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The FSC
Disallows Private Placement of Shares by Banks
and Financial Holding Companies in Normal
Operation – On
July 23, 2010, the Financial Supervisory
Commission (“FSC”) issued two supervisory
principles on suitability of investment in banks
and financial holding companies through private
placement of shares and by private equities.
First, in principle, banks and financial holding
companies’ raising of capital through private
placement of shares shall be limited to those
banks and financial holding companies having
financial and operational difficulties and
require immediate funding. Second, it is
inappropriate for private equities to invest in
banks and financial holding companies in normal
financial and operation status. Based on
the two principles, the FSC will conduct further
studies on regulatory supervisory measures.
Currently, private placement of shares of public
companies only requires post-placement
recordation with the FSC (and the FSC is
studying relevant regulations to strengthen the
supervision). However, prior approval must
be obtained from the FSC for private placement
of shares of banks or financial holding
companies because such private placement will
results in change in the paid-in capital amount
thereof. (Tim Chou)
The FSC Amended Regulation on Reporting of
Shareholdings
– On July 21, 2010, the FSC promulgated
amendments to the Particulars on Reporting of
Shareholdings (“Particulars”). The
amendment to Item 5 of the Particulars provides
that if a person obtaining the shares already
enters the particulars required to be reported
in the Market Observation Post System, it is
deemed that the person has complied with the
public disclosure requirement. The
amendment to Item 6 of the Particulars further
provides that the reporting requirement applies
only if the shareholder’s change of shareholding
percentage reaches 1% of a public company’s
issued and outstanding shares whereby such
change of shareholding percentage also reaches
1% of the shareholder’s then-current total
shareholding. (Horace
Chen)
Prior Government Approval Required for Outbound
Investment in Excess of NT$ 1.5 Billion–
On July 23, 2010, the Ministry of Economic
Affairs (“MOEA”) promulgated the Regulation on
Handling of Outbound Investment by Companies
(“Regulation”) pursuant to Article 22 of the
Statute of Industry Innovations. The Regulation
provides that prior approval shall be obtained
from the authority (i.e. the MOEA or its
authorized agency) for any outbound investment
in excess of NT$1.5 billion by a company
incorporated under the Taiwan Company Law.
If the proposed outbound investment may affect
national security, have negative impact on
economic development, violate international
treaties, infringe on intellectual property
rights, violate the Labor Standards Law or be
harmful to the image of Taiwan, the authority
may reject the investment application. A
company obtaining outbound investment approval
shall, within six months of implementation of
the investment plan, submit evidentiary document
of implementation of outbound investment and
relevant incorporation documents to the
authority for recordation. If the outbound
investment by a company is less than NT$1.5
billion, the company has the option to either
file for approval before the outbound investment
or file for recordation of outbound investment
within six months of implementation of such
outbound investment. (Emily
Chen)
Taiwan Signed Economic Cooperation Framework
Agreement with Mainland China
– On June 29, 2010, the Straights Exchange
Foundation, on behalf of Taiwan, signed the
Economic Cooperation Framework Agreement
(“ECFA”) with its China counterpart, the
Association for Relations Across the Taiwan
Straits. Besides setting forth the framework
for future economic cooperation between Taiwan
and China, the attachment to ECFA also contain a
list of early harvest items relating to goods
and services for Taiwan and China whereby both
sides shall gradually decrease the custom duties
and open the respective markets for the items of
goods and services set forth in the early
harvest list. Regarding the cooperation
framework set forth in the ECFA, both sides will
also begin further discussions and negotiations
to strengthen future economic exchange and
cooperation. (Jones
Sun)
Taiwan Signed Intellectual Property Rights
Protection Cooperation Agreement with
Mainland China –
On June 29, 2010, the Straights Exchange
