (Taiwan), the law of the Republic of China will prevail.” If successfully passed into law, the addition of this proviso to the existing Article 46 would mean that if the national law of one of two same-sex partners (one of whom is a Taiwanese national) does not recognize same-sex marriage, only the law of Taiwan needs to be followed.

This draft amendment should be applauded as a positive move in the direction of adopting an express legislative provision to comprehensively protect the rights of same-sex partners to freely form permanent exclusive unions of their own volition. It strongly deserves our continued attention and efforts to nudge its successful passage and enforcement.

Reflections to Date

At the same time as many are advocating for the use of legislative amendment to resolve the current predicament, perhaps we should also take a fresh look at the interpretation of Article 46 of the Choice of Law Act.

Examining the record of the Legislature’s article-by-article discussion of the Choice of Law Act draft bill in 1953, the legislators’ interpretation of Article 46 at the time was: “The requirements for marriage include both substantive requirements and formal requirements, which in principle can follow the national laws of the parties, following the national law of the man with respect to the man and the national law of the woman with respect to the woman” (spoken by Legislator Chen Guyuan). In other words, to determine whether two people from different countries are eligible to marry, it must be examined whether each person individually meets the required conditions for marriage under the law of their own country of nationality. For example, if Party A, a Taiwan national, and party B, a foreign national, wish to marry in Taiwan, and Party A is marriage-eligible under Taiwanese law, and Party B likewise is marriage-eligible under the law of Party B’s country, then Parties A and B may legally register marriage in Taiwan.

So, based on the original interpretation and reasons of the legislators, if Chi Chia-wei, under Taiwanese law, has reached marriageable age and has no other legal impediment to marriage such as already being married, and his partner, under Malaysian law, likewise has reached marriageable age and has no impediment to marriage, then Chi Chia-wei and his partner may legally register marriage under the law of Taiwan. This interpretation leads to an outcome opposite to that of the interpretation currently held by Taiwan’s administrative agencies responsible for marriage registration.

Another issue that merits consideration is: why must the eligibility of Taiwanese nationals to legally marry in Taiwan be left up to the laws of other countries to decide? Our country’s power to enforce our own laws is in fact an expression of our national sovereignty. Premising the effectiveness and enforceability of Taiwan’s laws on the provisions of laws of other countries diminishes our national sovereignty and is a self-imposed handicap. This is not to mention that the provisions of law at issue in this case involve restriction of people’s rights and are inextricably related to the protection of basic constitutional rights. Having to look to the laws of other countries to determine the effective scope of the fundamental rights vested in the public by our own country’s constitution undermines the very spirit of our country’s constitutional protection of people’s fundamental rights. We call on the government to immediately alter the current practice regarding the registration of same-sex transnational marriages, therefore safeguarding the constitutionally protected basic rights of Taiwanese citizens.

For more information on marriage equality in Taiwan, please contact Christine Chen at cchen@winklerpartners.com.


[1] Article 46 (translation): “The formation of a marriage is governed by the national law of each party. However, a marriage is also effective if it satisfies the formal requisites prescribed either by the national law of one of the parties or by the law of the place of ceremony.”

Franchising in Taiwan: due diligence

As in our first installment of this series of articles on franchising in Taiwan, in this second installment we are going to focus on basic common sense. Like the need to register related intellectual property covered in our previous article, it should go without saying that franchisors should perform adequate due diligence on their potential Taiwan franchisees.

2. Do adequate diligence on your Taiwan franchisee

So, what is adequate due diligence in the context of identifying and signing a new Taiwan franchisee? We advise clients to take a two-pronged approach, using the diligence process: (i) to determine whether the potential franchisee has the finances, experience, and connections to be successful in the Taiwan market and (ii) equally as important, to determine the exact corporate structure of the potential franchisee and identify assets of the franchisee and any guarantors which would become the focus of future legal action should the franchisee breach its obligations under the franchisee agreement. The first aspect of diligence is looking at upside potential. The second is attempting to mitigate downside risk.

We cannot overemphasize the importance of this second aspect of the due diligence exercise. Of course, any well-drafted franchise agreement will have the franchisee represent and warrant to its current corporate structure and covenant that control of the franchisee will not change without the consent of the franchisor. These provisions, however, have no “teeth” unless the franchisor and any guarantors have significant assets against which a franchisor can enforce its franchise agreement rights. You, the franchisor, are granting the franchisee the rights to use and exploit your most valuable assets, your brand and your system. It is prudent to identify equally significant assets of the franchisee against which enforcement may be taken in the unfortunate case of a material breach by the franchisee of its obligations.

In a particularly egregious case we have seen recently, a franchisor (prior to engaging us) executed a franchise agreement with an individual as the franchisee and another individual as guarantor. Having not identified any significant assets of either individual, when the franchisee ultimately violated the franchise agreement, the franchisor was left with no viable leverage to prevent further violation. The franchisor was left (i) attempting to obtain a preliminary injunction (which are notoriously hard to obtain in Taiwan and which are the subject of a separate part of this series) and (ii) seeking monetary damages in an offshore arbitration proceeding which if successful would still need to be enforced here in Taiwan.

On a more positive note, Taiwan does allow guarantors to guarantee the full performance of the franchisee’s obligation under the franchise agreement. The guarantor and the franchisee may be jointly and severally liable for any liabilities that result from the franchise agreement. Provided that the guarantee language specifically so states, Taiwan law also allows the franchisor to make claims directly against a guarantor without the need to take any prior action against the franchisee or other contracting party.

In our next part of this series, we will examine obtaining preliminary injunctions in a franchising dispute. If you have any questions or require additional information on franchising in Taiwan, please contact Gregory Buxton at gbuxton@winklerpartners.com.

Franchising in Taiwan: protecting your trademarks

Franchising arrangements are essentially just a specialized form of intellectual property license. A franchisor, or rights owner, licenses its intellectual property to a franchisee to use, subject to certain conditions, for the purpose of operating a business in a particular territory. The licensed rights often include trademarks, copyrighted material, and trade secrets, which together comprise a unique method of doing business or business system.

Along with direct investment, franchising is a common method used by brand owners to expand their business in Taiwan. Our team advises a number of brand rights holders with respect to their franchising activities in Taiwan. Over the course of a multi-part series, we will set out five points we see as essential for brand rights holders to consider when they are evaluating entry into the Taiwan market. In this first segment, we look at Taiwan’s trademark laws and stress the need for brand owners to register and monitor the use of their marks in Taiwan.

