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

Contratos con empresas en Taiwán – consideraciones importantes

This is a Spanish translation of our English article “Tips on entering into manufacturing supply agreements with Taiwanese companies”, which you can find here. Esta es la traducción al español de nuestro artículo en inglés “Tips on entering into manufacturing supply agreements with Taiwanese companies”, el cuál se encuentra disponible aquí.

Como dueño de una marca internacional o empresa importadora de diversos productos, tienes un proveedor en Taiwán? Muchas empresas lo tienen, dado que Taiwán tiene trayectoria de ser líder en servicios de manufactura y productos para marcas y empresas alrededor del mundo en diferentes industrias, desde artefactos y componentes tecnológicos a prendas y accesorios deportivos.

Para la negociación de contratos de suministro de productos o servicios de manufactura, muchas marcas y empresas internacionales (“Contratante”) prefieren utilizar un contrato estándar con el deseo de que dicho contrato pueda cubrir todos los aspectos de la relación contractual con sus proveedores a nivel mundial.  En base a nuestra experiencia, el uso de un contrato estándar es un muy buen comienzo, sin embargo, éste debe ser adecuado para su uso en Taiwán para garantizar su cumplimiento con las leyes y normativas aplicables, y así, maximizar la protección de los derechos del Contratante. Debajo proporcionamos algunos consejos a tomar en cuenta para la negociación de contratos con empresas taiwanesas.

1. Detalles que no pueden pasar desapercibidos

Sin importar si el Contratante modifica un contrato estándar o decide preparar un contrato completamente nuevo, los siguientes detalles deben ser considerados con sumo cuidado: (i) protección y título de propiedad intelectual, especialmente en los casos de contratos con fabricantes de equipos originales (OEM por sus siglas en inglés) o fabricantes de diseño original (ODM por sus siglas en inglés); (ii) confidencialidad; (iii) protección de datos; (iv) ley aplicable; (v) foro de resolución de controversias; y (vi) requisitos de formalidad del contrato.

A modo de ejemplo, los contratos estándares usualmente citan a los diversos convenios internacionales como ley aplicable para la protección de la propiedad intelectual. Sin embargo, es importante dar a conocer que Taiwán no es miembro de muchas convenciones internacionales. Pese a que las leyes de Taiwán proporcionan protecciones similares a las de los convenios internacionales, los contratos deben ser modificados para reflejar la terminología y contenido propicio de acuerdo a las leyes y regulaciones taiwanesas.

Otro ejemplo es que las partes de un contrato de suministro (especialmente los de suministro de productos o servicios de manufactura) frecuentemente eligen el arbitraje como el mecanismo de resolución de controversias y la sede del arbitraje la disponen en una jurisdicción neutral. Dado que Taiwán no es miembro del Convenio sobre el Reconocimiento y la Ejecución de las Sentencias Arbitrales Extranjeras (Convención de Nueva York), tratar de ejecutar una sentencia arbitral extranjera en Taiwán resulta ser significativamente más complicado que en otras jurisdicciones. Es por esto que en el caso de no existir circunstancias especiales, es siempre recomendable disponer la sede arbitral en Taiwán.

2. Cubrir todas las bases

Por razón de las tendencias actuales en la operación de negocios, muchas empresas taiwanesas operan fábricas o trabajan con subcontratistas en otras jurisdicciones, particularmente en China y cada vez más, en países del Sudeste Asiático, como ser Vietnam. Por tanto, se recomienda que cualquier contrato que se suscriba con un proveedor taiwanés también tenga alcance a todas aquellas entidades relacionadas al proveedor.

3. El sello de aprobación

Muchos países tienen su propia forma de operar negocios y Taiwán no es la excepción. Por ejemplo, las empresas extranjeras generalmente pasan por alto algunas formalidades que se tienen que llevar a cabo para que un contrato obtenga plena validez en Taiwán.  En la mayoría de los países, la sola la firma de los representantes autorizados de cada parte es suficiente para que un contrato tenga efecto legal. En Taiwán, para evitar circunstancias en las que la parte taiwanesa niegue o ponga en duda la eficacia del contrato, el sello de la empresa y del representante legal tienen que ser puestos en el contrato al momento de la firma. Taiwán exige a todas las empresas que registren estos dos sellos en la base de datos de la autoridad competente como los sellos autorizados de la empresa. Este procedimiento puede parecer trivial a muchos, pero proporciona una capa adicional de protección al Contratante.

Pese a que un contrato estándar probablemente pueda ser suficiente en muchos casos, un contrato propiamente adecuado puede maximizar la protección al Contratante. En general, las leyes taiwanesas se encuentran alineadas con la mayoría de los estándares internacionales; sin embargo, resulta siempre mejor el contratar a un abogado local para la revisión de cualquier contrato a ser suscrito con partes taiwanesas. Un abogado local podrá confirmar si el contrato como tal cumple con las leyes de Taiwán, y a su vez, plantear la mejor forma para modificar el contrato.

Para más información sobre temas de contractuales en Taiwán, por favor contáctese con Roxana Cheng rcheng@winkerpertners.com.

Tips on entering into manufacturing supply agreements with Taiwanese companies

As an international brand owner, do you have a supplier located in Taiwan? Most brand owners do, as Taiwan has long been known as a leading provider of manufacturing services to companies worldwide operating in a variety of industries, from tech gadgets and components to sporting goods and garments.

