In the dynamic landscape of Taiwan’s automotive parts industry, a recent design patent infringement case involving car headlights has not only ignited a debate over the ‘Repair Clause’ but also cast a shadow over the future of the entire sector.

In Taiwan, the automotive parts industry has an annual production value of up to USD 6.5 billion, with approximately 80% coming from Aftermarket (AM) parts. Moreover, Taiwanese companies boast the highest global market share in AM automotive parts, dominating the global AM automotive parts market with an 80% share. However, a design patent infringement dispute over a car headlight, which will be introduced below, not only sparks controversy over the “Repair Clause” in Taiwan but also impacts the future of the entire automotive parts industry in Taiwan, potentially influencing the global AM automotive parts market.

 

First Instance – IP Court

Date of Judgment: August 16, 2019

Summary of Judgment: The defendant (DEPO AUTO PARTS INDUSTRIAL CO.) shall pay the plaintiff (Mercedes-Benz Group AG) NT$30 million (with an additional interest rate of 5% per annum), and the defendant shall destroy all the infringing products, semi-finished products, and molds or other devices used exclusively for the manufacture of the products infringing TW Design Patent No. D128047 “Vehicle Headlights”.

This case centered on whether the plaintiff’s IP protection activities violated the Fair Trade Act, with both parties inviting renowned experts and academics to weigh in on the issue.

 

Second Instance – IP Court

Date of Judgment: July 14, 2022

Summary of Judgment: In contrast to the first-instance award of NT$30 million, the second-instance court adopted a more refined method of calculating damages, factoring in validated manufacturing costs not presented earlier. This recalibration yielded a compensatory damages award of NT$18,123,279. Yet the court demonstrably condemned the willful infringement by increasing the punitive damages multiplier to 1.5, marking a stricter stance compared to the 1.295 initially applied.

 

Third Instance – Supreme Court 

Date of Judgment: October 4, 2023

Summary of Judgment: The Supreme Court found that the first and second instances had committed the following procedural defects, so it remanded the case to the IP Court for retrial to address the same.

• As the IP Court conducted an on-site inspection of the alleged products, mainly to confirm whether the alleged products have the crucial distinguishing feature of “dual-pupils*.” However, the court transcripts of the hearing only recorded that the inspection was conducted and photos were taken, but did not record the process and results of the inspection. In particular, the IP Court’s judgement states that the visual effect of “dual-pupils” was not visible in the front-view photos of the alleged products taken at the time of the on-site inspection, and there was no documented basis for this conclusion in the transcripts. The incompleteness of the transcripts made it difficult to assess the compliance of the inspection process and the accuracy of its results.
• The IP Court did not require the plaintiff and defendant to express their opinions on the results of the on-site inspection. This deprived the two parties of the opportunity to challenge the results of the inspection and to present evidence to support their arguments.
• Although the defendant submitted photos showing the alleged product with “dual-pupils*,” the IP Court directly speculated that the photos might had been edited or otherwise manipulated and did not adopt them. The IP court also did not require the defendant to prove the authenticity of the photos, constituting another procedural flaw.

 

In general, the Supreme Court found that the IP Court’s proceedings were procedurally flawed and remanded the case. The Supreme Court did not address the correctness of the IP Court’s judgment on whether the defendant committed an infringement.

 

On the other hand, the issue of the “Repair Clause” in Taiwan is a contentious issue dependent on legislative discretion. During the second instance court proceedings of this case, some legislators introduced a proposed amendment to the Patent Act, specifically aiming to include the “Repair Clause.” However, this effort did not secure legislative approval in the last session.

 

As the case returns to the IP Court, the unresolved debate over the ‘Repair Clause’ adds another layer of uncertainty to the future of the automotive parts industry in Taiwan. Meanwhile, legislative efforts to address these challenges continue, making this a critical time for stakeholders to influence the legal landscape.

 

* The Supreme Court acknowledged that the feature of “dual-pupils” was a distinctive area that easily captures the attention of consumers and creates a noticeable visual effect. This feature is a key factor in determining whether the overall appearance of the alleged products are the same or similar to that of the disputed patent.