Koninklijke Philips Electronics, N.V.

Case:

Key Word(s):

CD-R, orange book, licensing agreement

Reference:

Fair Trade Commission Decision of May 14, 2014 (the 1175th Commissioners’ Meeting); Disposition Kung Ch’u Tzu No.103060

Industry:

Manufacture of Magnetic and Optical Media (2740)

Relevant Law(s):

Article 10(ii) of the Fair Trade Law

Summary:

1. Domestic CD-R companies informed the FTC in 1999 that Koninklijke Philips Electronics, N.V. (hereinafter referred to as “Philips”), Sony Corporation (hereinafter referred to as “Sony”), and Taiyo Yuden Co., Ltd. (hereinafter referred to as “Taiyo Yuden”) violated the Fair Trade Law when licensing their CD product specifications patent. The FTC reached a decision in its Commissioners’ Meeting in 2001 to impose administrative penalties on the companies. The companies filed an appeal with the Executive Yuan, and the Executive Yuan reached the decision to revoke the original penalty and replace it with an appropriate penalty. The FTC reexamined the case and reached a decision in its Commissioners’ Meeting in 2002 to impose administrative penalties. However, the companies were unwilling to accept the decision and appealed. After their appeal was dismissed, they filed an administrative lawsuit in Taipei High Administrative Court, which rendered the judgment to revoke the original penalty, and instructed the FTC to decide on an appropriate penalty after reexamination. The FTC’s appeal was dismissed and petition for retrial was also dismissed. The FTC replaced the original disposition and imposed administrative penalties of NT$3.5 million, NT$1 million and NT$500 thousand on the aforementioned companies. The companies refused to accept the administrative penalties and appealed. After their appeal was dismissed, they filed an administrative lawsuit in the Intellectual Property Court, where their lawsuit was dismissed (Xing Gong Su Tzu Judgment No.4 and No.5 in 2011 were final because Sony and Taiyo Yuden did no appeal). Philips appealed to the Supreme Administrative Court, which rendered the judgment: “Revoke the original judgment. Revoke all penalties besides decisions that were final and parts of the original penalty that were final.” The FTC’s petition for a retrial was dismissed and thus obeyed the Supreme Administrative Court’s judgment to find an appropriate penalty.

2. Findings of the FTC after investigation:
   The FTC sent letters to both parties requesting explanations regarding this case. During the investigation period before the original penalty was imposed, the FTC sent numerous letters requesting both parties to come to the FTC to provide explanations and materials, and also sent investigators to domestic CD-R manufacturers and Asia-Pacific Technology & Intellectual Property Services Inc. The FTC also asked the Electronics and Optoelectronics Research Laboratories of Academia Sinica on numerous occasions for their expert opinion, and the facts of this case are clearly established. Considering the Supreme Administrative Court’s judgment on the appeal and petition for retrial, the FTC will impose an appropriate penalty accordingly.
3. Grounds of disposition:
   

   (1)

   The market in this case would be the CD-R market. Philips, Sony and Taiyo Yuden jointly established an “orange book” of CD-R standard specifications, so that any CD-R manufacturer and distributor around the world must gain licensing of their CD-R patent. The patent licensed by the companies is necessary for entering the CD-R market and can restrict competition in the said market. From a technical standpoint, CD-R is a compact disc that can be written once, and considering the supply, demand, production, sales and cost of CD-R in the market at the time, there was no substitutable product for CD-R. Although others were still free to develop technical specifications in competition, it is an undeniable fact that CD-R manufacturing worldwide must follow the standard specification in the “orange book.” The main patent technology of the specification is owned by the companies of this case, and is provided through jointly licensing, giving the companies an absolute advantage. Other companies that intend to enter the CD-R market were restricted by the standard specifications set by the companies of this case. The FTC determined that the companies constitute a monopoly as referred to in Article 5 of the Fair Trade Law based on the description set forth in Paragraph 3 of Article 3 of the Enforcement Rules of Fair Trade Law, which was amended on August 30, 1999, stating that “the central competent authority may determine that an enterprise constitutes a monopoly when laws or technology restrictions or other means capable of restricting competition in a particular market restricts the establishment of an enterprise or goods or services provided by an enterprise from entering the market, even though the preceding two paragraphs do not apply.”

   (2)

   Philips, Sony and Taiyo Yuden gained a monopolistic position in the CD-R market by jointly establishing an orange book that defines the standard specifications of CD-R and jointly licensing their patents. The companies refused to negotiate with licensees even when the market situation has significantly changed, and continued to maintain the original pricing method. The FTC determined that the companies violated Article 10(ii) of the Fair Trade Law by improperly maintaining the licensing fee, and imposed an administrative penalty of NT$1.8 million on Philips.

Summarized by Chen, Shu-Hua; Supervised by Wu, Lieh-Ling