In negotiating supply agreements, most international brand owners would prefer to use a standard agreement hoping that such an agreement will cover all aspects of their relationship with their suppliers worldwide. Based on our experience, while this is often an appropriate starting point, the standard supply agreement should still be tailored for its use in Taiwan in order to comply with the applicable laws and regulations and maximize the protection to a brand owner’s rights. Here, we outline a few tips to pay close attention to when negotiating a supply agreement and in dealing with a Taiwanese supplier in general.

1. The devil is in the details

Regardless of whether you alter your standard agreement or decide to draft a completely new document, you should pay particular attention to (i) intellectual property protection and ownership (especially in the case of original design manufacturer (ODM) and original equipment manufacturer (OEM) arrangements); (ii) confidentiality; (iii) data protection; (iv) governing law; (v) dispute resolution forum; and (vi) contract formality requirements.

By way of example, standard agreements usually cite international conventions as a basis for the protection of their intellectual property. However, Taiwan is not a member to most international conventions, and although Taiwanese laws do provide similar protections as those provided by international conventions, supply agreements must be tailored to reflect the terminology and content in accordance with Taiwan laws and regulations.

Another example would be that parties to supply agreements often choose arbitration as the dispute resolution mechanism and set the seat of arbitration at a neutral location. Because Taiwan is not a member to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), trying to enforce a foreign arbitral award in Taiwan proves to be much more cumbersome and time consuming than in other jurisdictions. This is why absent any special circumstances; it is always advisable to set the arbitration forum in Taiwan.

2. Cover all the bases

In light of current business operation trends, many Taiwanese suppliers maintain factories or work with subcontractors in other jurisdictions, particularly in China and increasingly, South East Asian countries such as Vietnam. Hence, it is advisable that any agreement entered into with a Taiwanese supplier must also cover any such entities.

3. A stamp of approval

Most countries have unique approaches to conducting business and Taiwan is no different. By way of illustration, foreign companies often overlook certain formalities in order for an agreement to have full force and effect in Taiwan, since in many countries, only the signature of the authorized representative of each party is needed for an agreement to take effect. In Taiwan, in order to avoid any circumstance whereby the Taiwanese supplier might challenge the contract, the company chop of the supplier and the seal of its chairman must be affixed on the agreement at the time of execution. The authorities in Taiwan require all companies to record these two chops in a database as the registered and authorized chops of the company. While it may seem archaic to some, this small step provides an additional layer of protection.

Although a standard supply agreement would probably be sufficient in most cases, a properly localized agreement can maximize the protection afforded to a brand owner. In general, Taiwanese laws are in line with most international standards; however, it is still best to retain local counsel to review any supply agreements to be executed with Taiwanese parties. They will be able to confirm whether the agreement as-is complies with Taiwan law, and at the same time, raise any issues or concerns and provide advice on how best the agreement can be altered. As supply agreements are, particularly those related to manufacturing, one of the most common types of commercial agreements seen in Taiwan, experienced counsel will be well versed in the specifics of contract and intellectual property law in the country.

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

Merger control FAQ (part 3 – procedural issues)

This article is the third in our series on merger control in Taiwan. This installment focuses on procedural questions related to merger control filings, including timing and content of the filings. For the first article on basic questions related to covered transactions and market share filing thresholds, click here. For the second article on relevant market definition, click here. The fourth and final installment in the series will wrap up with some thoughts on the reviewing agency and other insights into the application and approval process.

1. Is there an expedited filing procedure for merger control filings in Taiwan?  If so, what are the relevant qualifications?

Yes. Regulated transaction participants may apply to the Fair Trade Commission (the “FTC”) for expedited review of their transaction provided the following conditions are met in respect of the specified type of transaction:

  • horizontal mergers – (i) the combined market share of the participants is less than 20% or (ii) the combined market share of the participants is less than 25% and the market share of one of the participants is less than 5%; provided that, such rules do not apply or are modified under certain circumstances related to high levels of market concentration;
  • vertical mergers – the aggregate market share of the participants in each relevant market is less than 25%;
  • conglomerate mergers – there is no significant potential competition between the participants; or
  • related party mergers/acquisitions – one of the participants directly owns at least 1/3, but less than 1/2, of the voting rights or equity capital of the other participant.

It is important to note that expedited review is not available for transactions involving a financial holding company. The FTC may also decide not to grant expedited review if it determines that: (i) a transaction involves significant public interest, (ii) the relevant market is difficult to identify, (iii) the participants’ market shares are difficult to assess, or (iv) there are other significant concerns related to possible competition-limiting effects such as high market concentration or market entry barriers.

If the FTC rejects an application for expedited review, the transaction participants must resubmit a full, general review application.

2. What information is required in a merger control filing, and how long does it typically take to compile such information?

Transaction participants should expect to spend at least three to four weeks preparing a merger control application due to the volume of information required by the FTC and the fact that all information provided must be in Chinese.

An expedited review application requires financial information for the last two fiscal years and information regarding each participant’s three main products or services and its three primary competitors. A general review application requires financial information for the last three fiscal years and information regarding each participant’s five main products or services and its five primary competitors. Each of the expedited and general review filings, require among other things:  (i) information on the type of merger (horizontal, vertical, or conglomerate) and whether it is extraterritorial, (ii) a description of the business of each participant, (iii) an overview of the relevant market(s), (iv) a description of market entry barriers, and (v) an explanation of the overall positive and negative economic impacts of the proposed transaction.

3. When is the earliest time a filing may be made?

A filing may be made before there is a binding transaction. However, the application must establish that there is a high likelihood that the transaction will proceed. Otherwise, there is a risk that the FTC may not commence its review.

