This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 TAIPEI 001217 
 
SIPDIS 
 
STATE FOR EAP/RSP/TC, STATE PASS AIT/W 
 
E.O. 12958: N/A 
TAGS: ECON KIPR TW IPR
SUBJECT: US/TAIWAN HOLD FIRST ANTI-TRUST WORKING GROUP 
MEETING 
 
¶1.  Summary:  Representatives from the US Department of 
Justice and Fair Trade Commission and representatives from 
the Taiwan Fair Trade Commission held a Digital Video 
Conference (DVC) March 16.  This was the first meeting under 
the auspices of the U.S./Taiwan Anti-trust Working Group. 
The TFTC presented a short discussion of patent pooling in 
Taiwan and then outlined their decision making process in a 
recent case.  USDOJ and FTC introduced the U.S. business 
review and advisory opinion process then discussed U.S. 
procedures in a U.S. patent pooling case.  In addition to the 
first meeting of the Anti-trust Working Group, this was 
TFTC's first DVC.  TFTC representatives were very pleased 
with the discussion, wished the DVC could have been extended 
and are eagerly anticipating the next working group meeting. 
End Summary. 
 
¶2.  The first meeting of the US/Taiwan Anti-trust working 
group was via DVC on the morning of March 16 Taipei time. 
USDOJ Stuart Chemtob led the U.S. delegation, accompanied by 
USDOJ Special Counsel for Intellectual Property Frances 
Marshall, Attorneys Hill Wellford and Jennifer Dixton, and 
Economist Suzanne Majewski, FTC Associate Director Alden 
Abbott and Asia-Pacific Counsel Deirdre Shanahan.  US Deputy 
Assistant Attorney General Makan Delrahim also attended 
briefly.  The Taiwan FTC delegation was headed by Deputy 
Chairman Shin Chih-jeng, accompanied by several members of 
his staff. 
 
Discussing Patent Pooling Guidelines 
==================================== 
 
¶3.  Introductions were followed by a TFTC presentation on 
patent pooling regulations in Taiwan.  Patent pools are 
created by rightsholders as a means of simplifying licensing 
procedures for manufacturers who would like to use the 
patented technology.  Relevant patents are included in a 
"pool", the licensee then pays a royalty fee to license all 
patents in the pool, rather than negotiating separate 
agreements for each patent.  TFTC's staff, Ms. Chen Ying-ju 
discussed the TFTC's methodology for determining whether 
patent pools were anti-competitive.  Taiwan has published 
guidelines based on international and domestic case law to 
determine how to handle patent pooling cases.  These 
guidelines include eleven examples of permissible patent 
pools and direct investigators to consider reasonableness of 
the pool, the market power of the licensor, the relative 
market position of the parties, whether the patents are 
substitutable or complimentary, and whether the arrangement 
will discourage innovation. 
 
¶4.  The TFTC then introduced its first patent pool case, 
decided in 2004.  Philips, Sony, and Taiyo Yuden created a 
patent pool for CD-Recordable (CD-R) production.  Taiwan has 
a large CD-R manufacturing industry that licenses technology 
from the patent pool administered by Philips.  In 1999, the 
Taiwan CD-R industry brought a case to the TFTC alleging that 
Philips had set the royalty rate too high, refused to 
negotiate a lower rate, and required licensees to provide 
confidential and irrelevant business data as a requirement of 
 
SIPDIS 
licensing.  After a lengthy investigation, the TFTC found in 
2004 that Philips was in violation of Taiwan's anti-trust law 
and authorized compulsory licensing of CD-R patents.  The 
TFTC based its decision on several factors, including 
Philips' unwillingness to adjust the royalty fee, the 
inability of licensees to choose substitutes, and an improper 
agreement between the patent-holders to set prices, share 
royalties and not compete.  The TFTC also found that some of 
the patents in the pool were irrelevant or substitutable, not 
complementary patents. 
 
¶5.  USDOJ officials, questions focused on how the TFTC 
determined that the patent pool was anti-competitive, 
including a discussion of the differences between US and 
Taiwan procedures for gauging anti-competitive behavior. 
Rather than looking at price or lack of competition, the 
USDOJ directs its attention to whether patents included in 
the pool are substitutable or complementary.  Pooling 
complementary patents can encourage greater competition and 
lower prices for consumers by eliminating inefficiencies and 
lowering transaction costs.  The USDOJ does not believe that 
inclusion of substitutable patents in a pool automatically 
makes it anti-competitive, but such pools invite closer 
scrutiny to determine whether innovation is suppressed.  The 
TFTC representatives agreed that further discussions of how 
to define complementality and substitutability would be 
useful.  The USDOJ was interested to see TFTC's evidence 
pertaining to the royalty sharing agreement, noting that the 
US has not investigated this type of case and could benefit 
from Taiwan's experience. 
 
USDOJ Offers Experience in Business Reviews 
=========================================== 
 
¶6.  The USDOJ/USFTC presentation discussed their business 
review and advisory opinion processes.  Companies can apply 
to the DOJ in advance of any action to ask for a review of 
their proposed conduct.  DOJ will then analyze the proposal 
and recommend changes if needed, to ensure the planned course 
of action does not violate the law.  DOJ noted that even if 
the company does not follow DOJ recommendations, there is 
still no presumption of anti-competitive behavior.  The FTC 
advisory opinion is similar in that it applies only to 
prospective actions.  There are two types of advisory 
opinions.  Commission-issued opinions are agreed upon by the 
whole commission and are legally binding.  Staff-issued 
opinions are not legally binding, however, there has never 
been a case where a staff opinion was overruled. 
¶7.  The FTC then introduced its experience in a patent pool 
case.  In the Visix-Summit case, two competing laser surgical 
equipment manufacturers pooled their patents and set a fixed 
price for all licensees.  Visix and Summit argued that their 
patents were complementary, but the FTC found they were 
substitutable and the pool artificially increased prices and 
restricted innovation.  In this case, the FTC employed 
independent experts to help determine whether the patents in 
the pool were technically essential and whether there were 
feasible alternatives.  In response to TFTC questions about 
whether the high fixed royalty rate influenced the decision, 
the FTC argued that the royalty rate should not be a 
determining factor, rather it is the availability of 
substitutes that should control the decision.  The FTC noted 
that setting standards and royalty fees often seek a 
"reasonable and non-discriminatory" standard, but it is 
impossible to project what will be considered reasonable as 
technology develops and matures. 
 
Positive Reactions, Looking for Future Meetings 
============================================= == 
 
¶8.  In a brief closing, both the USDOJ and TFTC expressed 
their satisfaction with the exchange of views and professed a 
clearer understanding of the factors considered by their 
counterparts in determining what comprises anti-competitive 
practice.  During the post-meeting wrap-up, TFTC officials 
told AIT/T that they very pleased with the discussion, would 
have liked the opportunity to extend the discussion beyond 
the two hour time frame and hope next time to include more 
TFTC staff.  Attendees noted that the Philips case was 
controversial, even within the TFTC, and were appreciative of 
the opportunity to hear the views of US experts about key 
aspects of the case.  The TFTC officials hoped the next 
meeting of the working group could be scheduled as soon as 
possible, and suggested further discussions about patent 
pooling might be useful. 
PAAL