1. Register and monitor your marks in Taiwan

This first point seems to be common sense. However, brand owners sometimes rely on their existing overseas trademark rights and fail to appreciate that Taiwan is a “first-to-file” not “first-to-use” jurisdiction.

We recommend that brand owners file an application with the Taiwan Intellectual Property Office as soon as they or any of their licensed master franchisors plan to begin franchising efforts in Taiwan. Marks may be registered in Taiwan prior to use. Taiwan trademark laws give the owner three (3) years from registration in which to use the mark.

The alternative would be to commence franchise operations using marks which are registered overseas but unregistered in Taiwan. However, such marks would not be protected under Taiwan law except in certain special circumstances involving particularly well-known brands. Using marks that are unregistered in Taiwan makes it almost impossible to prove infringement in Taiwan. It also opens up the possibility that a franchisee or other unrelated party may register the foreign mark in Taiwan before the rightful brand owner. And, while we have an excellent litigation team which can help to recover rights in such circumstances, registration of the marks in Taiwan at the outset will save significant time and expense.

In addition to registration, we recommend that brand owners task their master franchisors, if any, and their franchisees with a positive obligation to monitor the relevant territory and report any suspected infringement of the brand owner’s marks to the brand owner. In addition to the obvious benefit of assisting the brand owner to monitor the Taiwan market for infringing behavior, it also adds a potential claim against a franchisee who begins to compete with the business of the brand owner indirectly through family members or other related parties. In such instances, it may be difficult to prove violation of the relevant non-compete provisions of the franchise agreement as the relationship between the franchisee and the competing parties may be tenuous (at least on the surface). It is usually easier to show that the franchisee failed in its obligation to report known infringement by these same parties.

In the next part of this series, we will examine franchisee due diligence and related matters. If you have any questions or require additional information on franchising in Taiwan, please contact Gregory Buxton at gbuxton@winklerpartners.com.

Exploring statistics at the Taiwan Intellectual Property Court: part IV administrative litigation

Having highlighted some interesting statistics regarding civil judgements rendered by the Intellectual Property Court (“IP Court”) in the previous section of this report, we turn now to statistics regarding judgements in administrative litigation cases.

Note that in terms of statistical basis, win rates of all administrative litigation cases, actions for revocation and actions seeking to impose an obligation are based on figures published by the Judicial Yuan, which include all cases heard by the IP Court. However, the proportion and win rates of patent and trademark litigation cases are calculated using the dataset provided by the Judicial Yuan at “data.gov.tw”, which includes only those judgements that are accessible by the public.

Win rates for plaintiffs in all administrative litigation cases

Win rates for plaintiffs in all administrative litigation before the IP Court are calculated as follows: total wins (each complete win counted as 1 case; each partial win is counted as 0.5 case) divided by all cases in which either the plaintiff or the defendants prevailed.

One of the characteristics of administrative litigation in Taiwan is the low win rate for plaintiffs. In most cases, the defendants (i.e. the authorities) prevail. This is also the case for IP related cases. We can see from the following chart that the win rates for plaintiffs in administrative litigation before the IP Court were lower than 20% in all but one year since 2008. However, since 2016 the win rate has trended upward somewhat to reach 23.5% in 2019 – the highest rate on record. It appears that in recent years where a plaintiff was dissatisfied with the decision made by the Taiwan Intellectual Property Office (the “TIPO”) and filed an administrative action, the plaintiff was more likely to obtain a favorable judgement.

Win rates for plaintiffs in all administrative litigation cases closed from 2008 to 2019

Source:Judicial Yuan

Win rates for plaintiffs in actions for revocation and actions seeking to impose an obligation

There are two types of administrative litigation in Taiwan: actions for revocation and actions seeking to impose an obligation. The former refers to simply revoking an unfavorable decision. In trademark matters for example, where the TIPO renders a decision that “the opposition is justified and the disputed trademark shall be cancelled”, the trademark owner may file an administrative action requiring the court to revoke their decision so that the trademark registration remains active as the cancellation becomes invalid. This kind of administrative action is called an action for revocation.

An action seeking to impose an obligation requires the court to order the authority to render a favorable decision. This kind of action also requires the court to revoke the previously rendered decision, as it is necessary to revoke the decision rejecting the plaintiff’s request before rendering another favorable decision in the same matter. In a trademark matter for example, if a trademark application is rejected by the TIPO, the applicant may file an administrative action requesting the court to order the TIPO to approve the registration. If the court believes the plaintiff’s request is reasonable, the court will first revoke the rejection made by the TIPO, then order the TIPO to approve the plaintiff’s trademark application.

As shown in the chart below, the win rates in actions seeking to impose an obligation have always been higher than actions for revocation. Furthermore, both kinds have had opposite trends since 2016, the win rates in actions for revocation declined from about 15% in 2016 to the lowest point of 9.9% in 2019, and the win rates in actions seeking to impose an obligation increased from about 20% in 2016 to the highest point of 34.9% in 2019. As such, we can see an obvious gap between the win rates for these two kinds of action.

Win rates for plaintiffs in actions for revocation and actions seeking to impose an obligation closed from 2008 to 2019

Source:Judicial Yuan

Win rates for plaintiffs in patent and trademark administrative litigation cases

The following section considers the proportion and win rates of different categories of patent and trademark administrative litigation cases. Note that the TIPO has authority to review and amend fee rates set by copyright collective management organizations in accordance with the Copyright Act and Copyright Collective Management Organization Act. However, as there are very few copyright administrative litigation cases, we do not consider them in this analysis.

Win rates for plaintiffs and proportion of various types of patent cases

Looking at patent cases first, we find an interesting trend of win rates for plaintiffs in all patent administrative litigation cases. In 2010, the win rate of 29.6% was the highest on record, after 2010, the win rates fell steadily to the lowest point of 11.1% in 2014 before recovering in subsequent years. The win rates for plaintiffs has been approximately 24% for four consecutive years since 2016.