4. How long does it typically take to “clear” a transaction?

The FTC’s default review period under the general application process is 30 business days. Transaction participants may not close the relevant transaction during this review period.

The review period commences only upon receipt of written notification from the FTC that the relevant application is complete (i.e., no further requests for information will be made by the FTC). It typically takes a minimum of four to six weeks from the time of initial submission of an application to get the application in form acceptable to the FTC such that the review period can commence.

The FTC may adjust the duration of the review period as it deems necessary provided that the total review period does not extend longer than 90 business days. Should the FTC alter the duration of the default 30 business day review period, it will notify the transaction participants in writing. Larger, more complex transactions typically have review periods of 60 business days or more.

5. Who makes the filing?

As a general rule, each transaction participant must be party to the filing. In certain related party transactions, the ultimate controlling entities are required to file. A financial holding company must also file if it or any of its subsidiaries participate in the transaction.

6. Are there fees with respect to merger control filings?

No.

For more information on mergers and acquisitions in Taiwan, please contact Gregory A. Buxton at gbuxton@winklerpartners.com.

A look at likely changes to divisional invention applications

Taiwan’s Intellectual Property Office (TIPO) has proposed further changes to the Patent Act that if passed would benefit patent applicants, and bring Taiwan’s patent regime further in line with the international community. In this article, we will outline one of the possible changes, divisional applications.

The Status Quo

Under Taiwan’s patent laws, invention patent applications that involve two or more inventions may be divided into separate divisional applications, at the request of either the TIPO or the applicant. The applicant may file a divisional application in either of the following circumstances:

1. Within 30 days of receiving the notice of allowance of the original application.

2. During the re-examination stage: Any time before a re-examination decision on the original application is rendered, regardless of whether it is a decision of allowance or refusal.

Divisional applications are accorded the filing date and other priority rights claimed in the original application. Given the 30-day period indicated in the first circumstance, if the applicant is unable to submit the claims intended for the divisional application before the deadline, the applicant may file amendments to the claims any time before the first office action is issued.

Requests for a substantive examination of a divisional application must be filed either within 3 years from the filing date of the original application or within 30 days from the filing date of the divisional application, whichever is later. The divisional application will be published within 18 months of the filing date of the original application.

Further divisional applications may be filed within 30 days on receiving the notice of allowance for the preceding divisional application, and the foregoing rules apply to any further divisional applications.

Amendments Contemplated by the TIPO

The TIPO is contemplating introducing the following amendments:

1. Allowing applicants to file divisional applications following receipt of notice of allowance of the original application in the re-examination stage.

2. Extending the statutory time limit for filing of divisional applications from 1 month to 3 months.

The proposed changes would therefore benefit IP holders and patent applicants because the timeframe for filing divisional applications would be lengthened. This would also bring Taiwan’s rules further in line with international norms. As these changes move through the legislative process, we will be monitoring their implementation.

For more information on patent matters in Taiwan, please contact Peter Dernbach at pdernbach@winklerpartners.com or Betty Chen at betty@winklerpartners.com.

Restrictions eased on foreign professionals living and working in Taiwan

The Draft Act for the Recruitment and Employment of Foreign Professionals passed smoothly through Taiwan’s legislative branch this past October and will come into force on 8 February 2018. This new law is part of an overarching effort by the Taiwanese government to attract and maintain foreign talent in targeted sectors in the face of fierce international competition and an aging society. Unlike the Labor Standards Act and Employment Services Act, the two statutory laws that govern employment for both Taiwanese and foreign nationals, the Act for the Recruitment and Employment of Foreign Professionals is sponsored by the National Development Council. It offers a number of benefits to foreign white collar workers not previously enjoyed, including tax incentives, easing of restrictions on residency for both the professional and their family members, and the ability for those with permanent residency to be included in the pension system under the Labor Pension Act.

The act designates three kinds of foreign employees: foreign professionals, special foreign professionals, and senior foreign professionals, each with their own set of benefits. It also aims to resolve some longstanding issues faced by such workers in the past. Below, we summarize a few of these issues and discuss the solutions proposed in the bill.

1. The waiting period for spouses and children of foreign professionals to be approved for National Health Insurance coverage

Currently, dependents of foreign professionals are made to wait six months before Taiwan’s state-sponsored health insurance takes effect. For those with minor illnesses or injuries, this is not a serious problem as the cost of treatment without insurance is still relatively low. However, more severe cases or things like childbirth and surgery require coverage by the NHI to be affordable for most families. Article 14 of the new law removes this restriction, allowing dependents of the foreign professional to gain coverage as soon as they have obtained documentary proof of residency.

2. The requirement that a foreign professional must reside in the state for 183 days out of the year to maintain permanent residency

This requirement, as provided for in Article 33 Paragraph 1 Subparagraph 4 of the Immigration Act, was overly restrictive on foreigners with permanent residency, some of whom needed to take business or personal trips abroad for indefinite periods of time. Article 18 of the new law changes the minimum to five years of residing in Taiwan to avoid revocation of permanent residency.

3. The three year limit on work permits and ARCs

Whereas work permits, under Article 52, Paragraph 1 of the Employment Services Act, are presently limited to a term of three years, and Alien Residency Certificates are subject to the same term limit, as prescribed in Article 22 Paragraph 3 of the Immigration Act, the new bill extends this to five years for the category of foreign special professionals. The intention of this article is to allow foreign special professionals with indefinite or long-term work contracts to reside in Taiwan without worrying about overstaying their ARC. This also covers joining families of foreign special professionals, who may apply for identical periods of residency.

