EU Trade Commissioner Peter Mandelson said: "I hope that the Taiwanese authorities will move quickly to bring their law and practice into line with WTO rules. I cannot rule out seeking WTO dispute settlement if they do not."
Dutch electronics company Philips asked the European Commission to help the company seek a ruling from the WTO in a dispute with Taiwan over patents last January.
The Trade Barriers Regulation Committee issued a report on January 30, which accuses Taiwan of violating the TRIPs Agreement. It states: "It appears to the Commission services that Chinese Taipei [Taiwan] has been using compulsory licensing as an industrial policy instrument, and not as a limited exception to the use of patent rights."
Local Taiwanese company Gigastorage had been a making recordable CDs (CD-Rs) for Philips under licence until Philips terminated the agreement in April 2001. Gigastorage continued to make the CD-Rs and asked the Taiwan Intellectual Property Office (TIPO) for a compulsory licence for the relevant Philips patents.
In July 2004 TIPO granted the compulsory licence and in June 2006 the Committee of Appeal of the Ministry of Economic Affairs confirmed the decision. Philips has a case pending at the Taipei Administrative report that, according to the Committee report, will make a judgment in mid-2008.
"I don't think our IP office made the right decision in this case", Frank Liu, a partner with Saint-Island International Patent & Law Offices in Taipei told Managing IP. But Liu did not agree that Taiwan's Patent Act does not comply with TRIPs
The report heavily criticizes Article 76 of Taiwan's Patent Act. This states that TIPO may issue a compulsory licence "in the case of an applicant's failure to reach a licensing agreement with the patentee concerned under reasonable commercial terms and conditions within a considerable period of time".
The report says this means a patent owner may be subject to compulsory licence for not accepting an offer from a licensee that TIPO considers "reasonable" and "empties the substance out of the exclusive rights granted by a patent and protected by the TRIPs agreement".
The report also accuses TIPO of violating Article 31(f) of TRIPs by not ensuring that the compulsory licence was used primarily for the domestic market and instead allowing Gigastorage to export.
In a carefully worded paragraph the report says it "may have been the intention" of the authorities to use compulsory licensing to force Philips to lower royalty rates to other CD-R manufacturers in Taiwan.
According to the report, in a standard contract favourable rates offered to one licensee are automatically extended to all licencees. This means that if Philips had lowered its royalty rates for Gigastorage to avoid a compulsory licence it would have had to lower them for all licensees. The report admits there is "no more than circumstantial evidence" that this happened but said this would be "a terribly dangerous precedent".
The report asks for Taiwan to amend its Patent Act and also reverse the precedential opinion issued on appeal by the Ministry of Economic Affairs within two months.
TIPO declined to tell Managing IP what action it would take, but has issued a written statement in Chinese. The statement is understood to say that it regrets that the incident has happened and will use an appropriate format to come to a solution.
The office said that it will maintain close communication with the EU and will analyze the report carefully in accordance with international regulations.
