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

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

How does Taiwan’s Fair Trade Commission define the 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.

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.

Exenciones a los requisitos para el permiso de trabajo en Taiwán: El Mecanismo de Consulta

This is a Spanish translation of our English article “Exemptions to Taiwan’s work permit requirements: the Consultation Mechanism”, which you can find here.
Esta es la traducción al español de nuestro artículo en inglés “Exemptions to Taiwan’s work permit requirements: the Consultation Mechanism”, el cuál se encuentra disponible aquí.

Los requisitos para la obtención del permiso de trabajo en Taiwán pueden ser un tanto inflexibles, sin embargo, existen algunas exenciones disponibles para dos de los cuatro requisitos: ingresos/capitalización mínima del empleador y experiencia laboral mínima del empleado (adquirida después de la culminación de los estudios universitarios).

Los Requisitos Básicos

La mayoría de los profesionales extranjeros en Taiwán, fuera de los que trabajan como profesores, corresponden a la Clase A (profesionales o técnicos).

Para contratar a empleados extranjeros bajo la Clase A, el posible empleador del candidato extranjero debe aplicar a un permiso de trabajo ante la Agencia de Desarrollo del Empleo (“WDA” por sus siglas en inglés) bajo la tuición del Ministerio de Trabajo.

En general, cuatro requisitos básicos deben ser cumplidos:

  1. ingresos /capitalización del empleador;
  2. nivel académico/experiencia laboral del empleado;
  3. trabajo profesional o técnico; y
  4. salario mensual mínimo de NT$47,971

Existen exenciones tanto para el requisito de ingresos/capitalización del empleador como para el de educación/experiencia del empleado. Estas exenciones no son disponibles para trabajos que no formen parte del alcance del trabajo profesional o técnico. Tampoco existen exenciones al salario mensual mínimo de NT$47,791 para profesionales extranjeros que posean títulos de universidades extranjeras (no taiwanesas).

Requisito de ingresos/capitalización

Para contratar a un profesional extranjero en la Clase A, el empleador debe ser una empresa nueva con un capital registrado de NT$ 5 millones o una empresa existente con ingresos (del último año fiscal) de NT$ 10 millones (o ingresos promedios de NT$ 10 millones durante los últimos tres años).

Requisito de nivel académico y experiencia laboral

En general, para ser contratado, un empleado extranjero debe tener un diploma universitario y dos años de experiencia laboral relacionada al trabajo por el cual se lo pretende contratar. La experiencia laboral debe ser aquella adquirida después de la culminación de los estudios universitarios.

Exenciones

Las exenciones disponibles corresponden a lo que el Ministerio de Trabajo denomina el “Mecanismo de Consulta” .

Si un empleador no llega a cumplir con el requisito de ingresos/capitalización mínima, el empleador debe adjuntar este formulario (en chino) a la aplicación de permiso de trabajo del empleado.

Si el candidato no llega a tener los dos años de experiencia laboral relacionada al trabajo que se lo pretende contratar, el empleador debe adjuntar este formulario (en chino) a la aplicación de permiso de trabajo del empleado.

Favor tomar en cuenta que los candidatos extranjeros por lo general no pueden aplicar a permisos de trabajo o a las exenciones por su cuenta. El empleador es el que debe aplicar por el permiso para contratar al candidato.

Alta tasa de aprobación

Las exenciones bajo el Mecanismo de Consulta han estado disponibles desde el 2010. Estadísticas parciales del WDA muestran que las exenciones son otorgadas a la mayoría de las aplicaciones. Desde el 2010 al 2015, 176 empleadores aplicaron a la exención del requisito de ingreso/capitalización mínima. De éstas, 156 (89%) han sido aprobadas. De forma similar, durante el mismo periodo, 50 empleadores aplicaron a la exención del requisito de experiencia laboral mínima de dos años. De éstas, 47 fueron aprobadas, alcanzando así una tasa de aprobación del 94%.

Pese a que las tasas de aprobación son altas, el número de aplicaciones es sorprendentemente bajo. Esto puede deberse a que hasta hace algún tiempo el WDA no tenía una guía clara sobre el Mecanismo de Consulta ni en inglés ni en chino.

