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

Tips on entering into agreements with Taiwanese companies

Foreign parties entering into contracts with Taiwanese entities are often surprised by the simplicity of the proposed terms. While contracts drawn up between two Western parties are likely to be lengthy and exhaustive, Taiwanese contracts tend to be shorter and lighter on detail. For businesses making their first foray into the Taiwanese market, this unfamiliar style of contract may be cause for alarm, and may raise certain questions – is the other party leaving out certain important terms intentionally? What are our obligations and liabilities under the contract? And how will such a concise agreement be enforced by a court?

If you find yourself asking these or similar questions about a Taiwanese contract you’ve been asked to sign, we have good and bad news for you. The good news is that the other party is not necessarily trying to take advantage of you, and while the contract they’ve draw up might appear to be overly short, this is not unusual in Taiwan. The bad news is that such contracts tend to be short because they only contain the parties’ major rights and obligations, leaving out other potentially important details that would likely have been included if the foreign party had drafted the agreement.

This discrepancy in contractual style is largely due to differences between common law and civil law jurisdictions, as well as to differences in how Taiwanese and Western parties may view the role of the contract. In common law jurisdictions, the law is generally silent regarding the parties’ obligations, whereas in civil law jurisdictions the law already defines the parties’ obligations to some extent. Furthermore, for many Western companies the goal of a contract is to make the obligations and liabilities of the parties as explicit as possible, providing an exhaustive set of rules for how the parties’ relationship will be governed, and attempting to account for every possible eventuality. By contrast, for Taiwanese parties the contract itself is often viewed as something more like a memorandum of understanding between the parties, with the idea being that the parties can hash out the remaining details over the course of their cooperative and trust-based relationship.

In attempting to bridge this gap, instead of providing a lengthy version of revisions, foreign parties negotiating with Taiwanese entities might consider drafting a point-form summary of their proposed additions to the agreement as a start. This approach can give the Taiwanese party an overview of those added terms and conditions, making them easier to understand.

In addition to a point-form summary, foreign parties who are unsure of how to proceed in negotiations with a Taiwanese entity might consider adopting the following rules of thumb:

1. Make the wording of your clauses as concise and understandable as possible, and avoid using redundant lists of synonymous terms as a way of exhaustively covering a single concept. For example, if you want to include a requirement that your Taiwanese partner not deploy your technology or copyrighted work in any way, consider just stating this directly in plain language, rather than saying that you shall not “use, develop, extend, enhance, or deploy” the work, etc. While foreign parties may be used to this kind of “legalese”, it could be confusing and unfamiliar for a Taiwanese party.

2. Make efforts to ensure that the parties’ obligations are feasible, and do not include any unrealistic requirements that neither party will actually comply with in practice. For example, if you would like to include a requirement that your Taiwanese partner submit any and all marketing materials for your approval before their use, be sure that you also have a workable mechanism in place for them to do so. If you do not expect to actually enforce such a requirement in practice, consider leaving it out entirely.

3. Emphasize the key points of your proposed additions to the agreement. If you regard some aspect of an additional clause as being particularly important, make this clear in the wording of the clause itself. For example, if you would like your Taiwanese partner to keep certain specific information strictly confidential, it might be better to explicitly identify the information you are concerned about, rather than to rely on a blanket confidentiality requirement.

4. Localize your agreement to ensure that it does not violate any laws in Taiwan that could render the clause invalid or unenforceable. For example, the Fair Trade Act prohibits imposing restrictions on the resale price of goods, and the Personal Data Protection Act requires notice and consent to collect, process, and use personal information.

For large foreign entities using standard templates for their contracts, it might seem inconvenient or inefficient to customize an agreement in the ways suggested above. That said, localizing an agreement in this way can reduce the risk of a bad outcome in your contractual relationship with a Taiwanese party. It is also advisable to highlight the major obligations that you would like your Taiwanese partners to pay attention to in your email correspondence with them.

For more information on contract matters in Taiwan, please contact Ling-ying Hsu at lhsu@winklerpartners.com, or Peter Dernbach at pdernbach@winklerpartners.com.

Working in Taiwan as a creative professional part II: the Employment Gold Card for special professionals in culture and the arts

This is the second of two FAQs on how creative professionals can live and work in Taiwan after the Act for the Recruitment and Employment of Foreign Professionals came into force in February 2018. We have updated this FAQ to reflect changes made between February 2018 and March 2020.

Part I focused on how to obtain a freelance artist work permit. Part II focuses on how to obtain an Employment Gold Card as a special professional in the field of culture and the arts. Click on the question to be taken to the answer, click back to return to the list of questions.

1. What is the difference between the freelance artist work permit and an Employment Gold Card for a special professional in the field of culture and the arts?

2. What kinds of special professionals in the field of culture and the arts are eligible to apply for an Employment Gold Card?

3. What does broadcasting mean?

4. What does cultural administration mean?

5. Is there a minimum salary requirement for special professionals in culture and the arts?

6. What are the basic qualifications for performing arts?

7. What international arts organizations, key positions, international arts events, and awards does the Ministry of Culture recognize for performing arts?

8. What are the basic qualifications for visual arts?

9. What international arts organizations, key positions, art events, recognized awards and international arts events does the Ministry of Culture recognize for visual arts?

10. What are the basic qualifications for publishing?

11. What international media/publishers, academic awards and literary awards, and international publishing events does the Ministry of Culture recognize for publishing?

12. What are the basic qualifications for film/broadcasting/popular music?

13. What is an example of a major award from Taiwan? The United States? Europe?

14. What if I have won a major award but it is not on this list?

15. What are the basic qualifications for crafts?

16. What crafts competitions or organizations are recognized?

17. What are the basic qualifications for cultural administration?

18. How do I show outstanding performance in arts and culture to be recognized as a special professional in cultural administration?

19. What international arts and culture NGOs qualify?

20. What if I don’t meet any of the basic qualifications for recognition as a special foreign profession in culture and the arts?

21. What if my application is rejected? Are there any other paths to working in Taiwan as a professional in culture and the arts?