Foundation, on behalf of Taiwan, signed the
Intellectual Property Rights Protection
Agreement with its China counterpart, the
Association for Relations Across the Taiwan
Straits. This Agreement lays the
foundation for cooperation between Taiwan and
China and recognizes the effect of the priority
date for application for patent, trademark and
plant variety right on a reciprocity basis. (Lucy
Chuang)
The MOF Promulgated Regulation on Tax Exemption
for Cross Straight Air and Sea
Transportation Businesses
– On May 28, 2010, the Legislative Yuan passed
the amendment to Article 29-1 of the Act
Governing the Relations Between People of Taiwan
Area and Mainland Area. The amendment
provides VAT and business income tax exemption
on revenues collected by marine and air
transport and shipping business for transport by
sea or air across the Taiwan Straight under the
principle of reciprocity and authorized the
Ministry of Finance (“MOF”) to promulgate
relevant regulations. Pursuant to the
amendments, on July 1, 2010, the MOF promulgated
the Regulation on Reciprocal Tax Exemption based
on the Agreement on Cross Straight Marine
Shipping and Supplemental Agreement on Air
Transport (“Regulation”). The Regulation
provides that, there will not be VAT assessed
and there is income tax exemption on revenues
received for transporting passengers and/or
cargo to China from Taiwan by Chinese marine
shipping businesses on or after 15 December
2008. The same applies to revenues
received by Chinese air transport and shipping
businesses on or after 25 June 2009. An
application for tax refund may be filed within
five years of tax assessment, filing of tax
return or payment of such tax. (Tsz-Jeng Lin)
The FTC Promulgated Guidelines on Enterprises’
Promotional Activities
- On August 5, 2010, the Fair
Trade Commission (“FTC”) promulgated the
Guidelines on Cases Involving Promotional
Advertisements to set forth principles for
enterprises’ promoting products or services by
advertisement. The major principles include:
(1) the enterprise should ensure that the
content of its advertisement is true; (2)
product or service to be provided during the
promotional period should be prepared in advance
and there should be sufficient quantity of
product or service for sale if the promotional
advertisement does not indicate any limitation
on offering; (3) applicable restrictions on the
promotion should be fully disclosed in the
promotional advertisement; and (4) a promotional
advertisement shall not make any false or
misleading representation. The violating
enterprise may violate Paragraph 3 of Article
19, Articles 21, 22 or 24 of the Fair Trade Act.
(Jeanne Wang)
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Tsar &
Tsai successfully assisted On Semiconductor
Corp. to acquire the semiconductor business of
Sanyo for approximately US$366 million. (Janice
Lin / Matt Liu)
Tsar &
Tsai assisted Acer
Incorporated in its offering of the
US$ 500 million ECB (US$300,000,000
Zero Coupon Convertible Bonds Due 2015 and
US$200,000,000 Zero Coupon Convertible Bonds Due
2017) which was closed in August 2010. (Janice)
Tsar &
Tsai successfully assisted China Netwrok Systems
Co., Ltd. (“CNS”) to conclude the NT$ 31.35
billion syndicated loan agreement with the
syndicated banks and assisted CNS to
successfully drawdown the loan. (C.
Y. Huang / James Cheng)
Tsar &
Tsai acted for BofA Merrill Lynch as its Taiwan
legal counsel in assisting SemiLEDs
Corporation's listing application to the USSEC,
including preparation of a legal due diligence
report and reviewing the registration statement
from Taiwan law perspective. BofA Merrill Lynch
successfully assisted SemiLEDs Corporation in
submitting the listing application to the USSEC
where the planned IPO will raise approximately
US$172.5 million (equivalent to NT$5.5 billion).
(Shawn Teng
/ James Cheng)
Tsar &
Tsai successfully assisted the WT
Microelectronics Co., Ltd to conclude the
purchase agreement and acquired BSI
Semiconductor Pte. Ltd. by cash. (Jackie Lin /
James Cheng)
June Su
was interviewed by American Chamber of
Commerce's Topics magazine on foreign investment
in Taiwan's cable television industry and was
subsequently quoted by Economic Daily in an
article on 2 September 2010.
On 18
August 2010, Kaori Chang delivered a speech on Japanese bankruptcy
and reorganization legal framework at the
Seminar on Bankruptcy and Reorganization hosted
by the Association of Taiwan-Japan Industrial
Technology Cooperation and Promotion.