EZ WORK Taiwán: Información sobre el Mecanismo de Consulta y Permisos de Trabajo en general

Como mencionamos anteriormente, el WDA no tenía un mecanismo directo y eficaz para transmitir información. Sin embargo, a finales de 2016, el WDA añadió una nueva sección a su página web EZWORK Taiwán, la cual proporciona información completa sobre el Mecanismo de Consulta en chino e inglés. Candidatos profesionales extranjeros pueden familiarizarse con el Mecanismo de Consulta en inglés aquí. Dado que es muy probable que el departamento de recursos humanos de las empresas taiwanesas no tenga familiaridad con el Mecanismo de Consulta, los candidatos pueden remitir a sus posibles empleadores a la misma información en chino aquí.

De forma general, la página EZ WORK Taiwán proporciona información completa en inglés y chino para la obtención de permisos de trabajo para trabajos profesionales y técnicos de la Clase A y también para otras clases de permisos de trabajo profesional incluyendo aquéllos para profesores, artistas e intérpretes. Reiteramos que remitir a los posibles empleadores a la versión en chino de la página puede ser de mucha ayuda especialmente si es la primera vez que la empresa contrata a un empleado extranjero.

Reglas especiales para graduados de universidades taiwanesas y empleados de algunas empresas emergentes (startups)

Cabe mencionar que existen reglas especiales para graduados extranjeros de universidades taiwanesas y empleados de algunas startups que cumplen ciertos requisitos (“startups calificadas”). Estas reglas especiales se encuentran fuera del alcance de este artículo pero más información sobre el Sistema de Puntaje para graduados extranjeros de universidades taiwanesas se la puede encontrar aquí. Empleados de startups calificadas no están sujetos al requisito de experiencia de trabajo mínima de dos años.

Data protection enforcement decisions by Taiwan’s Financial Supervisory Commission

Taiwan has had data protection laws since the mid-1990s, but a new era in data protection began in October of 2012 when the Personal Information Protection Act of 2010 (the “PIPA”) took force.

Enforcement of the PIPA is dispersed. Instead of having a single data protection authority (DPA), central government regulators share responsibility for enforcing the PIPA along with local governments. In addition, the Ministry of Justice plays an important coordinating role and interprets the PIPA.

The only regulator that publishes its data protection enforcement decisions is the Financial Supervisory Commission (“FSC”). The FSC is Taiwan’s super-regulator for financial industries. In this role, it oversees securities and futures firms, banks, and insurers. FSC data protection enforcement decisions are thus an important source for understanding enforcement of the PIPA by Taiwan’s executive branch.

Enforcement Cases by the Numbers

The FSC has published 16 enforcement decisions since the PIPA took force in 2012. The number of enforcement decisions in each year has varied. For example, while seven decisions were issued in 2016, no decisions were issued in 2015. Between 2012 and 2014, the FSC issued an average of two or three FSC enforcement decisions each year.

The seven 2016 enforcement decisions included five enforcement decisions against insurance companies by the FSC Insurance Bureau and two decisions against banks by the FSC Banking Bureau. As of this writing (March 2017), the FSC has already issued two enforcement decisions. Both of the 2017 decisions have been against insurers.

Of the various FSC sub-agencies, the Insurance Bureau has been the most active in its PIPA enforcement. Eleven of the 16 FSC enforcement decisions since 2012 have been insurance cases while just five decisions have been banking cases. Thus two trends can be identified. The first is increasing overall enforcement activity by the FSC since 2016. The second is that the FSC is especially concerned about the collection, processing, and use of personal information by the insurance industry.

We anticipate that these trends will continue and expect to see an increasing number of PIPA enforcement cases issued by the FSC with a focus on the insurance industry.

Types of Enforcement Decisions

FSC Enforcement decisions since 2012 can be categorized into four types: data breach cases, failure to obtain consent cases, inadequate security cases, and cases involving failure to notify.

1. Data Breaches

Data breaches are the most common reason for enforcement decisions. In general, these cases have involved negligent disclosures of customer personal information. In some cases, the disclosures were caused by poorly designed or maintained internal control and internal audit mechanisms while in other cases there were procedural errors in the course of business. Examples of data breaches cases are briefly discussed below in reverse chronological order by the date of the enforcement decision.

10 January 2017: Nan Shan Life Insurance Co., Ltd. improperly mailed policyholder personal information to third parties in the course of mailing notices to policyholders. The FSC found that the personal information disclosures were caused by execution errors in Nan Shan’s computer system. This enforcement decision is notable because the FSC also found that the breach was material and penalized Nan Shan for failing to immediately report the breach. This is the only enforcement decision to date in Taiwan that addresses late reporting.

