Complaint by Ares International Corporation against MTi Abraxsys System Inc., an American company, for violating Articles 22 and 24 of the Fair Trade Law
Chinese Taipei
Case:
Complaint by Ares International Corporation against MTi Abraxsys System Inc., an American company, for violating Articles 22 and 24 of the Fair Trade Law
Key words:
computer software, letter of warning
Reference:
Fair Trade Commission Decision of 1 April 1998 (the 334th Commission Meeting); Disposition (87) Kung Ch'u Tzu No. 088
Industry:
Information Service Industry (7050)
Relevant Laws:
Summary:
Ares International Corporation (Ares) filed a complaint against MTi Abraxsys Systems, Inc. (MTi) alleging that MTi had violated Articles 22 and 24 of the Fair Trade Law (“the Law”). The complaint is summarized as follows:
(1) The complainant, Ares, developed application software for financial business and had accumulated years of technology and experience. Between January 1993 and December 1994, Ares successfully developed a software for integrated system of international finance called AresBank. During this period, the project was granted assistance under the Leading Product Development Programs sponsored by the Industrial Development Bureau (the IDB), the Ministry of Economic Affairs. The IDB issued a letter to various banking associations requesting that they recommend their members to give priority to the use of the AresBank software when establishing overseas branches.
(2) However, by itself or through an attorney, the respondent, MTi, sent letters to the Land Bank of Chinese Taipei and other financial institutions alleging the following:
As MTi's agent, Ares had access to confidential information on IBS-90. The Agency Agreement between the parties specified that Ares could not use such information during the term of the Agreement, nor could Ares engage in the promotion, sales or distribution of any competing software within 15 years after termination of the Agreement. If Ares sold a competing software for financial system within U.S. territory in breach of the Agreement, the U.S. law would govern.
To the letter, MTi also attached an attorney letter it had previously addressed to its customers. Such attorney letter accused Ares of stealing or misappropriating MTi's confidential information in the development of its system, and indicated that Ares was suspected of infringing MTi's copyright. Through the attorney letter, MTi warned recipients not to buy or rent the system, or it would prosecute them in accordance with the law.
(3) Ares and Winter Partners, MTi's predecessor company, had signed a Sales Agency Agreement for the IBS-90 software for international finance system. During the term of the agency, only one Ares representative was assigned for the sales on a part-time basis, while MTi directly handled the technology, delivery, installation and after-sale service regarding the product. It was not possible for Ares to access or learn of the product's software or confidential information. After the agency relationship had ended, Ares' AresBank system directly competed with Winter Partners' product in Hong Kong and Tokyo. Five customers from Taipei, Hong Kong and Tokyo used the AresBank system. In light of MTi's attentions on intellectual properties and the lack of legal actions against Ares so far, it is clear MTi was well aware that Ares could not possibly have infringed its rights. MTi's purpose in issuing the letter was to circulate false information alleging that Ares had infringed its rights so as to damage Ares' business reputation and obtain an superior position in the sales of financial business software. In addition, copyright lawsuits involve highly professional technology and knowledge. Given that an ordinary person would be highly unsure about the outcome of such a lawsuit, receipt of the attorney letter would easily cause stress and fear of becoming entangled in the dispute. In this instant case, MTi did not specify the content of its copyright or present any substantial evidence to prove Ares' alleged infringement. Given that they would find a lawsuit outcome difficult to predict and in order to avoid any risk, letter recipients would follow the demands in the letter and stop using or buying Ares' product. MTi's action to diminish competition exceeded the extent to which MTi should protect its own rights and was obviously unfair.
MTi was an American software development company. On 7 November 1995, MTi asked its U.S. attorneys, Gilbert, Segall and Young LLP, to send attorney letters to financial software users or distributors. The letter informed recipients of MTi's Agency Agreement with Ares, and that Ares was suspected of violating MTi's copyright. In addition, MTi's attorneys sent a letter on 17 May 1996 to Land Bank of Taiwan, a letter on 9 July to Chiao Tung Bank and one on 10 July to the Bank of Hawaii's Taipei branch. Such actions obviously involved economic activities within the territory of Chinese Taipei and directly affected Chinese Taipei's trading order. MTi's letter to Ares' trading counterparts or prospective trading counterparts was likely to intimidate competitors from entering the market. If MTi's acts had gone beyond the degree necessary for protecting its rights and resulted in unfair competition, such acts should be found obviously unfair acts which were likely to adversely affect Chinese Taipei's trading order and were thus in violation of the Law.
Regarding MTi's alleged violation of Article 22 of the Law:
MTi circulated the letter to Ares' trading counterparts or prospective trading counterparts for competition purposes. As for its allegation that Ares had infringed its copyright, since the matter involved highly specialized technology, the Commission was not in a position to assert that MTi made or publicized any false statement in violation of Article 22 of the Law.
Regarding MTi's alleged violation of Article 24 of the Law:
(1) The design and development of financial software involves copyright protection, while the relevant copyright infringement involves highly specialized technology and knowledge. Given that an ordinary person would be highly unsure about the outcome of a lawsuit, receipt of the attorney letter would easily cause stress and fear of becoming entangled in the dispute, and recipients would postpone or cancel the transactions. Therefore, an enterprise, for the purpose of competition and before obtaining a verdict or independent and impartial assessment, improperly issuing a warning letter that a competitor has infringed its copyrights, thus affecting the willingness to trade of its competitor's trading counterparts, constitutes a violation of Article 24 of the Law as an "act which is deceptive or obviously unfair, which is sufficient to affect trading order."
(2) Before obtaining any favorable judgement from a court or any infringement report from an independent and impartial institution as to whether there had been infringement, MTi sent the attorney letter to its competitor's prospective trading counterparts. MTi argued that it sent the attorney letter for fear that a third person might unknowingly assist Ares in violating the agreement, and that it was thus exercising its legal right to prevent Ares' customers from jointly infringing MTi's rights. However, before sending the letter, MTi did not notify Ares and request cessation of infringement. MTi also failed to specify in the attorney letter the content, scope of its copyright, and present any physical evidence. Letter recipients might thus have been convinced and change their minds in dealing with Ares. MTi's act obviously was sufficient to affect the trading order; and therefore, its argument was not acceptable. MTi was found in violation of Article 24 of the Law.
Summarized by Tu, Hsing-feng
Supervised by Pai, Yu-chuang
Appendix:
Ares International Corporation’s Uniform Invoice No.: 20873360