VZCZCXRO8441
PP RUEHCN RUEHGH RUEHVC
DE RUEHIN #2442/01 3092235
ZNR UUUUU ZZH
P 052235Z NOV 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC PRIORITY 7297
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHBS/USEU BRUSSELS

UNCLAS SECTION 01 OF 02 TAIPEI 002442 
 
SIPDIS 
 
STATE PLEASE PASS TO AIT/W AND EAP/RSP/TC 
STATE PASS USTR/DAVID KATZ AND CHRIS WILSON 
USDOC FOR 4430/ITA/MAC 
USDOC FOR USPTO GIN, BROWNING, AND SNYDOR 
 
SIPDIS 
 
E.O. 12958: N/A 
 
TAGS: ECON ETRD KIPR TW
SUBJECT:  Taiwan IPR: Some Progress on Compulsory Licensing 
 
REFTEL: TAIPEI 638 
 
Summary 
------- 
 
¶1. (SBU) Responding in part to U.S. concerns, Taiwan has shown some 
progress on compulsory licensing, a practice whereby one company can 
request that the authorities force a rights-holder to grant the 
company a license for its patented product, often at a below-market 
rate.  In one promising development, the Legislative Yuan (LY) has 
suspended debate on a proposed amendment to Article 76 of the Patent 
Act that would have allowed Taiwan authorities a broader use of 
compulsory licensing for pharmaceuticals and other patented products 
for domestic use and export.  In a separate positive development, as 
part of a widely-watched test case on the use of compulsory licenses 
in Taiwan, the Dutch company Philips reached a payment settlement 
with a private Taiwan company for the company's past production of 
CD-Rs and CD-RWs under such a license. This case is far from wrapped 
up, however, with a decision still pending from the Taiwan High 
Court and an impending report from the EU's Trade Barriers 
Regulation (TBR) investigation into Taiwan's compulsory license 
scheme.  End summary. 
 
Background 
---------- 
 
¶2. (SBU) Amending Article 76 the Patent Act was first mooted in 2006 
by Chen Min-jen, an American citizen and member from the ruling 
Democratic Progressive Party (DPP) who serves as an "overseas 
representative" to the LY (reftel). In December 2006, the 
Legislative Yuan (LY) Economics and Energy Committee passed the 
current version of the draft amendment, which would allow Taiwan 
authorities to grant compulsory licensing of pharmaceuticals and 
other patented products if the rights-holder has "misuse[d] patent 
rights as determined by ... a court or a disposition made by the 
Fair Trade Commission of the Executive Yuan." This change would 
significantly relax the legal requirements for a local firm to 
obtain a compulsory license.  It would allow a license to be issued 
even while an appeal from the rights-holder was pending, for 
example.  The amendment also says that such compulsory licenses do 
not have to be "predominantly for the supply of the domestic 
market." This provision appears to go beyond the scope allowed by 
the 2001 Doha Declaration on the TRIPS Agreement and Public Health. 
The United States expressed concern on several occasions to the 
Taiwan side about both of these proposed changes under our ongoing 
IPR dialogue (reftel). 
 
LY Won't Act on Bill, Sponsor Won't Seek Re-election 
--------------------------------------------- ------- 
 
¶3. (SBU) Taiwan Intellectual Property Office (TIPO) Secretary 
General Margaret Chen recently told econoff that the LY has 
suspended discussion of the current Article 76 amendment.  Chen said 
TIPO is drafting a new version of the bill that will take into 
account US objections and will follow more closely to the language 
of the 2001 Doha Declaration, and that TIPO will pass the new draft 
proposal to us by the end of November for comment. [Note: We have 
not seen a copy of this draft, nor do we know if it will reflect all 
U.S. concerns.  End note.]  Since the new version will have to gain 
EY approval and then start LY draft-law procedures again, she does 
not think that the LY will have time to consider the new version 
before the current legislative session ends December 31.  [Note: 
Even if the EY got the new bill to the LY this session, the 
amendment would not be a priority issue for legislators and would 
almost certainly expire with the end of the session.] 
 
¶4. (SBU) In addition, the amendment's sponsor in the legislature, 
Chen Min-jen, will not be re-elected to his at-large, overseas DPP 
seat.  Although the DPP has not yet made public its short-list of 
at-large candidates for the upcoming LY elections, under the DPP's 
charter, an at-large legislator cannot serve two consecutive terms 
in the LY. Since Chen will not return to the LY next session, the 
language he proposed this session to give the Taiwan authorities a 
broad mandate to grant compulsory licenses is less likely find its 
way into subsequent versions of the Patent Act amendment. 
 
Philips Reaches Settlement 
-------------------------- 
 
¶5. (SBU) Philips Taiwan General Manager for IP and Standards James 
Li told econoffs on October 31 that on October 30 Philips and 
Taiwan's Gigabyte Storage Company reached a formal financial 
settlement of compensation to Philips for Gigastorage's past 
production of CD-Rs (Compact Disc-Recordable, a variation of the CD 
invented by Philips and Sony) and CD-RWs (Compact Disc Re-Writable) 
under a compulsory license granted by the Taiwan authorities in 
¶2004.  [Note: Although Philips is a Dutch company, it has extensive 
 
TAIPEI 00002442  002 OF 002 
 
 
assets in the United States, and this case is a bellwether for the 
use of compulsory licenses in Taiwan.  End note.]  This is a 
worldwide settlement and ends all lawsuits brought by Philips 
against Gigastorage.  In May 2007, after the EU initiated a Trade 
Barriers Regulation (TBR) investigation of the case, Gigastorage 
requested that TIPO nullify its original license approval, and the 
company stopped production of CD-Rs and CD-RWs in Taiwan on 
September 23.  Gigastorage, however, had balked until now at paying 
licensing fees in full for the production run.  Li would not reveal 
the size of the settlement, but he told us that it is a "real 
settlement" for a "substantial sum" to be paid in installments. 
 
¶6. (SBU) Philips has also appealed Taiwan's original decision to 
compel the company to grant Gigastorage's license request, and 
expects that the Taipei High Administrative Court will hand down its 
ruling on this case by the end of the year. This is Philips' second 
and final appeal, and Li told us that despite the Gigastorage 
settlement, the company is continuing its appeal because Philips 
wants legal vindication that the original decision to grant a 
compulsory license was wrong. 
 
¶7.  (SBU) Philips believes that the pressure of the EU investigation 
is what changed attitudes at Gigastorage.  Through the 
investigation, the EU will make a determination of whether or not 
Taiwan's granting of compulsory licenses for CD-Rs and CD-RWs is 
consistent with WTO commitments.  Philips expects the Commission to 
issue its decision in mid-November.  According to Philips, the 
Commission's options are to decide that satisfactory steps are being 
taken by Taiwan to eliminate the barrier to trade, or to seek a 
solution with Taiwan, or to initiate international dispute 
settlement proceedings in the WTO against Taiwan. 
 
Comment 
------- 
 
¶7. (SBU) The LY's failure to pass the current version of the 
amendment to Article 76 is a small victory for rights-holders in 
Taiwan, as is the progress in the Philips case.  We will continue to 
engage TIPO to ensure Taiwan takes U.S. concerns into account before 
finalizing the latest Patent Law amendment.  No action on the 
amendment at all would be a positive outcome as well.  End comment.