22. What are the benefits of obtaining an Employment Gold Card as a special professional in arts and culture?

23. Will I be eligible to enrol in Taiwan’s national health insurance program?

24. How many special professionals in the field of arts and culture have received Employment Gold Cards?

25. How do I apply?

26. What kind of documentation should I submit to show my qualifications?

27. Does my documentation to be translated into Chinese?

28. How long does the application process take?

29. Who will review my application?

30. Can I renew my Employment Gold Card?

31. Can I become a permanent resident based on an Employment Gold Card?

32. Where can I read the law and regulations myself?

33. Who can I contact in the government if I have questions?

34. If I obtain an Employment Gold Card overseas, how long do I have to enter Taiwan?

Special Professionals in Culture and the Arts FAQ

1. What is the difference between the freelance artist work permit and an Employment Gold Card for a special professional in the field of culture and the arts?

In general, the freelance artist work permit is for practicing artists. A special professional in the field of arts and culture could be an artist but more typically would be a professional with expertise in culture and the arts such as an event organizer, a NGO or government art administrator, or a literary agent. While there is some overlap, special professionals in culture and the arts encompass a broader range of professionals.

There are also some benefits to being a special professional that artists do not enjoy such as a possible income tax deduction and the ability to sponsor parents and grandparents for longer visitor visas. See Question 20 below.

An Employment Gold Card is also slightly more convenient because it combines a work permit, resident visa, and Alien Residence Certificate (ARC) on one card. As a result, the successful applicant does not need to make separate applications for a work permit, visa, and an ARC. In contrast, a freelance artist will need to make three separate applications.

2. What kinds of special professionals in the field of culture and the arts are eligible to apply for an Employment Gold Card?

Special professionals who work in the following fields are eligible:

(a) Performing Arts,

(b) Visual Arts,

(c) Publishing,

(d) Film/Broadcasting/Popular Music,

(e) Crafts, and

(f) Cultural Administration

3. What does broadcasting mean?

Broadcasting means television and radio work.

4. What does cultural administration mean?

Cultural administration means arts management or arts administration.

5. Is there a minimum salary requirement for special professionals in culture and the arts?

This has been the subject of some confusion. Unlike other kinds of special professionals, current or past salary is not a qualification for special professionals in culture and the arts. For example, one way that special professionals in finance or science and technology can qualify is to have or have had a monthly salary of at least NT$160,000. There is no equivalent salary qualification for being recognized as a special professional in culture and the arts.

6. What are the basic qualifications for performing arts?

(a) Membership in an international arts organization,

(b) Key position in government or a private organization related to culture or the arts,

(c) Key position at a leading arts or culture event,

(d) Recipient of recognized award,

(e) Judge on panel for recognized award, or

(f) Special approval by the Ministry of Culture.

7. What international arts organizations, key positions, international arts events, and awards does the Ministry of Culture recognize for performing arts?

The Ministry of Culture has listed examples in the document that can be downloaded at the bottom of this page. The key point is that these are non-exhaustive lists of examples. You can and should apply with similar organizations, positions, awards, or events. In general, alternatives will need to have a level of prestige and international recognition similar to those on the Ministry’s list of examples. Examples on the list include:

(a) American Theatre Wing (international arts organization),

(b) Manager (key position),

(c) Festival d’Avignon (international arts event)

(d) National Dance Award (award)

8. What are the basic qualifications for visual arts?

(a) Membership in an international arts organization,

(b) Key position in government or a private organization related to culture or the arts,

(c) Key position at a leading art event (such as major art exhibition or biennial),

(d) Recipient of recognized award,

(e) Judge on panel for recognized award, or

(f) Special approval by the Ministry of Culture.

9. What international arts organizations, key positions, art events, recognized awards and international arts events does the Ministry of Culture recognize for visual arts?

The Ministry of Culture has listed examples in the document that can be downloaded at the bottom of this page. The key point is that these are non-exhaustive lists of examples. You can and should apply based on similar organizations, positions, awards, or events. In general, alternatives will need to have a level of prestige and international recognition similar to those on the Ministry’s list of examples. Examples include:

(a) National Endowment for the Arts (international arts organization),

(b) Director (key position),

(c) Art Taipei (event), or

(d) New York Arts Directors Club Annual Awards.

10. What are the basic qualifications for publishing?

(a) High level position at major international media company or publisher,

(b) Literary agent with at least 10 years of experience in publishing or mass media,

(c) PhD in publishing and an international academic award,

(d) National or international literary prize,

(e) Curator for major international publishing event, or

(f) Special approval by the Ministry of Culture.

11. What international media/publishers, academic awards and literary awards, and international publishing events does the Ministry of Culture recognize for publishing?

The Ministry of Culture has listed examples here. The key point is that these are non-exhaustive lists of examples. You can and should apply based on other publishers, media, positions, awards, or events. In general, these alternatives will need to have a level of prestige and international recognition similar to those on the Ministry’s list of examples.

Please see Academia Sinica’s list of international academic research awards for awards recognized for purpose of qualification 9(c) PhD in publishing and international academic award. Examples on the Ministry’s list include:

(a) The Financial Times (media),

(b) Random House (publisher).

(c) Managing editor (key position), or

(d) Man Booker Prize (literary award).

12. What are the basic qualifications for film/broadcasting/popular music?

(a) Received major award for motion pictures, broadcasting, or popular music from Taiwan, from the applicant’s native country, or a major international award for the same,

(b) High level executive with at least five years of relevant experience at a medium-sized or large film, broadcasting, or popular music company,

(c) Has made special contributions to film, broadcast, or popular music and have at least five years of relevant experience, or

(d) Special approval by the Ministry of Culture.

13. What is an example of a major award from Taiwan? The United States? Europe?

Kaohsiung Film Festival awards are major awards from Taiwan. An example of US awards are New York Festivals  TV & Film Awards. European major awards include the MTV Europe Music Awards and the BRIT Awards. Download the document at the bottom of this page and check the ‘Required Documents’ section for Film, Broadcast and Pop Music.

