Patents – try Taiwan for high quality and low cost

In the past 30 years, Taiwan’s economic achievements have resulted in a rise in gross national income from US$9,372 in 1991 to $27,867 in 2019 – an average compound growth rate of about 3.8%. In the past decade patent royalty payments to foreign rights holders have been approximately US$5 billion each year, thanks to Taiwan being such an important manufacturing base for the world’s high-tech products.

Foreign rights holders are well taken care of in all of Taiwan’s courts and government agencies. Any foreign IP owners, especially those in the high-tech fields, should look to the Taiwan market for its high-quality output and low-cost workforce if seeking to establish a foreign branch of their business. Top talent can be attracted by offering salaries that are higher than the low national average elsewhere in the country. By making the most of the talented local workforce, rights holders will be able to build a new patent portfolio by operating a Taiwan research and development (R&D) centre.

R&D in Taiwan

Taiwan is a high-tech country. Taking the blockchain technique as an example, the number of patents granted according to this technique from 2017 until February 2020 have been recorded by the Taiwan Intellectual Property Office (see Table 1), which can be compared favourably to the statistics over a similar period in seven other countries (Australia, France, Germany, Japan, Korea, Sweden and the United States) (see Figure 1).

Although Taiwan has a strong R&D focus, businesses rarely attempt to play the role of leader or pioneer because the risk of losing capital and profits is too high. However, in recent years, Taiwan has performed well:

• PharmaEngine Inc obtained the development rights for PEP02 (MM-398, ONIVYDE) for US$3 million in 2003 from US firm Hermes Biosciences Inc, and relicensed it back to Merrimack Inc for US$22 million in 2011 after completing Phase II human clinical trials. Merrimack Inc cooperated with PharmaEngine Inc to conduct the Phase III clinical trials, which it then exclusively licensed to Baxter Inc (except for the US and Taiwan markets) for US$97 million in 2014.
• On 15 April 2020, Oneness Biotech Co Ltd announced a licensing agreement of US$53 million (excluding future royalties) with the dermatological company LEO Pharma in Denmark.
• On 20 June 2020, Center Laboratories Inc announced that Beijing Jiakesi Drug Development Co Ltd, in which it had invested, had reached a global strategical cooperation agreement with pharma giant AbbVie regarding the SHP2 inhibitor. Experts estimate the royalty payments may exceed US$8 million.
• On 15 June 2020, Oneness Biotech Co Ltd announced the launch of the only medicine on the market – other than the medical material Aquacel – to treat chronic foot problems in diabetic patients. Oneness used a control group of 212 subjects to compare Aquacel and its new drug ON101 to demonstrate the excellence of its product. It is anticipated that Oneness will earn royalties in excess of US$1 billion from this new drug.

Market reality, market potential

In the future, Taiwan could provide a space for IP practitioners that do not like to participate in price wars. Taiwan can offer numerous opportunities to start-ups, and thanks to Taiwan’s unique environment, it can help to develop some extremely advanced techniques – but it does not come without its challenges:

• Start-ups will need to raise new and additional funds through R&D efforts after using up their initial capital.
• Local investors usually want a quick return on their investment and have no ambition to exercise strategical deployment.
• With the potential increase in capital, start-ups will need to make a wise trade-off between obtaining the required new funds and keeping control of the development of their company.

Given the above, patent rights may monetise from Taiwanese manufacturers or derive profits from the Taiwanese market. Taiwan produces great talent and is a wonderful place for running or operating businesses. Patent owners should seriously consider Taiwan to:

• assist in intelligently building a future patent portfolio; and
• efficiently partner with local talent and cost-effectively run an R&D base in the country to ensure satisfactory returns on investment.