Win rates for plaintiffs in patent administrative litigation cases closed from 2008 to 2019

Source:data.gov.tw

Patent administrative litigation cases are divided into four types: (i) invention patent; (ii) utility model patent; (iii) design patent; and (iv) others. In observing the proportion of the four types of administration litigation cases, we note that the proportion of utility model patents has been decreasing, from nearly 60% in the early years of the relevant period to only 30% to 40% in more recent years. On the other hand, the proportion of invention patents used to account for only about 35% in early years, but there is an increasing trend in more recent years. The proportion of cases regarding invention patents has been more than 50% from 2016 through 2019, and even exceeded 70% in 2017. As for design patents, it has always been the minority among patent cases. The proportion has never reached 10%, even the highest point in 2014 was only 9.8%.

Patent administrative litigation cases closed from 2008 to 2019


Source:data.gov.tw

We can observe from the win rates for plaintiffs in the different types of patent administrative litigation cases that, as the number of design patent cases is small, the win rates in design patent cases varied very significantly from 0% to 100%. As for the win rates for plaintiffs in invention patent cases and utility model cases, the win rates show similar trends, with rates reaching a peak in 2010 or 2011, then falling to the lowest point in 2014, and bouncing back thereafter. The win rate for plaintiffs in the above two types of patent cases was approximately 25% in 2018 and 2019.

Win rates for plaintiffs in patent administrative litigation cases closed from 2008 to 2019

Source:data.gov.tw

Win rates for plaintiffs and proportion of different kinds of trademark cases

As for trademark administrative litigation cases, the win rates for plaintiffs fluctuated between 10% and 19% in the period before 2018. There has been a noteworthy consecutive increase in the win rates in the most recent four years, from 11.4% in 2016 to a peak of 25% in 2019.

Win rates for plaintiffs in trademark administrative litigation cases closed from 2008 to 2019

Source:data.gov.tw

Turning to administrative litigation regarding (i) trademark registration; (ii) trademark opposition; (iii) trademark invalidation; (iv) trademark cancellation; and (v) other cases, we note an interesting trend in terms of their proportion. The proportion of trademark registration cases decreased from almost half of all cases in the early years to only 20% to 25% after 2014. In terms of trademark opposition cases, the proportion remained relatively consistent at between 30% an 40%, while the proportion of trademark registration cases decreased, trademark opposition cases have became the dominant type of trademark litigation case after 2014.

Trademark invalidation cases accounted for around 30% of all trademark administration litigation cases in 2010 and 2011, but the proportion declined afterwards. Since 2015, the proportion of trademark invalidation cases has never exceeded 20%. Lastly, the proportion of trademark cancellation cases show an increasing trend. In 2008, trademark cancellation cases accounted for only 3.5%, but in 2019, the proportion was 20.6%, which was more than five times the proportion in 2008.

Proportion of trademark administrative litigation cases closed from 2008 to 2019


Source:data.gov.tw

The win rates for plaintiffs in trademark registration cases have shown a steady increase. In 2008, the win rate was only 10%, but by 2019, it had increased to 23.5%. The win rates for plaintiffs in trademark opposition cases between 2012 and 2015 remained at around 20%, but from 2016 to 2018, the win rates decreased to nearly 10%. Then in 2019, the win rate suddenly soared to 34.5%, which is the highest on record for the relevant period. There is no obvious trend regarding win rates for plaintiffs in trademark invalidation and trademark cancellation cases.

In 2019, the win rates for plaintiffs in different types of trademark administration litigation cases showed the following order, from the highest to the lowest: trademark opposition, trademark registration, trademark cancellation, then trademark invalidation.

Win rates for plaintiffs in trademark administrative litigation cases closed from 2008 to 2019


Source:data.gov.tw

Conclusion

In the four parts of this report, we have examined various statistics regarding Taiwan’s IP Court. In part one, we looked at statistics including the number of cases closed/lodged and number of days to close a case. Then in part two, we looked at broader statistics of the numbers and proportion of different kinds of litigation cases. For parts three and four, we further observed detailed statistics concerning civil and administrative litigation cases, including median value of claims raised and win rates.

The statistics examined in this report offer insights into the operation of the IP Court, and hopefully serve as a helpful reference for legal practitioners and researchers. However, further research is needed to understand the reasons behind the trends identified and whether these trends will continue in the future.

In addition, as per the Commercial Case Adjudication Act and the amendment of the Intellectual Property and Commercial Court Organization Act, from 1 July 2021, the IP Court will be renamed “Intellectual Property and Commercial Court”, and the IP Court will begin accepting commercial cases unrelated to intellectual property. It is worth following what changes in statistics and trends occur after the reorganization of the court.

For more information on IP matters in Taiwan, please contact Gary Kuo at gkuo@winklerpartners.com.

*Sources: (1) Judicial Yuan (2) IP Court (3) data.gov.tw.

*Note: Some of the figures provided in this report are calculated using raw data and may differ from those figures officially reported.

A new positive patent examination program for startups

Lack of funds and tangible assets is a common problem for startups, and one which often proves fatal. To address this issue, Taiwan began promoting intangible asset financing starting on 1 January 2021. As part of this program, the Taiwan Intellectual Property Office (TIPO) has announced a new patent examination program, the Positive Examination for Startup Application Program (“Startup Program”), which may prove to be a significant development for Taiwan’s startup ecosystem.

Key Features

The proposed Startup Program has two main features which distinguish it from existing patent examination programs.

First, applicants will now have a right to prioritized examination. Under the current patent examination program, it usually takes 12 to 18 months to complete the examination process for an invention patent application. Under the new system, TIPO expects that applications filed by startups will be substantively examined within one month. Applicants can therefore expect to receive a result from the examiner a month after filing a request under the Startup Program.

Second, the new program includes a “Positive Interview” section, which comes into play if the patent application is rejected. According to TIPO, the Positive Interview provides an opportunity for applicants to have a face-to-face interview with patent examiners, which will allow applicants and their patent attorneys to gain a clearer understanding of any flaws or shortcomings in their applications. More importantly, patent examiners will provide concrete suggestions for the application during the interview. This minimizes the possibility of the application being rejected, thereby speeding up the process and indirectly lowering the cost for applicants. It should be noted that the Positive Interview is only intended for the purpose of assisting startups in the patent application process. While the examiner’s advice will be useful as guidance for the applicants, there is no requirement that the applicant follow the advice provided, and the applicant may instead amend the application as they wish.