14. What if I have won a major award but it is not on this list?

You can make a case for your award with the Ministry of Culture. Submit your award certificate, documentation about the award (web information is fine), and a short statement about why it is an important award.

15. What are the basic qualifications for crafts?

(a) Award in national or internationally recognized crafts competition,

(b) Recognized as a Living National Treasure by a recognized Taiwanese or international organization, or

(c) Special approval by the Ministry of Culture.

16. What crafts competitions or organizations are recognized?

The Ministry of Culture has listed examples here. The key point is that this is a non-exhaustive list of examples. You can and should try to have other awards or organizations recognized by the Ministry. In general, these will need to have a level of prestige and international recognition similar to those on the Ministry’s list of examples. Examples on the Ministry’s list include:

(a) Faenza Prize (competition award),

(b) The World Crafts Council (organization), or

(c) International Ceramics Competition Mino, Japan.

17. What are the basic qualifications for cultural administration?

(a) Position in a government department of arts and culture and evidence of outstanding performance in work related to arts and culture while holding the position,

(b) Expert or research position at a registered culture and the arts organization and evidence of outstanding performance in work related to arts and culture while holding the position,

(c) Position at an international arts and culture NGO involving arts and culture and evidence of outstanding performance in work related to arts and culture while holding the position, or

(d) Special approval by the Ministry of Culture.

18. How do I show outstanding performance in arts and culture to be recognized as a special professional in cultural administration?

Submit a letter of recommendation from the department, organization, or NGO.

19. What international arts and culture NGOs qualify?

See the list of UNESCO partnership NGOs here.

20. What if I don’t meet any of the basic qualifications for recognition as a special foreign profession in culture and the arts?

You can apply under the catch-all “Special approval by the Ministry of Culture” in each of six categories of special professionals in culture and the arts. This is to cover professionals in these fields who have other qualifications. Indicate on your application that you want the reviewing agencies to consult with the Ministry of Culture. See Question 29.

21. What if my application is rejected? Are there any other paths to working in Taiwan as a professional in culture and the arts?

Yes. If you are a practicing artist you may be able to qualify for the freelance artist work permit. Please see Part I of this FAQ. Otherwise you will need to find a qualified employer to hire you for Class A specialized (professional) or technical work if your background is in media, film, television, or arts management. If you are a practicing artist, a qualified employer can apply for a Class F artist work permit on your behalf. Please check the Workforce Development Agency’s EZ Work website for information on the requirements.

22. What are the benefits of obtaining an Employment Gold Card as a special professional in arts and culture?

(a) Ability to work in your field independently or change employers if you applied for the Employment Gold Card yourself rather than having an employer apply on your behalf,

(b) 50% deferrable income tax deduction on annual income over NT$3 million for first three years in Taiwan, and

(c) Ability to sponsor parents and grandparents for visits of up to one year. A visit may be extended.

Please see the Regulations Governing Reduction and Exemption of Income Tax of Foreign Special Professionals §3 for details of eligibility for the deferrable income tax deduction.

23. Will I be eligible to enrol in Taiwan’s national health insurance program?

Yes, but you will meet a six month residence period first if you do not have an employer. To meet the residence requirement, you must be physically present in Taiwan for a total of six months although you may make one trip abroad for no more than 30 days. The time spent abroad does not count toward the six months residence requirement.  If you are hired by an employer, you are immediately eligible for health insurance.

24. How many special professionals in the field of arts and culture have received Employment Gold Cards?

65 Gold Employment Cards were issued to special professionals in the field of Arts and Culture in the first two years of the program. In addition, employers successfully applied for 54 five year work permits for special professionals in the field of Arts and Culture based on the same qualifications.

25. How do I apply?

You or your employer must apply online through the National Immigration Agency’s Employment Gold Card platform.

26. What kind of documentation should I submit to show my qualifications?

Please see the various documentary requirements in the document available at the bottom of this page.

27. Does my documentation need to be translated into Chinese?

English language documents do not need to be translated. Documents in languages other than English or Chinese need to be translated into English or Chinese.

28. How long does the application process take?

The application review period is 30 days although this can be extended if more documents are required. In practice, it currently takes most applicants 1-2 months.

29. Who will review my application?

Applications are reviewed by the National Immigration Agency, the Ministry of Labor, and the Ministry of Foreign Affairs. In special cases, these reviewing agencies may consult with the Ministry of Culture.

30. Can I renew my Employment Gold Card?

Technically no. However, you can apply for a new Employment Gold Card before the current one expires. Your qualifications will be reviewed again.

31. Can I become a permanent resident based on an Employment Gold Card?

Yes. Currently you will become eligible to apply for permanent residence after five years of continuous residence based on a series of Employment Gold Cards. You must be present in Taiwan for at least 183 days each year. Your spouse and minor children will become eligible for permanent residence five years after you become a permanent resident if they meet the foregoing residence requirement.

32. Where can I read the law and regulations myself?

You can read the Act for the Recruitment and Employment of Foreign Professionals here. The articles that apply specifically to special foreign professionals are §4(2), §§7-9, and §13. You can read the basic qualifications for special professionals in culture and the arts here in the document available at the bottom of this page. The National Immigration Agency also has a helpful FAQ.

33. Who can I contact in the government if I have questions?

The current designated contact at the Ministry of Culture for a special professional in culture and the arts is:

(a) Ms.Chen Yu-qi (陳鈺淇): (02)8512-6772 for questions about qualifications.

The current designated contacts at the National Immigration Agency for Employment Gold Cards are:

(a) Mr. Yang Ying-cong (楊英聰): (02)2388-9393 #2558 (legal questions)

(b) Ms. He Zhi-ying (何芷瑩): (02)2388-9393 #2426 (for questions about applying through the online portal)

The current designated contact at the Ministry of Labor for Employment Gold Cards is:

(a) Mr. Huang He-qun  (黃胡群): (02)2380-1720

The current designated contact at the Ministry of Foreign Affairs for Employment Gold Cards is:

(b) Ms. Zhang Jia-hong (張嘉紘): (02)2343-2901

Please check this list of contact windows on the official website for the Act for the Recruitment and Employment of Foreign Professionals. The list also has email addresses.

