UK Court Rules Huawei/Samsung Infringe SEP Patent

Attached is the November 23, 2015 decision in Unwired Planet v Huawei and Samsung, which was heard in the England and Wales High Court (Patents), [2015] EWHC 3366 (Pat).   In this case, Mr. Justice Birss held that the asserted patent is valid and is infringed by wireless telecommunication networks which operate in accordance with the relevant LTE standard. Thus patent EP (UK) 2 229 744 “Method and arrangement in a wireless communication network” claimed a priority date of January 8, 2008, based on a US application US 61/019,746.

These patents in suit had apparently been acquired by Unwired Planet from Ericsson, and this is the first case involving these patents.  It was advanced by Unwired Planet that the patent in this decision was essential to an LTE standard, and that accordingly it was infringed through compliance with that standard in devices produced by Samsung and Huawei.  Further technical trials in relation to five other patents from this portfolio are set for 2016.  A non-technical trial to determine FRAND and competition issues is also scheduled to take place following the conclusion of the technical trials.

A more detail analysis is found on the website of Carpmaels & Ransford.

 

 

IPR Outcomes in the 26th JCCT

Here are the IP outcomes of the 26th Joint Commission on Commerce and Trade, concluded early in November 2015 in Guangzhou.  The IP-related outcomes appear primarily in three different places in the JCCT outcome document, under “Competition”, “Intellectual Property Rights” and “Cooperative Dialogues and Exchanges.”

I have repeated below the outcome language in full, without the annotation that appears in the US Department of Commerce release on the subject, followed by my own “references” on the outcome to compare the text with recent developments in these areas.

The Chinese government version of the outcomes follows the US outcomes.

COMPETITION

China’s anti-monopoly enforcement agencies are to conduct enforcement according to the Anti-monopoly Law and are to be free from intervention by other agencies.

China clarifies that commercial secrets obtained in the process of Anti-monopoly Law enforcement are protected as required under the Anti-monopoly Law and shall not be disclosed to other agencies or third parties, except with a waiver of confidentiality by the submitting party or under circumstances as defined by law.

Taking into account the pro-competitive effects of intellectual property, China attaches great importance to maintaining coherence in the rules related to IPR in the context of the Anti-monopoly Law. China clarifies that any State Council Anti-monopoly Law Commission guidelines will apply to the three anti-monopoly law enforcement agencies.

The Chinese side clarifies that in the process of formulating guidance related to intellectual property rights in the context of anti-monopoly law, it will solicit comments from relevant parties, including the public, in accordance with law and policy.

References: SAIC’s IP Abuse rules, NDRC’s draft IP Abuse rules. Importantly, this outcome specifically recognizes the pro-competitive nature of promoting IP. As I said in my comments on the NDRC’s IP abuse guideline questionnaire, “Rather than seek to minimize IP rights through euphemisms such as “balance” perhaps a better approach would be how to optimize the patent system to foster long term innovation and competition and insure that the competition system supports and does not retard such development.”

INTELLECTUAL PROPERTY RIGHTS

Standards and Intellectual Property

The United States and China affirm the beneficial role of standards in promoting innovation, efficiency, and public health and safety, and the need to strike an appropriate balance of interests of multiple stakeholders.

The United States and China commit that licensing commitments for patents in voluntary standards are made voluntarily and without government involvement in negotiations over such commitments, except as otherwise provided by legally binding measures.

The United States confirms that Chinese firms participate in the setting of voluntary consensus standards in the United States on a non-discriminatory basis, consistent with the rules and procedures of the relevant standards organizations. China welcomes U.S.-invested firms in China to participate in the development of national recommendatory and social organization standards in China on a non-discriminatory basis.

With a view to enhance mutual understanding and trust, the United States and China agree to hold dialogues over issues under this topic.

Here are some other blogs on this important topic.