Using the two key features mentioned above, the Startups Program will shorten the time required for a patent application to only 4 months. By contrast, applicants filing an application under the current system usually spend 18 months waiting for the patent to be granted, and if there is any rejection during the examination process, it may take up to three years to complete the application process. The expedited process under the Startups Program can strengthen startups’ financial status by allowing them to quickly accumulate IP assets which can be used to obtain loans or investment.

Who can apply and how?

While the Startup Program is aimed at providing support for startups, there is no specific  nationality requirement, and the program is not limited to local companies. “Startup” is defined here as any company that has been established for less than 5 years, and for a foreign company, its set-up date will be based on the national law of the company’s jurisdiction.

After filing patent applications and requests for substantive examination, applicants will generally receive a notification from TIPO within 30 days. Those who intend to apply through the Startup Program should submit an electronic application specifically for the program, after the notification but before receiving the first examination result.

Conclusion

There will be a trial run for this Startup Program in January 2021, under which TIPO will review 30 applications according to the new system. The program is widely anticipated, and is expected to make Taiwan a competitive choice for startups seeking to file their first patent applications.

For more information regarding patents in Taiwan please contact Peter Dernbach at pdernbach@winklerpartners.com and Betty Chen at betty@winklerpartners.com.

Exploring statistics at the Taiwan Intellectual Property Court: part III civil litigation

In this part of our report (previous parts one and two are here), we look at civil judgments rendered by the Intellectual Property Court (“IP Court”) and analyze statistics regarding the value of claims raised, the percentage of such claims awarded in the first instance, the win rate in the first instance, the reversal rate in the second instance, and the settlement rate for patent, copyright, and trademark litigation cases from 2008 through 2019.

Note that in terms of the statistical basis, value of claims raised, and the percentage of such claims granted by the IP Court in the first instance, are calculated in accordance with the dataset provided by the Judicial Yuan at data.gov.tw, which includes only those judgments that are publicly available. Statistics regarding win, reversal, and settlement rates are based on figures published by the Judicial Yuan, which include all cases heard by the IP Court.

Value of Claims

The following charts plot the value of claims raised in copyright, patent and trademark civil litigation from 2008 through 2019, excluding those cases that were closed on procedural grounds.

Median value of claims raised in copyright cases

The median amounts varied significantly in copyright civil litigation during the years from 2008 to 2014. The lowest median amount was in 2011; in which, half of all cases had a claim amount of less than NTD 0.5 million (approx. US$18,000). The median rose to almost NTD 2 million in 2014. From 2015, the trend steadied, with half of all cases in each year through to 2018 having a value of claim less than NTD 1 million. However, the median went down to NTD 0.81 million in 2019.

Median value of claims raised in copyright litigation cases closed from 2008 to 2019

Source:data.gov.tw

Median value of claims raised in patent cases

Turning now to claims raised in patent litigation before the IP Court, the data shows a steady increase in the value of claims since 2008. In 2009, half of the  claims were under NTD 1.65 million, while this figure doubled to NTD 3.3 million by 2019. The peak was in 2016 with the median value of claims at NTD 3.9 million. The median has been near NTD 3.3 million in the most recent three years.

It is noted that the median value of claims in patent litigation is higher than that in copyright litigation. In recent years, that ratio is about 3:1.

Median value of claims raised in patent litigation cases closed from 2008 to 2019

Source: data.gov.tw

Median value of claims raised in trademark cases

The trend for claims in trademark litigation cases is similar that in patent cases. The median value of claims raised in trademark cases has grown steadily from NTD 1.8 million in 2009 to NTD 3.12 million in 2019. With the exception of 2016, the median value of claims in the most recent five years was above NTD 3 million.

Median value of claims raised in trademark litigation cases closed from 2008 to 2019

Source: data.gov.tw

In summary, in observing the three main categories of litigation cases, it is clear that the median value of claims in each category has followed a consistent trajectory in recent years. The value of claims in copyright litigation cases is the lowest and has decreased, whereas claims raised in trademark and patent litigation cases are significantly higher and are trending upward.

Percentage of claims granted by the IP Court in the first instance

Based on copyright litigation cases in which plaintiffs prevailed in a claim for monetary compensation, the IP Court has, on average, awarded approximately 25% of the value of claims raised by plaintiffs in the first instance.

The data for the three categories of litigation shows that the percentage of claims awarded by the IP Court have been lowest in relation to copyright cases. The awards in copyright litigation for the relevant years never exceeded 50% of the value of claims raised by the plaintiffs. In 2012, plaintiffs on average were awarded only 28% to 35% of the value of claims.

The percentage of claims awarded were highest in patent cases. Except for the lowest point of 23.9% in 2014, the average award exceeded 37% of the value of claims. The percentage reached the highest point in 2019 at 55.4%.

The trend in terms of percentage of claims awarded in trademark litigation is similar to that for patent cases, though the percentage is slightly lower. The data shows a dramatic rise in the percentage of claims awarded from 2018 to 2019, and the percentage has increased from the lowest point of 23.3% to the highest point in the ten most recent years of 54.7%.

Percentages of claims awarded by the IP Court in the first instance in copyright, patent and trademark litigation cases closed from 2009 to 2019

Source: data.gov.tw

Win rates for plaintiffs in the first instance

Win rates for plaintiffs overall in all civil litigation in the first instance before the IP Court are calculated as follows: total wins (each complete win counted as 1 case; each partial counted as 0.5 case) divided by all cases in which either the plaintiff or the defendants prevailed.

As shown in the chart below, the plaintiff win rate in all civil litigation cases in the first instance remained fairly stable from 2008 through 2019, ranging between approximately 18% and 24%, with a high of only 23.8% in 2015. Furthermore, the win rates have declined 2017 through 2019, reaching a low of 18.3% in 2019.

Win rates for plaintiffs in the first instance in all civil litigation cases closed from 2008 to 2019

Source: Judicial Yuan

Looking at copyright, patent and trademark cases separately, we see that the win rates for plaintiffs in patent cases have been the lowest among the three categories, with an average of only about 10% every year. After 2017, the patent case win rates fell further, dropping to the lowest point of 6.4% in 2019.

As for copyright and trademark litigation cases, the win rates fluctuated between 25% and 35% in most years of the relevant period, with no obvious gap between those two categories. However, the win rates in copyright cases have declined almost 10% since 2017, declining from 32.8% in 2017 to 22.2% in 2019. The win rates for trademark cases, however, have remained stable at about 33%. We can infer from the data that, from 2017 through 2019, the win rates for plaintiffs in patent litigation have been the lowest, with the win rates in trademark litigation cases being the highest, and copyright litigation win rates for plaintiffs in between the two.

