Araya Industrial Co., Ltd. (Japan) violated the Fair Trade Law for issuing warning letters

Chinese Taipei

Case:

Araya Industrial Co., Ltd. (Japan) violated the Fair Trade Law for issuing warning letters

Key Words:

warning letters, patent rights

Reference:

Fair Trade Commission Decision of April 11, 1996 (the 229th Commission Meeting); Disposition (85) Kung Ch'u Tzu No. 047

Industry:

Bicycle Parts Manufacturing Industry (5264)

Relevant Laws:

Article 24 of the Fair Trade Law

Summary:

1. A local manufacturer of bicycle/motorcycle wheels wrote the Commission a letter stating that: its aluminum bolt-on wheels and the aluminum wheels produced by Japan's Araya Industrial Co., Ltd. ("Araya Industrial") were in competition in the specific market. In 1994 Araya Industrial wrote several letters to Chinese Taipei's manufacturers of bicycles and bicycle aluminum wheels, i.e., the industrial users of the bicycle aluminum wheels, stating that it owned the patent rights for the aluminum wheels and implied that Chinese Taipei's manufacturers and users of the aluminum wheels having infringed on its patent rights. Upon the receipt of these letters, the complainant hired Japan Metal Co. Ltd. (Japan Metal) to survey the aforesaid aluminum wheels for clarification. Japan Metal's survey report found that the Chinese Taipei aluminum bolt-on wheels for bicycles were definitely different from Araya Industrial's new-model patent. They were different in terms of technology applied and the structure design. The conclusion of the report confirmed that the complainant did not infringe on the patent rights of Araya Industrial. The complainant thus claimed that Araya had violated the Fair Trade Law by issuing misleading warning letters regarding patent infringement.

2. The investigation showed that Araya Industrial on December 22, 1993 acquired a patent for bicycles bolt-on wheel and on March 23, 1994 acquired another new patent. These two patents were not registered in Chinese Taipei. However, as Chinese Taipei's products were exported to Japan, there was the possibility that the said patents were infringed upon; therefore, Araya Industrial's acts might be proper exercise of its patent rights. However, the investigation also showed that Araya Industrial had issued warning letters to 92 enterprises located outside Chinese Taipei, enclosing an attorney's opinion on March 4, 1994 on the patent infringement by Chinlin Company in Chinese Taipei. Among the warning letters sent to the 42 Chinese Taipei's manufacturers of bicycle gears and bicycle assembly plants, none came with the said attorney's opinion except for the one sent to the alleged infringer Chinlin Company. Only a copy of the patent certificate and a copy of the Gazette of Utility Models (both in Japanese) were attached to these warning letters, stating "all bicycles that used bolt-on wheels or used wheels manufactured with the model of the enterprise shall not be imported into Japan; nor shall they be sold to Japanese manufacturers or wholesalers." Araya did not explain why the aforesaid attorney's opinion was left out of letters to Chinese Taipei's manufacturers and why the letter failed to specify the infringing items.

Nonetheless, its act of exercising its patent rights (by issuing warning letters) to Chinese Taipei's manufacturers failed to point out an allegedly infringing party and the circumstances of the alleged infringement with specificity. Neither did Araya Industrial in these letters urge the recipients to respect its utility model. Instead of proceeding with infringement action against the allegedly infringing Chinlin Company, Araya Industrial issued warning letters to its trading counterparts (including regular customers as well as potential ones) and other competitors in the industry rather than to the allegedly infringing manufacturers, including those who manufactured, sold, and used the products in question. Such acts went beyond the proper exercise of rights to protect its patent rights. In response, Araya Industrial cited Article 27 of Japan's Utility Model Law and stated the reason for its acts of preventing Chinese Taipei's products from infringing on its utility model when imported into Japan. Article 27(1) of Japan's Utility Model Law provides that: "An owner of utility models may require the potentially infringing party or the party which has infringed on its utility models to cease the infringing activities, or prevent such infringement." Araya Industrial regarded the 42 Taiwan manufacturers who exported their products to Japan as the infringing or potentially infringing parties. Furthermore, it issued warning letters to as many as 92 manufacturers in Japan, the US, Europe, and Korea.

With such extensive coverage, Araya Industrial seemed to believe that all the recipients in question were "potentially" infringing parties. However, such argument was not based on justifiable reasons as it over-expand the exercise of the patent rights, thus causing its competitors in Chinese Taipei who did not have specific supporting evidence to defend themselves, e.g., the complainant of this case, to pay a third party to do a survey or to explain to their customers one by one, either of which was a heavy burden. Therefore, Araya Industrial's act of mass-mailing warning letters both at home and abroad implying that Chinese Taipei's manufacturers and users of aluminum wheels had infringed on its utility models was as an attempt to gain a competitive edge and seek more trading opportunities by unduly impeding competition. Such acts on the part of Araya Industrial had an adverse effect on the rights of Chinese Taipei's manufacturers of bicycles, including those who manufactured gears and those who assembled bicycles, to compete in a level playing field. They were not justified exercise of patent rights and constituted a violation of Article 24 of the Fair Trade Law.

3. In conclusion, Araya Industrial issued non-specific warning letters to competitors and trading counterparts other than the allegedly infringing party, urging the recipients not to manufacture, purchase, use or export the allegedly infringing products to Japan. Its purpose was to gain competitive advantage by unduly obstructing the competitors. It was also like to adversely affect fair competition and the order of trade worldwide against Chinese Taipei's bicycles manufacturers including those who manufactured gears and those who assembled bicycles operated. Therefore, such acts were obviously unfair to competitors and could cause harms to the market economy, which constituted a violation of Article 24 of the Fair Trade Law; the party performing such acts should be sanctioned pursuant to the first half of Article 41 of the same Law.

　

Summarized by Ho, Pei-wen
Supervised by Yang, Chia-chun

＊＊ : For information of translation, click here

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