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Cablegate: Taiwan Ipr: Some Progress On Compulsory Licensing

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.

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