Win rates for plaintiffs in the first instance in copyright, patent and trademark litigation cases closed from 2008 to 2019


Source:Judicial Yuan

Reversal rates for appellants in the second instance

The IP Court reversal rate is calculated as follows: all first instance decisions revoked (complete revocation is counted as 1 case; partial revocation is counted as 0.5 case) divided by the total number of appeal cases revoked or dismissed.

Overall, the reversal rates have fluctuated between 17% and 22% from 2009 to 2019. However, the rate increased to a peak of 25.6% in 2019, which translates to the IP Court revoking one in every four appealed cases that year.

Reversal rates for appellants in the second instance in all civil litigation cases closed from 2008 to 2019

Source:Judicial Yuan

Observing the reversal rates for copyright, patent and trademark cases separately, no clear trend is apparent. However, from 2016 through 2019, the trend appears to indicate that reversal rates in patent cases are lowest, followed by copyright cases, then trademark cases with the highest reversal rates. This trend is similar to what has been seen for plaintiff win rates above. In 2019, trademark litigation cases had a reversal rate of 39.1% in the second instance, while the rate for copyright and trademark litigation cases were 22.6% and 19.5%, respectively.

Reversal rates for appellants in the second instance in copyright, patent and trademark cases closed from 2008 to 2019

Source:Judicial Yuan

Settlement rate

Lastly, we turn to settlement rates at the IP Court. The rate of settlement for all civil litigation cases has been dropping since 2008, from more than 30% of cases being settled in 2008, to the lowest point of 7.46% in 2012. After 2013, the settlement rates have remained fairly steady at around 10%. The percentage of cases in 2019 in which settlement was achieved was 9.13%.

Settlement rates of all civil litigation cases closed from 2008 to 2019

Source:Judicial Yuan

Settlement rates in copyright, patent and trademark litigation cases have shown a downward trend since 2008. But from 2012, the rate has remained fairly steady at about 10%. Settlement rates in patent cases have been the lowest among the three major litigation categories being consistently under 10% from 2012 through 2019, and only 3.8% in 2018. The settlement rates for copyright and trademark cases were slightly higher at approximately 12% in the same period.

Settlement rates for copyright, patent and trademark litigation cases closed from 2008 to 2019

Source:Judicial Yuan

The data in this part of the report provides insights into the outcomes of civil litigation cases before the IP Court as well as the different characteristics with regard to copyright, patent and trademark cases. For instance, it is apparent that win rates in patent cases are comparatively low, that it is more difficult to overturn a patent decision on appeal, and that few patent cases are settled. With regard to copyright cases, we can see that awards are comparatively smaller. In trademark cases, plaintiffs enjoy a higher win rate in the first instance, but face a greater likelihood of revocation in the second instance.

In part four of our report we will have a look at interesting statistics related to administrative litigation cases decided upon by the IP Court. You can find parts one and two here.

For more information on IP matters in Taiwan, please contact Gary Kuo at gkuo@winkerpartners.com.

*Sources: (1) Judicial Yuan (2) IP Court (3) DATA.GOV.TW.

*Note: Some of the figures provided in this report are calculated using raw data and may differ from those figures officially reported.

Enforcing foreign judgments in Taiwan

In June 2020, the United States Court of Appeals for the Fifth Circuit affirmed a U.S. $439 million judgment against Taiwan-based technology company Quanta Storage Inc. (“Quanta”) for antitrust violations. To satisfy the judgment, the Fifth Circuit ordered Quanta to surrender all of its assets, including cash, equipment and intellectual property rights. Ultimately, Quanta settled with the plaintiff, HP Inc. (“HP”) after the judgment was delivered. Nonetheless, one issue that has lingered and inspired debate is had the sides not settled, whether and how the judgment could be enforced in Taiwan, where Quanta is incorporated and most of its assets are located.

As a result of globalization, individuals and corporations often have assets in places other than their home country. Likewise, parties to a legal dispute often have assets outside the jurisdiction in which judgment against them is rendered. In Taiwan, the demand for enforcement of foreign judgments has been on a steady rise. Since 2015, courts in Taiwan have handled close to 50 such cases.

This article offers an introduction to the current mechanism and key considerations on enforcing foreign judgments in Taiwan. Please note that “foreign judgments” as defined in this article do not include those rendered by courts in China. Judgments involving parties from China are dealt with under the Act Governing Relations between the People of the Taiwan Area and the Mainland Area. For more information on enforcing those judgments, please refer to this article.

Procedural Overview

Generally, a final court judgment produces two distinct effects. First, the doctrine of res judicata gives the judgment preclusive effect and prohibits the original claimant’s re-litigation of the claims upon which judgment was rendered. Second, the executability of the judgment makes it enforceable. Under Article 402 of the Taiwan Code of Civil Procedure (the “Procedure Code”), Taiwan automatically recognizes the preclusive effect of foreign judgments except under certain circumstances. By contrast, there is no automatic recognition of foreign judgments’ executability in Taiwan. Under Article 4-1 of the Compulsory Enforcement Act, a foreign judgment must receive an “approving judgment” from a court in Taiwan to be enforceable.

Anyone seeking to enforce a foreign judgment must first file an “approving action” with a court in Taiwan. In terms of where to file, the court sitting in the judicial district where the foreign judgment debtor resides is competent to hear such actions. Thereafter, the court examines whether any of the circumstances under Article 402 of the Procedure Code exists. If so, the foreign judgment is unrecognizable and thus unenforceable. If not, the foreign judgment will be recognized with an approving judgment, and the creditor can file for compulsory enforcement. The following flowchart illustrates the procedure discussed above:

The most critical aspect of the recognition and enforcement procedure is judicial examination under Article 402 of the Procedure Code. The next section offers a detailed analysis of the examination.

Article 402 of the Procedure Code

There are four circumstances under which a foreign judgment is unrecognizable and thus unenforceable. We discuss each circumstance in turn below.

