The global battle for intellectual property rights enforcement has begun. What are the winning strategies that Taiwan’s high-tech industry needs to apply?

CommonWealth Magazine recently had the opportunity to speak with the Honorable Walter Kelly, federal district judge on the U.S. District Court for the Eastern District of Virginia, which is widely known for its rapid-fire resolutions of IP disputes. Judge Kelly shared his perceptions of the indispensable strategies Taiwanese business will need to gain ascendancy in the worldwide struggle for IP protection.

Following are highlights from the interview:

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Q: We’ve seen so many Asian companies involved in intellectual property rights disputes with one another, perhaps you could offer some insights into the legal options these companies may have when faced with such IPR disputes.

A: Let me give you a very good example of how small the world has become. I’ll use as an illustration a case that is currently before you right now, but I won’t give you names. There was a Taiwanese company that developed technology for computer locks – you know, what you would use to keep people from using a computer.

The Taiwanese company goes out of business and there are two main people in that company, two principals in the Taiwanese company that goes out of business. One of the principals of the company takes the technology and contracts with an Israeli company, licenses the technology for the Israeli company to make these locks. The Israeli company contracts with a manufacturer in the PRC to make these locks, and then distributes them worldwide through various subsidiaries.

About ten years later, the other principal of the Taiwanese company decides that he is really the owner of the technology, and he goes and gets the American patent office to issue him with a patent for the technology, based on the Taiwanese patent.

So anyway, the bottom line is that Taiwanese businessman number one is now suing Taiwanese businessman number two for patent infringement in Virginia, and the whole case turns on Taiwanese law when a corporation liquidates, which of course I know nothing about.

So we’re going to have a trial in the fall, all of the documents are in Chinese, all of the witnesses are Taiwanese, the controlling law is Taiwanese – not American – and I’m going to be the presiding judge. Which of course makes no sense at all.

Law moves slower than business. Law reacts to what business does. But I use that as an illustration about how the notion of national boundaries that we’re so accustomed to, which is a political notion, is ceasing to be an economic notion. And when you end up with two Taiwanese businessmen suing each other in an American court over the liquidation of a Taiwanese company, it’s a wonderful illustration of how all of law, like all of business, is becoming very global.

Law always lags behind business. That’s just a general truism. Law moves slower than business. Law reacts to what business does.

Q: So does this increase or decrease the legal options of Taiwanese companies?

A: It increases their legal exposure but it also increases their legal rights. In other words, when we went down on Tuesday to the science park...

Q: In Hsinchu?

A: Yes. And I was very impressed. But one of the things that struck me the most was that in 2006 companies in the science park got 3,000 American patents, Taiwanese companies inventing things and then getting American patent protection for use in America. And what struck me about that was that Taiwanese companies have invested so much money and talent into inventing that they have now gone from manufacturers of somebody else’s ideas to creating the ideas themselves.

So their orientation has got to change from potential infringers of others’ patents to other people infringing their patents. It’s completely reversed how things have happened, and it’s a real testament to the Taiwanese science and business communities that this had been able to be achieved.

And it’s unbelievable to me that you have a relatively small island with no real natural resources and you’ve got a giant neighbor over there to the west shaking its fist at you every time you turn around, and as a result you have to spend a large amount on national defense. And yet you’re able to do this. To me, that’s remarkable.

Q: But one area of concern is that even though Taiwan holds the world’s largest number of patents year-on-year, Taiwanese pay annual licensing and royalty fees of US$200 billion yet receive only US$2 billion annually for all our patents. So that’s a huge discrepancy. We file and file our patents but we don’t get money for our patents. To have IP rights is one thing, but it’s like any kind of right, it’s not worth anything if you don’t enforce it.

A: I think, from what I’ve seen, and you can take this for what it’s worth, is that Taiwanese companies are probably reluctant to go to court to enforce their patent rights.

Remember... this Dell case where Intel wrote a US$200 million check. Do you know why Intel wrote a US$200 million check? Because Intergraph went to court. I’m sure that Intergraph, the plaintiff in that case, tried to negotiate something but were rebuffed – were told no. So they went to court and they walked away with US$200 million. That’s enforcement. To have IP rights is one thing, but it’s like any kind of right, it’s not worth anything if you don’t enforce it.

Q: So compared with their Japanese, Korean or U.S. counterparts do you see an increase in attempts by Taiwanese companies going to court to enforce their IP rights?

A: I haven’t seen that starting yet.

Q: No?

A: Not yet. It strikes me that there is a sort of reluctance among Taiwanese companies to want to go to court. And that could have a cultural background, it could be a carryover from, you know, older days and a different economy, but I think it’s going to be increasingly a large part of their future as they try to monetize these inventions.

Q: What do you think are the biggest trends or changes right now in terms of IP law and the IP landscape?