34. If I obtain an Employment Gold Card overseas, how long do I have to enter Taiwan?

According to the Ministry of Foreign Affairs, you can enter (and re-enter) Taiwan so long as the Employment Gold Card is valid.

Legal issues to consider when choosing a SaaS business model

For companies offering software solutions to clients, one of the earliest and most important decisions will be whether to adopt a business model based on software licensing, or to instead opt for a “Software as a Service” (SaaS) approach. Under a licensing-based approach, the company provides a copy of its software to the customer, who may then use the software independently, subject to the terms of the licensing agreement. Under a SaaS approach, the customer is not provided with an actual copy of the software, but is instead allowed to access it remotely and use it according to the terms of a service agreement with the provider.

While the license-based approach was the dominant model for many years, recent trends in the industry indicate a shift towards SaaS as the preferred model. Following on the first major SaaS success story of Salesforce, a number of major software providers that traditionally relied on software licensing started pivoting towards SaaS, with a major example being Microsoft’s decision to offer its signature line of Office products as an online service known as Office 365. Along with Salesforce and Microsoft, other major tech companies in the field of SaaS include Amazon, Google, Fujitsu, Symantec, and IBM, just to name a few. The SaaS sector overall is booming, growing by more than 20% annually, with the global SaaS industry expected to be worth more than US$130 billion by the end of 2020.

Given the industry-wide trend towards SaaS, prospective founders of new companies will want to know the pros and cons of using a SaaS approach for their business. It is certainly not without its downsides – for example, many SaaS businesses take significant losses in the early stages of their development, as the investment made to acquire an initial customer base is only recovered slowly through regular subscription payments. That said, SaaS is appealing for other reasons, perhaps the most important being that many consumers would rather pay a regular fee for remote access instead of a single lump sum for installation of an expensive piece of licensed software, especially now that near-constant availability of internet access has become the norm in most developed economies. The age of licensing agreements and expensive, single-purchase software may be coming to an end.

Business considerations aside, what are some of the legal issues to consider before adopting a SaaS approach? Perhaps unsurprisingly, they are many and varied, and may differ from the typical issues that arise under a license-based approach. As a straightforward example, service outages are unavoidable with SaaS, including outages for scheduled maintenance. If the service contract is not worded properly, these outages could constitute a breach of contract by the provider. Service outages of this kind are generally not an issue for licensed software. It is therefore important to tailor the service contract specifically for SaaS, rather than simply adapting a pre-existing licensing agreement template. Ultimately, a well-crafted SaaS agreement – often presented to the customer as a so-called “clickwrap” contract which can be entered into with a single mouse click – may look quite different from a traditional software licensing arrangement.

Another legal issue which is increasingly important for SaaS providers is that of data security and digital privacy. SaaS users generally disclose at least some personal information to the provider when using the service, the extent and sensitivity of which can vary greatly depending on the nature of the services being provided. There is also the possibility that users may disclose information of a non-personal nature that is nonetheless highly confidential, such as when companies outsource their email, payroll, or document management systems to a SaaS provider. Whatever the nature of the confidential information being disclosed, this creates a potentially major source of liability for the SaaS provider that is unlikely to be an issue with licensed software. Moreover, the storage and transfer of such information through online networks often has an inter-jurisdictional aspect that may increase the provider’s exposure to liability for non-compliance with unfamiliar regulatory regimes in other countries. This creates a need to adapt and update data protection practices to comply with regulatory changes across all jurisdictions where the SaaS is available, which may create unforeseen expenses for the company – a lesson which many SaaS providers recently learned when the European Union’s General Data Protection Regulation (GDPR) entered into force. Even SaaS providers with no physical presence in Europe and no familiarity with European law should consider whether they are GDPR-compliant when offering their services to European clients.

There are also legal issues which can be avoided or mitigated by using SaaS instead of a licensing agreement. One much-touted advantage of SaaS is the supposed avoidance of taxes that would otherwise apply to licensing royalties, but this advantage requires closer scrutiny. While it is true that licensing royalties are generally taxable, the notion that revenue from SaaS will never be subject to tax is incorrect, and will depend on the jurisdiction where the services are offered. SaaS may be taxed differently in the various jurisdictions where it is available, even when those jurisdictions are within the same country. For example, according to currently available information, there are many jurisdictions in the United States which impose sales tax on SaaS (such as California, Illinois, and New Jersey), as well as others which do not impose such tax (such as Texas, Washington State, and New York). The situation is similar when offering SaaS across national borders. An American SaaS provider unaccustomed to dealing with a national value-added tax (VAT) will have to take VAT into consideration when expanding into Europe, where all EU member states are required to meet minimum VAT standards. VAT in the EU used to depend on the location of the seller, which notably led Apple to domicile the European wing of iTunes in Luxembourg for its relatively low VAT. However, when the EU later changed its VAT requirements to make the rate dependent on the location of the purchaser rather than the seller, VAT increased for most iTunes transactions in Europe. As changes like this continue to happen, the global landscape of SaaS taxation will continue to evolve.

Ultimately the benefits and drawbacks of SaaS will be case-specific, and will depend on factors such as the nature of the software, the nature of the customer base, the domicile of the provider, and the jurisdictions where the service will be offered, among other considerations. If you are trying to decide whether SaaS would be the right fit for your company, seek the advice of legal counsel before making a decision. And if you are already operating in the SaaS market, it is crucial that you retain legal counsel to protect you from liabilities of which you may not be aware.

For further information, please contact Greg Buxton at gbuxton@winklerpartners.com and Peter Lavelle at plavelle@winklerpartners.com.

Labor Incident Act: three takeaways for employers

Taiwan’s Labor Incident Act (“LIA”) was announced on 5 December 2018 and will come into force on 1 January 2020.[1]

The core principles of the LIA are speed, appropriateness, professionalism, effectiveness and fairness, with the given aims of readjusting the structure of the employee-employer relationship, reducing the barrier to litigation for employees and strengthening their employment rights.