Overall, the Act for the Recruitment and Employment of Foreign Professionals will provide some incentives for foreigners currently living and working in Taiwan to continue their residency here and for those considering Taiwan as a potential destination for employment.

For more information on Taiwan employment matters, please contact Christine Chen at cchen@winklerpartners.com or on +886 (0) 2 2311 8307.

Do trademark rights owners have recourse against similarly transliterated names?

Chinese, like many languages, has established commonly-followed conventions for transliterating names in foreign languages. Names of famous people, brands and companies however often find themselves the target of infringement, as we have explored before. A recent case before Taiwan’s IP Court highlighted issues surrounding the transliteration of foreign language words into Chinese characters, and the rights afforded trademark owners in defending their marks against similarly-named brands or companies.

Article 70, paragraph 2 of Taiwan’s Trademark Act provides that “without the consent of the trademark rights holder, any of the following circumstances will be deemed infringement of trademark rights: knowing that a trademark is a well-known registered trademark of another person, and using words [or characters] from that well-known trademark as one’s company name, business name, group name, domain name, or other indication of business entity, causing a likelihood of confusion or misidentification among relevant consumers or a likelihood of diluting the distinctiveness or reputation of that trademark.” Is “using words [or characters] from that well-known trademark” only limited to words [or characters] identical to the well-known registered trademark? In the “FRANKLIN” case, the IP Court’s first and second instance judgments suggest that the answer to this question is no.

Background

Franklin Templeton Securities Investment Consulting (SinoAm) Inc., a group company of Franklin Templeton Investments, one of the biggest global asset management companies, has provided mutual fund services in Taiwan since 1990. Franklin Templeton Distributors, Inc. filed for trademark registration of the mark “Fu Lan Ke Lin (“FRANKLIN” in Chinese characters, 富蘭克林)” with the Taiwan Intellectual Property Office (TIPO) in 1998, and obtained registration in 2000. Franklin Templeton Distributors, Inc. then licensed this trademark to Franklin Templeton Securities Investment Consulting (SinoAm) Inc., which the company used to represent its mutual fund services.

Friendly Group was established in Shanghai in 2002. The group filed for and obtained trademark registration for the “Fu Lan De Lin” (“FRIENDLY” in Chinese characters, 富蘭林) mark in Taiwan, which contains three characters identical to the “Fu Lan Ke Lin (“FRANKLIN” in Chinese characters, 富蘭林)” mark, in 2003. The services designated for this mark include “commercial or industrial management assistance, marketing research and consulting, corporate consultancy, education, publication”. Yet the service it actually provided in 2013, security investment consulting, was not designated for this mark.

In 2013, Friendly Group established two companies in Taiwan, which used “Fu Lan De Lin” as the distinctive portion of their names (i.e. Fu Lan De Lin Securities Co., Ltd. and Fu Lan De Lin Investment Co., Ltd.). In addition, Friendly Group used “Fu Lan De Lin” as a trademark to promote its “security investment consulting” services. FRANKLIN/TEMPLETON DISTRIBUTORS, INC. discovered this and commissioned its attorney to send a cease and desist letter to these two companies demanding that they discontinue use of “Fu Lan De Lin” as their company name and trademark.

These two companies responded that “Fu Lan De Lin” is the Chinese transliteration of their company group’s English name, “FRIENDLY”, while “Fu Lan Ke Lin (“FRANKLIN” in Chinese characters)” is the transliteration of the family name of Benjamin Franklin, one of Founding Fathers of the United States. These two terms are obviously different. Furthermore, Friendly Group never claimed that it was in any way related to Franklin Templeton. Therefore, consumers would not confuse “Fu Lan De Lin” with “Fu Lan Ke Lin”. As a result, the companies refused to comply with the cease and desist request from Franklin Templeton Distributors, Inc.

Civil Suit

In 2015, Franklin Templeton Distributors, Inc. initiated a civil suit with the IP Court against the two “Fu Lan De Lin” companies, asserting that their adoption of “Fu Lan De Lin” as company name and trademark constituted intention to mislead consumers and free-ride on its goodwill. Accordingly, it claimed that these two companies infringed upon its trademark rights and requested that the IP Court order them to cease use of the “Fu Lan De Lin” trademark.

Generally speaking, a trademark right owner in Taiwan is entitled to prevent others from using a similar trademark which is likely to mislead consumers, but does not have the right to prevent others from using an identical or similar term as “a company name, business name, group name, domain name, or other indication of business entity.” However, in case that a trademark becomes “well-known” via extensive marketing and promotion, it is granted greater protection under Taiwan’s Trademark Act in order to prevent others from using it in the above-mentioned manner. Furthermore, a holder of a well-known trademark also has the right to prevent others from using a similar mark for dissimilar products or services.

As Franklin Templeton Distributors, Inc. owns the prior registered trademark “Fu Lan Ke Lin”, it is entitled to claim that “Fu Lan De Lin” is a similar trademark which is likely to cause consumer confusion and therefore infringe upon its trademark rights. It is also able to claim that “Fu Lan Ke Lin” has already become a well-known mark in the “security investment” field due to its long-term extensive marketing. As a result, it is entitled to request the two “Fu Lan De Lin” companies to cease using “Fu Lan De Lin” as the distinctive portion of their company names.

Article 68, paragraph 3 of Taiwan’s Trademark Act provides that “using a trademark which is similar to the registered trademark and used in relation to goods or services identical with or similar to those for which the registered one is designated, causing a likelihood of confusion among relevant consumers” constitutes infringement of the trademark owner’s trademark rights. Hence, if the Court recognizes that “Fu Lan Ke Lin” and “Fu Lan De Lin” are similar trademarks that may cause a likelihood of consumer confusion, Franklin Templeton Distributors, Inc. is entitled to prevent the use of the “Fu Lan De Lin” mark.

