By Hung Ou Yang and Chan-Chi Chang
Technology licensing agreement refers to the type of agreement in which a technology owner as a licensor grants patent or specific technology to a licensee so that the licensee may manufacture goods based on such patent or technology. The recurring question is whether the licensor may legally restraint the sales prices of the products manufactured by the technolgy licensing agreement.
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Article 19 of the Taiwan Fair Trade Act provides that "an enterprise shall not impose restraints on resale prices of the goods it supplied to its trading counterparty at which the trading counterparty make resale of the goods to a third party or the third party make further resale of the goods" unless there is a justifiable reason for such price restraint. Thus, put it simply, if the licensor is not imposing price restraints on resale prices of the goods, there will be no violation of Article 19 of the Taiwan Fair Trade Act. Here, since what the licensee acquired are the right to manufacture the goods with licensed technology, not the goods themselves, the licensee's sale of the goods manufactured by itself does not constitute a "resale". By this very formal arguement, Article 19 of the Fair Trade Act will not be applicable in the licensing agreement scenario.
However, it does not necessarily mean that using a licensing agreement to restrain sale prices will be entirely legal. Under Section 5 of Article 20 of the Taiwan Fair Trade Act, imposing improper restrictions on the trading counterparts' business activity as part of the requirements for trade engagement will be illegal when such restrictions are likely to restrain competition. Here, the Taiwanese Fair Trade Commission ("FTC") has issued guidelines for handling cases in connection with technology licensing agreements, specifically indicating "matters not in violation of the Fair Trade Act" and "prohibitions on technology licensing agreements". The "prohibitions on technology licensing agreements" explicitly states that "parties are not allowed to conclude a technology licensing agreement that involves any of the following which is potentially anti-competitive in relevant markets:...(vi) Restraints on the sales price at which the licensee sells the goods manufactured or fabricated with licensed technology to a third party.”Therefore, mutinational companies should note that imposing price restraints by the technology licensing agreement may violate Section 5 of Article 20 of the Fair Trade Act even though such violation is not commonly found by FTC.
Properly using business arrangement can avoid antiturst risks, such as establishing a transaction that does not transfer ownership of the goods to effectively circumvent the Article 19 of the Taiwan Fair Trade Act's regulations on the resale price maintenance. However, multinational companies should be aware that a transaction always involves many aspects. For example, regarding a consignment agreement, you should factor in the payment method of the sales price, the risk of failure to perform the contract, the guaranty for the goods' defects, and the method of calculation for the remuneration, in addition to the classic question whether the ownership is transferred. As to the technology licensing agreement, you should also consider other provisions provided by the Taiwan Fair Trade Act for a thorough legal analysis and risk assessment. For this reason, it is still worth noting that a preferable step is to consult professional lawyers in advance for multi-faceted evaluation and planning for business arrangements.
AUTHOR: Hung Ou Yang
Managing Partner
Taipei
+886-2-2707-9976
[email protected]
AUTHOR: Chan-Chi Chang
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Taipei
+886-2-2707-9976
[email protected]
Copyright Brain Trust International Law Firm
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
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