1. The foreign court lacks jurisdiction

The foreign court must have had jurisdiction, as determined under Taiwan law, to hear the original dispute and enter judgment. Often, approving actions are dismissed for this reason because of the existence and breach of a forum selection clause. Say we have a contract dispute between a U.S. plaintiff and a Taiwanese defendant. The plaintiff files suit in a Canadian court, which enters judgment for the plaintiff. The plaintiff then files an approving action with a court in Taiwan for recognition and enforcement. Under the Procedure Code, if the contract that gave rise to the original dispute includes a choice of forum other than the Canadian court (e.g. a U.S. federal court), then the Canadian court’s judgment is unrecognizable and unenforceable. Therefore, parties looking to sue abroad and enforce judgments in Taiwan would be well advised to first become familiar with Taiwan’s jurisdictional rules before proceeding with suit.

2. The foreign judgment is a default judgment against the defendant

This is the most common circumstance under which a foreign judgment is unrecognizable. Under the Procedure Code, foreign default judgments are recognizable only if 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 Taiwan law.

In terms of exemptions, there are two conditions which are service in the foreign country, and service in Taiwan. Courts in Taiwan generally recognize service of process in a foreign country if it is legal where carried out. However, as a matter of policy, courts in Taiwan have in the past refused to recognize substituted service in foreign countries, because such a method denies the defendant the opportunity to receive the physical notice or summons in person. It is thus best to ensure that the defendant or defendant’s counsel receive the notice or summons in person.

As for service in Taiwan, the Taiwan Supreme Court has held that service in Taiwan must be made in accordance with the procedures set out in the Law in Supporting Foreign Courts on Consigned Cases. Without it, service is ineffective even if the defendant in fact received the notice or summons via direct mail.

Most of the approving actions dismissed in the past five years are default judgments rendered without effective service of process. Therefore, it is essential to ensure that process is legally served before proceeding with any legal action abroad where subsequent enforcement in Taiwan is foreseeable.

3. The relief granted by such judgment or its litigation procedure is contrary to public policy or morals under Taiwan law.

The Taiwan Supreme Court has held that although courts in Taiwan generally do not inquire into the validity of foreign judgments, in order to maintain public policy and protect public morals, courts can undertake limited review of foreign judgments. Examples of unrecognizable judgments on public policy or morality grounds include transferring illegal goods and approving bigamy.

One particularly controversial issue is punitive damages. As a matter of policy, Taiwan only recognizes actual injury or loss to the plaintiff’s person or property as valid bases for relief. As such, a damage award greater than the plaintiff’s actual loss is likely to be deemed punitive under Taiwan law. In practice, a court ruling on an approving action for a punitive damage award would likely only approve the amount equal to the plaintiff’s actual loss and not recognize any amount in excess thereof. That said, Taiwan law does provide for punitive damages in select types of cases, such as those under the Fair Trade Act and the Consumer Protection Act, with awards up to three times the plaintiff’s actual loss. The Taiwan Supreme Court has ruled that if a foreign judgment is based on facts that would give rise to punitive damages under Taiwan law, and the amount of the award does not exceed three times the plaintiff’s actual loss, the judgment would not be contrary to public policy.

In the Quanta case mentioned at the beginning of this article, Quanta’s counsel contended on appeal that the $439 million judgment was a punitive damage award as it was triple the amount of HP’s alleged loss. Several Taiwanese legal commentators echoed the contention, raising skepticism as to whether HP could enforce the entire judgment in Taiwan. On the other hand, the U.S. District Court that had rendered the original treble damage award against Quanta opined that the award was in fact compensatory in nature, because U.S. antitrust law expressly allows for the tripling of damage awards. It remains to be seen whether a court in Taiwan would accept such an interpretation and recognize the judgment.

In addition to punitive damages, other judicial orders that may offend public policy or morals under Taiwan law include the allocation of attorney fees and the rate of prejudgment interest. In general, courts in Taiwan do not award attorney fees to the prevailing party in a suit unless the case is in the third instance, i.e. before the Supreme Court. The rate of prejudgment interest is usually 5% per annum. However, the Taiwan Supreme Court has held that foreign judgments that include awards of attorney fees and rates of prejudgment interest higher than 5% per annum can still be recognizable for enforcement purposes. Taiwan counsel should be consulted on whether attorney fees and interest are likely to be accepted by the court.

4. There exists no mutual recognition between the foreign country and Taiwan

The concept here is straightforward. The Procedure Code already provides for automatic recognition of foreign judgments’ preclusive effect. Therefore, the general principle of courts in Taiwan is to recognize the executability of foreign judgments as well unless extraordinary circumstances exist, such as where a foreign court explicitly refuses to recognize judgments rendered in Taiwan.

File for compulsory enforcement

Upon obtaining an approving judgment, the foreign judgment creditor can file for compulsory enforcement with a court in Taiwan. The filing must include both the foreign judgement itself and the approving judgment. The former provides the content and amount of the judgment, while the latter proves that the judgment is enforceable in Taiwan.

Moreover, if the foreign judgment award was calculated in foreign currency, it must be converted into New Taiwan Dollar. The enforcing court normally adopts the exchange rate as of one day before the approving action was filed.

In sum, before enforcing a foreign judgment in Taiwan, an approving judgment must be obtained. Article 402 of the Procedure Code stipulates four circumstances under which a foreign judgment is unrecognizable and unenforceable. It is best practice to become familiar with relevant laws and procedures in Taiwan before filing a claim in a foreign court that might lead to the need for enforcement in Taiwan.

For more information on enforcement matters in Taiwan, please contact Gary Kuo at gkuo@winkerpartners.com.

Impact investing in Taiwan

Impact investing challenges the traditional view that (i) social and environmental issues are best solved through philanthropy and government policy and (ii) market investments should be primarily focused on the generation of financial return. By using the corporate investment model to organize financial and other resources, impact investments have produced, and will continue to produce, positive social and environmental change that is both measurable and sustainable. On a global basis, impact investors are already providing significant capital to sectors such as renewable energy, microfinance, healthcare, education, and sustainable agriculture.

In Taiwan, awareness of the value of impact investing and the development of social enterprises has been steadily growing over the past several years. As early as 2012, Social Enterprise Insights (“SEI”) launched the first Mandarin-based online information portal focused on social enterprise and innovation. The Taiwan-based portal provides resources related to social innovation and the incubation and development of social enterprises from around the world. SEI fosters the development of social enterprises in the Sinophone world by allowing Chinese readers to learn about and learn from experiences of social enterprises from around the world.

