Taiwan Patent Court a Concern for U.S. Tech Firms

Reformed IP legal system deals blows to Applied Materials and Lam Research

Photo: iStockphoto

7 February 2011—Two recent patent infringement court rulings in Taiwan have sent a chill through U.S. technology companies operating there. Intellectual property (IP) suits brought by these companies have helped fend off competitors in Taiwan’s market for semiconductor and LCD manufacturing equipment. And in the past decade, U.S. companies have sought speedier decisions through reforms and a dedicated IP Court. But now that the court is in session, the new legal system is speedily dismissing U.S. patent holders’ claims.

The IP Court, long awaited by foreign investors, was established in July 2008. It hears civil and administrative cases, as well as appeals of criminal cases. Analysts caution that despite the recent judgments deterring U.S. patent plaintiffs, whether the new specialized IP Court is really rocking the boat in the island’s tech industry remains uncertain. However, the court’s relatively low number of infringement-case rulings in favor of patentees has already drawn some attention.

Research presented last December at a joint seminar of the Taiwan Patent Attorneys Association and the Ministry of Economic Affairs’ Intellectual Property Office analyzed patent infringement cases the IP Court received from its inception through 31 October 2010. The researchers found that the patentee win rate in the first trial is just 12 percent, while in the second trial it’s just 11 percent. According to Ming-Yan Shieh, professor of law at National Taiwan University, the average patentee win rate in infringement cases in the year and a half before the IP Court (from 1 January 2007 to 30 June 2008) was about 30 percent.

In 2005, the United States removed Taiwan from its Special 301 Priority Watch List of countries with the most unsatisfactory IP records, in part because the country had made efforts to adopt effective enforcement mechanisms to protect IP rights. However, foreign companies operating in Taiwan had criticized the lack of a specialized IP Court staffed by specially trained judges and aided by assistants with technical backgrounds. According to the American Chamber of Commerce in Taipei, such a specialized court could help speed up the time needed to complete a trial and ensure more consistent and professional verdicts. Back then, some members of the chamber had observed that many judges were reluctant to treat IP offenses as serious crimes that deserved heavy sentences.

Shieh says that the IP Court did draw positive responses from legal experts and that more consistent and professional verdicts have already come out of the court. However, his own analysis on the effectiveness of the IP Court shows that patent infringement trials remain time-consuming. And the low-patentee win rate is striking. "Lower patentee win rates can be attributed to several factors, such as defendants’ patent invalidation assertions in infringement cases at the IP Court," Shieh told IEEE Spectrum.

According to Shieh, the IP Court has to deal with such assertions in an increasing number of patent invalidation cases. Shieh’s study suggests that only 27 percent of invention patents were ruled effective in the first trial, while in the second trial, 31 percent were. Shieh says such statistics put into question the quality of work at the patent issuing office.

One of the recent cases against U.S. manufacturers was filed before the IP Court’s inception, but if it is appealed, it will go to the new venue. In a ruling on 31 December 2010, Taiwan Hsinchu District Court put at least a temporary end to a seven-year-long struggle between the U.S. semiconductor manufacturing equipment firm Applied Materials and Jusung Engineering of South Korea. The court dismissed Applied Materials’ complaint seeking damages and a permanent injunction for infringement of one of its patents for the plasma-enhanced chemical vapor deposition (PECVD) for making LCD panels in a particular generation of manufacturing plants. The PECVD is used in making the thin-film transistors that control display pixels.

Jusung says it has suffered significant disadvantages in the Taiwanese market due to customers’ concerns about its intellectual property. "We believe that this suit had originally been intended as a business strategy of the plaintiff to impede Jusung Engineering’s market entry," it wrote in a press release dated 10 January.

Hunsuk Kim, manager of Jusung’s intellectual property team, says that Jusung believes that the first trial ruling would help broaden its market in Taiwan. However, Kim refuses to reveal information about potential purchasers in Taiwan. "Anyway, we will definitely fight until the end if Applied Materials appeals," Kim says.

And indeed, while Applied might appeal, it won’t say so yet. Applied’s Taiwan public relations manager, Pearl Tan, says that the Hsinchu court will issue a written decision setting forth its reasoning in two to three weeks. "Applied will determine our course of action after reviewing the written decision of the Hsinchu District Court," Tan says.

Even if the fight goes on in court, analysts expect Jusung and Applied to continue to fight in the market over PECVD equipment needed for newer generation factories, because they are basically the only two suppliers. According to analysis by DisplaySearch, total investment in production equipment was expected to reach US $13.2 billion in 2010 and fall to $10.9 billion in 2011.

Similarly, semiconductor equipment suppliers cast their covetous eyes on the market in Taiwan, home to key semiconductor manufacturers. However, a ruling by the Taiwan IP Court on 20 January also discouraged another American company. Lam Research, based in Fremont, Calif., accused China’s Advanced Micro-Fabrication Equipment (AMEC) of infringement in the new IP Court in January 2009. At issue is Lam’s dielectric etching equipment; it claims AMEC is using this technology. The IP Court rejected Lam’s appeal, which was filed after Lam lost the case in September 2009.

About the Author

Yu-Tzu Chiu is a Taipei-based reporter and frequent contributor to IEEE Spectrum. In December 2010, she analyzed the effect of European fines against LCD makers that were involved in a price-fixing conspiracy.

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