The European Commission has launched an investigation into Taiwan's alleged copying of compact-disc technology, and could start a World Trade Organization suit to stop what it calls unlicensed abuse of patents.

Taiwan makes an estimated 80% of the world's blank CDs and DVDs, but lets domestic producers use patents without having to negotiate a licensing agreement with patent holders like Philips. The Commission has announced an in-depth investigation into the WTO consistency of the granting of compulsory licenses by Taiwan for recordable compact discs (CDRs).

Philips claims Taiwan acted illegally when it issued compulsory licenses allowing local producers to make CDRs for export that Philips said are covered by its exclusive patents.

When a government issues a compulsory license, a company can make a product without negotiating with the patent owner for permission to use the technology -- but under WTO rules, these products cannot be exported.

"It is alleged that Taiwan granted the license in full knowledge of the fact that the CDRs produced would be for export," the Commission said in a statement.

Philips claims that Taiwan also violated trade law because it granted licenses even though Philips had made "reasonable efforts" to offer terms acceptable to seven of the eight main Taiwanese producers.