On 20
August 2010, Josh Fan attended the Straight Legal Forum – Forum
for Lawyers Across the Straight in Fujou, China
and delivered a speech on Investment in
Financial, Securities and Futures Business in
Taiwan by Chinese Enterprises.
On 24
August 2010, Kaori Chang attended the Forum on Strategic Alliance
and Development of Taiwan and Japan Businesses
hosted by Mizuho Bank in Tokyo, Japan.
On 4 to 5
September 2010, June Su and Kaori Chang
will attend the Advanced Intellectual Property
Training Program on International Patent
Litigation hosted by the Taiwan Intellectual
Property Training Academy in Taipei, Taiwan.
On 7 to 9
September 2010, Richard Chuang
will deliver his remarks as a panelist at the
2010 Capital Market Forum hosted by the Taiwan
M&A and Private Equity Council in Xiamen, China.
On 10 to
11 September 2010, Tsar & Tsai will host the
2010 Asia Multilateral Training in Taipei,
Taiwan.
On 17 to
18 September 2010, Lillian Chu, Randy Tsai and
June Su will attend the 2010
Taipei International Conference on Arbitration
and Mediation hosted by the Taiwan Arbitration
Association and the Asian Center for WTO and
International Health Law and Policy of College
of Law, National Taiwan University, in Taipei,
Taiwan.
On 30
September to 2 October 2010, CY Huang will attend the 2010 Annual and North
America Regional Conference hosted by Lex Mundi
in Vancouver, Canada.
On 3 to 6
October 2010, Joyce Ho and Pamela Chen
will attend the 42nd World
Intellectual Property Congress hosted by AIPPI
in Paris, France.
On 16 to
19 October 2010, Jennifer Lin, Joyce Ho,
Jeanne Wang, Chia-yu Chang and
Antonio Lin will attend the 58th
Council Meeting of Asia Patent Attorney
Association in Jeju, Korea.
On 18 to
22 October 2010, James Cheng will attend the
East Asian Insurance Congress in Bali,
Indonesia.
Matt Liu
has successfully obtained the qualification as
an arbitrator with the Taiwan Arbitration
Association.
Matt Liu
was elected the executive supervisor of the
Healthcare Industry Development Association
Across the Straight (“HIDAS”). The mission
of HIDAS is to promote exchange and investment
of medical and healthcare industry across the
Taiwan Straight.
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Taiwan
High Court Ruled against ROC Air Force Command
Headquarters in a Damage Claim Brought by
TransAsia Airway –
On July 20, 2010, Taiwan High Court ruled that
ROC Air Force Command Headquarters shall
compensate TransAsia Airway an amount of
NT$537,688,856 plus interest for the damage to
TransAsia Airway’s airplane No. GE543 on March
21, 2003 in Tainan Airport resulting from poor
and negligent management of the runway. Tsar &
Tsai represented TransAsia Airways in this case.
(Jennifer Lin/SK
Chen/Eugenia Chuang)
The Supreme Court Ruled against Pacific Sogo
Department Store in a Rental Default Claim
Brought by a subsidiary of Pacific Construction
Group – On July
15, 2010, the Supreme Court ruled that Pacific
Sogo Department Store shall pay the overdue
rental in the amount of NT$78,506,659 plus the
penalty to a subsidiary of Pacific Construction
Group. Tsar & Tsai represented the subsidiary
of Pacific Construction Group in this case. (Jennifer
Lin/Eugenia Chuang)
US Registered Copyrighted Material Must Meet
Taiwan Substantive Requirements to Obtain
Copyright Protection in Taiwan
– On June 10, 2010, the Taiwan Intellectual
Property Court (“TIPC”) rules that the defendant
not guilty in a copyright infringement
(regarding certain microprogram) criminal case
complained by Microchip against the chairman of
Synteh Semiconductor Co., Ltd. The TIPC
ruled that the US Copyright Office does not
conduct substantive review on an application for
copyright registration. In other words,
the US Copyright Office does not review whether
the registered material is one that falls under
the scope of protection of the copyright law.
