Taiwan: Supreme Court’s new decision on contract manufacturers’ infringement liabilities
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Taiwan: Supreme Court’s new decision on contract manufacturers’ infringement liabilities

One feature of Taiwan's Patent Law (and all the country's IP laws) that many patentees find interesting is the lack of indirect infringement. To seek remedies against suppliers (mainly contract manufacturers, or CMs) of essential elements of a patented invention, patentees need resort to the Civil Code rules regarding the liabilities for assisting torts.

Under the Civil Code, liabilities of an assistant (such as a CM) are established if the following requirements are met: the existence of another party (such as the buyer) having been proved to be a direct infringer, the assistant's conduct, the proximate causation between the assistance and the tortious result, and the assistant's negligence or intention behind its conduct.

The substitute provided by the Civil Code is of course less ideal than the contributory liability principles adopted by other jurisdictions, such as the US and Japan. However, this gap can gradually be mitigated by court decisions, as judges have the power to recalibrate the interpretation of the prerequisites of assistants' liabilities in real cases – in a direction that's friendlier to patentees. Judges are also willing to do this as it helps Taiwan to keep abreast of international trends before the next round of patent law amendments take effect, which embrace the contributory liability principle (momentum is growing in this area). The most recent initiative is a decision issued by Taiwan's Supreme Court at the end of January 2019 addressing how assistants' intention/negligence should be determined Zhuang v Kuan Sheng Aluminum Mold Co., Ltd., 107 Tai Shang 1781 (2019 Taiwan St. Ct.).

The disputed patent in Zhuang v Kuan Sheng related to a grid plate-tightening device for water barriers, an invention said to meet the needs of residents in Taiwan's coastal areas affected by typhoon floods. The alleged infringing products were assembled and sold by an end dealer that had been separately sued and proven to be directly infringing the patent. A large portion of the components of the end product, however, were produced by a CM, and it was this CM that was sued in Zhuang under the principle of assistant's liability.

Interestingly, the CM did not contend much on whether the components it supplied were essential to the patent or, to rephrase it in the assistant's liability context, whether it actually assisted the direct infringer with the manufacturing. Instead, the CM argued that the mental state requirement was lacking: "We do not specialise in water barrier productions and we have no R&D group. Other than relying on the buyer's non-infringement guarantee letter (provided after the CM received the patentee's warning letter) we had no ability to look into whether the water barrier along with the affiliated components we supplied was patent infringing."

This line of argument was accepted by a second instance panel of the IP Court, a result quite welcome by small and medium-sized CMs as they now conceivably have a better chance to be released from the duty to verify whether or not the components they supply are used to infringe a patent. At least, these CMs will be allowed to rely upon a buyer's guarantee to establish a lack-of-negligence contention. However, but is this really the case?

The Supreme Court's answer was no: "The respondent (the CM) is not objectively unable to analyse whether the infringement allegation of the petitioner (the patentee) is true, and to get an analysis is not difficult at all. The respondent cannot evade the verification duty by simply relying on its buyer's assertion and then continue its contract manufacturing for the buyer." The IP Court's decision was therefore revoked and remanded for further investigation into whether the CM was negligent or wilful in helping the buyer with infringing the patent.

As the decision suggested, whatever their business size, CMs shall take responsibility for their own conduct and their infringement liabilities shall be determined independently of direct infringers' activities – these are the same ideas that give birth to the contributory liability theory. Although it will still take time for the contributory liability theory to take root in Taiwan's IP law regime, the Supreme Court's decision in Zhuang v Kuan Sheng made noticeable progress in clearing the field of patent law for that borrowed theory to grow.


Tony Tung-Yang Chang

Saint Island International Patent & Law Offices7th Floor, No. 248, Section 3Nanking East RoadTaipei 105-45, Taiwan, ROCTel: +886 2 2775 1823Fax: +886 2 2731 6377siiplo@mail.saint-island.com.twwww.saint-island.com.tw

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