In an island as geopolitically charged as Taiwan, it can be easy to allow the big picture to dominate. Thankfully the legal community have their eyes on the ball, writes John Church

Engage in any conversation with lawyers in virtually any Asian forum and when Taiwan is brought up, watch minds crank into overdrive as words of diplomacy come to the fore and a tip-toeing exercise begins on the island’s form and future.

The politics creates the awkwardness and the need to tread carefully, but in Taiwan most lawyers are reasonably candid about the issues, and more consumed with practice areas that need a shot in the arm, or regulation that may help with business.

At the top of their agenda are regulations that will free up the foreign investment environment on the island. Changes to the Company Code are a hot topic, as are most facets of fintech, tax exemptions, patents (particularly on pharmaceuticals), capital market updates and a flurry of other regulation that has presumably been stepped up by the incumbent government prior to next January’s election.

Nicholas Chen, managing partner at Pamir Law Group, grew up in New York and was educated in the US, and has been travelling and working in China since 1973. Pamir has offices in Taipei, Beijing and Shanghai, and Chen offers a considered perspective.

“Serious business executives understand that Taiwan and China are well-established, converged, inter-dependent and complementary territories sharing capital, talent, technology, market attributes/conditions, and strengths and weaknesses,” says Chen.

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“This has been a reality for over three decades. No one looks at Taiwan as a standalone market. The fact that this convergence has created numerous dominant regional and global businesses, integrated supply chains, OEM and branded licence businesses is obvious considering the countless successful businesses that have collectively created the ‘factory floor of the world’, and a huge consumer market which is the biggest export territory for many of the world’s economies.

“One can see this by the negative impact to the world economy of the current US China trade/economic tensions. Investors who see Taiwan as a standalone market, and not in the context of a critical factor in China’s rise as a (1) supplier/export consuming territory, (2) regional player, or as a (3) global game changer base will need ‘to smell the coffee’.

“So many massive local, regional and global multinational and Asia-based enterprises have key operations, management personnel and ‘crown jewel’ functions related to Taiwan. Every global tech and consumer products company has created dominance by seeing Taiwan and China as a converged resource.”

The presidential election next year sees two major political parties in Taiwan, namely the Kuomintang (KMT) and the Democratic Progressive Party (DPP), fielding favoured candidates and, as Cheng Chun-yih, managing partner at Formosa International, explains, the KMT’s policies tend to emphasize economic development and are more open to doing business with mainland China. “On the other hand, the DPP is hostile to the PRC and emphasizes the independent identity of Taiwan,” says Cheng.

“Further, both parties have different energy policies: the DPP is more pro-green energy and is trying to build a ‘nuclear-free homeland’, while the KMT prefers to keep the nuclear plants running in order to avoid shortages, and to maintain the low cost of power supply while developing a new green energy plan, a so-called ‘nuclear-green’ policy.

“The upcoming election will inevitably have critical impacts on the business activities in Taiwan, both before and after the result settles, in terms of the difference of material policies towards the PRC and energy supplies. Currently, foreign investors tend to take a position of ‘wait and see’.”

TaiwanChen disagrees and says that, regardless of election cycles, the realities of the larger market conditions beyond Taiwan are setting the trends that impact Taiwan’s business decisions managing their regional or global supply chains and markets.

“Which politician sits in what office does not change the market realities of pricing, cost of labour and input, supply chains, customs duties and tariffs,” says Chen. “No politician in Taiwan has that kind of insight or impact locally, and certainly none have regional or global control, regardless of their electoral season pronouncements.

“Businesses will continue to make their decisions based on the realities of the market. No executive team will risk shareholder scrutiny for conduct that places some politician’s worldview before shareholder value. The goods will still move to the best ports … the regional and global realities will drive the businesses, not the rhetoric of politicians passing through for a period.”

On the US-China trade war, Chen says Taiwan has been and continues to be a joint beneficiary of both the US and China economies. “More than two-thirds of the Taiex market capitalization is represented by value in China. Taiwan is tied at the hip with the US economy. Nowhere is this more clear than in the tech sector and Silicon Valley,” says Chen.