Set out below are a few leading private institutions that are active in the social enterprise space. If you are a budding social entrepreneur or otherwise wish to get involved in this rewarding and growing field in Taiwan, you may wish to contact and get involved with one or more of these organizations.

  1. iLab. Launched by SEI in 2014, iLab is the first social enterprise incubation program in Taiwan. It is based on the U.K.’s UnLtd model and works to bridge the gap between startup competitions and venture capital financing.
  2. B Current Impact Investment Inc. Launched in 2014, B Current Impact Investment Inc. (“BCI2”) is a leading social enterprise in Taiwan focused exclusively on impact investments. Established by professionals with backgrounds from Taiwan and Silicon Valley, BCI2 works with local social entrepreneurs to create investment opportunities attractive to impact investors.
  3. The Social Enterprise Revolving Trust. The Social Enterprise Revolving Trust (“SERT”), founded in 2015, works to create a sustainable social enterprise ecosystem. SERT funds promising social enterprises with the understanding that such enterprises will (i) earn a return for the trust which will be used to fund other social enterprises and (ii) further reciprocate by sharing their experiences and collaborating with other SERT-backed social enterprises.
  4. B Lab Taiwan. B Corps are active and thriving in Taiwan. B Lab Taiwan actively promotes the B Corp mission of promoting “businesses that meet the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose.”  They assist social enterprises gain a better understanding of the B Corp mission, navigate the certification process, and ultimately take their place as an active participant in the growing B Corp community. Our firm is a certified B Corp and is active in the B Corp movement. Please contact us if you are interested in learning more about B Corps in Taiwan.

In addition to private initiatives, the Taiwan government has taken steps to support and foster impact investing and social enterprise development in Taiwan. In 2014, the Executive Yuan launched a three-year Social Enterprise Action Plan (the “SAEP”).  The SAEP aimed at fostering the development of social enterprises in the country through promotion of deregulation, networking, financing, and incubation. Founded in 2017, the Social Innovation Lab continues the government’s social enterprise mission by serving as a one-stop venue for social enterprise related government services.

It is also worth noting that the most recent amendments to the Company Act promulgated in 2018 provide: “When conducting its business, every company shall comply with the laws and regulations as well as business ethics and may take actions which will promote public interests in order to fulfill its social responsibilities”. This additional language makes it clearly legal for companies to pursue purposes other than merely maximizing the financial return of equity holders.

Compared to other countries, impact investing is still in its infancy in Taiwan. There is still much that needs to be done to create and maintain a robust and sustainable ecosystem for social enterprises in Taiwan. However, Taiwan is slowly and surely moving towards this goal. As recently as July 2020, London’s asset management company, Kinnerton Capital, was pursuing sustainable construction in Taiwan. Taiwan’s wind turbine projects in particular have generated significant global interest in sustainable and renewable energy alternatives.

We look forward to the continued growth of impact investing in Taiwan. If you are interested in developing or funding a social enterprise in Taiwan, please contact us.  We are always happy to share our experiences and expertise with other social entrepreneurs and investors.

For more information on impact investment in Taiwan, please contact Gregory Buxton at gbuxton@winklerpartners.com.

PRC investment in Taiwan – things you need to know

Due to the complicated political relationship between the People’s Republic of China (the “PRC”) and the Republic of China (“Taiwan”), Taiwan authorities subject investments from the PRC to requirements and restrictions different than those applicable to investments emanating from other jurisdictions. These requirements and restrictions have broad reach and the penalties for violations can be severe. We have seen a number of foreign investment transactions affected by Taiwan’s PRC investment regulations. Given that these regulations are likely to become more stringent in the near future, we felt it timely to set out for our clients and other readers the basic outline of these regulations and possible impacts on a planned investment transaction.

As mentioned above, the reach of Taiwan’s PRC investment regulations is broad. Regulated investments include those other than the direct purchase of a Taiwan enterprise by a PRC company. The Investment Commission (the “IC”) of Taiwan’s Ministry of Economic Affairs currently includes the following within its definition of “investment”:

  1. contributing capital to, or owning shares issued by, a Taiwan company (excluding investments that are less than ten (10%) of the outstanding shares of a listed company);
  2. establishing a branch, sole proprietorship, or partnership in Taiwan; or
  3. providing loans with maturity periods greater than one year to the enterprises described in items 1 and 2 above.

In August of this year, the IC announced a draft amendment to the Measures Governing Investment Permits to the People of the Mainland Area (the “Draft Amendment”) which, among other things, would expand the IC’s definition of “investment”. According to the changes proposed in the Draft Amendment, mergers and acquisitions with non-listed companies (including the acquisition of specific businesses and/or assets of a Taiwan company) would be considered investments in Taiwan as would any direct control of a Taiwan entity by a PRC entity through contract.

The PRC investment regulations are also broad in their definition of who is considered a PRC investor (and thus subject to regulation). We have seen a number of transactions in which the investor inaccurately determined that it was not a PRC investor, leading to transaction delays, additional costs, and potential criminal liability. A PRC investor is an individual, juristic person, organization, or any other institution from the PRC or its “third-area invested company”. It is the definition of “third-area invested company” that often causes confusion and difficulties. A PRC third-area invested company is any company in a third area (i.e., a jurisdiction other than the PRC or Taiwan) invested by an individual, juristic person, organization, or any other institution of the PRC which directly or indirectly holds more than thirty percent (30%) of the equity capital of such company or which otherwise has control of such company.

The Draft Amendment introduces a new calculation method for determining whether the thirty percent (30%) equity ownership threshold has been exceeded. The existing regulations calculate ownership by multiplying ownership percentages at each level of a shareholding structure. See Figure 1 below. Pursuant to the Draft Amendment, the calculation would be done on a “tier-by-tier” basis. If any enterprise in the shareholding structure were more than thirty percent (30%) owned by a PRC investor, such enterprise would be deemed to itself be a PRC investor and the thirty percent (30%) rule would be subsequently applied to the next tier in the ownership structure. See Figure 2 below.

Despite not meeting the direct equity ownership thresholds described above, a third-area company would be considered a PRC invested third-area company if a PRC investor otherwise maintained control power over such third-area company. The IC considers several factors when determining whether a PRC investor has such control, including whether the PRC entity has control (i) over the majority of voting power of the equity owners or the directors[1] or over the appointment and discharge of a majority of directors[2]; (ii) over the financial, operational, and/or human resource policies by law, regulation, or contract; or (iii) as defined in applicable accounting standards.