Furthermore, Article 70, paragraph 2 of Taiwan’s Trademark Act provides that “knowing that a trademark is a well-known registered trademark of another person, and using words [or characters] from that well-known trademark as one’s company name, business name, group name, domain name, or other indication of business entity, causing a likelihood of confusion or misidentification among relevant consumers or a likelihood of diluting the distinctiveness or reputation of that trademark” should be deemed infringement of the trademark owner’s trademark right. It is apparent that the wording “using words [or characters] from that well-known trademark as one’s company name, business name, group name, domain name, or other indication of business entity” in Article 70, paragraph 2 is different from that of “using a trademark which is similar to the registered trademark” in Article 68, paragraph 3 of the same Act. The above comparison suggests that the legislators would like to distinguish the circumstances described in these two sections, and limit the coverage of Article 70, paragraph 2 to “using a company name or other business identity indication identical to a well-known trademark.” Since the defendants in the “FRANKLIN” case use “Fu Lan De Lin” as the distinctive portion of their company names, which is not identical to the plaintiff’s trademark “Fu Lan Ke Lin” (the characters “De” and “Ke” are different, and ), it is disputable that the use of “Fu Lan De Lin” infringes upon the trademark right of “Fu Lan Ke Lin” as granted under Article 70, paragraph 2.

In accordance with the “Line-by-Line Interpretation of the Trademark Act” published by the TIPO, “using words [or characters] from a well-known trademark provided under Article 70, paragraph 2 of Taiwan’s Trademark Act should be construed as using a term “completely identical to” the “words [or characters]” contained in that well-known trademark which easily attracts consumers’ attention and can be used to distinguish it from others’ goods or services. Considering that (a) “identical or similar to a third party’s well-known trademark ” is used in Article 70, paragraph 1 of Taiwan’s Trademark Act (whose wording is different from that used in Article 70, paragraph 2), and (b) Article 70 of the same Act is a legal fiction provision that defines the acts that are deemed infringement; therefore, the interpretation of “using words [or characters] from a well-known trademark, provided under Article 70, paragraph 2, should not be arbitrarily broadened to refer to using a term “similar to” the “words [or characters]” contained in that well-known trademark. Having said that, if a similar term’s principal impression for identification is deemed substantially the same as the “words [or characters]” used in the well-known trademark according to social general concept or a similar term is used as the distinctive portion of its business identity, such use should still be construed as “using words [or characters] from a well-known trademark. Hence, pursuant to the TIPO’s interpretation, “using words [or characters] from a well-known trademark” provided under Article 70, paragraph 2 should be limited to using a term “completely identical to” the “words [or characters]” contained in that well-known trademark in principle. The exceptions to this are: (i) a similar term’s principal impression for identification is substantially the same as the “words [or characters]” used in the well-known trademark, and (ii) a similar term is used as the distinctive portion of its business identity.

In the “FRANKLIN” case, the plaintiff’s trademark “Fu Lan Ke Lin” is certainly not identical with the term “Fu Lan De Lin” used by defendants. As a consequence, the question should be whether the principal impression created by “Fu Lan De Lin” is substantially the same as that by “Fu Lan Ke Lin”.

The IP Court judgment for the first instance held that although there exists a difference between the “De” character of “Fu Lan De Lin” and the “Ke” character of “Fu Lan Ke Lin”, (i) “De” and “Ke” rhyme, and (ii) the other three words “Fu”, “Lan”, and “Lin” are identical. “Fu Lan De Lin” and “Fu Lan Ke Lin” should be deemed different translations of the same term “FRANKLIN”, and the major identification concept of “Fu Lan De Lin” and “Fu Lan Ke Lin” is substantially the same. As such, the IP Court for the first instance concluded that the use of “Fu Lan De Lin” in the defendants’ company names should be deemed as using “words [or characters] from the well-known ‘Fu Lan Ke Lin’ trademark”.

The IP Court’s second-instance judgment took basically the same position as that of the first-instance judgment. However, it further recognized the similarity between “Fu Lan De Lin” and “Fu Lan Ke Lin” in terms of appearance, sound, and concept. It held that (i) the appearance of “Fu Lan De Lin” and that of “Fu Lan Ke Lin” are highly similar, to the extent that they are substantially the same, (ii) the sound of “Fu Lan De Lin” and that of “Fu Lan Ke Lin” are similar, to the extent that it is hard to distinguish the difference between them, and (iii), in terms of concept, both “Fu Lan De Lin” and “Fu Lan Ke Lin” give consumers the impression that they are translated from the same term: “FRANKLIN”. Hence, the second-instance judgment also concluded that the use of “Fu Lan De Lin” in the defendants’ company names should be deemed as using “words [or characters] from the well-known ‘Fu Lan Ke Lin’ trademark.”

Conclusion

The IP Court’s first and second instance judgements in the “FRANKLIN” case indicate the Court’s holding that “using words [or characters] from a well-known trademark” provided under Article 70, paragraph 2 of Taiwan’s Trademark Act should not be limited to using a term “completely identical to” the “words [or characters]” contained in that well-known trademark. The following situations may be deemed as “using words [or characters] from a well-known trademark”: (i) the parties’ marks and names (a party uses the words [or characters] from a well-known mark in its name) are just different translations of a single term, and are substantially the same regarding identification; or (ii)(a) the appearances of the parties’ marks and names are highly similar, and even substantially the same, (b) it is hard to perceive the difference between the parties’ marks and names, and (c) the parties’ marks and names are translations of a single term. It appears that the criteria used by the Court are similar to those used by the TIPO in the “Line-by-Line Interpretation of the Trademark Act” as described above (namely, in case that a similar term’s principal impression for identification is substantially the same as the “words [or characters]” used in the well-known trademark, such use should be deemed as “using words [or characters] from a well-known trademark”).