“Taiwan is converged with both and is often the bridge, intermediary or catalyst for global value creation. Taiwan-invested companies in China export heavily to the US so are most definitely impacted by the crushing 25% tariffs on China-sourced exports to the US.”

Doing business

Gregory Buxton, partner at Winkler Partners, says Taiwan is an attractive place to work and do business, however, “the authorities do not make it easy for foreign businesses to establish, invest in, or purchase Taiwan entities. Taiwan continues to require foreign investment approval for a number of inbound transactions.”

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Buxton says the government is considering moving from an approval regime to a reporting regime for most inbound commercial investments valued under US$1 million. This threshold figure is still being discussed and may change.

“Our team would like to see the reporting regime effective for deals up to US$5 million at least,” he says. “At US$5 million, some startup investments could be made without the need to secure foreign investment approval. The threshold would need to be set even higher (in the US$20-50 million range) to start to capture a significant portion of inbound purchases of Taiwan small and medium enterprises.”

Cheng says that, due to the sensitive political relationship with mainland China, there are two sets of investment regulations. “One is for foreign investors other than the PRC investors, and the other is for the PRC investors,” he says. “Taiwan has a negative list for foreign investments, but the list is very short. In essence, Taiwan has opened most of its industries for foreign investment. Further, the foreign investment applications are much of a formality only. It is easy to have the required investment approvals from the competent authority.

“On the other hand, for investments from PRC investors, a positive list is applicable. Only those industries listed in the positive list will be eligible for investment by the PRC investors, including third-country investors controlled by PRC persons. In practice, it is not easy to obtain the required investment approvals and there are only a few PRC investments in Taiwan.”

“Taiwan has a very high-quality workforce with English proficiency and native Chinese ability. It was a perfect hub for foreign investors intending to do business in the PRC. However, due to the tension between Taiwan and the PRC, as well as the PRC losing ground to Southeast or South Asian countries due to increasing operation costs and a trade war with the US, Taiwan has lost its strategic position for greater China business-minded investors.”

Cheng adds that Taiwan is in a leading position in certain high-tech industries, and with its open market and established legal framework, is still attractive to foreign investment.

The outlook

So, with some contention over the near-future outlook for Taiwan, Buxton says the challenge will be maintaining and building on momentum during the upcoming election season and beyond. “In many countries, legal and regulatory changes are often waylaid by elections,” he says. “In Taiwan, this phenomena is particularly pronounced. We hope that government authorities continue pushing a pro-business, pro-investment agenda through the election season and that the current momentum continues regardless of the outcome of the upcoming presidential election.

“We have seen positive developments in growth sectors such as green energy, AI and fintech. Other pro-business and pro-investment legal and regulatory changes such as the recent Company Act amendments and the introduction of entrepreneur visas/employment gold cards will hopefully continue to spur growth in the Taiwan economy, particularly among startups.

Jennifer Wang, a partner at Chen & Lin Attorneys at Law who leads the capital & M&A team, also identifies the amended Company Act, which took effect from last November, as well as the new Labour Litigation Act and the Act on the Use and Taxation on the Inward Remittance of Overseas Funds, which may take effect in the coming 12 months, as areas to watch.

“Our Judicial Yuan [legislature] has drafted a new Commercial Dispute Adjudication Act,” says Wang. “If the act is passed in the coming 12 months, it would change certain commercial and business dispute resolution systems in Taiwan.

“According to the draft of the act, commercial courts will be set out at the high-court level with well-trained judges so as to quickly and professionally resolve significant and complicated commercial and business disputes. These commercial courts will only have two instances – normally there are three instances, district court, high court and supreme court. Before the case goes to the judge, the dispute shall be under the mediation process, to encourage commercial dispute settlement between the parties.”