Legal developments

In order to monetise patents in Taiwan, it would be useful to look at the development of recent patent practices:

• After Apple successfully enforced its design rights, there was considerable fallout in many countries. The filing volume of design applications showed a short-term surge or stable increase in many jurisdictions and legislation changed accordingly. Taiwan extended the term for design patents from 12 years to 15 years.
• Divisional practices are complex, exciting and intriguing. Mainland China exercises the least diversified and most restrictive practices because a divisional application can be made two months after the parent application is granted. A divisional application is normally linked to the parent application.

The most effective divisional application is derived from a specific aspect of the initial patent specification that is beyond the reach or cannot be predicted or expected from the original claims of the patent, but which is not recognised as subject matter to be registered as a patent before it is filed as a divisional application. It is disclosed in the initial specification as being eligible to serve as the basis for a future divisional application, which will be made years after filing the parent application, when the market reality means that the divisional application is more likely to bring the patent owner increased market profit or patent royalties.

On 1 November 2019, Taiwan loosened restrictions on filing divisional applications. In the past, a divisional application could be filed 30 days after receipt of a granting action, either in the preliminary examination or re-examination stage. Today, the 30-day period has been extended to three months, and also applies to utility model patents.

It would be advisable to relax the following additional practices:

• filing divisional applications before the Patent Office after receiving a rejection action, either at the preliminary examination or re-examination stage; and
• treating a divisional application like a fresh one, regardless of whether the divisional application was filed at the preliminary examination or re-examination stage.

Under current practice, a divisional application filed at the re-examination stage is regarded as having been driven to the re-examination stage, which means that after responding to a pre-rejection notification, the applicant must file an appeal against the formal re-examination rejection if issues in the notification have not been satisfactorily resolved. To be more specific, at the preliminary stage, even if the examiner does not find the response to the initial rejection notification acceptable and subsequently rejects the application, the patent application is merely driven to the re-examination stage, which remains at the Patent Office but is switched to another examiner.

In order to resolve a validity dispute, the supplemental brief and evidence submitted by the invalidator any later than three months after the invalidation has been instituted will not be reviewed. Likewise, in order to stabilise or secure the state of the patent rights so that the general public can easily determine what scope a specific patent is protecting, the (claim) correction petition (normally resulting in a change of the protection scope) may be made only on response, supplementary response or reply, where such reply is the patentee’s response to a preceding Patent Office decision which rejected the correction petition.

The utility model patent can be an impressive enforcement tool in many jurisdictions. The legal infrastructure and enforcing environment of a utility model in Taiwan are improving and becoming increasingly appealing. Effective from 1 July 2020, whenever there is a claim among the claim set in a case regarding lack of novelty or non-obviousness, the Patent Office will issue a References-Citing Technical Appraisal Notification inviting the patentee to reply and seek favourable consideration. This is in contrast to the previous approach, where all claims at issue were regarded as neither novel nor obvious.

In order to demonstrate its role as a public servant, the Patent Office offers training courses for improving industrial innovation, protection and use of IP rights. The Patent Office contacts enterprises in relevant technical fields (eg, fintech, biotechnology, medical, telecoms and precision machinery) about these courses.

Comment

Although the patent system has been actively implemented in Taiwan for more than half a century, it has not been maximised so far as its effect is concerned. For example, applicants select services from patent firms based on quality, price, ease and speed, and a valuable or pioneering idea may be missed in the patent claims.

In Taiwan, rights holders – especially international giants or NPEs with enough capital – may closely monitor and cooperate with invaluable patent ideas and R&D thanks to Taiwan’s workforce talents. Or sift the best patent items from poorly financed local individuals or small companies that cannot afford to keep or pursue super patent rights. As long as the patentee has a strong patent and the patent is a ‘hot’ product, Taiwan can be a dream location for creating cash through patents.

Taiwan’s government agencies, such as the Patent Office, actively try to improve patent practices, contributing to Taiwan’s reputation as a place where rights holders can engage local talent for valuable patent rights, acquire or cooperate with local small or medium-sized businesses to create invaluable patents, and partner with local talented individuals and businesses to generate patent treasures capable of generating royalties from competitors all over the world.