Given the IP Court’s holding in the “FRANKLIN” case, it may be concluded that a “well-known trademark” owner is not only able to prevent others from using a term “identical to its mark” as the “company name, business name, group name, domain name, or other indication of business entity,” but also able to prevent others from using a non-identical term which is highly similar to the extent that it is “substantially the same” as a well-known mark.

Whether “Fu Lan De Lin” and “Fu Lan Ke Lin” should be deemed substantially the same, we are of the opinion that as Benjamin Franklin is a very famous historical figure from the United States, and his name has been consistently translated as “Fu Lan Ke Lin” in Chinese, the number of Taiwanese people who would mistake “Fu Lan De Lin” as the translation of “Franklin” are likely not many!

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

A look at proposals for B Corporation legislation in Taiwan

In recent years, a growing number of entrepreneurs around the world started to fervently promote the notion that contrary to traditional practice, enterprises should not only look after the interests of their shareholders, but also, those of their stakeholders. As a response to this movement, many jurisdictions began enacting legislation that provides for a new type of legal entity specially tailored to the purposes and characteristics that these entrepreneurs were seeking. Examples of these are the Community Interest Company legislation in the United Kingdom; the Benefit Corporation legislation enacted in 33 states (and the District of Columbia) in the United States; and the Societá Benefit legislation in Italy. The enterprises created under these three examples of legislation are allowed to have a dual purpose: (1) maximize shareholders’ interests and (ii) take on one or more social interests to benefit the enterprises’ stakeholders.

The discussions regarding the creation of a similar type of legislation in Taiwan started to gain momentum since the announcement of proposed amendments to Taiwan’s Company Act (the “Act”). The Ministry of Economic Affairs (the “MOEA”) was tasked with preparing the first draft amendments. In February 2016, the MOEA organized the Act’s Amendment Committee (the “Committee”), with the aim of gathering voices from different interest groups, including the private sector and academia.

During the committee’s discussions, the inclusion of a chapter providing for “benefit corporations” was raised and supported by a number of committee members. The hope was to allow recognition and codification of benefit corporations under the Act in an attempt to promote socially responsible enterprises in Taiwan. In this way, enterprises set up under the legislation would be able to include the term “Benefit Corporation” in their names and hence, serve as a positive identifier to clients, investors and the public at large.

As such, the Committee’s proposed amendments to the Act (the “Committee Draft”) included a “benefit corporation” entity type and further provided that:

  • benefit corporations had to expressly include as their purpose a “general social interest” and then state the specific social interest the company would serve (e.g. provision of goods or services to individuals and/or communities in need; environmental protection; improve the overall health of people);
  • in making decisions and managing benefit corporations, the responsible persons (directors, officers, managers) besides the interests of the shareholders, may also take into account the interests of the company’s employees, clients and community; the environment at large; long-term sustainable development of the company;
  • benefit corporations may also designate a “benefit” director or manager to design and put into practice a corporate governance structure unique to a benefit corporation; and
  • the boards of benefit corporations must also prepare and disclose a report where it assesses the impact of its social interest activities on its stakeholders (with regards to how the report should be prepared and disclosed, the Committee left it to the MOEA to discuss and determine).

It is important to note that pursuant to the Committee Draft, the social interest purpose of a benefit corporation is the “pursuit” of said social interest; hence, the responsible person of a benefit corporation is not legally liable to any individual or organization who is the beneficiary of the social interest activities conducted by the benefit corporation. Further, the Committee Draft did not provide for any special tax considerations applicable to benefit corporations.

Despite the expression of support from a number of members of the committee, the draft amendment to the Act published by the MOEA (the “MOEA Draft”) in April this year did not include a chapter to allow for the formation of benefit corporation entities. The MOEA Draft only went as far as expanding the general scope of a company’s purpose from merely profit-making to serving the public’s interest. Although the MOEA Draft did not include a specific benefit corporation chapter, supporters are still optimistic and hopeful that some progress on this issue will be made. The next step is for the MOEA Draft to be reviewed, revised and approved by the Executive Yuan followed by debate and further revisions at the Legislative Yuan. Therefore, supporters believe there is still an opportunity for a benefit corporation chapter to be included in the Act at either the Executive Yuan or Legislative Yuan stages. As of November 2017, the MOEA Draft is still under review at the Executive Yuan.

Assessing design infringement under the revised Directions for Determining Patent Infringement

In February 2016, the Taiwan Intellectual Property Office (TIPO) issued the revised “Directions for Determining Patent Infringement” (“Directions”), which include substantive changes regarding how Taiwan courts assess infringement of design patents. Prior to revision, the Directions employed a two-step test to determine design patent infringement: 1) the “ordinary observer test;” and 2) the “point of novelty test”. Under that approach, even in cases where a patented and an accused design were nearly identical in appearance, the courts typically found no infringement if the accused product failed the “point of novelty” test. Under the revised Directions, the “point of novelty test” is removed, leaving an “ordinary observer test” and a new auxiliary “three-way comparison test”.

