Gnan-jang Plastics Co., Ltd. violated
the Fair Trade Law by recklessly issuing warning letters to its trading counterparts
Chinese Taipei
Case:
Gnan-jang Plastics Co., Ltd. violated the Fair Trade Law by recklessly issuing warning letters to its trading counterparts
Key Words:
warning letter, sport sandals with buckles
Reference:
Fair Trade Commission Decision of May 30, 2002 (the 551st Commissioners' Meeting); Disposition Kung Ch'u Tzu No. 091116
Industry:
Imitated Leather Products Manufacturing (2104)
Relevant Law:
Article 24 of the Fair Trade Law
Summary:
1. This Case originated with a complaint filed by Hsing Kwo Industry Co., Ltd. (Hsing Kwo) to the Fair Trade Commission (FTC) alleging that Gnan-jang Plastics Co., Ltd. (Gnan-jang) recklessly issuing warning letters to trading counterparts in violation of the Fair Trade Law.
2. Whether any patent infringement occurred with respect to products of Hsing Kwo and Gnan-jang is a question that falls under the professional jurisdiction of the patent authority or the courts, not the FTC. The FTC therefore merely considered whether a violation of the Fair Trade Law had occurred in respect of the patentee's exercise of its patent rights, i.e. whether Gnan-jang followed proper preliminary procedures before sending the warning letters, and then whether its acts met the elements of applicable articles of the Fair Trade Law. The main grounds for the decision in this case were as follows:
(1) Gnan-jang's argument, stating that it issued the warning letters to find out the real manufacturer, was not credible:
Hsing Kwo and Gnan-jang were discovered to have had business dealings from September 2000 to May 2001 and to have discussed patent licensing matters twice in late March 2001. In addition, the sports sandals in question carried Hsing Kwo's trademark “GET WIN.” Under the above circumstances, applying the rule of general experience in society, the manufacturer of the sandals would obviously be known to companies in the same trade, not to mention that Gnan-jang and Hsing Kwo had previously had business dealings. Therefore, it would be unnecessary to issue certified letters to verify the identity of the manufacturer. Furthermore, nothing in the content of Hsing Kwo's two warning letters, which are inspected by the FTC, indicated an intent to determine the identity of the manufacturer. On the contrary, the provisions of Article 127 of the Patent Law were repeatedly cited in the two warning letters. The warning letters also had wordings such as: “Please recall all counterfeit goods immediately upon receiving this notice, and come forth within three days to discuss this matter or negotiate licensing matters. Otherwise, the company will prosecute this matter to the full extent of criminal law and then pursue civil damages. Please take action to avoid legal liability.” Such wordings were deemed objectively capable of improperly constraining trading counterparts and impeding them from deciding freely whether to carry out transactions and the terms and conditions of transactions, and thus violated the principle of efficiency competition.
(2) Gnan-jang failed to take proper preliminary procedures when issuing warning letters:
Gnan-jang purchased the sandals in question at Family Shoemart Company on 18 March 2001. Knowing that the sports sandals under the brand of GET WIN were produced by Hsing Kwo, a company with which it had had business dealings in the past, Gnan-jang failed to take preliminary steps of contacting Hsing Kwo directly or by letter to ask it to cease the infringement. Instead, on 22 March 2001, Gnan-jang directly issued a certified letter to one of Hsing Kwo's trading counterparts (Family Shoemart Company). Merely citing “appraisal by a professional” and annexing a photocopy of a patent certificate, Gnan-jang alleged that the GET WIN sports sandals were manufactured in imitation of Gnan-jang's sandals. Gnan-jang was found not to have annexed the relevant Patent Gazette or a patent infringement verification report, nor did it obtain a judgment by a court of first instance confirming the existence of a patent infringement. Although the patent name, number, and certificate were specified in the contested warning letters, the content merely made vague assertions of “appraised by a professional” and the characteristics of the patent and alleged fact of the infringement. The letters provided insufficient basis for the recipient Family Shoemart Company to reasonably judge whether any patent infringement existed, and on 27 March 2001 Family Shoemart Company faxed Hsing Kwo requesting that it recall all the sandals.
(3) Gnan-jang's issuance of the warning letters resulted in unfair competition:
In response to Gnan-jang's issuance of warning letters, the recipient of the first letter, Family Shoemart Company, in order to avoid the burden of litigation, de-shelve the goods in question and returned them to Hsing Kwo without regard to the correctness of the contents of the warning letter. It might be said that Family Shoemart Company should have fulfilled its duty of verification. However, patent matters fall in a specialized domain, and the enterprise receiving the warning letter can hardly be expected to spend time and money engaging professional verification services. Instead, in most circumstances it will take the easiest route of simply removing the goods from the shelves and returning them. The result in this case was that Hsing Kwo's distribution channels were inappropriately obstructed, resulting in unfair competition.
At the request of Family Shoemart Company after it had received the second warning letter, Hsing Kwo engaged the professional verification services of the China Productivity Center (CPC) and reached the conclusion that the slipper and sandal manufacturing method used by Hsing Kwo was substantially different from that set forth in the claims of Gnan-jang's Patent 85114375 (ROC Invention Patent No. 107700). Setting aside the fact that the opinion in this verification report differed entirely from the conclusion reached by another verification institution, the Technology Transfer and Service Center under Industrial Technology Research Institute (engaged by Gnan-jang), that “the sample to be verified does not lend itself to comparison with the patented object,” the CPC has been designated a professional patent infringement verification institution under Article 131(4) of the Patent Law, so its verification report has credibility. Thus, Gnan-jang's issuance of warning letters in this case was not a legitimate exercise of patent rights. It improperly interfered with the normal business operations of its competitors and impaired market trading order, which is based on efficiency competition in terms of quality, price, and service, and thus was an obviously unfair act and a reprehensible breach of business competition ethics.
(4) In summary, Gnan-jang's inappropriate issuance of warning letters to a trading counterpart of a competitor regarding patent infringement of its product “sports sandals with buckles” was deemed objectively capable of improperly constraining the trading counterpart and hindering the latter from deciding freely whether to transact and the terms and conditions of transaction, and thus violated the principle of principle of efficiency competition. Gnan-jang's conduct was obviously a reprehensible breach of business ethics and constituted unfair acts in violation of Article 24 of the Fair Trade Law.
Appendix:
Gnan-jang Plastics Co., Ltd.'s Uniform Invoice Number: 84809816
Summarized by Hou, Vh-Hsien; Supervised by Wu, Te-Sheng