Joseph Chang, a partner at Liu Chang & Partners Law Office, applauds this development and says such reforms are needed within the judiciary to inspire greater business confidence. “The judicial system needs more judges equipped with better English understanding capability and expertise, knowledge and experience in commerce/business/innovative technologies or business models, and more efficient procedures as well.”

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Chang says new technologies will have a significant impact on various aspects of the legal system including ethics of professionals, concept of legal entities, duty of care, due process, allocation of risks, responsibilities and liabilities among software developers, product manufacturers, service providers, and end users of innovative technology.

“For example, is AI [artificial intelligence] a thing or legal entity capable of doing tortious activities and bearing damage liability? Who shall be responsible and liable for property damages and bodily injuries as a result of a traffic accident caused by an autonomous vehicle, the manufacturers or the operators? If a lawyer gave his client incorrect legal advice with support of machine-learning software, which party shall bear the utmost liability, or how will the liability be shared by the parties? Regulators of financial industries, communication industries and the competent authorities of competition will also be confronted with challenges caused by new technologies and innovative business models.

“To what extent a disclaimer of liability that used innovative technologies or business models is valid or invalid will be a troublesome issue as well. When allocation risk and liability is a challenging issue, the insurance coverage disputes will follow. Another challenge with respect to business law could be more rigid privacy or personal data protection legislation and case law.”

Mike Lu, the managing partner at Lexcel Partners Attorneys at Law (a member of Lexgroup) points to some significant labour reforms underway that employers should be aware of.

“The Labour Procedure Act was announced on 5 December 2018 to provide a special and professional tribunal (or unit/court) of labour affairs, lower or exempt court fees, introduce mediation in favour of employees, and lessen the burden of proof on the part of employees,” says Lu. “People are watching to see if this new scheme will encourage employees to bring cases to court and thus increase disputes between employees and employers.”

TaiwanThe government has also relaxed labour laws in the market with respect to working hours, with significant amendments to the Labor Standard Act (LSA) including, among others, one regular day off and one rest day per week, a decrease of regular working hours and an increase in annual leave. “This will increase the employer’s costs for business operations and impose more restrictions on the flexibility of working hours and days off of the employee. While the changes were focusing on the protection of labour, the industry has been trying to lobby for the relaxation of the LSA to gain balance.”

Buxton says it is unlikely that any large-scale labour reforms will be enacted, as such reforms would be too easily politicized by the opposing party. “The last time the Labor Standards Act was revised, negotiations between politicians from both parties, labour groups and business were rather acrimonious. The ruling party spent a considerable amount of political capital resolving related issues, and we suspect they will not wish to repeat that exercise in the run up to the January elections.”

The Company Act

Recent amendments to the Company Act have been extensive. Buxton says the changes touched almost every aspect of the act, and for his firm’s clients, some of the more important ones relate to: (1) allowance of shareholder voting agreements and voting trusts; (2) ability of companies to issue no par value shares; (3) improved flexibility around the creation and management of equity incentive programmes; and (4) relaxed corporate governance formalities.

“While sounding mundane, the relaxed corporate governance formalities have the broadest reaching effect, particularly with respect to many of our foreign clients with subsidiaries in Taiwan,” he says. “Prior to the amendments, board meetings could be conducted via video conference. Neither telephone conference meetings nor written resolutions in lieu of a meeting were allowed.

“Under the amended act, the board may act by written resolutions without the need to call a physical meeting. This is particularly convenient for Taiwan boards that are comprised of foreign nationals, many of whom may be in different time zones. On a related note, shareholder meetings may now be held via video conference and need not be conducted in person.”

Lu says the amendments took around three years of discussion with 40 versions submitted to the legislative yuan. In all, 148 articles were either amended or added to the Company Act, and it was the most significant change to the act since it was promulgated in 1929.

“The amendment allows shareholders holding more than one half of the total shares in a company for three consecutive months to call a shareholders’ meeting, which have now been commonly leveraged as an effective weapon to take control of the company in a hostile takeover deal,” he says, adding, “There are voices to revisit the amendment.”