Trade Secrets

The United States and China are committed to providing a strong trade secrets protection regime that promotes innovation and encourages fair competition.  China clarifies it is in the process of amending the Anti-Unfair Competition Law; intends to issue model or guiding court cases; and intends to clarify rules on preliminary injunctions, evidence preservation orders and damages. The United States confirms that draft legislation proposed to establish a federal civil cause of action for trade secrets misappropriation has been introduced in relevant committees. Both sides confirm that IP-related investigations, including on trade secrets, are conducted in a prudent and cautious manner.  The United States and China agree to jointly share experiences and practices in the areas of protecting trade secrets from disclosure during investigations and in court proceedings, and identify practices that companies may undertake to protect trade secrets from misappropriation in accordance with respective laws.

References: Note that the reference in the trade secret provision to a degree mirrors that of the Competition outcome, regarding protecting confidential information in administrative proceedings. Proposed revisions to the AUCL were previously discussed here.

Geographical Indications (GIs)

The United States and China will continue our dialogue on GIs. Both sides reaffirmed the importance of the 2014 JCCT commitment on GIs and confirmed that this commitment applies to all GIs, including those protected pursuant to international agreements. China will publish in draft form for public comment, and expects to do so by the end of 2016, procedures that provide the opportunity for a third party to cancel already-granted GIs.

Reference: This commitment builds on the 2014 GI commitment in the JCCT. An important case involving enforcement of a trademark based GI for scotch whisky is discussed here.

Sports Broadcasts

The United States and China agree to protect original recordings of the images, or sound and images, of live events, including sports broadcasts, against acts of unauthorized exploitation, including the unauthorized retransmission of such broadcasts over computer networks, in accordance with their respective laws and regulations.  The United States and China agree to discuss copyright protection for sports broadcasts and further cooperate on this issue in the JCCT IPR Working Group and other appropriate bilateral fora.

References: Copyright protection for sports broadcasting has been discussed elsewhere in this blog, and is of increasing important to China as it prepares to host the Winter Olympics and wants to develop its sports leagues. In addition US courts have granted copyright protection to Chinese sports broadcasts in a recent case. Tencent has also signed an important licensing deal with the NBA to make content available online.

Enhanced Enforcement Against Media Boxes and Unauthorized Content Providers

Noting the challenges posed by new technologies to the protection of copyright, China and the United States will continue discussions and share respective experiences and practices on combating the unauthorized online distribution of audiovisual content made possible by media boxes.  China clarifies it is to enhance enforcement against such media boxes and the providers of unauthorized content in accordance with its laws and regulations.

Reference: A recent US media box case involving Chinese content is discussed here.

Online Enforcement

In order to address the civil, administrative and criminal enforcement challenges caused by the rapid development of e-commerce, as part of the JCCT IPR Working Group, China and the United States will enhance engagement and exchanges between U.S. and Chinese government IPR policy and enforcement officials, IP right holders, business representatives and online sales-platform operators, among other relevant stakeholders.  This engagement will cover current and anticipated challenges in protecting and enforcing IPR online by sharing respective practices, discussing possible improvements in each country’s systems, facilitating information exchange and training between our two countries, and increasing cooperation on cross-border enforcement.  The goal of this effort is to enhance existing legal and cooperative regimes among businesses, rights holders and governments in civil, administrative and criminal online IPR enforcement.  Appropriate criminal matters will be referred, if necessary, to law enforcement agencies through the Joint Liaison Group (JLG) IP Criminal Enforcement Working Group or domestic law enforcement officials.

References: there have been numerous Chinese domestic efforts to deal with on-line infringement, including copyright-related campaigns, and an important role for Chinese Customs.

COOPERATIVE DIALOGUES AND EXCHANGES

Searchable Database for Intellectual Property (IP) Cases

The United States welcomes that the Supreme People’s Court has established a database for searching intellectual property-related court decisions.  In order to increase the understanding of each other’s legal systems, the United States and China agree to dialogue and to share experiences on their respective databases containing IP cases.