A: I think the biggest change is that now everything is worldwide and we’re trying to figure out how – well, it’s a conflict. The economy is worldwide, it doesn’t observe national boundaries. But the legal system observes national boundaries, because the legal system is the outgrowth of the political system in each particular country. And so the challenge that the courts are trying to figure out is – and this will increasingly be the case – how is it that we apply American law to what is essentially a worldwide issue. Like the case I was telling you about, the two Taiwanese businessmen – they’re in an American court because one of them got an American patent, but at its heart, it’s a dispute about Taiwanese corporate law. As I said, the legal system always lags behind business.

Business is always ahead of law. Law is reactive by nature. So, how is it that we judges do things and apply law in a way that fairly enforces worldwide business obligations? That’s the challenge that I think any legal system faces, whether it’s American or Taiwanese or whatever. Now there have been some developments along those lines, for example the World Trade Organization, which moderates disputes between countries about tariffs and such. That is, in essence, a worldwide court system.

Q: Right, but they don’t have any specialized sort of IP court. Is there any inter-governmental body...

A: I wonder if at some point we’re going to move toward some kind of worldwide IP court, just because it’s a worldwide market that we have to deal with. There have been some developments along those lines.

Q: Under WTO? We can’t ignore what’s reality, and the reality is that business is worldwide.

A: Well, no, no. Take for example copyright law. Copyright law is important because that’s how you protect software. You don’t do it with patents – you do it with copyrights. In 1988, a number of countries, including the United States, became signatories to something called the Berne Convention. And the purpose of that was to harmonize copyright law worldwide so that America protected the same things that were protected in Europe that were protected in Japan. There’s not any equivalent to that in the patent area that I am aware of, but I think it will have to happen, because we can’t ignore what’s reality, and the reality is that business is worldwide.

Q: What do you mean by “harmonize” copyright law or IP law?

A: Let me give you an example. European law had long protected architecture, architectural works in copyright. Take Taipei 101 there, which is a very unique, very beautiful design. In Europe, the architect of Taipei 101 could have copyrighted his plans for the building, his design, and nobody else could build a building like that. In America, American copyright law did not recognize any protection for architectural works.

So even though somebody in Europe, under their law, could have copyrighted Taipei 101, you could go build one in New York. Would it violate European law? Yes. But it wouldn’t violate American law, so you could do it in America.

Now, that’s an example of the differences in what was protected by copyright. Those differences ceased to exist when the United States joined the Berne Convention and Congress had to affirmatively pass laws changing American law to get in harmony with the rest of the world. But we did it, and I think the same thing is going to have to happen with respect to patents. You’ve got to have the same standards of granting patent protection. We’re going to have to have a more uniform way of protecting intellectual property rights.

I’ll give you another example. In Taiwan, as I understand it, you’re about to adopt a specialized IP court... I think it’s a good idea. I think as that develops there won’t be concern about protecting IP rights in Taiwan, as there will be a judicial mechanism to enforce people’s right to exploit their [own] inventions.

But, you go across the Straits of Formosa to the PRC – it’s not worth anything. They have their own system. It covers different things – when they bother to actually enforce it. And so, people are getting stolen from left and right over there. That can’t last, because it’s going to have a negative effect on China at some point. Now you know why we protect intellectual property, why we have patents, why we have copyrights, why we have trademarks. It’s to induce people to take risk.

Q: And encourage innovation.

A: Right. TSMC and these other companies that I saw down in the science park – they are spending billions of dollars investing. And why would you do that when someone can basically sit back, let you spend the billions and then just steal it? You wouldn’t spend the billions, in a rational world. So it’s a very important part of economic success.

And to translate that into political terms, economic success makes people wealthier and raises standards of living, which is what government is supposed to be about – making it better for the people to live. Whether that be economically better off, freer, whatever, the role of government is to do those things that people can’t do by themselves, that have to be done as a group, and increasingly intellectual property law is at the core of that concept of government.

So something has got to happen that harmonizes patent law worldwide and sets up mechanisms for enforcement, so that you don’t have to run around to 15 different countries applying 15 different laws for one invention, or one transaction. You can manufacture components here in Taiwan that are sold all over the world. Say somebody thinks a component manufactured by TSMC infringes their patent. Are you going to go have 15 patent suits all over Europe, the United States, Japan, India? It’s crazy. It just can’t work.

Q: But do you think an individual, independent Taiwanese IP court is going to be very helpful for Taiwanese companies? Because most of our market is not here.

A: Yes. I think it will be. This gets back to my observation that Taiwan is changing, if it already hasn’t changed. It’s going from a country that was very, very good at manufacturing other people’s inventions – a very efficient manufacturer. It’s going from that to a country that makes its own inventions and as a result of that, intellectual property rights are going to become very, very valuable assets for Taiwanese companies. And I think that the IP court that is being set up will allow Taiwanese companies to realize the value of those assets. So I think it’s a good thing.

Is it a solution to everything? No. But it sure is a good first step.

Q: What can our government learn from the U.S. legal system in terms of [setting up] this IP court?

A: (Laughs)

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