Therefore, whether a US-registered copyrighted
material may obtain copyright protection in
Taiwan shall be reviewed on a case-by-case basis
to determine whether the disputed material meets
the elements of copyright protection under
Taiwan’s Copyright Act. In the instant
case, the complainant was unable to show the
originality of the disputed microprogram.
Further, the comparison chart of the input and
output signals of the disputed microprogram is
also not a computer program as defined in
Taiwan’s Copyright Act. Therefore, the
TIPC ruled that there are insufficient evidence
produced by the complainant and the prosecutor
to find that the defendant is in violation of
the Copyright Act. The court repealed the
lower court’s decision and ruled that the
defendant is not guilty. (Joyce
Ho/Sean Fan)
No Referral of Customers for Fees by Banks,
Insurance Companies and Securities Firms
Permitted Before Approval
– On June 24, 2010 and August 12, 2010, the FSC
fined Taipei Fubon Financial Bank and Fubon Life
Insurance NT$10 million and NT$2.7 million,
respectively, due to their repeatedly referral
of customers to Fubon Bank (Hong Kong) and
collection of referral fees. The FSC
deemed such conduct as Fubon Financial Holding
Company’s failure to properly meet its duty of
supervision and management and imposed a
six-month suspension of Fubon Financial Holding
Company’s right to apply for approval of
reinvestment. The FSC ruled that the
referral of customers for fees by banks and
insurance companies is a type of business
operation as defined under the Banking Law and
Insurance Law and prior approval from the
regulator shall be obtained before engaging in
such business operation; otherwise, the
engagement of referral of customers for fees
would be in violation of relevant laws.
Fubon Securities is also engaging in referring
customers to Fubon Bank (Hong Kong) for a
referral fee and the FSC deems such conduct in
violation of Securities and Exchange Law and
other relevant laws prohibiting securities
business, its responsible person and employees
from referring investors to foreign a securities
business to open trading accounts to buy and
sell foreign securities. The FSC issued a
warning against Fubon Securities and imposed a
nine-month suspension from work on the
responsible person of Fubon Securities. (Tim Chou)
Non-Compete Agreement Deemed Void if Restriction
Exceeds Reasonable Scope
– In the case of Hon Hai Precision Industrial
Co., Ltd. (“Hon Hai”) suing an ex-employee for
breach of the non-compete agreement and
requesting the ex-employee to return the bonus
shares obtained during his employment with Hon
Hai, on July 19, 2010 Taipei District Court
ruled against Hon Hai reasoning (1) the scope of
the non-compete agreement in question only
covers Hon Hai’s interest, not Foxconn
Technology Group (“Foxconn”), whereby the
ex-employee has been transferred from Hon Hai to
Foxconn; (2) the ex-employee’s position with Hon
Hai is a low administrative level position and
not related to technology R&D thus need not be
restricted by a non-compete agreement; (3) the
scope of the non-compete agreement is broader
than necessary because the ex-employee worked
for the handset department whereby Hon Hai
restricted the ex-employee from working for any
current and potential competitors of Hon Hai and
its affiliates; and (4) the disputed bonus
shares were distributed to the ex-employee as
consideration or incentive for the ex-employee’s
services, not a compensation for non-compete.
Therefore, the Court ruled that the non-compete
agreement in question violates public order and
good moral and is void in its entirety.
The Court further emphasized that it has no
obligation to revise or rewrite a non-compete
agreement that is too broad in scope but should
simply struck out the entire
broader-than-necessary non-compete agreement as
void. (Chia-yu Chang)
No Interruption of Statute of Limitation for
Failure to Execute a Ruling on Promissory
Note within Six Months of Petition for Ruling
– Taiwan High
Court recently ruled that a petition for ruling
to execute a promissory note is not a filing of
a lawsuit but a petition filed with the court by
the creditor expressing the intent to enforce
the creditor’s right against the debtor.