It’s important to note that labor disputes that arise before the implementation of the LIA can still be dealt with under the new law, as long as they have not been completed (i.e. by settlement or final and binding judgment) by that date. Businesses employing people in Taiwan should therefore take advantage of this period and prepare ahead of time for the implementation of the LIA. Below, we outline three main points worth considering.

Scope

Please keep in mind that the scope of the Labor Standards Act and Labor Incident Act are not the same. Labor Standards Act  is a substantial law which provides the basis for employment relationships between employers and employees. The Labor Incident Act is procedural law which outlines how employment disputes should be handled.

Employers should be aware that the scope given for disputes to be settled under the LIA is quite broad. The law defines disputes as civil in nature, covering the rights and obligations between employers and employers, or those disputes where employment rights have been infringed upon.

However, due to the law’s basis for expanding the rights and obligations of both parties, the definition of “employee” and “employer” is relaxed, and the fact that related civil matters can be combined with or added to labor disputes, as well as allowing for counterclaims to be made during the litigation process mean that with this new scope comes increased risk. Two things that deserve special attention include:

  1. In addition to regular employers, recruitment agencies, dispatch employee companies, those that recruit people in trainee positions or similar roles are, under the LIA, considered employers. As an example, if there is a discrimination , sexual harassment or occupational safety dispute brought by a job applicant or dispatched employee, then this falls within the scope of the LIA.
  2. Secondly, the court will consider the work rules, labor-management conference decisions, labor norms and so on as the basis for trials, alongside the rights and obligations provided for by law.

Review all relevant documents

Businesses should use this time to review labor contracts and work rules and ensure that all employee records are up to date and maintained according to the law. As businesses bear the responsibility for proof, they should determine that employee records are complete (employee lists, attendance records, salary information etc.) and make sure that all contracts, work rules and other internal guidelines clearly define the obligations and rights under the employee-employer relationship. Clear definitions of what constitutes “wages” and “work hours” should be given.

1. Wages

Disputes over wages occur when it is difficult to judge the amount of money that a company should provide to an employee. It is a recurring payment, for a service performed, or given as a favor (ex gratia payment), for example retention bonuses. The determination of wages will affect how salary, pensions and/or severance pay are calculated.

Under the LIA, employees are only required to prove that payments occurred as part of an employer-employee relationship. It is the responsibility of the employer to prove that bonus payments are not wages. Businesses should therefore set rules that cover bonus payments, including eligibility, payment conditions, calculations and payment terms to serve as evidence should any disputes arise in the future.

2. Work hours

Disputes over work hours usually involve the calculation of overtime. Whether or not the employee was granted permission to work outside of their normal work hours has in the past been difficult to determine. The LIA similarly provides that employees are considered to have obtained approval for any work conducted outside of their normal working hours. Employers are obligated to prove that approval was not obtained by the employee before overtime commenced.

Businesses should therefore include overtime application procedures in their employment contracts, in the work rules or other overtime guidelines. Attendance record control should also be strengthened to serve as evidence in the event a dispute arises.

Focus on prevention

Now that the cost of recourse through the courts has been lowered for employees, it is essential that employers are aware of the increased burden of proof they have to meet. To avoid costs associated with the lengthy mediation and litigation process, businesses should try to prevent cases reaching the courts. As an example, businesses should determine whether a cause for termination is lawful, and whether they have enough evidence to support their claims should a dispute be brought, and whether they have followed the law regarding terminations, before they terminate the employee. If a business is unsure, they should consult with legal counsel before they take any steps.

Once the LIA is implemented a judge will be appointed to take part in both the court-led mediation and litigation stages, and because the judge will disclose their impression in certain circumstances during mediation, it will be clear whether an employer will be successful or not during subsequent litigation. Mediation therefore will become the critical stage once the LIA is implemented. It goes without saying that it is advisable that businesses retain legal counsel before a dispute occurs or at least before the dispute enters the mediation phase.

Employees are ever more aware of their rights, and there are more avenues for recourse than before, once the LIA becomes law businesses should spend time considering how management of their employees can be adjusted to minimize disputes. By preventing disputes from occurring in the first place, the employee-employer relationship can be a harmonious one, which in turn is good for business.

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


[1] During the legislative process, the name of the Act was translated as either the Labor Dispute Act or the Labor Incident Act in news reports. We have updated the name used in our articles based on the official English translation given on the Ministry of Justice’s website.

Closed companies: still a useful option?

We published an article last year highlighting the amendments to Taiwan’s Company Act (the “Act”) which came into effect on November 1, 2018.  The changes to the Act were extensive and, among other things, greatly enhanced flexibility in structuring Taiwan company fundraising and shareholder control arrangements. During the preparation of the amendments to the Act, a number of commentators questioned whether “closed companies”, created by legislation enacted in 2015, continued to be necessary as the amendments worked to bestow upon typical private companies many of the benefits previously only available to closed companies.

While we agree that these amendments to the Act do close the gap between the more commonly used private company and a closed company, there remain some significant advantages to using a closed company. Set forth below are some of these differences:

1. Shareholders may exercise voting rights by written resolution. Being able to execute written resolutions instead of holding an actual shareholders meeting makes it easier and more efficient to manage a closed company.

2. Restrictions on transfer of shares can be stated in the Articles of Incorporation.  As opposed to a standard private company which can only place restrictions in its Articles of Incorporation on the transfer of preferred shares, a closed company can, in its Articles of Incorporation, restrict the transfer of any type or class of shares. We note that shareholders of a standard private corporation can restrict the transfer of non-preferred shares by agreement; however such an agreement would not be publicly available and thus would not be binding on bona fide third party transferees. In addition, transfers made in violation of such an agreement would give rise to monetary damages but would not be void ab initio as they would be if such transfers were disallowed in the company’s constitutive document.

3. There are no preemptive rights for employees and existing shareholders. Under the Act, when a standard private company issues new shares, (i) a certain number of shares must be reserved for subscription by employees of the company and (ii) existing shareholders would have preemptive rights with respect to any shares not reserved for employees. There is no similar requirement with respect to closed companies.