Lu says changes to the act include:

  1. (Abolishing the recognition system in respect of foreign companies. A foreign juristic person will have the identical legal capacity as a Taiwan company, subject to the restriction of laws; if it would like to do business in Taiwan, it only needs to apply for branch office registration. (Articles 4 and 370-386)
  2. The liabilities of de facto directors and shadow directors will also apply to a non-public company. (Article 8)
  3. The limitation on the reinvestment amount for non-public companies is removed. (Article 13)
  4. A company is required to report information of its shareholders holding more than 10% of shares, as well as directors, supervisors and managers regularly, on an annual basis, by means of electronic transmission to the e-platform established by the competent authority. A report within 15 days is also required for any changes. (Article 22-1)
  5. A company established or held by the government or a single juristic person may choose to have only one or two directors, without having a board of directors, or any supervisor, provided that for a non-public company, the supervisor is still required while it may choose to have only one or two directors without a board of directors. (Articles 128-1 and 192)
  6. The meeting notice period for a board meeting of a non-public company is shortened from seven full days to three full days. A non-public company may also specify in its articles of incorporation to allow written board resolutions, with no need to hold any physical meeting, if agreed by all directors. (Articles 204 and 205)
  7. If specified in its articles of incorporation, a company may declare dividends or make up losses at the end of every quarter or half fiscal year (which means that dividends can be declared up to four times a year). (Articles 228-1)

Wang says giving more flexibility to the terms of the preferred shares in private companies was a significant amendment. “After the amendment, for example, one preferred share may have multiple votes and have veto rights on certain matters in shareholder meeting level,” she says. “All such changes are closer to the common practice of preferred shares worldwide and will attract more foreign investors coming to Taiwan.

“Private companies may also have more ways to raise funds; in addition to the common and preferred shares, they may also issue convertible bonds and equity warrant bonds.”

Tsai Lu-fa, an attorney with Deep & Far Attorneys-at-Law, identifies a key amendment as the elimination of the recognition system for foreign companies. “So long as a foreign company has been duly established in a foreign country, such a company will automatically have legal personality in Taiwan without the need to file a special application for recognition with Taiwan’s government,” says Tsai.

“This amendment has the very practical and beneficial result that all duly established foreign companies will be automatically recognized in Taiwan, thus eliminating the personal risk and liability that a representative of an unrecognized foreign company would incur if he or she were to act on behalf of an unrecognized foreign company.”

Lu says amendments to the M&A Act are also under discussion within government agencies aiming at providing more tax incentives, tightening up the voting by directors and shareholders with conflicts of interest, and further improving on a mechanism of appraisal rights by dissenting shareholders.

“While on one hand Taiwan has far less M&A deals than other Asian countries, and the government is contemplating relaxing the restrictions or giving more incentive and providing a more friendly M&A market in order to attract foreigner investors and mobilize M&A activity, there are on the other hand lots of different voices from management fearing that the relaxation would make companies vulnerable to hostile takeover,” says Lu.

Security token offerings

According to Juan Wan-chen, who focuses on corporate governance and M&A at Brain Trust International Law Firm, the Financial Supervisory Commission (FSC) is due to announce a fundraising mechanism based on security token offerings (STOs) at the end of June 2019. “According to the draft released by the FSC, STOs are classified into two categories based on the amount of money that the issuer seeks to raise,” says Juan. “When an issuer aims to raise NT$30 million (US$966,000) or less through an STO, the issuer would be exempt from the registration requirement under article 22 of the Securities and Exchange Act (SEA).

Taiwan“However, only investors having a minimum wealth of NT$30 million are allowed to participate in such STOs and the maximum subscription amount for accredited national persons in one STO is NT$100,000. When the fundraising amount of an STO exceeds NT$30 million, the issuer should enter a regulatory sandbox and run the experiment.”