Application of the modified test

Vehicle designs constitute 10% of all design patent applications in Taiwan. Not surprisingly, the courts have taken up a number of infringement cases in recent years involving vehicle designs. Looking at how the IP Court compares the patented design with the allegedly infringing product in these cases can cast some light on the changing way in which design patent infringement is determined in Taiwan.

Under the two-step test of the earlier Directions:

In Honda Motor Co., Ltd. v Kwang Yang Motor Co., Ltd. (2009), the IP Court took the view that, given the crowded scooter market, the scope of protection of Honda’s patented design should be limited. On the “point of novelty” test, the court concluded that the accused product did not include any of the novel features of the patented design in major positions (handlebars, handlebar stem, seat, tank hole cover on the rear shell) and, therefore, the accused product was deemed not to infringe the patented design. Images of the patented design on the left, and accused product on the right:



Under the revised Directions:

Under the revised Directions, the perspective of “ordinary observer” is the primary mechanism employed in determining whether an accused product infringes a patented design. Additionally, where the “ordinary observer test” is inconclusive, there is an auxiliary “three-way comparison test” to assess similarity based on visual analysis of the prior art, the patented design and the accused product.

In Giant Electric Vehicle (Kun Shan) Co., Ltd. v Tei Sheng Development Co., Ltd. and Wei Sheng Marketing Enterprise Limited (2016), the IP Court concluded that with regard to electric bicycles, the front and side portions are the most visible in normal use. Moreover, the identical features in both the patented design and the accused product are in those portions, which comprise a very large visual area of the entire bicycle. Ordinary purchasers viewing the electric bicycles at issue would mistakenly deem that the accused product is the same type of electric bicycle as the patented product. Therefore, the accused product fell into the scope of the patented design’s claims and was deemed infringing.

In February 2017, the IP Court of Appeals affirmed the above decision. It found that although the accused product contained several features that differ from those of the patented design, the court concluded that these differences are minor, do not affect the overall visual impression, and are simply modifications of prior art. As the identical features in the patented design and the accused product exist in the front and side portions of the vehicles, they were therefore infringing. Images of the patented design on the left, and accused product on the right:


Conclusion

The IP Court applied the standard under the new Directions, in which the determination on infringement is the result of the ordinary observer test using overall observation and comprehensive comparison. The identical features and different features in both the patented design and accused product should all be considered in comprehensive comparison. However, an overall observation gives greater weight to those features that are most visible in normal use and those identical features that more readily affect the overall visual impression.

The reduction of the two-step test to a single “ordinary observer test” to determine infringement under the new Directions and the IP Court’s application of the same is encouraging in that design patent owners can expect more reasonable and predictable decisions regarding design patent infringement going forward.

For more information on patent matters, please contact Peter Dernbach at pdernbach@winklerpartners.com or Betty Chen at betty@winklerpartners.com.

Our summer intern, Andy Yang, also worked on this article.

Restrictions on unregistered foreign companies in Taiwan

We are often asked whether a foreign business with no registered presence in Taiwan can conduct marketing or other activities. The answer depends very much on the specific facts of the proposed activity, but in general unregistered foreign companies must not “transact business or perform legal acts in the course of business.” Taiwan Company Act §§19,371, and 386.

A person who transacts business or performs legal acts in the course of business in the name of an unregistered foreign business is subject to criminal liability including a fine of up to NT$150,000 and up to one year imprisonment.

Transacting Business

A review of the cases on transacting business shows that the Taiwanese courts use a totality of the circumstances test. Factors that have been considered include:

  1. Relationship of business transacted in Taiwan to the foreign company’s line(s) of business,
  2. Continuity and repetition of commercial activities,
  3. Fixed business premises,
  4. Hiring of employees, and
  5. Business contacts, price negotiations, and payments.

Most of the cases particularly emphasize factors 2, 3 and 4.

For example, the responsible person of a Hong Kong company that ran a legitimate but unregistered cartoon licensing business was convicted of unlawfully transacting business in Taiwan. The Taiwan business had office space and a number of employees. It also collected substantial royalties and provided post-sales services.[1]

A very typical case involved an unregistered foreign futures trading business that also had premises and employees. The business also took orders for margin currency trading. The responsible person was also convicted for unlawfully transacting business. Cases such as this one involving unregistered financial services business (often boiler room operations) are the most common type of case that results in prosecution and conviction.[2]

In contrast, the responsible person of a Hong Kong company that privately sought investors in Taiwan was found not guilty of transacting business in Taiwan despite the fact that investors invested in his company.[3] The court reasoned that this type of fundraising was unrelated to the Hong Kong company’s primary business and did not constitute transacting business even though the company was not registered in Taiwan.

A foreign company may transact business in Taiwan by establishing a branch or subsidiary in Taiwan.

Legal Acts in the Course of Business

A legal act in the course of business is “act that objectively suffices to create a predetermined legal relationship.”[4] For example, using the name of a dissolved company to entering into contracts to sell a vehicle and distribute auto parts are examples of legal acts in the course of business. Another example is the endorsement of a promissory note on behalf of the same defunct company. [5]

The Ministry of Economic Affairs has provided further guidance in a letter of interpretation that lists the following as legal acts in the course of business: “signing contracts, price quotations, price negotiations, bids, and procurement.”[6]

The takeaway from this somewhat abstract discussion is that the unregistered representative of a foreign company should not come to Taiwan and engage in legal acts such as signing contracts, engaging in price negotiations, or submitting bids on government contracts. If the representative wishes to engage in these activities in Taiwan, she and foreign company should register a representative office in Taiwan. Needless to say, she is perfectly free to engage in these activities with Taiwanese business people outside of Taiwan.