References: Whether or not China is developing “case law with Chinese characteristics,” understanding how Chinese courts handle cases can help guide sound business decisions.

Bad Faith Trademark Filings

Given the importance of addressing bad faith trademark filings, both sides agree to continue to prioritize the issue of bad faith trademark filings, and to strengthen communication and exchange on this issue through existing channels.

References: This is a continuation of earlier efforts.

Copyright Legislation

The United States and China are to continue exchanges on the development of their respective copyright laws.  China clarifies that its Copyright Law is in the process of amendment and useful principles and interpretative guidance from the Supreme People Court’s 2012 Judicial Interpretation on Internet Intermediary Liability will be considered in the law, if appropriate and feasible.

The final judicial interpretation is available here. Here is a blog on the 2014 State Council draft of the Copyright Law revision, and a blog on a 2012 NCA draft.

Exchange on Intellectual Property Rights Legislation

Recognizing the success and experience of recent exchanges on IP legislation through the JCCT IPR Working Group, programs under the Cooperation Framework Agreement and other fora, as well as the desire of the United States and China to further understand recent developments in this area, the United States and China agree to exchange views on their legislative developments in IP and innovation including on pending reforms in copyright law, patent law, trade secret law (anti-unfair competition law), science and technology achievement law, etc., with relevant legislative bodies.

References: This is a broad commitment, with much legislative activity planned in China in areas such as trade secrets, copyright, patents and related regulations.

Protection of New Plant Varieties

The United States and China agree to hold exchanges on the protection of new plant varieties through bilateral meetings and other means to be determined.

References: China and Switzerland agreed to extend plant variety protections in the Swiss-China FTA.

Here are the outcomes involving IP fromon the Chinese side, from the MofCOM website(http://www.mofcom.gov.cn/article/i/jyjl/l/201512/20151201200026.shtml).  I have translated the title of the outcome only.

“特别301”报告 SPECIAL 301 REPORT

美方重申其承诺,将在“特别301报告”中客观、公正、善意地评价包括中国在内的外国政府,在知识产权保护和执法方面付出的努力。美方欢迎旨在加强中国知识产权保护的改革和行动,并承诺在2016年“特别301报告”中将强调中国政府在知识产权保护和执法方面采取的积极行动。

 恶名市场 NOTORIOUS MARKETS

美方重申其承诺,如果适当,将在“恶名市场”名单中客观、公正、善意地评估和认可外国实体,包括中国实体,在知识产权保护和执法方面付出的努力和取得的成绩。美方计划在2016年通过将利益相关方的异议期延长一倍,继续增加程序的透明度。美方将继续与中方就此事项进行讨论。

 

知识产权有效和平衡保护 EFFECTIVE AND BALANCED IP PROTECTION

考虑到《与贸易有关的知识产权协定》的原则和目标,美方和中方将继续就诸如有助于保护创新者免于恶意诉讼的相关政策进行交流和沟通,为创新行为提供积极环境。

 

知识产权合作 IP COOPERATION

中美双方确认知识产权保护在中美双边经贸关系中的关键作用。双方承认合作的益处,并认可合作构成了双方知识产权交流的基础,承诺进一步加强重要领域的深入合作,包括:

进一步加强中美商贸联委会知识产权工作组作为牵头协调知识产权问题双边论坛的作用。

继续高度重视中美知识产权合作框架协议的工作,包括2016年司法交流和将在中国举办的一项培训项目;在完成并对现有承诺项目进行审查后,在预算允许的前提下,考虑在框架协议下增加其他项目。

支持中国商务部在2016年第一季度举办的技术许可联合研讨会。

其他项目将根据个案原则进行组织。双方认识到中美双方,特别是美方,与一系列从事知识产权培训和技术交流的机构和私人组织合作,实施了广泛的项目策划工作。

 