4. Directors and supervisor voting arrangements can be tailored. The Act requires the shareholders of a standard private corporation to use cumulative voting when electing its directors and supervisors. However, a closed company may use straight voting or any other voting method that the company deems best suited to its particular needs so long as such a voting method is clearly set forth in the company’s Articles of Incorporation.

5. Equity capital may be contributed by service. Shareholders of a closed company can contribute equity capital in the form of services rendered to the company.  Such service contributions are not available to standard private companies. This attribute of closed companies makes them particularly attractive to startups whose founders may lack significant capital resources. It is important to note, however, that there are some limitations on the amount of equity capital which can be contributed as services to a closed company. Total service equity cannot exceed one half of the total shares issued with respect to a closed company whose paid-in capital is under NT$30 million. For a closed company whose paid-in capital is equal to or exceeds NT$30 million, service equity is limited to one half of the first NT$30 million worth of shares issued plus one quarter of any additional shares issued.

We continue to recommend considering closed companies when clients are evaluating which type of entity is appropriate for their businesses in Taiwan. Even after the recent amendments to the Company Act, closed companies retain a number of attributes that make them well-suited in certain circumstances.

For more information, please contact Greg Buxton at gbuxton@winklerpartners.com.

Regulations governing ratings for cybersecurity responsibility levels

Article 7(1) of the Cybersecurity Management Act authorizes the Executive Yuan to define standards for rating cyber security responsibility levels. These standards are set out in the Regulations Governing Ratings for Cybersecurity Responsibility Levels (the “Rating Regulations”). The Rating Regulations took force on January 1 2019.

While the Rating Regulations consist of just 12 articles, there are ten tables appended to the Rating Regulations that contain detailed requirements for cyber security management.

The Regulations define five ratings from A to E. A is the strictest rating with the highest requirements while E is the lowest. Rating Regulations §2.

Critical Infrastructure operators (“CI Operators”) are rated A or B depending on an evaluation by the CI Operator’s regulator. Factors considered in the evaluation include the number of users, market share, region, replicability, and the impact of a failure of the CI operator’s information system. Rating Regulations §4(6) and §5(5).  For example, critical infrastructure includes industries such as energy, transport, telecoms, the banking system and certain medical facilities.

The specific requirements for each rating level are set out in tables attached to the Rating Regulations. Each table covers three aspects of cyber security: management, technology, and awareness/training.

Management

All CI Operators are required to rate their information systems within one year of designation. Systems must be evaluated for secrecy, integrity, usability, and legal compliance.  The standards for high, medium, and low ratings are defined in the attached Table 9.  CI Operators are also required to implement the security measures set out in the attached Table 10 within one year. These security measures are grouped in the following categories: access control, auditing/accountability, operational continuity plan, identity, system and service obtainability, system and communication protection, and system/information integrity.  Rating Regulations, Table 10.

Management requirements for a CI Operator with an A rating include implementing the CNS 27001 information security standard within two years and having at least four dedicated information security specialists. CI Operators with a B rating must also implement CNS27001 within two years but are required to have just two information security specialists. Rating Regulations, Tables 2 and 4.

Technology

Technology requirements include security testing, security checkups, threat detection management mechanisms, and security protections. For example, an A rated CI Operator is required to do system penetration testing once each year. In contrast, a B rated CI Operator is required to do system penetration testing once every other year. Rating Regulations, Tables 2 and 4.

Awareness and Training

Awareness/training requirements include required training for security personnel and ordinary users as well as certification requirements for security specialists. For example, CI Operators with  A or B Ratings are required to train ordinary users for three hours per year. Rating Regulations, Tables 2 and 4.

Hearings for patent invalidation cases

In Taiwan, patent invalidation proceedings usually involve the submission of written pleadings and defenses, as well as the submission of evidence. In March 2018, the Taiwan Intellectual Property Office (TIPO) implemented new guidelines for patent invalidation cases and introduced a hearing system into the process. The new system provides the opportunity for both parties to debate their position orally and also help TIPO to clarify legal issues.

Hearings for patent invalidation cases can be requested by either party. Alternatively, the TIPO has the discretion to request a hearing for a patent invalidation case. In general, the hearing will be open to the public; however, if either party believes it is inappropriate for the hearing to be open to the public, it may file a request to hold the hearing in private, providing its reasons to the TIPO. The hearing panel will consist of three examiners. During the hearing, both parties will have the opportunity to present oral arguments, and to question witnesses or appraisers. In past cases the invalidation decisions were rendered within one to two months after the hearing. If the party disagrees with the TIPO’s decision, they may file an appeal with the IP Court.

Prior to the implementation of the hearing system for patent invalidation cases, a proceeding would typically take about 15 months before a decision was rendered by the TIPO. The TIPO has held twelve patent invalidation hearings since the implementation of the hearing system. Notably, for all of these cases, a decision was rendered by the TIPO within one year. Therefore, requesting a hearing for a patent invalidation case may significantly reduce the duration of patent invalidation proceedings.

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

When claiming trademark priority in Taiwan, choice of country can make a difference

When filing a trademark application in Taiwan, an applicant may use the first application filed in a foreign jurisdiction to serve as a basis for a priority claim under certain conditions. While the Taiwan Trademark Act allows an applicant to claim priority within 6 months of the first filing date of the foreign application, it is important to note that the Taiwan Intellectual Property Office (TIPO) will only grant a right of priority if the foreign application was filed in a member state of the World Trade Organization (WTO) or in a country that reciprocates recognition of priority rights with Taiwan, in accordance with Article 20 of the Taiwan Trademark Act:

“An applicant who has duly filed an application for trademark registration in a country which has reciprocal recognition of priority rights with the ROC, or filed such application with a member of the World Trade Organization (WTO), may claim a right of priority, for the purposes of registering the same trademark in the ROC for some or all the same goods or services, within six months from the day following the date of filing of the first such application.”