An interesting case involving legal acts in the course of business suggests that at least in some cases, marketing activities by an unregistered company may be fine. The defendant was a Taiwanese national who was in process of setting up a finance company.[7] Before the company was registered, he printed up marketing materials for the company’s post formation activities using the unregistered company’s name. The court held that the distribution of marketing materials was an act that did not suffice to create a legal relationship. Hence the Court concluded that no legal acts in the course of business had been performed and found the defendant not guilty.

Policy Considerations

Policy considerations behind the prohibition on unregistered foreign companies transacting business in Taiwan or performing legal acts in the course of business include:

[These rules] are intended to prevent foreign corporations from competing unfairly in Taiwan by doing business and earning profits on the one hand while evading Taiwanese regulation on the other. If foreign companies are not regulated in this manner, they might use their vast monetary resources and advanced technology to earn huge profits in Taiwan without being subject to Taiwan’s various restrictions on legal persons such as the benefits and protections available under the [Taiwan] Labor Standards Act, the various types of insurance available under the [Taiwan] National Insurance Act, and the various tax obligations under Taiwanese tax law. This would be unfair to Taiwanese companies and detrimental to their competitiveness. Most leading jurisdictions have similar rules.[8]

Conclusions

The restrictions on transacting business and performing legal acts in the course of business preclude an unregistered foreign company from engaging in extensive business operations in Taiwan and at least theoretically from coming to Taiwan to negotiate or sign contracts with Taiwanese parties in the course of ordinary activities. Nonetheless, there is some room for unregistered foreign companies to engage in limited marketed activities or corporate transactions without running afoul of these restrictions. The analysis of which activities are permissible is highly fact specific and a Taiwanese lawyer should be consulted in advance of any proposed activities in Taiwan by an unregistered foreign company.

For more information on company formation and corporate matters in Taiwan, please contact Chen Hui-ling at hchen@winklerpartners.com.


[1]臺灣高等法院 92 年上易字第 2625 號刑事判決

[2]臺灣臺中地方法院 102 年金訴字第 6 號刑事判決

[3]臺灣高等法院 104 年上字第 1036 號民事判決

[4]台灣高等法院86年上易字 2532刑事判決

[5] Ibid.

[6]經濟部92.10.29經商字09202221350函,經濟部97.04.28經商字0970204508函

[7] The prohibitions on transacting business or performing legal acts in the name of a unregistered company also apply more generally to Taiwanese nationals.

[8] 灣高等法院 92 年上易字第 2625 號刑事判決

Merger control FAQ (part 2 – relevant market)

This article is the second installment in our FAQ on merger control in Taiwan (Here you can read part one).  Here, we set out in broad brush strokes the factors and methodologies that the Fair Trade Commission (the “FTC”) and Taiwan courts use to determine the relevant market in horizontal merger cases.

The Fair Trade Act (the “FTA”) defines the relevant market with respect to any particular product or service as the geographic area or scope in which firms compete with respect to such product or service.  In 2015, the FTC issued relevant market definition guidelines (the “Taiwan Guidelines”) based on the European Union’s Commission Notice on the Definition of the Relevant Market for the Purposes of Community Law, the United States’ Federal Trade Commission’s 2010 Horizontal Merger Guidelines, and the FTC’s own past cases.[1]

According to the Taiwan Guidelines, demand substitution is the primary market constraint that the FTC evaluates in its analysis of relevant markets; however, the FTC may also evaluate supply substitution as part of its analysis.

The FTC evaluates the effect of these competitive constraints to define the relevant market both in terms of the nature of the product or service being offered and the geographic sales area of such product or service.  The Taiwan Guidelines separately list the factors used to assess (i) product or service scope and (ii) the appropriate geographic sales area.  However, these factors are largely the same and are each aimed at providing information as to the substitutability of a product or service within a geographic area.  According to the Taiwan Guidelines when establishing the appropriate relevant market, the FTC will typically consider a variety of factors, including:

  1. the general nature of the product or service and its use;
  2. views of customers and competitors regarding substitutability of the product or service generally and specifically within a particular geographic area;
  3. historical data on past substitution of similar products or services;
  4. the cross-price elasticity of demand;
  5. effects of price variation generally, the effect of price changes in different regions and related transportation costs between such regions, and the diversion of orders to other geographic areas in response to price changes; and
  6. costs to customers associated with switching to different products, including ease with which customers can obtain products from different regions and transaction costs for customers purchasing products from different regions.

When assessing the considerations listed above, the FTC employs familiar qualitative and qualitative analysis methodologies including (i) reasonable interchangeability of use; (ii) the hypothetical monopolist test (and the related concept of a small but significant non-transitory increase in price); and (iii) cross elasticity of demand measurements.  It is important to note, however, that the FTC emphasizes that it may use other tests depending on the particular circumstances of each case.

In most cases, we recommend that the best practical approach to determining the relevant market in Taiwan for any particular product or service is to begin by analyzing the relevant market as if preparing for an antitrust inquiry in the United States or the European Union.  However, each case is unique and we strongly recommend anyone contemplating a business combination that may impact the Taiwan market to contact us to get more specific advice as to how the relevant market should be defined for the purposes of (i) determining whether a Taiwan merger control filing is required and (ii) making any such filings, if required.

To read the third installment on procedural issues related to merger filings, click here. For more information on mergers and acquisitions in Taiwan, please contact Gregory A. Buxton at gbuxton@winklerpartners.com.


[1] 公平交易委員會對於相關市場界定之處理原則.   No English translation available.

 

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