加强在打击网络盗版方面的合作  STRENGTHENED COOPERATION IN DEALING WITH ONLINE PIRACY

为应对在美国涉嫌网络盗版刑事侵权案件影响中国权利人的情况,中美执法联合联络小组下设的知识产权刑事执法合作工作组在美国驻华使馆的联系人将负责接收中方行政部门转交的此类信息。

 

通过中美双边合作加强知识产权在企业中的利用和保护 USING BILATERAL COOPERATION TO STRENGTHEN IP UTILIZATION AND PROTECTION IN ENTERPRISES

认识到双边贸易与投资持续增长的情况,中美双方同意加强合作与交流,就各自国家知识产权保护和利用有关的经验数据进行研究,并在此领域采取具体行动或举办项目,以协助中美关于鼓励创新的决策,并帮助中美创新者、创造者和企业家更好地理解如何在各自国家创造、保护和利用知识产权。

 

深化和加强中美知识产权刑事执法合作 DEEPENING CRIMINAL ENFORCEMENT COOPERATION IN IP

在中美执法联合联络小组下设的知识产权刑事执法合作工作组机制项下,中美将继续就跨国知识产权调查开展合作。双方将确定共同合作的重点案件,就此类案件保持定期沟通和信息分享,并探索在共同感兴趣的领域开展技术交流的机会。

 …

中美共同打击网络销售假药 JOINT SINO-US COMBATTING OF ONLINE COUNTERFEIT MEDICINE SALES

中美两国政府都非常重视打击网络销售假药以保障公共的用药安全和健康。两国食品药品监管机构之间已就打击网络销售假药开展合作,并承诺未来继续开展合作。这种合作包括分享信息、分享提高公众对网络销售药品认知的最佳实践以及加强在现有国际组织活动中的沟通与协调。

Updated: December 2 and 3,  2015

 

Book Review of IP Protection in China

IP Protection in China (Donna Suchy, ed.) is a 359 page compilation of articles introducing China’s patent, copyright, trademark, trade secret and antitrust regimes. The book has been prepared by 20 experts, and includes model IP and labor contracts. It is available to American Bar Association – Intellectual Property Law Section members for $109.95, or $139.95 for non-members.

This book is an excellent collection with a particular strength in explaining laws and practices, including patent and trademark prosecution. It also gives very good overviews of proposed changes in legislation, much of which have been the subject of ABA comments. In addition, the book provides numerous practical tips on handling some of the hot bilateral IP issues – such as data supplementation for pharmaceutical patent applications, prosecution of patents for graphical user interfaces, trademark squatting, and on-line copyright enforcement.   This is a book intended for “a seasoned practitioner who has a firm grasp of U.S. law” (introduction of Elizabeth Chien-Hale, at p. x). As such, the comparisons it makes with US law on a wide variety of issues should also prove very helpful in introducing a range of IP issues to US and foreign lawyers, by addressing such issues as “how do design patent practice differ from the US?”, “what constitutes a well-known mark in the United States and China?”, “does China require fixation of copyrighted works?” and “what are the differences in definition of a ‘work’ between China and the United States?”, etc.

The book is less strong in the trade content of much of China’s IP development, including improvements in such areas as patent protection for GUIs and data supplementation. Oddly, European initiatives to engage China are singled out (p. 266), while 35 plus years of US government efforts to work with China on its IP system are hardly noted. As another example, there is no reference to China’s TRIPS commitment on trade secrets or numerous US-China Joint Commission on Commerce and Trade commitments.

Another area not as thoroughly addressed is control over exports of infringing products from China. The authors discuss the use of Customs remedies for control of products that infringe Chinese patents (pp. 108-109), trademarks and copyrights. Notably, China provides such remedies to address the export of infringing goods, while the U.S. and TRIPS agreement generally require such provisions only for the import of infringing goods. Moreover, the continuing, high level of seizures by US Customs of Chinese origin infringing products underscores both that the Chinese system is hardly perfect and that non-Chinese remedies are critical components to Chinese-origin infringement that affects global markets.   In that regard, another useful supplement to this book would be an introduction to US remedies that address Chinese-origin products and enter the US market and infringe US rights, such as the recent Gucci case, or the media box piracy case in California, the SI Group cases in China and at the ITC, or the Vringo NDA dispute with ZTE in New York involving patent licensing and Chinese antitrust matters.