Juan labels the FSC draft as restrictive. “First, the draft restricts ordinary people from investing in STOs. Since there are many investment choices in the world for accredited investors, STOs might not be their first choice. It may make it difficult for many startup companies to raise money through STOs. In addition, supposing a platform wants to issue a kind of token having utility character while also representing a share of the company to attract more people to buy its token when the platform is freshly established.

“According to the FSC’s draft, this platform may not sell its tokens to ordinary people and this would limit their fundraising plan. Moreover, the requirement of entering a regulatory sandbox might make the STO process inefficient. Protecting the interests of domestic investors is certainly important, it is equally important to build up a thriving STO market. We hope the FSC will gives us a more open environment for STOs which would attract more foreign investors to Taiwan’s market.

Buxton says the threshold is overly cautious and would not adequately stimulate investment in Taiwan’s startup community. “For reference, the median seed round in the US is around US$2 million and early-stage financings are around US$8 million,” he says. “For the STO exemption to have a substantial impact on startup financing in Taiwan, the exemption should be available for offerings of up to US$5 million.

“We note that currently the regulators envision imposing a cap of NT$100,000 per STO on each individual professional investor (i.e., a sophisticated, well-heeled individual investor similar to an ‘accredited investor’ in the US). As these individual professional investors would play a crucial role in fuelling the growth of Taiwan’s startup ecosystem, we would prefer to see this cap removed.”

Other legislative attempts to reboot the economy are in the offing. Wang says that as a result of the Sino-US trade war, many Taiwanese companies abroad have expressed an intention to return to invest in Taiwan. “In order to enhance economic and wage growth and reshape the industrial supply chain, Taiwan’s Executive Yuan is promoting a plan to encourage and assist Taiwanese and Taiwanese businesses to return home,” she says. “In April 2019, the Executive Yuan passed the draft Act Regarding the Use and Taxation on the Inward Remittance of Overseas Funds, which was submitted to the Legislative Yuan and is now due for approval.

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“According to the act, eligible funds that Taiwanese and Taiwanese business remit back to Taiwan may get the following tax benefits: (1) in the event that the individual remits the overseas funds within one year from the date of the implementation of the act, or that the profit-seeking business remits the investment income distributed from its offshore investment business that is controlled or is significantly influenced by it within one year from the date of implementation of the act, the funds remitted to a ‘trust account’ (which will be further regulated by the government authority) will incur an 8% tax (which should be income tax and the rate of which is lower than the general income tax rate); and (2) in the event those individual and profit-seeking businesses who remit the funds or investment income within one year from the day after the first year of the implementation of the act, the funds will incur a 10% tax (which should be income tax, and the rate of which is still lower than the general income tax rate).”

Wang adds that if the funds are used in direct investment in Taiwan, individuals and profit-seeking businesses can get an additional refund of 50% of the tax. That is, under this circumstance, the tax rate for the first year will only be 4%, and for the second year will be 5%. “The tax incentives will only be applicable for the specified investment in the business or financial products recognized by the competent authority within five years from the date the funds deposit in the trust account,” says Wang. “Because the legislative purpose of this act is to encourage Taiwanese and Taiwanese businesses to return to invest in Taiwan, it seems that foreign investors are not applicable for the tax incentives.”

Fintech

Given the development of fintech in Taiwan, certain banks may want to use cloud services to enhance operational efficiency and reduce costs. Lu says the FSC is considering amending the Regulations Governing Internal Operating Systems and Procedures for the Outsourcing of Financial Institution Operation to regulate the banking industry outsourcing services to cloud service providers so as to protect customers’ interests. The major points of the draft amendment include:

  1. Where a bank outsources services to cloud service providers, the bank shall adopt risk management measures, have professional technology and resources to supervise the cloud service providers, and make sure the regulator and the bank may acquire client information and system audit report from the cloud service providers, and may conduct on-site inspection, and customer information transmitted to the cloud service providers shall be encrypted.
  2. Where customer information is saved offshore, the bank shall have the right to designate the jurisdiction to process and save such information, and the standards of information protection laws and regulations in such jurisdiction shall not be lower than that in Taiwan.
  3. Where the outsourcing to the cloud service providers is substantial, or the services will be outsourced offshore, the banks shall apply to the FSC for approval in advance. Where the Taiwan branches or subsidiaries of foreign banks outsource to the head office or parent company, which further outsource to cloud service providers, the application shall be filed to the FSC for approval as well.

