Fair Trade Commission Guidelines on Technology Licensing Arrangements	Guidelines

Prescribed by the 481st Commissioners' Meeting of January 18, 2001
Circulated by Letter (90) Kung Fa Tzu No. 00222 of January 20, 2001

Preface

As technology has advanced, other than traditional commodities trading and the provision of services, intellectual property rights licensing has become the subject of many transactions in the business world. The licensing of intellectual properties allows licensors to gain economic benefits, while licensees can acquire use of the technology to develop new goods markets. Thus the thorough utilization of technology brought about through the licensing of patented technology or specialized know-how serves to enhance competition. However, as a means to gain greater profits or to enhance market position, limitations clauses are often added to licensing arrangements in order to give the licensor further influence over the market or to prevent competition between the parties to the arrangement. The inappropriate use of such limitations clauses may lead to monopolization of the licensed technology, or further, lead to restraint competition or to unfair competition in a manner inconsistent with the Fair Trade Law (hereinafter "the Law"). In order to concrete the application of provisions of the Law, the Fair Trade Commission of the Executive Yuan has referred to its own experience with relevant previous cases, the status of development of domestic industries, and relevant regulations governing technology licensing arrangements in Japan, the USA, and European Union. The Rules are mean to clarify the criteria for enforcement of the Law, to benefit the industry in following the Law, and to help in handling of related cases.

1. [Purposes]
   The Fair Trade Commission of the Executive Yuan (hereinafter "the Commission") adopts the Rules in order to review technology licensing arrangement cases, to make the applicable provisions of the Law more concrete, to clarify the criteria for enforcement, to benefit the industry in following the Law, and to improve in handling related cases.
2. [Definitions]
   (1)Technology Licensing Arrangement referred to in the Rules means arrangement that involves the licensing of patents, know-how, or combination of the two.
   (2)Patents referred to in the Rules mean invention or new utility model patents which have been obtained in accordance with the Patent Law of Taiwan. These Rules, however, shall apply mutatis mutandis to licensing arrangements for subject matters for which patents have not been obtained in Taiwan when such arrangements result in restraint of competition or unfair competition within relevant markets.
   (3)Know-how referred to in the Rules means methods, technologies, manufacturing processes, formulas, computer programs, designs, or other types of information that may be used in production, marketing, or management of which meet the following criteria:
   
   1. The information is not generally known by those who familiar with the given area.
      
   2. The information has actual or potential economic value because of its secret nature.
      
   3. The owner has adopted reasonable protective measures.
      
   (4) The term "goods" as used herein shall include services.
3. [Fundamental Principle]
   In its review of technology licensing arrangement cases, the Commission does not presume that a licensor, as a result of owning a patent or know-how, has market power within a relevant market.
4. [Steps for Review and Analysis]
   (1) In reviewing technology licensing arrangement cases, the Commission will first examine the licensing arrangements with respect to Article 45 of the Law. An arrangement, which is in form a proper conduct in connection with the exercise of rights under the Patent Law or other relevant laws, but in substance oversteps the scope of proper exercise of rights under such laws and contravenes their legislative purpose of protecting invention and innovation, shall be reviewed under the Law and Rules.
   (2) In reviewing technology licensing arrangements, the Commission will not be restricted by the particular form or wording of such arrangements, but will emphasize on possible or actual restraint of competition or unfair competition created by such arrangements in the following relevant markets:
   
   1. "Goods markets" to which the goods manufactured or provided through use of the licensed technology belong.
      
   2. "Technology markets" defined by technology that is substitutable with the licensed technology.
      
   3. "Innovation markets" in which research and development of relevant goods may take place.
      
   (3) In reviewing technology licensing arrangements, in addition to the reasonableness of the provisions of such arrangements, the Commission shall consider the following factors:
   
   1. The market power of the licensor with regard to the licensed technology.
      
   2. The market position of the parties to the arrangement at a relevant market and the status of that market.
      
   3. The degree of influence to which the licensing arrangement will increase opportunities for utilization of the technology or exclude competition.
      