In an era where TPP establishes the new benchmark for global IP protection, one wonders if references in the book to China’s WTO or TRIPS compliance are especially significant meaningful (p. x). Rather it seems, as the authors of the trade secret chapter have noted “more effort is needed to put the Chinese system more in line with international standards.” (p. 265).   Of course, discussing weaknesses in the Chinese system, does not imply that any system is perfect. However, it is difficult to argue that the Chinese system generally works very well when China has recognized numerous deficiencies in many areas such as trade secret litigation, weak patent enforcement, and onerous licensing requirements.

I believe that the book would have also benefitted by chapter that introduces the Chinese legal system including a more general overview of current legal reforms in IP in such areas as discovery, deterrent damages, case law, technology assessors in patent cases, etc., as well as understanding how to assess risk in litigation and prosecution strategies. As one example of this, in addressing preliminary injunctions (111-114, 231-232), high “grant” rates for provisional remedies are noted, however the low “application” rate is not discussed. This low application rate may be due to refusals to accept cases in the first instance, which results in inflated “grant” rates for provisional relief. Provisional relief can be especially critical in China due to the absence of discovery mechanisms to obtain evidence held by an adverse party, the high level of on-line infringements where evidence may be ephemeral, and lack of an effective patent linkage regime to link patent protection with pharmaceutical regulatory approvals.

The book also would have benefitted by a more careful proofreading of Chinese legal terms and a discussion of their relative significance. In Chinese legal terminology, laws, regulations (issued by the State Council) and rules or guidelines (issues by ministries) have different meanings and significance, which a US practitioner might benefit from better understanding (see, eg., pp. 149, 195, 305).

None of these suggestions should be understood to detract from the value of this book. It is a very useful and practical contribution to the literature in the area. It deserves to be on any foreign China IP practitioner’s bookshelf.

 

Three China/IP Positions Open

In what I hope is a good sign for the job market for next year, recently three China-related positions have opened up, all of which have IP as an area of focus.

In the private sector, the US Information Technology Office is looking for a new managing director. USITO is a trade group based in Beijing. USITO is involved in supporting US high tech industry in China.  USITO has been actively involved in IP issues in China in the past.

In Washington DC, the US Patent and Trademark Office (where I have my “day job”) is looking for a China IP program specialist. A law degree is not required. Instead the program requires experience and interest in running IP-related programs in China.   There are two announcements – one for applicants from outside the US government, and one for applicants from within the US government.  This position closes December 4, and is at the GS-12 – 13 level.  Applicants must be US citizens.
In addition the Department of Justice is looking for a state or federal prosecutor to go on detail to Hong Kong for a short term assignment (14 months). This position has a title of “Regional Intellectual Property Law Enforcement Coordinator” and includes obligations to: (1) assess the capacity of law enforcement authorities throughout the region to enforce intellectual property rights; (2) develop and deliver training and other capacity building formats designed to enhance the capacity of justice sector personnel to enforce intellectual property rights (3) assist in developing or strengthening institutions dedicated to enforcing intellectual property rights; (4) monitor regional trends in intellectual property protection and computer crimes; and (5) provide expert assistance in support of U.S. Government IP and computer crime policies and initiatives in the region. The deadline for applications is November 30.
Hopefully, these are signs of a developing job market in China IP-related matters in 2016!

More Guiding Cases on IP, and More Experiments on IP Case Law

fcbaprogram

Stanford Law School has just released eight new guiding cases, including including five IP and unfair competition cases covering trademarks, unfair competition, and software copyright.  The cases were determined to be guiding cases earlier this year by the Supreme People’s Court, and are available here.   Dr. Mei Gechik. the Founder and Director, China Guiding Cases Project, also has analytic reports on the CGC Project here.

