Executive Yuan’s Decision on The CD-R Technology Patents Pool Licensing Practice Case Reversed. High Administrative Court Vacated FTC’s Disposition of The Licensing Practice of Philips et al.

The decision on the closely-watched licensing practice case involving Philips and two other patent holders of CD-R technology patents takes a drastic turn. The three patent holders were accused of engaging in concerted action by pooling their CD-R technology patents for licensing in violation of the Fair Trade Act. The Fair Trade Commission disposed of the case against the three patent holders by imposing heavy fines on them each for their concerted licensing practice. The Taipei High Administrative Court ruled on August 11 that Philips et al. indeed had engaged in such improper practice as denying the prospective licensees the opportunity to negotiate and sustaining the royalty rate regardless of the substantial change of the market. Contrary to FTC’s finding, however, the THAC holds that the CD-R technology patents owned by the three patent holders are complementary and non-interchangeable. Accordingly, as the THAC concludes, there exists no competitive relation among the three patent holders and they have not acted in violation of the prohibition of concerted actions.  As such, the THAC vacated FTC’s disposition against the three patent holders.

 

Princo Corp., Da Chih Technology Co., and Bo Hsin Technology Co. jointly filed information with the FTC against the three patent holders in 1999. According to the information filed, Philips, Sony and Taiyo Yuden met their minds on pooling their CD-R technologies for licensing and jointly determining the royalty rate. By so doing, they obtained a monopolistic position in the market. They subsequently abused such market power by improperly sustaining the royalty rate and denying prospective licensees the access to important information about the licensing agreement. The FTC disposed of the matter by ordering Philips et al. to immediately cease the accused unfair practice and imposed a total of NTD14 million in fines on them. The three patent holders brought the administrative suit after their appeals in FTC’s disposition were dismissed.

 

The FTC maintained in the THAC that the three patent holders were horizontal competitors at the outset with each holding CD-R technology patents of its own. However, Sony and Taiyo Yuden licensed their CD-R technology patents to Philips who then pooled all of the CD-R technology patents and had them licensed in package to local CD-R disk makers. By so doing, they cut out the competition among them. Such outcome prevents the normal operation of the mechanism of the market in violation of Article 14 of the Fair Trade Act.

 

The THAC, however, holds that one principal test to establish an accused practice as concert action is that the accused must be competitors at the same production and market level. Whether such competition relation exists depends on the existence of interchangeability among the goods or services provided by them. In the CD-R technologies market, however, the prospective licensee must concurrently employ the CD-R technology patents owned by the three patents holders to be able to make CD-R disks. Therefore, as the THAC holds, the CD-R technology patents owned by the three patent holders are complementary, not interchangeable. This means there exists no competitive relation among the three patent holders. Certainly, the pooling arrangement among them does not contravene the prohibition of concerted actions. The THAC thus vacated the FTC’s disposition.

 

This case has continued for some years during which period the CD-R disk industry has gone through substantial change. Philips, Sony and Taiyo Yuden have long discarded the pooling arrangement to opt for individual licensing. That is, the suspected concerted action no longer exists.  According to some local CD-R disk makers, the THAC’s decision will have little impact on the industry and only one of the three complainants, Princo Corporation, is still producing CD-R disks.  (2005.8) 

CYJ/EMA