Article Series About Advanced Overseas Investment by Taiwanese Enterprises (3) ─ Practical Suggestions on the Deployment of Intellectual Property Rights

January 2023

Jane Tsai and Jerry Huang

The most important but often overlooked aspect of overseas investment by Taiwanese businessmen is the deployment of intellectual property rights.  The repercussions of such fatal mistakes are so great that even large multinational companies have also suffered significantly.  For example, Apple ultimately paid US$60 million (equivalent to NT$1.8 billion) to settle with the party accusing Apple of infringement because Apple’s iPad trademark deployment in China failed.  Apple was willing to pay a significant amount of compensation to settle the dispute as soon as possible because distributors across China had actively taken the iPad products off the shelves for fear of being held liable for selling infringing goods, and the infringement dispute also affected the launch of the new generation iPad.

In fact, the protection of intellectual property rights, such as trademarks, patents, copyrights, and trade secrets, relies heavily on the prior arrangement to protect the intellectual property of enterprises.  In the event of any disputes over intellectual property rights, the price to be paid is very high, whether the intellectual property rights of an enterprise itself are infringed or the enterprise is accused of infringing the intellectual property rights of others.

Conversely, if the intellectual property rights are well deployed in advance, not only can the valuable intangible assets of an enterprise be protected, but also the disputes can be eliminated and potential intellectual property infringement turbulence can be avoided.  The following are six practical suggestions that should not be overlooked when enterprises enter overseas markets in order to adequately protect their intangible assets:

1. Do not forget to register in view of the territorial nature of intellectual property rights.

All countries in the world adopt “the doctrine of territoriality” for the protection of intellectual property rights.  Therefore, trademark registration in Taiwan will not be effective in countries outside of Taiwan.  Therefore, in order to protect the intellectual property rights of enterprises and to avoid infringing the intellectual property rights of others, it is necessary to plan the registration of relevant intellectual property rights in the target country if an enterprise seeks to conduct cross-country product marketing or cross-country investment.

In addition to the prior registration of trademarks (protecting corporate brands and product brands) and patents (protecting corporate technologies), which enterprises are more familiar with, it is also necessary to pay attention to copyright, whose situation is slightly different.  Although countries adopt the “doctrine of creation” in copyright protection, where copyright is acquired as soon as the work is completed and registration is not required, some countries still allow the “presumption” of the nominal registrant as the author after registration.  The legal effect of this “presumption” can significantly reduce the cost and risk of substantiation in the event of a dispute, at least for enterprises whose main assets are copyrights, and it is advisable for them to consider copyright registration.

2. Most countries adopt the first-to-file doctrine for trademarks.

Trademarks are protected under two systems: the first to file system and the first to use system.  The former gives priority to those who file trademark registration applications first, while the latter gives priority to those who use trademarks first.  In Taiwan, the first to file system is adopted, and in principle, protection can only be obtained after a trademark is registered.  The U.S. adopts the first to use system, and although a trademark registration application may be filed first, still it is required in the application process to specify the time frame for the intended use of the trademark.  Most Southeast Asian countries such as Thailand, Vietnam, Singapore, and Indonesia adopt the first to file system, while some other counties such as India and Malaysia adopt the first to use system.

In countries that adopt the first to file system, there are inevitably “trademark trolls”, i.e., people who knowingly apply for famous marks that have existed in other countries before the real rights holders.  Although many countries allow the real rights holder to apply for the cancellation of the maliciously registered trademark, the rights holder still has to pay the relevant fees and there is no guarantee of success.  Therefore, the best strategy to deal with “trademark trolls” is always to apply for trademark registration earlier than the target company that intends to develop its business.

3. It may be necessary to register trademarks in local language for the company’s brands.

In cases where the language used by a corporate brand is different from the local language, it is advisable for the enterprise to consider registering a trademark that is the local language version of the corporate brand, since past experience shows that if a foreign company does not take the initiative to give its brand a local name, consumers or local distributors usually take the initiative to give the foreign brand a local name.  If the enterprise fails to register the trademark with the local name first, it is likely to face the dilemma that the localized name has been registered by a local distributor or trademark troll first, and then the enterprise will not only be unable to stop any infringement upon its own brand, but may even be sued for trademark infringement.

4. Most countries adopt the first-to-file protection system and the absolute novelty criterion for patents.

Southeast Asian countries all adopt a patent application protection system and an absolute novelty (not published anywhere else in the world) requirement, so products with a specific patented technology must be patented in each country before they are marketed.

Take Southeast Asian countries as an example.  Since most of the Southeast Asian countries are PCT[1] member countries (except Cambodia and Myanmar), enterprises can file one international patent application through this system before choosing to file patent applications in one or more Southeast Asian countries, depending on the demands or market situation.  An international search report can be obtained through the first patent application, which can reduce the labor cost of re-searching in subsequent countries.  If the patent application needs to be filed in more than one ASEAN country, the ASPEC mechanism[2] can be considered as well. ASPEC is a cross-regional cooperation program launched in 2009, and all ASEAN countries except Myanmar have joined.  The patent authorities of participating ASPEC countries can share search and retrieval results to speed up patent examination.

5. A non-disclosure agreement should be signed to protect trade secrets.

All Southeast Asian countries have set up a trade secret protection regime.  However, in contrast to intellectual property rights such as trademarks and patents that can be registered in advance with a specific scope of rights, trade secrets are characterized by the fact that in the event of a dispute, it is necessary for the rights holder to prove the scope of the intangible assets that meets protection requirements of trade secrets.[3]  When providing information to the upstream and downstream supply chains, enterprises must remember to sign non-disclosure agreements with their partners, clearly defining the scope of the secrets and requiring the partners to disclose the secrets to the relevant personnel only when necessary.

6. It is necessary to determine if a centralized or decentralized intellectual property rights protection strategy will be adopted.

In the final analysis, the most important point is that when intellectual property rights are deployed, it is important to determine whether to adopt a centralized or decentralized protection strategy, with the former centralizing rights and management in the parent company and the latter decentralizing rights and management to subsidiaries.  Both strategies have their own advantages and disadvantages in terms of management, enforcement, and taxation.  It is advisable that an enterprise should comprehensively consider the overall intellectual property rights deployment strategy for overseas investments before making a decision.

[1] Patent Cooperation Treaty

[2] The ASEAN Patent Examination Co-operation

[3] The criteria for trade secret protection usually include that the enterprise must take reasonable confidentiality measures, and that the subject matter should have secrecy and economic value.

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