Regarding IP-related matters, Dr. Gechik notes “the SPC’s confidence in providing guidance in intellectual property and unfair competition through GCs seems to have grown. Five out of the eight GCs released in 2015 Q2 cover these two areas. Of particular note, the SPC went beyond patent law to release cases that address issues in trademark law, as well as copyright law as applied in the protection of computer software.”

These guiding cases appear to me to be part of an increasing interest in developing a system of case precedent in China, particularly since the establishment of China’s IP courts, and the keen interest in developing precedent expressed by the Beijing IP courts, including a national conference on this topic on September 22, 2015 which set forth the role of the Beijing IP court as a national center for research on case guidance (案例指导研究基).

The prospects for Chinese case law, and IP case law in particular, was discussed at a recent IP judicial conference sponsored by the Federal Circuit Bar Association in Shanghai, which included a large turnout of both Chinese and US judges. Among issues discussed included the role of case law in adjudicating cases, the possibilities of introducing amicus briefs, the role of en banc decisions in making or reversing precedential cases, the binding effect of local court decisions and other issues involved in handling cases that are intended to have greater legal impact than determining only the rights of the parties involved in the law suit.

Of course, the development of precedent could be especially valuable to developing “transparency and predictability” for business people seeking greater legal predictable in their complex decision making processes, which would appear to be an important goal of an effort to enhance commercial rule of law between the US and China.

Interestingly these five cases were decided as long as eight years ago.  In addition, only one of these cases was decided by the Supreme People’s Court.  The remainder were adjudicated by local Higher People’s Courts.  From a common law perspective, this may not look like a system of precedent as we know it.  For example, if the cases are to have binding effect, how can past cases be recognized as precedential?   How/why should local cases affect decisions from other provinces? Or are the cases primarily intended for other purposes, such as education of the judiciary and public or to assist in development of a more limited body of case law? Nonetheless, whatever the role of case law will be in China, its development is overall a positive step that should be encouraged and Stanford Law School/Dr Mei Gechik are making a very important contribution to that effort.

Here is a quick summary of these five important cases, with links, that is drawn from the translation and analysis on the Stanford website.  All errors in my summary are of course, my own:

Guiding Case No. 49

Shi Honglin v. Taizhou Huaren Electronic Information Co., Ltd.  This dispute over computer software copyright infringement  involved circumstances regarding reversal of burden of proof when defendant refuses to release source code in a software copyright infringement case.

Guiding Case No. 48

Beijing Jingdiao Co., Ltd. v. Shanghai Naikai Electronic Science and Technology Co., Ltd.  This computer software copyright infringement dispute involved use of technological protection measures (TPM)  to restrict machines from reading the data stored in a file format, thereby ensuring that the machine bundled with computer software possesses a competitive advantage in the market.  The court determined that use of a TPM by this means is not a type of act taken by a copyright owner to protect its software copyright under the Copyright Law.

Guiding Case No. 47

Ferrero International S.A. in Italy v. Montresor (Zhangjiagang) Food Co., Ltd. and Zhengyuan Marketing Co., Ltd.  This unfair competition dispute is one of a few well known and widely commented cases involving Ferrero on trade dress and design protection in China.  This case holds that in order to determine whether a commodity is well known as used in the Anti-Unfair Competition Law, the court should consider a combination of various factors that demonstrate the circumstances under which the known commodity is protected — including sales period, sales regions, sales volume, and sales targets of that commodity within China, as well as the duration, extent, and geographical scope of publicity that has been carried out.