11 April 2016: A customer requested information about salary transfers to the customer’s account at Cathay United Bank. In its response to the customer’s request, Cathay United Bank’s Da’an Branch disclosed the personal information of another customer to the requesting customer.

22 August 2013: CTBC Bank committed an error in its internet banking operations that enabled any internet user to enter, browse, and obtain customer information stored in the bank’s internal index pages.

2. Failure to obtain consent

Enforcement decisions have also been made against financial enterprises who have violated the PIPA by providing personal information of customers for use by third parties without first obtaining the customers’ consent. This type of case is illustrated by the following enforcement decisions.

29 June 2016: Mega International Commercial Bank, without having obtained the consent of its customers, provided basic customer personal information to its affiliate Chung Kuo Insurance Company Limited to conduct telemarketing.

4 October 2013: A Nan Shan Life Insurance solicitor, without obtaining written permission from the policyholders, gave personal information of customers to a third party whom the solicitor had engaged to answer policyholders’ questions about a policy.

10 July 2013: A Chang Hwa Commercial Bank, Ltd. employee made a query to the Joint Credit Information Center about a customer’s credit information without having obtained the customer’s written consent.

3. Inadequate Security

Cases of this type include the following:

16 November 2016: PCA Life Assurance Co., Ltd. inadequately implemented its 2015 personal information inventory operations, resulting in failure to delete personal information before the expiration of the relevant retention period.

11 November 2016: Mercuries Life Insurance Co., Ltd. was penalized for having inadequate overall personal data protection measures and a lack of effective internal control mechanisms in conducting its information operations.

8 September 2016: A Fubon Life Insurance Co., Ltd. customer complaint handler failed to adopt appropriate security measures and failed to use encryption when sending photocopies of policyholder call-in card applications to personal email addresses.

4. Failure to notify

14 February 2017: Mercuries Life Insurance Co., Ltd. was penalized for failing to expressly inform data subjects of statutorily required matters when it collected personal information of customers through its official website on a web page it provided for customer email queries about insurance.

Penalties

Under the PIPA, regulators are empowered to order private sector actors to remedy a violation of the PIPA. Failure to remedy the violation by a prescribed deadline will result in an administrative fine ranging from NT$20,000 (c. US$650) to NT$500,000 (c. US$16,300). However the FSC also has the power to fine financial businesses when they violate rules governing internal controls, and these fines are considerably higher than the fines that may be imposed under the PIPA. A notable feature of the FSC enforcement decisions is that when the FSC determines that a financial institution has violated the PIPA, it usually also finds that the same facts simultaneously constitute a violation of internal controls. As a result, the fines imposed in most FSC enforcement decisions are generally the higher fines for violation of internal controls.

In less serious cases, the administrative fine for a violation of internal controls in a data protection case is NT$600,000 (c. US$19,570). However higher fines are imposed in more serious cases. For example the FSC imposed a fine of NT$1.2 million (c. US$39,100) in the 2016 PCA Life Assurance case where PCA Life Assurance failed to delete personal information by the expiration of the retention period. Relatively high fines were also imposed in two cases involving external leaks of personal information: NT$3 million (c. US$97,830) in a 2014 case in which an ex-employee of Cathay United Bank had downloaded personal information of customers onto a private external storage device, and NT$4 million (c. US$130,400) in the 2013 CTBC Bank data breach case.

Typically, these fines for violations of internal controls are also accompanied with an order to remedy the PIPA violation by a prescribed deadline. In the majority of cases, a deadline of one month was set to remedy the PIPA violation. In a minority of more serious cases, a deadline ranging from seven to ten days was set.

To date, the FSC has imposed stand-alone PIPA fines in just three cases: the 2016 Mega International Commercial Bank decision, the 2013 Nan Shan Life Insurance decision, and the 2013 Chang Hwa Commercial Bank decision. The administrative fines imposed by these decisions were respectively: NT$50,000 (c.US$1,630), NT$20,000 (c. US$650), and NT$50,000 (c. US$1,630). All three of these cases fall in the category of providing a customer’s personal information for use by a third party without having obtained consent.