   4. The degree of difficulty of access to the relevant market.
      
   5. The length of the term of limitations under the licensing arrangement.
      
   6. International or industry precedents applicable to the relevant market for the licensed technology.
5. [Examples of subject matters not in violation of the Law]
   The following kinds of technology licensing arrangement stipulations do not intrinsically violate the provisions of the Law on restraint of competition or unfair competition, with the exception of those improper matters to be found after reviewed in according to 5.3 and 5.4.
   (1) Limitations clauses that restrict the scope of use by the licensee to manufacture, use, or sales.
   (2) Restrictions on the term of a licensing arrangement that fall within the term of validity of the patent itself. Restrictions on the term of a licensing arrangement prior to public disclosure of know-how, which, through no circumstance imputable to the licensor, has been disclosed and lost its status as a trade secret are also acceptable.
   (3) Stipulations that, for ease of calculation, fees for licensed technology that is part of a manufacturing process or that subsists in component parts are to be calculated on the basis of the quantity of finished goods manufactured or sold that employ the licensed technology, or the quantity of raw materials or component parts used that employ the licensed technology, or the number of times such materials or parts are used in the manufacturing process.
   (4) Stipulations that the licensee shall continue to pay fees after expiration of the patent term for use already made of the licensed technology, where the fees for use of a licensed patent are paid in installments or on a post-paid [running royalty] basis. Stipulations that in the event of public disclosure of the know-how and loss of its status as a trade secret through no circumstance imputable to the licensor, the licensee must continue to pay agreed fees by a certain period and method through the free will of the parties to the arrangement until the expiration or termination of the arrangement.
   (5) Stipulations that the licensee shall grant non-exclusive license to the licensor with respect to any improvements in or new applications of the licensed technology.
   (6) Stipulations that the licensee shall, to the best of its ability, manufacture and sell goods using the licensed technology.
   (7) Stipulations that, during the licensing period or after the expiration of the term of the licensing arrangement, impose on the licensee the obligation to maintain the secrecy of any know-how that retains the status of a trade secret.
   (8) Clauses that, in order to guarantee the licensor a minimum amount of revenue from licensing fees, require the licensee to produce a minimum volumes of goods employing the licensed technology, to employ the licensed technology a minimum number of times in the manufacturing process, or to sell a minimum quantity of goods manufactured with the licensed technology.
   (9) Requirements that the licensee shall maintain a certain level of quality with respect to the goods, raw materials, or component parts of the goods that employ the licensed technology insofar as is necessary to ensure effective utilization of the licensed technology and maintain a certain level of quality in the licensed goods.
   (10) Stipulations that the licensee may not transfer or sublicense the licensed technology, except where otherwise agreed by the parties to the licensing arrangement.
   (11) Stipulations that the licensee may not continue to use the licensed technology after the expiration of the term of the licensing arrangement insofar as the licensed patent remains valid or the licensed know-how remains a trade secret.
6. [Examples of subject matters in violation of the Law]
   (1) Arrangements between parties to a licensing arrangement who are in a competitive relationship, in which through contract, agreement, or other form of mutual understanding they jointly determine the price of the goods employing the licensed technology, or restrict on quantities of goods, trading partners, trading regions, or areas of research and development, thus mutually restricting each other's business activities in a manner sufficient to influence the functions of the relevant market in violation of Article 14 of the Law.
   (2) Licensing arrangement content that involves any of the circumstances listed as the following acts which is likely to lessen competition or to impede fair competition in relevant markets may violate Article 19(1)(vi) of the Law:
   
   1. Restrictions on competitive activities by the parties to the arrangement or their related enterprises with respect to research and development, manufacture, use, or sale of competing goods.
      
   2. Restrictions on a party to the licensing arrangement with respect to marketing methods, scope of use of the licensed technology, or trading counterparts, in order to achieve the goal of market segmentation.
      
   3. Mandatory requirements that the licensee purchase, accept, or use other patents or know-how not needed by the licensee.
      
   4. Mandatory requirements that the licensee assign back exclusively to the licensor any improvements to the licensed patent or know-how.
      
   5. Restrictions on the licensee's free use of the technology in question or required payment of fees or royalties after extinction of the patent or after the know-how has been publicly disclosed through no circumstance imputable to the licensor.
      
   6. Restrictions on the licensee's manufacture, use, or sale of competing goods or utilization of competing technology after the expiration of the term of the licensing arrangement.
      
   7. Restrictions on the price at which the licensee may sell goods manufactured or produced with the licensed technology to a third party.
      
   8. Restrictions on the licensee's ability to challenge the validity of the licensed technology.
      
   9. Refusal by the licensor to provide the licensee with information on the content, scope, or valid term of a patent.
      
   (3) When a party to a licensing arrangement is a monopolistic enterprise the issue whether any of the matters above-listed violates Article 10 of the Law shall be determined with reference to the contexts of individual case.
7. [Examples of subject matters may violate the Law]
   (1) Technology licensing arrangement content that is likely to restrain competition or impede fair competition in relevant markets may violate Article 19(1)(vi) of the Law. Examples include:
   
   1. Restrictions involving distinctions between regions in which the licensing is applicable within the territory of Taiwan during the valid term of a patent; likewise, regional restrictions on the use of know-how before the know-how is publicly disclosed or loses its status as a trade secret through no circumstance imputable to the licensor.
      
   2. Restrictions on the scope of sales or the trading counterparts of the licensee, where the restrictions are unrelated to the areas of application [of the licensed technology].
      Restrictions on the areas or scope of applications in which the licensee may practice the licensed technology.
      
   3. Ceilings restricting the quantity of goods that may be manufactured or sold by the licensee, or the number of times the know-how or patented technology may be used.
      
   4. Requirements that the licensee must sell goods through the licensor or a person designated by the licensor.
      
   5. Requirements that the licensee pay licensing fees based on the quantity of a particular type of good manufactured or sold irrespective of whether the licensee used the licensed technology.
      
   (2) Article 19(1)(ii) or 19(1)(vi) of the Law may be violated by requirements that the licensee purchase raw materials or component parts from the licensor or a person designated by the licensor, where such requirements are unrelated to reasonable and necessary efforts to assure effective utilization of the licensed technology, to maintain the reputation of a trademark associated with the licensed technology or to maintain the secrecy of the know-how involved, and where such requirements are likely to restrain competition or impede fair competition in relevant markets.
   (3) Article 19(1)(ii) of the Law may be violated by licensing arrangements that, without justification, give discriminatory treatment to licensees with regard to the terms of the arrangement or licensing fees, where such discriminatory treatment would be likely to restrain competition or impede fair competition in relevant markets.
8. [Supplemental provision]
   Decisions on technology licensing arrangement content involving types of practices that are not listed in the Rules shall be considered with reference to the contexts of the individual case in accordance with provisions of the Law.