The contents of Tsar & Tsai Lex News are not legal opinions and shall not be taken as legal advice on any particular issue or case. If the reader has any suggestions or questions, please do not hesitate to contact us.

Tsar & Tsai Lex News is aimed at providing the readers and clients

  1. important recent changes in the laws and regulations in Taiwan,
  2. practical views and interpretations on the laws,
  3. important legal news and case developments, and
  4. information on recent activities of Tsar & Tsai Law Firm. If you have any comments or questions, please feel free to contact us (Tel: 886-2-6638-6999; e-mail: Law@TsarTsai.com.tw ).

Editors: Edgar Chen / George Shih

The Legislative Yuan passed the amendment to Paragraph 5 of Article 14 of the Securities and Exchange Act.

For prompting the company to set reasonable remuneration for its directors, supervisors and employees, the Legislative Yuan passed the amendment to Paragraph 5 of Article 14 of the Securities and Exchange Act on May 5, 2020.  The amended Article provides that the annual financial report of a publicly traded company shall disclose not only the average salary of all the company’s employees and the adjustment thereof, but also the salary and reward policy and the remuneration of the directors and supervisors. (Michael Hsu, Esq)

The Legislative Yuan passed the amendment to Paragraph 7 of Article 10-1 of the Securities Investor and Futures Trader Protection Act.

On May 22, 2020, the Legislative Yuan passed the amended Paragraph 7 of Article 10-1 of the Securities Investor and Futures Trader Protection Act, which provides that a company’s director or supervisor who is previously dismissed by judgment of a court may not serve as director, supervisor or representative of a corporate shareholder of a publicly traded company, an OTC company, or an emerging company within 3 years from the date on which such judgment becomes final.  The effective date of this amendment is to be determined by the Executive Yuan. (Michael Hsu, Esq)

The Ministry of Economic Affairs (“MOEA”) promulgated the amendment to Paragraph 1 of Article 10 of the Regulations on Industries Investment from Repatriated Offshore Funds.

On June 10, 2020, the MOEA promulgated the amendment to Paragraph 1 of Article 10 of the Regulations on Industries Investment from Repatriated Offshore Funds (No. Jing-Kung-Zhi-10904602730).  The amended provision spells out the definition of capital parameter, providing that it shall be calculated by the additional paid-in capital (the new paid-in capital or invested capital contributed after the completion of amendment of registration plus the premium of capital stock of a venture capital business or of a private equity fund).  The amended Subparagraph 2 of Paragragraph 1 of the Article imposes a restriction of reinvestment to prevent the investor from circumventing the regulations by first investing the repatriated offshore fund in a domestic business via a venture capital business and then exploiting the invested domestic business to reinvest in an offshore business or a domestic real estates. (Michael Hsu, Esq)

The Judicial Yuan simplified the process of civil litigation fee refund to representative of foreign litigant.

On June 2, 2020, the Judicial Yuan issued letter No. Mi-Tai-Ting-Ming-Zhi 1090016183 to simplify the process of civil litigation fee refund to the litigation representative on behalf of foreign litigant.  For facilitating such refund, it is advisable to request the cashier or clerk to remark “Paid by representative [name of the attorney], Esq.” in the “Payer” column of the receipt when the litigation representative pays the civil litigation fees on behalf of a foreign litigant.  When a refund is request, the Court could verify the special authority of the attorney, and note in the “Subject” column of the refund notice “Refund of litigation fees paid by [name of the attorney], Esq., the representative granted special authority on behalf of [e.g., name of the foreign company A] is approved”.  With the foregoing process, the cashier would be able to make the litigation representative the payee of the Treasury Check for the refund. (Elaine Lin / Trainee Lawyer)

The MOEA issued an interpretation regarding confirming director candidacy.

On April 23, 2020, the MOEA issued the interpretation letter No. Jing-Shang-Zhi-10900027060 to elucidate that, pursuant to Article 202 of the Company Act, the board of directors shall conduct its business by way of resolutions; and that, under Paragraph 3 of Article 192-1 of the Company Act, any shareholder holding 1% or more of the issued and outstanding shares of the company may nominate director candidates in writing, and therefore if the shareholders meeting is convened by the board of directors, a meeting of the board of directors should be convened to review in formality the qualification of the nominated director candidates set forth in Subparagraph 1 to Subparagraph 4 of Paragraph 5 of Article 192-1 of the Company Act, and a resolution should be adopted to record the result of such review. (Michael Hsu, Esq)

The Supreme Administrative Court conducted a ruling of the Grand Chamber concerning the calculation of the basic tax of individuals.