Such petition is a demand to satisfy a claim as
defined in Item 1, Paragraph 1 of Article 129 of
the Civil Code. Therefore, if the creditor
fails to apply for and obtain compulsory
execution of the promissory note within six
months of filing of the petition for ruling to
execute the promissory note, there is no
interruption of the statute of limitation.
Further, a ruling to execute a promissory note
is not a court decision made after substantive
review and does not have the same legal effect
as a final judgment. Therefore, the
statute of limitation for enforcement of a
promissory note is still three years and not
extended to five years because of the court’s
grant of a ruling to execute a promissory note.
(Chia-yu Chang)
Evidence of Use Required by TIPO to Preserve
Trademark Rights
– According to Item 2,
Paragraph I of Article 57 of the Trademark Law,
the registration of a trademark may be canceled
if the trademark has never been in use after its
registration or has not been in use for three
years. In the past, unless the petitioner
specifically petitioned to cancel a specific
designated item of registration, as long as the
registrant can prove that the registered mark
has been in use in one of the designated items
or services, the TIPO will uphold registration
in all designated items. The TIPO will
take initiative in reviewing whether there is
cause to cancel trademark registration for
certain designated items pursuant to Item 4,
Paragraph I of Article 57 of the Trademark Law.
The trademark holder shall submit evidence of
use on every designated item of goods or
services to maintain registration of the mark in
all designated items. Otherwise, the TIPO
may cancel registration in certain designated
items on the ground of lack of evidence of use.
(Jay Yu)
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Since its
adoption in 2002, private placement of
securities has provided additional channels for
enterprises to raise funds in case of mergers
and acquisitions, strategic joint ventures or
financial difficulties. However, the
Financial Supervisory Commission (“FSC”) found
that there were numerous incidents whereby a
company issued and sold new securities through
private placement at a low issue price which
negatively affected existing shareholders’
interests. To strengthen regulations in
private placement of securities, the FSC
promulgated on September 1, 2010 an amendment to
the Directions for Public Companies Conducting
Private Placements of Securities (“Amendment”)
and a proposal to amend the Regulations
Governing the Offering and Issuance of
Securities by Securities Issuers. Key
points of the Amendment includes: (1) a
profitable company shall not conduct private
placement of securities unless it is for
purposes of bring in a strategic investor; (2)
participation in the private placement of
securities by insiders and related parties of
the company shall be fully discussed by the
board of directors and clearly stipulated in the
notice of shareholders’ meeting; (3) the FSC may
refuse to review a company’s application for
supplemental public issuance of the same shares
privately placed or public offering of new
securities in the future if the company
materially breaches regulations relevant to
private placement; and (4) reference price for
privately placed securities shall be set forth
at the average trading price of the date that is
one, three or five business days prior to the
record date or the average trading price for the
30 business days prior to the record date,
whichever is higher.
Because
private placement of securities does not need
the regulator’s prior approval, the direction of
the change in regulating a public company’s
private placement of securities thus focused on
tightening the qualification restriction and
required procedure and strengthening the review
and registration system when the privately
placed securities are subsequently applied for
being publicly offered. In the future,
except for introducing strategic investors, in
principle, a profitable business may not raise
funds by private placement of securities.
The insiders and related parties of the company
participating in private placement of securities
by the company will also be subject to
restrictions and close monitoring. Any
company violating relevant regulations on
private placement will risk the regulator
refusing to review the company’s application for
a supplemental public insurance of the privately
placed securities, or a public offering of new
securities to raise funds in the future.
Further, the privately placed securities that
were obtained in violation of private placement
restrictions may also not be able to obtain
approval to be traded in the market or be
required to be held in the custody of central
depository agency after the three-year lock up
period expires. Public companies are
advised to follow the amended rules to avoid
complicating fund raising in the future.
Investors of securities shall also pay attention
to whether the investment is in line with
private placement restrictions to avoid
jeopardizing their liquidity interest as a
result of the regulator’s refusing to review
applications for registration of their privately
placed securities being publicly offered.
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