Guiding Case No. 46

Shandong Lu Jin Industrial Co., Ltd. v. Juancheng Lu Jin Crafts Co., Ltd. and Jining Lizhibang Home Textiles Co., Ltd.  This trademark infringement and unfair competition dispute involved a determination that “Shandong Brocade” (Lu Jin) had already become a generic name for textile products that possessed regional characteristics.  According to the court, a generic name can be an appellation established by the industry norm or it can also be the abbreviated name used as a convention by the public. The court noted that Shandong Brocade has a history of over a thousand years and that Shandong Brocade has been generally recognized by the State mainstream media, various kinds of specialized newspapers, and the news media of Shandong Province.  Reference books on arts and crafts and fine arts have confirmed that “Shandong Brocade” is a type of  cotton folk textile product that is hand made in Shandong.  The case’s decision implicates not only what constitutes a generic geographical term, but also the role of traditional knowledge/intangible cultural heritage in defining whether a term is generic and how to handle the relationship between these terms and the trademark system.

Guiding Case No. 45

Beijing Baidu Netcom Science and Technology Co., Ltd. v. Qingdao Aoshang Network Technology Co., Ltd. et al.  This unfair competition case addressed acts by Aoshang Network Company and Unicom Qingdao Company which involved their advertising popping up when network users log onto the Baidu website to conduct keyword searches through the Internet access service provided by Unicom Qingdao.  The court determined that this practice violated the good faith and business ethics and was within the scope of prohibited acts under Article 2 of the Anti-Unfair Competition Law.

Photo from recent FCBA program with East China University of Politics and Law.

SISVEL Vs. Haier: First German FRAND Case Decided Post Huawei vs. ZTE

The information in this blog comes to me via the German law firm of Arnold Ruess and the English language website of IAM (Joff Wild) (Nov. 12, 2015).

In what is apparently Germany’s first decision relating to FRAND and standards essential patents (SEPs) since the European Court of Justice’s decision in the Huawei vs. ZTE case, the Italian company Sisvel has been granted injunctive relief by the Düsseldorf Regional Court after a finding by that court that Sisvel’s patents had been infringed by Haier (Cases 4a O 93/14 and 4a O 144/14) (Nov. 3, 2015). The judgments are based on the German patents that belong to the Sisvel wireless patent portfolio. The judgements have not yet been appealed.

According to the IAM translation of the Arnold Ruess news release, the Court made the following determinations regarding the FRAND defense raised by Haier.

“The Court … held that the FRAND defense raised by Haier was not successful as it had not complied with the … requirements [of Huawei vs. ZTE]. It therefore did not need to decide on the preliminary question whether the FRAND defense was applicable at all as, …this would only be the case if the SEPs in suit actually conferred SISVEL with a market dominant position.

The Court found that SISVEL had complied with point 1 (information on patent infringement) [of Huawei vs ZTE]. In cases where the action was filed before [Huawei vs. ZTE] … was rendered, it is sufficient that the infringer gains knowledge about the infringement via the statement of claims.

The Court also confirmed that SISVEL had made a suitable license offer to Haier. It is sufficient if the license offer is addressed to the mother company of the alleged infringer in order to initiate negotiations. It would be a mere formality if a patent holder had to address all affiliates of a group separately.

The Court did not have to dwell on the details of whether SISVEL’s offer was FRAND and also left open whether Haier was already excluded from the FRAND defense as it had not reacted in a timely manner [as required Huawei vs ZTE, which would have mandated that if SISVEL does not accept the counter-offer, Haier had to render account and provide security for the payment of past royalties.]

… The Court in addition held that such rendering of account and the provision of a bond has to take place within a month after the rejection of the counter-offer by the patent holder.”

Huawei vs ZTE and its relationship to proposed NDRC IP abuse guidelines are discussed in further detail here.

I look forward to reading this important decision in full.

Global Antitrust Institute Releases Its Comments on NDRC IP Abuse Rules

Attached are the English and Chinese comments of George Mason’s University Global Antitrust Institute (GAI) on the draft NDRC Guideline on Abuse of Intellectual Property Rights.  The comments were prepared by Koren W. