Taipei High Administrative Court judgment in case of alleged unfair issuance of warning letters by New Green Life Corp. in violation of the Fair Trade Law

Taiwan

Case:

Taipei High Administrative Court judgment in case of alleged unfair issuance of warning letters by New Green Life Corp. in violation of the Fair Trade Law

Key Words:

issue warning letters, remove infringements, patent right infringement

Reference:

Taipei High Administrative Court Judgment (89) Su Tzu No. 559

Industry:

Medical Equipment, Devices and Instruments Manufacturing Industry (3390)

Relevant Law:

Article 24 of the Fair Trade Law

Summary:

1. In 1998 and 1999 the plaintiff New Green Life Corp. issued warning letters to distributors of Western Union Industrial Co., Ltd. (a joining party in the administrative litigation) regarding alleged patent infringements by the TEN-880S low-frequency wave therapy machine sold by Western Union. The plaintiff failed, before issuing the letters, to first request the machine's manufacturer Finesun Worldwide International Co., Ltd. (also a joining party) to remove the alleged infringements, and also failed to give concrete details of the alleged infringements and the insinuated failure by Western Union to obtain Department of Health approval for its products. The vague letters led recipients to believe that Western Union had engaged in patent right infringement.

In 1 March 2000 Disposition (Ref. [89] Kung Ch'u Tzu No. 023), the defendant the Fair Trade Commission (FTC) found that the plaintiff had engaged in deceptive and obviously unfair conduct sufficient to disrupt the trading order, in violation of Article 24 of the Fair Trade Law. The FTC ordered the plaintiff to immediately cease and desist from its unlawful behavior and imposed a fine of NT$150,000. Unsatisfied with the decision, the plaintiff filed an administrative appeal, which was dismissed. The plaintiff then filed an administrative litigation action with the Taipei High Administrative Court

2. Grounds for the Court's Judgment

(1) Article 24 of the Fair Trade Law provides, "In addition to what is provided for in this Law, no enterprise shall otherwise have any deceptive or obviously unfair conduct that is able to affect trading order." The forepart of Article 41 of the Fair Trade Law provides, "The Fair Trade Commission may order any enterprise that violates any of the provisions of this Law to cease therefrom, rectify its conduct or take necessary corrective action within the time prescribed in the order; in addition, it may assess upon such enterprise an administrative penalty of not less than fifty thousand nor more than twenty-five million New Taiwan Dollars."

An enterprise that believes another enterprise is infringing upon its rights should seek to resolve the dispute or clarify the dispute through reasonable channels before issuing any warning letters. Or, in the content of the warning letter, the enterprise may specify the precise content, scope, and factual details of the infringement so that recipients of the letter may be able to make a reasonable judgment. Prior to issuing the letter, the enterprise should also notify enterprises allegedly involved in the infringement and give them an opportunity to clarify. If an enterprise issues a warning letter without following the above procedures, or the contents of the warning letter fail to specify the facts of the complaint, or the letter contains false statements or insinuations that an enterprise committed an infringement or other illegal act, such issuance of the letter should be deemed to violate the aforesaid provisions of the Law on the grounds that it is unreasonable to send such a letter to a third party not involved in the rights infringement dispute, or that the content of the letter would obviously cause confusion or misidentification on the part of recipients, such that it could reasonably be anticipated that the letter would give rise to refusal to trade or other circumstances sufficient to affect trading order.

(2) Western Union sells two types of low-frequency therapy machines. The LP-1000 microcomputer massager manufactured by Yishin Technology Co., Ltd. and Hung Kao Co. has yet to be approved by the competent health authority. The TEN-880S microcomputer low-frequency wave therapy machine manufactured by Finesun Worldwide carries Department of Health medical instrument approval certificate No. 000705, a copy of which is included in sales contracts for the device. In early 1998, the plaintiff discovered that the LP-1000 microcomputer massager sold by Western Union Industrial was similar in both function and appearance to the PAN-100 low-frequency wave therapy machine manufactured by Japan's Maruman Corp., for which the plaintiff acts as an agent in Chinese Taipei.

On 28 May 1999, the plaintiff, without giving prior notice to the manufacturer Finesun or allowing it an opportunity to clear up the dispute, faxed a letter to Western Union Industrial's downstream distributors Watsons-Park'N Shop Ltd., RT Mart International Ltd., and President Enterprises Group demanding they cease trading with Western Union Industrial and any other companies dealing in pirated products. Also, while the plaintiff did not in the letter specify manufacturers or product numbers that had not received Department of Health approval, it hinted that the "microcomputer massager" and "low-frequency wave therapy machine," both made by Western Union Industrial, were both unapproved products. The letter also cited as evidence and included a document issued on 6 February 1999 by the Taipei City Government Department of Health, ref. Pei Shi Wei Tzu No. 8820512502, which contained vague warnings about the use of unapproved medical devices.

Subsequently, recipients of the letter, fearing administrative disciplinary action, refused to sell the products, which was the plaintiff's intent and was sufficient to disrupt the trading order. In addition, no patent application has been filed in Chinese Taipei for the PAN-100 low-frequency wave therapy machine manufactured by Japan's Maruman Corp. Although the plaintiff freely admits this fact, it neglected to include this detail in the warning letter, the language of which was sufficient to mislead recipients of the letter into believing that Maruman's products, for which the plaintiff is the Chinese Taipei agent, were patented in Chinese Taipei and that Western Union Industrial's products were pirated copies of those products. The language in the warning letter also indicated that the plaintiff planned to go through legal channels to hold the recipients of the letter legally responsible and claim for damages. The language included the phrase: "Please refuse to do business with Western Union Industrial and other makers of pirated products."

The issuing of such a warning letter prior to obtaining legal patent rights constituted deceptive and obviously unfair practices aimed at Western Union Industrial and the recipients of the letter. Western Union Industrial and its upstream manufacturer, Finesun Worldwide, have already been harmed as a result of the plaintiff's warning letter and the false and misleading statements contained therein regarding patent rights and product piracy. The plaintiff maintained that the warning letter was merely a "friendly reminder" to the recipients and that the recipients' removal of the products from their shelves was unrelated to the contents of the letter. This is clearly not a credible statement. The plaintiff's illegal actions were clearly intentional negligence and a violation of the provisions of Article 24 of the Fair Trade Law. The defendant the Fair Trade Commission therefore was correct in its original finding that the plaintiff had violated the law, and in ordering it to immediately cease its illegal actions and fining it with NT$150,000. The decision, upon administrative appeal, to uphold the FTC's decision was also proper. Because in the subsequent administrative litigation action the plaintiff merely reiterated its previous untenable arguments, the administrative litigation action was likewise dismissed.

Appendix: New Green Life Corp.'s Uniform Invoice Number: 86735380

Western Union Industrial Co., Ltd.'s Uniform Invoice Number: 04275607

Finesun Worldwide International Co., Ltd.'s Uniform Invoice Number: 86083583

Summarized by Lai, Chia-Ching;

Supervised by Wang, Rong-Ging