Daimler AG (Daimler hereinafter), the world’s leading car and truck manufacturers of Mercedes-Benz, filed the civil action against DEPO Auto Parts Ind. Co., Ltd. (DEPO hereinafter) in 2017. Daimler claimed that several headlights used for motor vehicles produced by DEPO infringe Taiwan Design Patent No. D128047, the patentee of which patent is Daimler AG. The Intellectual Property Court (IP Court hereinafter) rendered the judgment in 2019¹, which has drawn lots of attentions and discussions.

The Lawsuit: Daimler AG v. DEPO Auto Parts Ind. Co., Ltd.

The IP Court found that DEPO’s headlight products infringe Daimler’s design patent since the differences between DEPO’s products and the claimed are minor; and the design patent is valid over the prior art found by DEPO. However, in this case, the arguments are primarily focused on the issues of whether or not Daimler’s enforcement of the patent right constituted the anti-competition and thus violates the Fair Trade Act. The court holds that the primary market and the aftermarket are linked to each other and are not isolated from each other; where the car needs to be repaired, the car owner has the options to use the replacement parts between the primary market and the aftermarket; the replacement parts are not required to be “must-match” the original designs and the car owners are not “locked-in” the primary market with the freedom to choose between the markets. Furthermore, Daimler takes share of 6~8% in the Taiwan car market. Therefore, Daimler is not the “Monopolistic enterprises” as defined in Article 9 of Fair Trade Act and does not “directly or indirectly prevent any other enterprises from competing by unfair means” or have “other abusive conducts by its market power.”

Because Daimler refused to license the patent right to DEPO, DEPO further defensed that Daimler was “treating another enterprise discriminatively without justification” and such refuse constitute the act of refraining competition under Paragraph II of Article 20 of the Fair Trade Act. The IP Court explained that since Daimler does not have a monopoly advantage in the market as stated in the foregoing and DEPO still can produce the headlights that are licensed or with the designs that are not patented. Therefore, the court believes that Daimler does not refrain competition.

Consequently, the IP Court concluded that DEPO’s headlight products infringe Daimler’s Taiwan Design Patent No. D128047 and ruled DEPO to pay damages of NT$30 million towards Daimler and prohibiting DEPO from manufacturing or selling any infringing headlight products; the IP court also ordered destruction of any infringing headlight products and manufacturing molds for such headlight products.

The impacts of the judgment

 

The judgment was described as having the power of a nuclear bomb^{2 3} that may destroy the whole industry for the manufacturing of auto parts in aftermarket (AM) in Taiwan. Because of being not satisfied with the judgment, DEPO filed the appeal against IP Court’s judgment, which is still under examination at the IP Court. It is expected that the judgment of the second instance will be rendered in 2021. Where the second instance judgment is still unfavorable against DEPO, the structure of Taiwan's AM market may be changed dramatically.

There is no doubt that the impact of the judgment of the case is huge. Many Taiwanese AM manufacturers worry that the judgment may lead the AM industry to the end since the patent owners may initiate lawsuits against the AM manufacturers and prevail easily such that spare parts or replacement parts for vehicles will no longer be allowed to be manufactured in Taiwan. Furthermore, based on the amendments to the Patent Act that took effect on November 1, 2019, the term of protection of a design patent is extended to 15 years if its right is valid on the date of implementation of the amendments; the extension of design patent term further worsen the situations for the AM manufacturers in Taiwan.

The “Repair clause”

The Taiwanese AM manufacturers have successfully persuaded some lawmakers to propose amendments to the Patent Act so as to introduce the “Repair clause” to exclude the designs applied to the spare parts or replacement parts for motor vehicles from patent protection⁴. However, whether or when such repair clause will be added to the patent act is still unforeseeable at the present stage.

Conclusions

The judgment is certainly important and has significant impact on the manufacturing of the spare or replacement parts of the complex products. The right holders can enhance their protection by filing design patent applications in Taiwan. For the AM manufacturers, the situation is tougher. In addition to introducing the so-call “Repair clause” into the Patent Act or obtaining licensing from the patent holders, the AM manufacturers may also consider cooperation with the patent holders, e.g., trying to be the original equipment manufacturers for the patent owners. There will be no easy way of staying alive.

 

 

¹ https://law.judicial.gov.tw/FJUD/data.aspx?ty=JD&id=IPCV,106%2c%e6%b0%91%e5%b0%88%e8%a8%b4%2c34%2c20190924%2c7 
² https://udn.com/news/story/6841/4751148 
³ http://falilin.blogspot.com/2019/09/blog-post_14.html
⁴ https://lci.ly.gov.tw/LyLCEW/agenda1/02/pdf/10/01/10/LCEWA01_100110_00048.pdf