Taiwan is an important R&D centre in Asia and plays a key role in the global supply chain. When considering an investment in the jurisdiction, IP is a crucial intangible asset for which advanced planning is necessary.
The major laws in the IP field include the Patent Act, the Trademark Act, the Copyright Act, and the Trade Secrets Act, among others. Applications must be filed and approved to register patents and trademarks, while copyright and trade secret protection require no registration. For patents and trademarks, Taiwan adopts the “first to file” registration system. The right is generally granted to the first applicant for a particular patent and or trademark if all relevant legal requirements are satisfied.
Three types of patents are available: invention, utility model and design patents. An invention patent is granted to a technical creation that has novelty, non-obviousness and utility. Invention patents are protected for 20 years from the date on which the patent application was filed. An extension of the patent term is allowed for a pharmaceutical or agrichemical or manufacturing process, taking into account the delay in obtaining the required regulatory approvals. A utility model is a creation made in respect of the form, construction, or fitting of an object and is protected for 10 years from the filing date. A design patent is a creation made in respect of the shape, pattern, colour, or combination thereof of an article as a whole or in part by visual appeal and is protected for 15 years from the filing date.
Four types of trademarks are available: trademarks, certification marks, collective membership marks, and collective trademarks. A trademark is a type of identification used on or with goods and or services to indicate the source or origin of the goods or services and can be composed of a word, sign, symbol, colour, three-dimensional shape, motion, hologram, sounds, or a combination of these. Geographical indications may be registered as certification marks, allowing goods or services to be associated with their origin’s reputation for quality or other characteristics. Collective membership marks are for associations, societies, or groups to identify the membership and members who provide the goods
Copyright protection is available for spoken and literary works, musical, dramatic and choreographic works, artistic, photographic, pictorial and graphical works, as well as audiovisual works and sound recordings, architectural works, and computer programs. Economic rights to copyright are protected when the work is created and lasts until 50 years after the creator’s death. A business entity’s economic copyrights last for 50 years from public release or the time of creation if the work has never been publicly released.
Trade secret protection is available for any method, technique, process, formula, programme, design, or other information that may be used during production, sales, or operations. It can also apply in cases where the secret is not known to persons generally knowledgeable of the same type of information, and if it has actual or potential economic value due to its secretive nature, and its owner has taken reasonable measures to keep it secret.
IP for foreign companies
Taiwan’s IP regime is open to foreign nationals on a reciprocal basis. Patents and trademarks require approval from and registration by the Taiwan Intellectual Property Office. Foreign nationals are eligible to apply for protection (registration), if their home countries also make patent and trademark protection available to Taiwanese citizens.
Under the Patent Act and the Trademark Act, as long as a foreign company can properly establish that it holds a Taiwanese patent or trademark registration, it does not need to have corporate recognition from the Taiwan government. The recognition exists when a foreign company has a presence in Taiwan registered at the island’s corporate registry. Trademark violations will result in criminal liabilities, allowing a foreign company holding a Taiwanese trademark to initiate criminal action against those using it without authorization. The Patent Act stipulates only civil liabilities for infringement.
Copyright and trade secrets do not require governmental approval or registration to enjoy legal protection. Foreign nationals may obtain protection for their works or secrets in the same way a Taiwanese citizen does.
In addition, a foreign company may initiate civil or criminal litigation against those who infringe its copyright or trade secrets, seeking the same remedies available to a Taiwanese.
Based on the authors’ observation, Taiwan’s IP Court, the judicial body that exclusively hears IP matters, does not treat foreign companies as parties to civil proceedings differently from the way it treats local parties. The only exception is where a foreign national who has no domestic residence or business office in Taiwan initiates civil litigation, in which case the plaintiff may be required, on a motion filed by the defendant, to deposit a bond of an amount no less than the court fees for the second and third instances.
When the defendant makes such a motion, requesting the court to require the foreign plaintiff to deposit a bond, the defendant can refuse to proceed with the litigation before the court rules on the motion or the foreign plaintiff complies with the court’s ruling in this regard.
Under Taiwan’s Code of Civil Procedure, a foreign plaintiff may be exempt from the requirement to deposit the bond if it can establish that it owns assets in Taiwan of higher value than the amount of the court fee bond. The court has discretion in ruling whether the value of the foreign plaintiff’s assets exceed the amount of the otherwise required court fee bond.
To keep up with the government’s “Project of Value Advancement for Intellectual Property” announced in May 2019, the Taiwan Business Bank issued the Regulations Governing the Income-generating Mezzanine Financing of Intangible Assets to provide financing for small and medium-sized enterprises and startup companies in collaboration with the Industrial Technology Research Institute (ITRI) and the Small and Medium Enterprise Credit Guarantee Fund of Taiwan (SMEG Fund).
Mezzanine financing refers to a type of funding between lower-risk debt financing and higher-risk equity investment. Under this model, when certain conditions are met, the lending bank is entitled to convert its creditor’s rights to equity in the borrowing enterprise. In practice, when a bank lends money to an enterprise, it not only collects interest, but also becomes entitled to convert its creditor’s rights into equity in the enterprise at an agreed swap ratio if there is a default or after a certain period elapses. This debt-to-equity mechanism, allows lenders to expedite the application process with relatively streamlined due diligence formalities, while the enterprise can get funding with relatively less collateral.
At present, IP financing in Taiwan is a collective work and is a coordinated effort among the Taiwan Business Bank, SMEG Fund, and the ITRI. At the first stage, an enterprise must obtain a recommendation from ITRI and seek a guarantee from the SMEG Fund before applying for a loan from the Taiwan Business Bank. After the SMEG Fund’s guarantee letter is obtained, providing to the borrowing enterprise at least 80% to 90% of guaranteed coverage, the credit facilitation process commences, and the Taiwan Business Bank will look into the IP valuation report issued by qualified assessment personnel and then decide whether to approve the loan and, if it does so, determine the amount. The borrowing enterprise can apply for at least 80% of the value of the patented technology determined and as indicated in the IP valuation report. The maximum loan available for a single enterprise is NTD30 million (USD1 million).
After the loan is approved, the enterprise can use the funding to purchase the IP rights held or recommended by the ITRI. Alternatively, the enterprise can use the funding to support its business operations. The term of the loan is between five and seven years, depending on the use of funds. In addition, the loan not only allows the lender to collect interest of 2% to 3% per annum, but the loan is also tied to the borrowing enterprise’s net profit. In other words, the lending bank is entitled to 0.3% of the fiscal net profit posted by the borrowing enterprise every year during the loan term. To date, numerous biotech companies, medical device companies and technology companies have successfully obtained bank financing through this IP financing method.
Jane Wang is a partner at Formosa Transnational. You can contact her at firstname.lastname@example.org
Brian Hsieh is a partner at Formosa Transnational. You can contact him at email@example.com
Monica Wang is a partner at Formosa Transnational. You can contact her at firstname.lastname@example.org
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