Taiwan promulgated the Anti-Money Laundering Act (AML Act) in 1996, last amended on 7 November 2018. Lu says the latest amendment includes virtual currency platform and transaction business operators as “financial institutions” under the act, and so they are obligated to control money-laundering activities, establish relevant internal control and audit systems, provide relevant training and fulfil reporting requirements.

“More recently, the FSC announced the Regulations Governing Financial Technology Development and Innovative Anti-money laundering and Counter Terrorist Financing, on 15 May 2019, which requires the companies conducting financial technology experiments under the Taiwan sandbox to follow anti-money laundering and counter-terrorist financing rules similar to banks,” he says.

Patent and IP

Draft amendments to the Patent Act were passed by the Legislative Yuan on April 16, and are expected to take effect in the end of 2019, says Chien Hsiu-ru, a partner and patent specialist at Lee and Li Attorneys-at-Law. Here she sums up the major points:

  1. Extend the scope and period of patent applications division after approval decisions. Currently, division is only applicable to invention patent applications and must be filed within 30 days after the written decision of allowance is served. The new provision extends the 30-day period to three months. The same time rule also applies to a re-examination application – which under the current law is not allowed to be divided once the decision of allowance is issued. This rule of division will also become applicable to utility model patent applications.”
  2. Enhance examination effectiveness of invalidation. “To avoid the parties repeatedly proposing new reasons, evidence or post-grant amendments during invalidation proceedings, thereby prolonging the examination process, the new law requests that the petitioner of the invalidation action submit reasons for such invalidation within three months. Late submission will not be considered. Limitations are also provided for the timing when the patentee may apply for post-grant amendment.”
  3. The period for making a post-grant amendment application to utility model patent and the requirement of substantive examination. “Under the current system, utility model applications are only subject to formality review. To reduce the possibility of affecting a third party’s interests by changing the claimed scope of a granted utility model patent, the new law provides that the utility model applicant can apply for post-grant amendment only when: (i) there is an invalidation action against the patent, (ii) there is an application for utility model technical report; or (iii) there is an ongoing litigation involving the patent. In any of the above circumstances, the application for post-grant amendment shall be subject to substantive examination instead of formality review.”
  4. The protection term of design patent is extended from 12 years to 15 years. “The new law follows the Hague Agreement to extend the term of design patent to 15 years from the current 12 years, so as to enhance protection and to help the design industry to grow.”

The Taiwan Intellectual Property Office (TIPO) is also considering a new system for invalidation actions, Chien says, and according to its plan published in February 2019, there are three major points to be covered by the proposed invalidation system:

  1. A specific Group of Re-examination and Dispute would be established, which, similar to the US Patent Trial and Appeal Board, will take charge of not only the invalidation action, but also the re-examination, post-grant amendment and objection of TIPO’s decisions on procedural matters;
  2. The current administrative appeal system under the jurisdiction of the Ministry of Economic Affairs would be abolished. All the cases that have run the procedures handled by the Group of Re-examination and Dispute have to be directly brought to the Intellectual Property Court for an administrative lawsuit; and
  3. In the administrative lawsuit of invalidation actions, the TIPO will no longer be named as the defendant according to the current practice under the Act of Administrative Lawsuit Proceeding; instead, the parties concerned in the administrative lawsuit will be the patentee and the invalidation petitioner only.

“The above proposal, if possible to be implemented, could greatly enhance the efficiency of invalidation action by eliminating the administrative appeal procedure, which in the past decades did not perform well at all,” says Chien, who is also secretary general of the Taiwan Patent Attorneys Association. “Furthermore, the TIPO examiner acts like a judge in the invalidation action, but becomes a defendant in the subsequent administrative lawsuit handled by the IP Court, which has made the examiner confused with his/her roles and also is not fair to the plaintiff of the lawsuit.

