Hon Hai Precision Industry Co., Ltd.

Case:

Key Words:

Market Observation Post System, web page, connector, patent

Reference:

Fair Trade Commission Decision of November 23, 2006 (the 785th Commissioners' Meeting); Disposition (95) Kung Ch'u Tzu No. 095158

Industry:

Computers Manufacturing (2711)

Relevant Laws:

Article 24 of the Fair Trade Law

Summary:

1. Hon Hai Precision Industry Co., Ltd. (hereinafter called "Hon Hai") posted six messages on the Market Observation Post System exhibiting that the complainant infringed upon Hon Hai's patent of connector products, such as CPU Socket and DDR, respectively on June 24, 2005, July 12, July 26, September 23, October 26, and November 7. Hon Hai was therefore involved with possible violation of Article 24 of the Fair Trade Law by using massive negative words to libel and defame the complainant's business reputation and causing the complainant to lose trade with its trading counterparts and profits
2. Findings of FTC after investigation: It was found that from June 24 to November 7, 2006, Hon Hai posted a message on the Market Observation Post System saying that the complainant was involved in several lawsuits of patent rights infringement. After the investigation, it was found that the message in question consecutively alleged that the complainant was "counterfeiting," "infringing upon intellectual property rights," "maliciously competing," "intentionally confusing the market," " an illegally speculative company," and "an unworthy counterfeiter." These words are commonly known by the general public to be sufficient to libel and defame the complainant's reputation. Since 2000, Hon Hai has not received any decisions issued by relevant court regarding such infringement upon the patent of Hon Hai's connector products. However, the words that Hon Hai used in the message in question affirmatively claimed or implied that the complainant had infringed upon Hon Hai's patent rights. Such a message was not just a statement of facts and was used consecutively and considerably. Therefore, the contents of such a message published by Hon Hai were obviously improper.
3. Grounds for disposition:
   (1) The message in question stated that "the connector manufactured and sold (by the complainant) has infringed upon more than ten patents of our company." However, it was found that the so-called "more than ten patents" by Hon Hai included 7 patents in China, 5 in the US, and 2 domestic patents. The infringement upon those 7 patents in China was merely authenticated by Hon Hai's internal legal department without any external professional institution's authentication. Therefore, Hon Hai's allegation about the complainant's infringement of Hon Hai's patents in China is doubtful. Additionally, Hon Hai posted said message on the Market Observation Post System was because Hon Hai filed for a provisional detainment and patent rights infringement litigation against the complainant during that period of time. However, the provisional detainment enforced by Hon Hai in conjunction with Keelung District Court on June 24, 2005 was for the two domestic patents. As a result, the message published by Hon Hai on the same day claiming that "the connector manufactured and sold by the complainant has infringed upon more than ten patents of our company" was obviously inconsistent with the messaged published on the Market Observation Post System and was improper as well.
   (2) Due to Hon Hai's advantageous position in the connector market, the message it published on the Market Observation Post System was broadly covered by newspaper, magazine and electronic media which quoted the contents of the message in the reporting. It made the trading counterparts or potential trading counterparts of the complainant to know of the message in question through the media. Hon Hai further published another message on November 25, 2006 not only to repeat the statements that Hon Hai filed for a provisional detainment and patent rights infringement litigation against the complainant but also to claim that "any and all relevant companies who are still using the product involved in the infringement shall be the next target deterred by us." Based on Hon Hai's market position, which is way more advantageous than the complainant, the complainant, Hon Hai's action to publish such messages in question is sufficient to cause suspicion in the complainant's trading counterparts and potential trading counterparts and let them cease trading with the complainant. Upon the FTC's investigation, it was found that the trading relationship between some of the complainant's trading counterparts and the complainant was affected after these trading counterparts learned about these messages in question and decided to avoid being involved in the patent rights disputes to protect their own products. Thus, Hon Hai's act is sufficient to affect trading order.
   (3) Although Hon Hai argued that the term "an illegally speculative company infringing upon the intellectual property right" was used to refer to all companies that had infringed upon Hon Hai's patent rights and not just the complainant. However, after reviewing the message, the contents of the message were meant to describe specific facts regarding the provisional detainment and litigation against the complainant. Right after this statement, some negative words, such as "plagiarizing," "copying," and "counterfeiting", were used in the following paragraph to describe an infringement upon Hon Hai's patent rights. By the overall meaning of such a message, such a message could cause the message receivers to think that the complainant had done the foresaid "plagiarizing," "copying," and "counterfeiting." Therefore, Hon Hai's statement shall not be taken into account.
   (4) After taking into account the motive, objective, expected improper benefits, degree of damage to trading order, duration of the actions, benefits obtained, scale of business, business operations, the FTC ordered Hon Hai to immediately cease the aforesaid unlawful acts and imposed an administrative fine of NT$1,560,000.

Appendix:
Hon Hai Precision Industry Co., Ltd.'s Uniform Invoice Number: 04541302

Summarized by Chen, Haw-Kae; Supervised by Liou, Chi-Jung