Taiwan does not have any such reciprocity agreements in place at this time with any states that are not also WTO members. As such, only foreign applications filed in WTO member states can serve as the basis for trademark priority claims in Taiwan. This restriction poses significant challenges to applicants seeking to claim priority in Taiwan using an application filed in a country that is party to the Paris Convention for the Protection of Industrial Property (Paris Convention) if that country is not also a WTO member state.[1]

Article 4 (A)(1) of the Paris Convention sets out when the right of priority can be invoked:

“Any person who has duly filed an application for a patent, or for the registration of a utility model, or of an industrial design, or of a trademark, in one of the countries of the Union, or his successor in title, shall enjoy, for the purpose of filing in the other countries, a right of priority during the periods hereinafter fixed.”

For trademarks, the priority period is 6 months from the first filing date in any country of the Union.

Taiwan’s current political status prevents it from becoming a contracting party to the Paris Convention. As it is not a party to the convention, the Taiwan trademark authorities are not bound by obligations under it. As a result, if the first application is filed in a country of the Union that is not also a member state of the WTO, the application cannot be used to claim priority for a further trademark application in Taiwan.

Countries of the Union which are not member states of the WTO include Algeria, Andorra, Azerbaijan, Bahamas, Belarus, Bhutan, Bosnia and Herzegovina, Comoros, Democratic People’s Republic of Korea, Equatorial Guinea, Haiti, Holy See, Iran, Iraq, Lebanon, Libya, Monaco, San Marino, Sao Tome and Principe, Serbia, Sudan, Syrian Arab Republic, Turkmenistan, and Uzbekistan.

Priority claims based on applications filed in any of the above states will not be recognized by the TIPO. This does not mean that an applicant who makes an initial filing in a non-WTO member state is barred from making a claim of priority in Taiwan altogether. In practice, if an applicant makes an initial filing in one of the above states, and then later files a trademark application in a WTO member state, the first filing in the WTO member state will be deemed to be the first filing date when the applicant makes a priority claim during a trademark application in Taiwan.

While Taiwan is not a contracting party to the Paris Convention, like all WTO members it is a party to the Agreement on Trade-related Aspects of Intellectual Property Rights (the TRIPS Agreement). Article 2.1 of the TRIPS Agreement stipulates that WTO member states shall comply with Articles 1 through 12, and Article 19, of the Paris Convention. Furthermore, at the International Patent Cooperation Union Assembly in 1999, the World Intellectual Property Organization (WIPO) released a Memorandum of the Secretariat specifically referring to Article 2.1 of the TRIPS Agreement and Article 4(A) of the Paris Convention, interpreting these to mean that WTO members are obliged to recognize priority claims based on applications filed in a country of the Union, even if that country is not a WTO member.

WIPO is an agency of the United Nations (UN), and Taiwan is not a member state of the UN due to its current political status. Accordingly, the WIPO Memorandum and WIPO’s interpretation of Article 2.1 of the TRIPS Agreement and Article 4 of the Paris Convention are not binding on Taiwan’s trademark authorities. However, Article 2.1 requires all WTO members to comply with Articles 1 through 12 and Article 19 of the Paris Convention. Does this mean the TIPO has obligations under the TRIPS Agreement to recognize priority claims based on trademark applications filed in any Paris Convention state, in accordance with Article 4 of the Convention? TIPO’s position is that since the WTO has not expressly interpreted Article 2.1 of the TRIPS Agreement and Article 4 of the Paris Convention to mean that all WTO members must recognize priority claims from all Paris Convention countries, Taiwan is therefore not required to recognize priority claims based on applications filed in Paris Convention countries which are not also WTO member states. Furthermore, as Taiwan is not a Paris Convention country to begin with, it is not in violation of the letter of Article 4 of the Paris Convention, which only provides that all Union countries shall grant priority rights to trademark applications filed in other Union countries.

Although WIPO interprets Article 2.1 of the TRIPS agreement and Article 4 of the Paris Convention as requiring all WTO member states to recognize priority claims from any Paris Convention countries, the TIPO currently only accepts the WTO’s interpretation of the TRIPS Agreement. While it is true that the WIPO’s interpretation has no legal effect in Taiwan, there is nothing to prevent the TIPO from choosing to adopt and affirm it. The TIPO should reconsider its stance on the WIPO interpretation, and should willingly implement it in order to bring Taiwan in line with international standards on this issue. A willingness to do so could also reflect well on Taiwan if it seeks to become a UN member state in the future. Taiwan should also amend Article 20 of the Taiwan Trademark Act to better conform with the obligations and practices set out by the WIPO. Pending such future changes, the situation remains quite complicated, and the most straightforward path to claiming priority in Taiwan at present is to base the claim on an application in a WTO member state.

For more information on trademark matters, please contact Jason Yan at jasonyan@winklerpartners.com.

Legal intern Amber Chou contributed to this article.


[1] The Paris Convention is an international agreement established in 1883 for the protection of industrial intellectual property. As of August 2019, there are 177 Contracting Parties to the Paris Convention. These Contracting Parties are referred to as the “countries of the Union” under the treaty.

Does abolishment of the recognition system allow foreign companies to freely obtain property in Taiwan?

Since the amended Company Act came into force, foreign companies that were organized and incorporated in accordance with the laws of a foreign country have legal capacity in Taiwan. Without having to be recognized or establish a branch, a foreign company now enjoys the same rights and obligations as a domestic company, including the right to file a complaint. As such, foreign companies that are the victim of fraud will be able to file criminal litigation seeking relief in Taiwan. However, foreign companies that wish to sign contracts, make price quotations, or engage in price negotiations, bids, and procurement projects, should still establish a Taiwan representative office, while those that wish to conduct business in Taiwan should establish a branch office.

However, of the various rights an unrecognized foreign company can now enjoy, do these include the right to acquire or set up rights in real property? Prior to the 2018 amendments, an unrecognized foreign company without a Taiwan branch could not acquire real estate, or mortgage or pledge personal property. Now, foreign companies, within the extent permitted by law, have the same legal capacity as domestic companies. Although the same scope of activities representative offices and branches can undertake still apply, there remain some questions as to whether an unrecognized foreign company can directly exercise the above-mentioned property rights. We inquired with the competent authorities about this issue and received replies addressing the following topics:

Registration of Property Rights (including registration as title holder and registration of mortgages)

Prior to 2018’s amendments, foreign legal persons who wished to acquire or register real property rights needed to be recognized in accordance with the laws of Taiwan and were required to attach their recognition certificate to the application. The Ministry of the Interior has indicated, however, that foreign companies no longer need to undergo the recognition process to obtain such rights.