“However, as admitted by the TIPO director general, the above proposal, especially Item (3), may be very difficult to be implemented because it has gone beyond the core logic of the administrative lawsuit in Taiwan – how could a lawsuit without the involvement of a government agency be called an administrative lawsuit? This proposal is apparently still under discussion and has not become finalized.”

When asked for an opinion on the IP court relating to recent judgments on patent validity, Chien says the IP Court’s own statistics show that in about 45% of patent litigation cases the asserted patent would be held invalid.

“The 45% invalidation rate cannot be said to be a low percentage, and may discourage not only patent filing but also, more importantly, patent enforcement,” she says. “It is advisable for the IP Court judges to pay more attention to listen to the parties’ arguments, or even exchange opinions with the concerned parties in a more open and direct way, so as to realize the spirit of the asserted patent and the disputes more precisely and correctly.”

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Matt Liu, a partner at Tsar & Tsai Law Firm, adds: “After TIPO renders a decision and the losing party (the patentee or the petitioner of the invalidation action as the case may be) appealing against the decision should institute an administrative suit against TIPO, naming TIPO rather than the private party as defendant, although the actual stakeholders are the patentee and the petitioner for invalidation. In practice, TIPO is usually not as eager as the winning party to defend its decision, and the other actual stakeholder can only participate in the proceeding as an intervenor.

“To correct the above situation and make the real interested parties be the real players in the administrative suit, legal practitioners have cried for years to change the administrative proceeding so that the patentee and the petitioner for invalidation can be the respective plaintiff and defendant to the administrative suit, and leave TIPO out of the proceeding. TIPO is recently contemplating proposing amendments to the Patent Act and revising the administrative litigation proceeding when it comes to patent invalidation actions. Most legal practitioners welcome this proposal as this will make the administrative court proceeding more efficient and serve the interests of the parties whose rights and interests are really affected by the proceeding.”

TaiwanCrystal Chen, a partner at Tsai Lee & Chen Patent Attorneys & Attorneys at Law, says such a high invalidity rate “has discouraged the inventors from applying for patents in Taiwan and the patentees from enforcing their patents. We opine that the judges in the IP Court did not objectively imagine the role of PHOSITA (A person having ordinary skill in the art), so that they believed the patents at issue were ‘easy’ to be inspired and invented. We believe the judges should review objective evidence submitted by both parties before they imagine the role of PHOSITA.”

Taiwan’s delayed introduction of a patent linkage system, promulgated in January 2018, will eventually prove a boost for Taiwan’s pharma industry. The patented new drug company has an obligation to report any patent(s) associated with the new drug.

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C F Tsai, managing partner at Deep & Far, explains that, “Upon petitioning a generic drug permit, the generic drug manufacturer needs to report to the CHA any of the following items: (1) there is no recorded patent information in respect of the new drug; (2) the patent rights corresponding to the new drug have extinguished; (3) the drug permit from the CHA was obtained after the patent rights corresponding to the new drug have extinguished; and (4) the patent rights corresponding to the new drug shall be cancelled or the generic drug petitioned for a drug permit does not infringe the patent rights corresponding to the new drug.”

Adds Crystal Chen: “Within 45 days from receiving the Taiwan Food and Drug Administration’s (TFDA) approval, the patentee shall list the drug information. The patentee or the exclusive licensee may opt to file for a patent infringement action within 45 days upon receipt of the notice of non-infringement or patent invalidity from the generic applicant. The TFDA will then place a stay of 12 months on the generic’s market approval application so as to afford sufficient time to let the dispute be resolved, if possible.

“To create an economic incentive for stimulating pharmaceutical competition for the benefit of consumers, the first generic challenger who prevails in infringement action will be granted sales privilege for 12 months.”