A complaint filed against the American 3Com Corporation for abusive sending of warning letters and violated the Fair Trade Law

Chinese Taipei

Case:

Key Words:

Warning letter, Ethernet controller, patent licensing

Reference:

Fair Trade Commission Decision of June 22, 2006 (the 763rd Commissioners’ Meeting), Disposition Kung Ch’u Tzu No. 0950965

Industry:

Semi-conductor Manufacturing (2710)

Relevant Laws:

Article 24 of the Fair Trade Law

Summary:

1. This case originated from a complaint filed by Realtek Semiconductor Corp. (hereinafter referred to as Realtek). Realtek and American 3Com Corporation are manufacturers of network chipsets and have competition relations. However, 3Com Corporation began to send a warning letter to the American D-Link System Inc., a trading counterpart of Realtek without enclosing any relevant evidences on October 21, 2002. 3Com Corporation sent another letter again on December 18, 2002, warning D-Link System Inc., that the Realtek’s component that it used in its products have infringed 3Com’s patent. Repeatedly, on August 26, 2003, 3Com Corporation sent warning letters to the trading counterparts of Realtek; Chaintech, Gigabyte, Biostar and DFI. Following after, on December 8, 2003, 3Com Corporation has also sent warning letters to Abit, Elitegroup, Asus and MSI. Without enclosing any relevant evidences in the aforementioned letters, 3Com Corporation claimed that the products of the aforementioned companies have infringed its US patent number 5307459, 5434872 and 5732094 (hereinafter referred to as the US patents at issue). Soon after, 3Com Corporation dispatched staffs from the legal affair department (Don Drinkwater、Bill Becker、Sibyl Wong) to visit the aforementioned companies between the end of March and the beginning of April in 2004. They indicated that the products of Realtek have infringed its US patents at issue and urged them not to buy the products from Realtek anymore. In addition, the aforementioned companies were also asked to acquire licensing from 3Com Corporation. The conducts of 3Com Corporation in disseminating warning letters and performing face-to-face intimidations to companies within our nation’s boundary, have damaged the business reputation of Realtek.
2. Upon the investigation, the Fair Trade Commission (FTC) found:
1. 3Com Corporation has sent representatives to visit the business sites of local companies between the end of March and the beginning of April in 2004. They have indicated in their visits that the products of local companies that used the RTL8101(L) chips of Realtek have infringed its patent right. Therefore, the local companies should acquire licensing from 3Com Corporation. However, 3Com Corporation did not present or show the assessment report of patent infringement issued by the impartial third party. It only provided the internal claim chart of 3Com Corporation, showing that the Ethernet chips of Realtek have infringed the US patents at issue of 3Com Corporation. At the same time, 3Com Corporation provided three options to the aforementioned companies: (1) Acquire licensing from 3Com Corporation, (2) Buy from the company that has 3Com Corporation’s licensing, for example, X company at overseas and (3) Buy Ethernet chips directly from 3Com Corporation because 3Com Corporation also manufactures Ethernet chips.
2. After receiving letters from 3Com Corporation and being visited by its staffs, the trading counterparts of Realtek have successively requested Realtek to present assessment reports of the third party impartial infringement assessment institution that show the products do not have patent infringements. In addition, Realtek was also requested to sign “non-infringement opinion letter”, “notice of compensation for infringement”, “declaration of indemnification for damages” or “declaration of joint plea”.
3. Grounds for disposition:
1. Realtek and American 3Com Corporation have competition relations. Even though 3Com Corporation clearly knows that Realtek is the manufacturer of the Ethernet controller at issue, but it did not follow the proper judiciary process to protect its intellectual property rights. On August 27, October 10 and December 8 of 2003, 3Com Corporation had repeatedly sent letters to the trading counterparts or potential trading counterparts of Realtek, including Chaintech, Gigabyte, Biostar and DFI, Abit, Elitegroup, Asus and MSI. 3Com Corporation indicated in the letters that the products of the aforementioned companies have infringed its US patents at issue. In addition, the said letters also included notifications to the aforementioned companies that 3Com Corporation has already drafted patent licensing agreements for its US patents at issue recently, and it will give favorable terms of licensing to the aforementioned companies. Although the said letters did not explicitly state that the products of Realtek have infringed its patent rights, nevertheless, 3Com Corporation has later dispatched staffs from the legal affair department, Don Drinkwater、Bill Becker、Sibyl Wong, to visit business offices of the aforementioned companies in March and April of 2004. They alleged that the products of the aforementioned companies that used the Realtek’s series Ethernet controller have infringed its patents. Therefore, 3Com Corporation had asked the aforementioned companies to acquire licensing from 3Com Corporation or buy the relevant products directly from 3Com Corporation, or buy the relevant products from other competitor that has acquired licensing from 3Com Corporation. Such announcements have led the aforementioned local companies requesting Realtek to present assessment reports of the third party impartial infringement assessment institution that show the products do not have patent infringements. In addition, they also requested Realtek to sign “non-infringement opinion letter”, “notice of compensation for infringement”, “declaration of indemnification for damages” or “declaration of joint plea”. Even more, some companies have reduced their purchases from Realtek in the following year.
2. 3Com Corporation has directly sent letters and dispatched staffs to the business offices of the trading counterparts of Realtek to carry out improper business interference prior to the confirmation of infringement through necessary procedure. Such conduct obviously has gone beyond the extent required for patent protection. Hence, it is reprehensible in business ethnics and obviously unfair conduct that is able to affect trading order. The said conduct has violated the provision of Article 24 of the Fair Trade Law and a fine of NT$ 2,430,000 is imposed on 3Com Corporation.

Summarized by: Chen, Shu-Hua;
Supervised by: Liou, Chi-Jung

Appendix:
Realtek Semiconductor Corp.’s Uniform Invoice Number: 22671299