Nonetheless, the “Operation Directions for Foreigners to Acquire Land Rights in the Republic of China” amended on 21 March 2019 and letters of interpretation issued by the competent authority still require foreign companies attach their registration documents and that they do so in the name of the head company. A foreign company still needs to establish at least a branch in Taiwan before it can apply for real property registration, and would need its responsible person in Taiwan to file the application on its behalf. This means, that in principle a foreign company can purchase property without a Taiwan branch, but in reality they are still required to form a branch to register their real property rights. We urge the government to revise the Operation Directions for Foreigners to Acquire Land Rights in the Republic of China to remove this restriction.

Registration of Mortgages in Personal Property

Before the Company Act amendments took force, unrecognized foreign legal persons were not permitted to register mortgages in personal property, except in cases where Taiwan had signed a treaty with the home jurisdiction of the foreign legal person containing special provisions that allow for such registration. Now, the Financial Supervisory Commission has explained, a foreign company can register mortgages in personal property in its own name without needing to be recognized by the government. The “evidentiary documentation for contract parties” required for registration will instead be determined by the registration authority on a case-by-case basis. Other than foreign companies, there are no special regulations for other forms of foreign legal person. Registration of mortgages in personal property by non-company foreign legal persons is governed by other legislation, which requires that they first obtain legal personhood.

Pledges of Personal Property

Previously, unrecognized foreign companies had no legal capacity and thus had no rights to pledge personal property. The Ministry of Economic Affairs has stated that now, foreign companies have legal capacity without being recognized by the Taiwan government. Therefore, recognition is no longer required to make pledges.

Although foreign companies have legal capacity without being recognized under the new amendments, a foreign company that has not established a branch cannot acquire or set up rights in real property. The regulations need to be revised to remove this minor administrative obstacle. We believe that such revisions will go some way to making Taiwan an even more attractive place to purchase property.

For more information on this topic, please email Christine Chen at cchen@winklerpartners.com.

TIPO announces directions on third-party observations regarding trademark applications

The Taiwan Intellectual Property Office (TIPO) has released “Operational Directions on Trademark Applications Submitted by Third Parties”, which allow third parties to provide written observations to the TIPO regarding pending trademark applications. The TIPO hopes that this will lead to more objective decisions. The Directions are effective as of 20 June 2019.

According to the Directions, a third party must submit its observation to the TIPO in hard copy form, and they may do so anonymously. If evidence or observations provided are not submitted as hard copies, or are submitted on compact disc or in the form of computer records, such material may not be referred to by the TIPO during their examinations.

The third party’s observations should also indicate the grounds on why the trademark shouldn’t be registered and should include related evidence. For example:

1. Where the mark lacks distinctiveness: the third party should provide an explanation of how the industry uses words, pictures, or symbols, which are similar to the mark in question, and submit evidence related to their opinions.

2. Where the mark is identical or similar to another person’s already filed trademark: the third party must submit objective, publicly credible evidence, and:

(a) Evidence of use must demonstrate that the earlier mark is in use for marketing purposes ;

(b) Evidence of use of the earlier mark must indicate the date and the user of the mark, and must conform to standard commercial practices;

(c) Newspaper and magazine materials are acceptable, but they must contain complete information, including the source, volume/issue, date of publication, and page number(s).

(d) Online material is acceptable, but accuracy and objectivity of such information should be cautiously employed.

3. Where the applicant has the intent to counterfeit or imitate the other person’s marks: the third party must provide evidence that the applicant has an existing contractual, regional, transactional, or other material relationship with the owner of the earlier mark that is allegedly being imitated. Such evidence could include the following:

(a) Correspondence, transaction documents, or purchase information showing a relationship between the applicant and the owner of the earlier mark;

(b) Documentary evidence showing a dependent or contractual relationship between the applicant and the owner of the earlier mark;

(c) Evidence showing that the place of business of the applicant is in close proximity to the place of business of the earlier mark’s owner;

(d) Evidence showing that the applicant was once a shareholder, representative, manager, or employee of the earlier mark’s owner, or vice versa; or

(e) Other evidence proving that the applicant was aware of the existence of the earlier mark. If they were aware, this could be covered by the blanket provision regarding “other relationships”. Where the applicant is a competitor of the earlier mark’s owner, evidence may be submitted to the examiner showing the time period, region, and scope of actual use of the trademark, as well as the accumulated goodwill of the earlier mark’s owner.

4. Where the mark is identical or similar to a well-known mark: a third party may refer to the “Examination Guidelines for the Protection of Well-known Trademarks” to determine what kind of evidence should be submitted.

5. The mark in issue involves infringement of another party’s copyrights, patent rights, or other rights: When arguing infringement of this kind, a third party should submit documentary evidence of a final civil judgment, or documents showing that a complaint citing the applicant’s infringement has been lodged with a court of relevant jurisdiction. If no final judgment has been handed down, the trademark application may be suspended pending the issuance of such judgment.

6. Other objective, concrete evidence showing that the disputed application should be denied registration according to the Trademark Act.

After the TIPO receives a third-party observation, they may request that the applicant provide a response. However, if the examiner does not notify the applicant of a third-party observation, that observation cannot be used as basis for rejection.

Lastly, as third parties are not parties to the trademark application, the TIPO will not notify the third party about their observations, nor notify them of any decisions. If a third party disagrees with the TIPO’s decision on a given application, they may file a separate opposition or invalidation action against the trademark in issue.

The Directions can be found on the TIPO’s website (in Chinese) here.

For more information on trademark matters in Taiwan, please contact Peter Dernbach at pdernbach@winklerpartners.com and Jesimy Yu at jesimy@winklerpartners.com.

 

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