Inergy and Force Mos are both Taiwanese manufacturers of chips, their key business focus being the research, scientific development and sales of metal-oxide-semiconductor field-effect transistors (MOSFET). Force Mos was the owner of two US patents—US 7,812,409 and US 7,629,634. On November 19, 2018, the US’409 patent was declared invalid owing to non-payment of annuities. Although it was later revived, the patent was unenforceable during the period between October 12, 2018 and May 24, 2023 since the intervening right arose.

  On May 23, 2023, Force Mos served a warning letter (1st warning notice) to Inergy and ASUS, who sold in the US market the PC products containing MOSFET chips which were packaged by Panjit after being original design and manufacture by Inergy. In the 1st warning letter, Force Mos accused the MOSFET chips of having infringed the US’409 patent, albeit with no infringement analytical report attached. Then, on September 14, 2022 and October 21, 2022, Force Mos served two subsequent warning letters (2nd and 3rd warning notice) to ASUS’s US subsidiary alleging infringement of the US’634 patent. As the supplier of ASUS and Panjit, Inergy filed a lawsuit against Force Mos complaining that the warning notices to Inergy’s clients constituted injuries to Inergy’s commercial reputation by disseminating untruthful statements with bad faith intent. Inergy accused Force Mos of having breached a directive of the Fair Trade Commission which requires a number of precautionary measures to be taken before such a letter is sent to a non-manufacturer[1]; Force Mos was therefore deemed to be in violation of the Fair Trade Act for undertaking false statement dissemination and deceptive or obviously unfair conduct in order to undermine competition.[2]

  In review of this case, the main inquiries presented before the court were: (1) Whether the Fair Trade Act of Taiwan applies in this case where the subject matter in dispute was not a Taiwanese patent; and (2) Whether the three warning notices were false statements and deceptive or obviously unfair conducts against the Fair Trade Act.

  Taiwanese anticompetitive law applies in a pending dispute only if a party’s accused activities have had a negative impact on the Taiwanese market by attenuating competition. That is, Taiwan must be a relevant market, or a circle of economic competition, in which Force Mos’s activities have caused or have potentially caused injury. The Court explained that a relevant market, defined by the availability of substituting goods and services and the difference in the geo-extent of the sales area, is an integrative combination of the product market and the geographic market. The product market refers to the scope of goods and services with a higher degree of demand or replaceability of supply in terms of functions, characteristics, purpose of use or prices, whereas the geographic market, as the name suggests, intuitively means the area within which an individual making a transaction can easily opt for or switch to another counterparty for a specific good or service. In addition to the above two market concepts, the time is another important element to factor in when defining a relevant market.

  In the present case, Inergy manufactured the chip to be delivered to Panjit for assembly. The modules assembled by Panjit containing Inergy’s chips would then be delivered to ASUS and others for installation in the final electronic products. There being no transactional barriers between the countries, Inergy’s chips may actually end up in the US where ASUS sells its laptops. Therefore, the US and Taiwan should be deemed to be a single relevant market. Moreover, the MOSFET-related business accounts for 63-80% and 79-92% of Inergy and Force Mos’s revenues, respectively. Their businesses overlap significantly and the geographic range of the semiconductor supply chain extends beyond national borders. The warning notices could have resulted in the substitution of one’s products with the other when the buyers chose to do so, meaning that such a warning notice to ASUS’s US and/or Taiwan entity could have an impact on the procurement decision making with Inergy in Taiwan. From the analysis, it was decided that the Taiwan market had been affected negatively. The Court briefly concluded that Taiwan’s anticompetitive law should be applied in the case at issue.

  Any exercise of IP rights must be carried out in a legitimate fashion, the Court emphasized. If the IP holder abuses the rights or acts against the good faith requirement in the course of exercising the IP in order to undermine the order of competition, it is not acting legitimately.

  In this dispute, Force Mos’s US’409 patent had been invalid since November 19, 2018, due to the failure of annuity payments. Before its restoration on May 25, 2023, Force Mos would not be able to exercise any rights with the US’409 patent. As a large-scale listed company with a considerable quantity of registered capital, Force Mos should have borne the duty of verifying the validity of legal rights before exercising them. Although Force Mos continued to argue that it had delegated the management capacity of the US patents to its US lawyers who did not timely notify it of upcoming renewals, the Court denied its arguments by again underlining that the latest information on patent validity can be readily and swiftly accessed at the USPTO’s public portal. The cost for an immediate check-up was minimal, suggesting that the cost of preventing injury was far less than the expectable damages from injury.[3] Serving a warning letter accusing the receiver of infringing an invalid patent was apparently an act lacking good faith. At the very least, Force Mos had acted negligently without fulfilling the duty of care as a good manager.

  In summary, the 1st warning notice prompted ASUS to question Panjit as to whether Inergy had been involved in infringing activities. It compromised ASUS’s trust in Panjit’s and Inergy’s businesses. Inergy’s commercial goodwill was therefore undermined. Considering that goodwill is essentially an intangible asset, the Court evaluated all available factors to rule with discretion two damages awards, each of which another respective managerial figure was jointly liable for. As for the non-asset or moral damages claimed by Inergy, the Court rejected it on the grounds that only a natural person is entitled to this whereas Inergy was an organization.[4]

  The case remained appealable within 20 days of January 3, 2024.

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