On May 8, 2020, the Supreme Administrative Court made a Grand Chamber ruling (Case No. 108-Da-Zhi-3), specifying that when the tax collection authority assessed the basic income derived from offshore futures transactions pursuant to Subparagraph 1 of Paragraph 1 of Article 12 of the Income Basic Tax Act, the special deduction regarding losses from property transactions provided for in Article 17, Paragraph 1, Subparagraph 2 Item (3)(i) of the Income Tax Act shall not be applicable. (Michael Hsu, Esq)

The legal representative of Hung Yang Engineering Consultant Co., Ltd. (“Hung Yang”) was convicted, sentenced, and fined by the Taiwan New Taipei District Court based upon Articles 13-2 and 13-4 of the Trade Secret Act.

Huang Yang’s legal representative was charged of criminal misappropriation of trade secrets belonging to Dairen Chemical Corporation (“DCC”).  The court found that Huang Yang knowingly obtained DCC’s trade secrets from a former employee of DCC and unlawfully used the trade secrets to provide equipment diagrams drawing services to Yunnan Zhenbang Technology Co., Ltd., a Chinese company and a competitor of DCC.  The Taiwan New Taipei District Prosecutors Office indicted Huang Yang and its legal representative for violating Articles 13-2 and 13-4 of the Trade Secret Act.  After the defendants pled guilty, the Taiwan New Taipei District Court convicted Hung Yang’s legal representative for violation of Article 13-2 of the Trade Secret Act and issued a sentence of 1 year and 2 months of imprisonment with 3-year probation  The court further imposed a NT$4 million fine on the defendants with 3-year probation pursuant to Article 13-4 of Trade Secret Act, and ordered the defendants to fulfill the terms and conditions of their settlement agreement with DDC.  Tsar & Tsai represented DCC, the complainant, throughout the criminal investigation and court proceeding.  (Jeanne Wang, Esq./ Vincent Lin, Esq. / Maggie Lee, Esq.)

Lesson Learned from the UMC’s Trade Secret Misappropriation Case Regarding Criminal Liability Faced by An Employer

Jeanne Wang, Esq./ Marilyn Wu, Esq.

Regarding the indictment of United Microelectronics Corporation (“UMC”) and its three employees by Taichung District Court Prosecutor Office for unlawful acquisition, disclosure and use Micron’s trade secrets for the DRAM technology cooperation project with Jinhua Integrated Circuit in Fujian, China, Taichung District Court finally rendered a decision on June 12, 2020 after almost three years from the indictment, finding UMC’s three employees to have misappropriated trade secrets with the attempt to use in China in violation of Articles 13-1 and 13-2 of the Trade Secret Act and sentencing the individual defendants to imprisonment from 4.5 years to 6.5 years and to pay criminal fine in the amount ranging from NT$4 million to 6 million, respectively, with illegal gain forfeited.  UMC was sentenced to pay criminal fine for NT$100 million for failure to use its best efforts to prevent the crimes in violation of Article 13-4 of the Trade Secret Act.

According to the Taichung District Court’s decision, Defendant UMC entered into the Technology Cooperation Agreement with Jinhua Integrated Circuit in Fujian, China in January, 2016, under which UMC is responsible for developing DRAM process technology and Jinhua shall pay several millions of U.S. dollars to UMC for equipment purchase and several millions of U.S. dollars of development fee to UMC in accordance with UMC’s progress of development.  The result of development will be jointly-owned by the two companies and the entire technology will be transferred to Jinhua for mass production.  To implement the technology cooperation project, UMC established the “New Business Development Center (“NBD”)” in January 2016.  Defendant Rong was the director of the department, whereas Defendant Ho and Defendant Wang worked under Rong as managers in the same department after leaving Micron Memory Taiwan (“MMT”).  All three defendants worked in UMC’s managerial positions.

The Taichung District Court found that Ho and Wang, instead of handing back to Micron or destroying Micron’s DRAM related trade secrets in their possession, took such trade secret materials to UMC for use after leaving MMT.  In July or August 2016, Rong asked Wang to compare the design rule used by MMT with UMC’s layout rule draft, circle out the difference, and mark Micron’s stabilization data in UMC’s design rule draft.  After following Rong’s instruction, Wang further discussed with UMC’s other employees and completed UMC’s design rule, which was provided to a chip designer for the next stage of work, substantially reducing the time, money, equipment and labor cost required for developing a design rule.  Further, with approval of UMC’s executive officer, defendants were provided with company laptops whose USB control function was discharged—an exception to UMC’s internal policy, for defendants to use the laptop to read Micron files saved in USBs, reviewing and studying Micron’s trade secret information at UMC’s office.