Conclusions

Taiwan’s Financial Supervisory Commission is actively enforcing violations of the PIPA with remedy orders and fines. While fines remain low by international standards, Taiwan’s media covers violations of data protection law extensively. As a result, members of the public and consumers are increasingly aware of their rights under the PIPA and are already highly sensitive to disclosures of personal information. This will put pressure on other regulators to follow the FSC’s lead and publish enforcement decisions. Ultimately Taiwan is likely to follow regional and international trends and replace dispersed enforcement with centralized enforcement by a unitary data protection authority.

For more information on data protection and privacy matters in Taiwan, please contact Chen Hui-ling at hchen@winklerpartners.com.

Frequently asked questions on merger control in Taiwan

We receive regular inquiries from foreign clients as to whether a particular transaction requires making a merger control filing in Taiwan. The following is the first installment of a multi-part series in which we explore commonly asked questions related to merger control in Taiwan. This first installment covers basic questions related to the scope and coverage of Taiwan’s merger control regulations.

1. Does Taiwan have merger control regulations?

Yes. Taiwan’s Fair Trade Act (the “FTA”) includes merger control provisions. The FTA empowers Taiwan’s Fair Trade Commission (the “FTC”) to prohibit transactions it determines would have a net-negative market impact, after weighing the transaction’s anti-competitive or other adverse effects on the Taiwan market against any countervailing economic benefits.

2. Does Taiwan have pre-merger reporting requirements?

Yes. The FTA requires pre-merger notification if a regulated transaction meets certain market impact thresholds.

3. Do global transactions require filing in Taiwan?

Yes, provided that the transaction: (i) falls within one or more of the categories of regulated transactions and (ii) meets certain market impact thresholds, as set forth in the FTA.

4. What types of transactions are covered by the FTA?

The FTA applies to typical merger and acquisition transactions such as statutory mergers and share or asset purchases. Share and asset purchases for less than the entirety of a target business may be deemed regulated transactions under the FTA.  With respect to share purchases, any transaction resulting in the acquirer holding one-third or more of the voting shares of the target would be covered by the FTA.  Likewise, an asset purchase of a principal or major portion of the assets of a target would fall within the scope of the FTA. The FTA’s regulatory purview also extends to other business combinations including joint ventures and various other arrangements whereby one entity has de facto or contractual control over the operations of another.

5. What are the relevant market impact thresholds?

The FTA requires filing if any one of the following conditions exists with respect to a regulated transaction:

  • upon consummation of the proposed transaction, the combined entity would control one-third of the relevant market in Taiwan;
  • prior to the consummation of the proposed transaction, one of the participants in the transaction controls one-fourth of the relevant market in Taiwan;
  • during the immediately preceding fiscal year, (A) one of the transaction participants had sales revenue in Taiwan exceeding NT$15 billion (~US$465.5 million) and (B) the other participant had sales revenue in Taiwan exceeding NT$2 billion (~US$62.1 million)[1]; or
  • during the immediately preceding fiscal year, (A) one of the transaction participants had global sales revenue exceeding NT$40 billion (~US$1.32 billion) and (B) two participants each had sales revenue in Taiwan exceeding NT$2 billion (~US$62.1 million).

6. Are there any exemptions to the FTA filing requirements?

Yes. Common restructuring transactions are exempted from the FTA filing requirements.  Such transactions include:

  • the merger of (i) a parent enterprise (the “Parent”) with (ii) another enterprise, 50% or more of the voting interests of which is held either directly by the Parent or indirectly by a wholly-owned direct subsidiary of the Parent;

  • the merger of enterprises 50% or more of the voting interests of which are held directly or indirectly (not illustrated below) by the same Parent;

  • a transfer by a Parent of (i) all or a principal part of its business or assets or (ii) all or any part of its business that could be operated separately, to another newly established enterprise wholly-owned by the Parent; and the redemption of shares from certain shareholders by an enterprise (pursuant to certain provisions in the Company Law or the Securities and Exchange Law) resulting in any remaining shareholder(s) holding more than one-third of the outstanding shares of the enterprise.

In the coming months, we expect to publish additional installments of this FAQ.  Future installments will cover questions related to the definition of “relevant market” as well as filing procedures and content.  For more information on mergers and acquisitions in Taiwan, please contact Gregory A. Buxton at gbuxton@winklerpartners.com.


[1] Note that different sales revenue thresholds apply to financial holding companies.

 

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