Having a PRC investor involved in a transaction can have substantial effects on the transaction and the persons involved.  If a PRC investor is involved, only transactions in certain industries are permissible and may legally proceed. Any investments from a PRC investor into an industry that is not listed in the Positive List of Investments by People of the Mainland Area (the “Positive List”) set by the IC are prohibited. The current Positive List can be found here (Chinese language only).

Even if a proposed PRC investment is within the scope of permissible investments, application must be made to the IC to review and approve the proposed investment. According to the IC’s official website, the average processing time for PRC investment applications is twenty-five (25) to sixty (60) days. However, our team has routinely seen the process last a year or longer. The IC will strictly scrutinize and may place additional restrictions on, or completely prohibit, investments which it believes may (i) have an adverse effect on national security, (ii) be politically, socially, or culturally sensitive, or (iii) involve persons with a PRC military background or related business activities. Additional restrictions may include limiting investments to a maximum equity percentage.

On a practical note, it is important for PRC investors seeking to acquire Taiwan entities either directly or indirectly (e.g., in conjunction with an acquisition of a global or regional business) to take these investment prohibitions and the extended approval process into account at the outset of any transaction. In a bid-auction process, these investment prohibitions and extended timelines can put a PRC investor at a significant disadvantage to any non-PRC competitors. Even in a negotiated transaction, the indirect acquisition of a Taiwan subsidiary or business by a PRC investor could have serious consequences. In addition to affecting the transaction timeline, if the Taiwan business to be acquired operates in an industry not included in the Positive List, the Taiwan business would be required to divest itself of any operations and assets that were involved in the conduct of any and all businesses operating outside of the industries included in the Positive List. In a recent example, a consortium of PRC investors acquired Nexperia, a Dutch company. As a result of the acquisition, Nexperia’s Taiwan subsidiary became a PRC investment. As product design, research and development, and manufacturing of semiconductors, are not within the industries listed in the Positive List, Nexperia Taiwan was required to divest these businesses and was allowed to retain only its electronic component wholesale business in Taiwan.

In addition to divesting portions of the acquired Taiwan business, any investor violating the PRC investment laws and regulations may be ordered to cease or withdraw the investment altogether. Those found to have made an unauthorized PRC investment will also be fined an amount between NT$120,000 (~US$4,125) and NT$25 million (~US$858,560). Managers and directors of the Taiwan entity may also face financial and criminal liability if they approved the investment and knowingly misrepresented the investing entity as a non-PRC investor. Violators may be sentenced to imprisonment for up to three (3) years.

We expect regulation of PRC investment in Taiwan to become more stringent and enforcement more vigorous. Recently, we have been brought on to analyze PRC investment issues for a number of different teams involved in global acquisitions and securities offerings. We have assessed the consequences of such investments and where possible, provided creative structuring solutions to minimize the negative impact of Taiwan’s PRC investment regulations on the relevant transaction. Typically, many more structuring options are available at the planning stages of a transaction compared to the execution stage. If your transaction involves PRC investment into Taiwan, whether directly or indirectly, we highly encourage you to seek expert guidance on these issues as early in the transaction process as possible in order to prevent unintended, negative consequences to your business.

For more information on investment issues in Taiwan, please contact Greg Buxton at gbuxton@winklerpartners.com.


[1] For the purposes of determining control, the third-area company’s board and its directors would be deemed to include not only the nominal board and directors but also any organization (e.g., committee or other group) with the power to control the company’s operations and the members of such committee or group.

[2] Ibid.

How Taiwan’s TAICCA is supporting creative industries

Taiwan Creative Content Agency (TAICCA) is a new government institute under the Ministry of Culture aimed at catalyzing the development of Taiwan’s cultural and creative industries. Taking the Korea Creative Content Agency (KOCCA) as a model for development, TAICCA is expected to focus more on cultivating projects with greater market potential rather than those with purely artistic value. Currently, TAICCA follows two directions in accelerating the Taiwanese cultural and creative industry:

Backing movie production with foreign investment or government subsidies

Taiwanese movie companies who have signed production contracts with a major international production company, such as HBO, Netflix, Warner, NBCUniversal or Disney; or, for those who have been granted an official subsidy from the Taiwanese government, may now apply for a loan from banks backed by TAICCA.

This policy aims to reduce the financial pressure Taiwanese production companies face when a movie is still under production. Local production companies generally may not receive all the investment funds or subsidies up front leading to cash flow issues. Based on the policy, TAICCA will pledge up to 90% of bank loans secured by the local production company, keeping production running. Since the local production companies may now secure a loan from banks before the foreign production company fulfills its investment fund obligations, this policy may also indirectly give the foreign investors more flexibility to set a timeline for approving budgets awarded to local production companies.

Co-investing in creative content ventures with private investors

Another major policy for TAICCA to encourage the development of Taiwan’s cultural and creative industries is through co-investing with private investors. Venture capitalists, financial institutions, investment corporations and other investors who have previously invested in creative industries (content distributors, platforms and production companies, for example), may apply for co-investment with TAICCA in establishing creative content ventures by leveraging the National Development Fund.

Studio 76, a new venture dedicated to over-the-top (OTT) TV series production established in 2019 sets an example for this policy. It’s reported that paid-in capital totals TWD130 million, Taiwanese streaming music service KKBOX invested TWD55 million, Japan’s Asahi Broadcasting Group invested TWD30 million and the National Development Fund invested TWD45 million.

Unlike the Ministry of Culture that supports the industry through direct subsidies, TAICCA’s main objective is to accelerate Taiwan’s cultural and creative industries through connecting creative content producers with private investors on one hand, and lowering the barrier for loans from private banks on the other.

However, there are also some special subsidies offered by TAICCA for businesses that integrate emerging technology and creative content, such as VR and motion pictures. TAICCA is currently focusing its attention on movie production compared to other kinds of creative content, in large part because movie production may integrate and accelerate other forms of intellectual property. For those who are interested in the film making business in Taiwan, TAICCA’s next steps are sure to be worth following.

For more information on Taiwan’s creative content industry or intellectual property matters, please contact Gary Kuo at gkuo@winklerpartners.com.

 

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