Newsletter
CD-R LICENSORS FOUND TO HAVE ABUSED THEIR MARKET POWER
On October 28, 2009, the Fair Trade Commission (FTC) reviewed the sanction it imposed on Philips, Sony and Taiyo Yuden on January 20, 2001 for their violation of the Fair Trade Act by improperly maintaining the license fees. The sanction had been set aside by the Taipei High Administrative Court in November 2001, and the FTC's appeal against the High Administrative Court's decision was overruled by the Supreme Administrative Court in 2009. On October 28, 2009, the FTC again determined that the three companies' (1) stipulating the Orange Book standard and achieving a monopoly on the CD-R by way of joint licensing; (2) improperly maintaining the formula to calculate the license fees even when the market had drastically changed; (3) refusing to provide important trade information regarding the subject of the licensing contract; and (4) prohibiting their trading partners from contesting the validity of the patent, are types of abuse of market power, which constituted a violation of Paragraphs 2 and 4, Article 10 of the Fair Trade Act. Consequently, the FTC imposed administrative fines of NT$3.5 million, NT$1 million, and NT$500,000 on Philips, Sony, and Taiyo Yuden respectively.
The FTC indicated that although the Supreme Administrative Court finally affirmed the judgment rendered by the Taipei High Administrative Court to set aside the original sanction imposed by the FTC, after eight years' administrative proceedings, the Taipei High Administrative Court and the Supreme Administrative Court did recognize in their judgments most of the facts discovered by the FTC, and concluded that the three companies had abused their monopoly power. The three reasons by which the courts overruled the appeal filed by the FTC are: (i) in the CD-R market defined by the FTC, the patent technology owned and offered by the three companies is non-substitutable, and thus no competition relationship exists; therefore, Article 14 of the FTA was not violated; (ii) the FTC did not name the three companies monopolistic enterprises before the amendment to the FTA in 1999; thus, the three companies should not be penalized for acts of abusing their monopoly power carried out before 1999; and (iii) the amounts of the fines exceeded the legally permitted amount.
The FTC pointed out that from 1999 to 2001, when the CD-R market grew significantly and there was a substantial shift in the market demand and supply, the three companies refused the request of the licensees to adjust the formula for calculation of royalties, which was in violation of Paragraph 2, Article 10 of the FTA. Meanwhile, when the three companies negotiated the license agreements with the licensees, they did not make full disclosure regarding the content, scope and term of validity of the subject patent, and they also prohibited other enterprises from raising objections on the patent validity, which are types of abuse of market power, constituting a violation of Paragraphs 2 and 4, Article 10 of the Fair Trade Act. After considering the motive, objective and the anticipated improper benefit of the violation; the extent of the damage to trade order and duration of such violation's existence; operational scale, operational status and market position of the three companies; whether the violation has been warned against or corrected by the FTC; penalties associated with the previous violations; the companies' cooperation with the investigation, and other factors, the FTC imposed administrative fines of NT$3.5 million, NT$1 million, and NT$500,000 on Philips, Sony, and Taiyo Yuden respectively according to Article 41 of the FTA. The fines imposed by the FTC in 2001 were NT$8 million, NT$4million, and NT$2 million on Philips, Sony, and Taiyo Yuden respectively.