According to Article 13-4 of the Trade Secret Act, where a corporate person’s representative, agent, employee or other staffs commits the crimes under Articles 13-1 or 13-2, other than penalizing the offender according to the aforesaid provisions, the corporate person shall be sentenced to pay the criminal fine under the same provisions, unless the corporate person’s representative has used the best efforts in preventing the crime from happening.  Taichung District Court found that UMC failed to use its best efforts in preventing the crimes mainly based on the following three reasons: (1) By issuing special laptops with USB functions, UMC allowed or even encouraged its employees to use such laptop studying and reviewing Micron’s trade secret information at UMC for use UMC’s DRAM production.  The laptop was found to contain Micron’s trade secret files. (2) Rong instructed the other two defendants to delete and hide Micron materials when the Investigation Bureau of the Ministry of Justice conducted the search at UMC. (3) When Ho and Wang were recruited to work at UMC and were asked to issue declarations regarding whether they had access to Micron’s confidential information when working at Micron, both Ho and Wang responded in negative, which was clearly false given both being Micron’s R&D engineers.  However, instead of taking necessary risk-reducing measures, UMC merely accepted the false declarations, proving that UMC’s efforts in preventing the crime are only formalities.  Taichung District Court thus held that UMC liable pursuant to Article 13-4 of the Trade Secret Act because from the regulatory compliance perspective, UMC had failed to confirm that the new hires’ previous job functions and whether or not they are subject to any non-competition obligation so as to avoid assigning similar position immediately after the job transfer; from the physical control aspect, UMC failed to implement any restrictions preventing employees from trade secret misappropriation; and what is more, UMC failed to take any rectifying measure when the law enforcement conducted the search and to instruct employees not to violate the law.

Because three UMC’s employees were found guilty for trade secret misappropriation under Article 13-2 of the Trade Secret Act, the Court held that UMC should be sentenced to pay the criminal fine for each defendant with a total of NT$100 million.

This decision is the first court decision which discusses in details an employer’s criminal liability under Article 13-4 of the Trade Secret Act.  The legislative history of the provision states: “The liability exemption provided in this proviso allows a corporate or natural person employer to submit evidence to prove that it had already used its best efforts in preventing trade secret misappropriation from taking place.  This can help the enterprise avert from the situation where its reputation and goodwill are destroyed by an employee’s singular illegal act and offer incentive to enterprise to use its best efforts in preventing the crime, so as to achieve the purpose of thwarting crimes.”  The statutory provision and the legislative history have both made it clear that the proviso in Article 13-4 of the Trade Secret Act imposes the burden of the proof on the employer.  To meet the requirements prescribed by the court regarding an employer’s prevention obligation, the employer should take active and effective concrete measures to prevent the crime, not just prescribe some general and abstract rules.  Ideally, an employer’s best efforts in crime prevention should include the following:  (1) When hiring a new employee, there should be a set of measures in place to prevent the employee from bringing illegitimate information or materials to the company, including confirming the new hire’s job function in the previous employment and non-competition obligation, if any, and avoiding assigning the employee to a similar function immediately after the termination of the previous employment; (2) during the employment, the employer should provide adequate educational training, adopt effective monitoring and supervision mechanism, and implement sanctions in the case of violation, all of which should be kept in records; (3) after the alleged crime takes place, the employer should undertake honest and thorough internal investigation to confirm the facts, and take all necessary rectifying measures.

While the UMC trade secret misappropriation case has its unique factual background that prompts the court to impose a record high amount of criminal fine, an employer should still learn from the case and control the risk by undertaking active and effective concrete measures to prevent its employees from misappropriating another’s trade secrets to use in the company.

[Firm News]

  • Showa Denko K.K. acquired 87.61% shareholding of Hitachi Chemical in a transaction amounting to approximately USD 8 billion.  Tsar & Tsai was the Taiwanese counsel to Showa Denko in the transaction. (Jennifer Lin, Esq./Yvonne Liu, Esq./Yichu Chen, Esq.)
  • Tsar & Tsai was selected by the “Leaders in Legal Business 2020” as one of the “World’s Largest and Leading Law Firm”.
  • Jennifer Lin, Esq. and Joyce Ho, Esq. were named by the Asia IP as the “Asia IP Experts 2020 – Taiwan”.
  • Jennifer Lin, Esq. and Joyce Ho, Esq. were recognized by the Benchmark as the “Asia-Pacific’s Top 100 Women in Litigation”.
  • Tsar & Tsai was named by the “Global 100 – 2020” as the “Law Firm of the Year – Full Service – Taiwan”.

[Seminars]

  • On June 2, 2020, Yen-Ling Liu, Esq. attended the “Commercial Law Practice Group Seminars” hosted by the CIECA.
  • Maggie Lee, Esq. was invited by the Institute for Information Industry to be the lecturer of the “2020 Legal and Practical Course of Management Result of Technological Project” held on June 2, 2020 (Taipei) and June 11, 2020 (Hsinchu) respectively, titled “The Highlights of Trade Secret Act Amendment and the Practice of the Act”.
  • On June 8, 2020 Edgar Chen, Esq., as the chairman of ICC of Taipei Bar Association, attended the “CLP Virtual Commission Meeting” held by the International Commercial Law Practice Commission via video conference.
  • Lynn Lin, Esq. was invited by the CIECA to be the speaker at the “New ICC Incoterms 2020 Explanation Seminar” held in Taipei, titled “Case Analysis on Force Majeure Clause and Model Contract”.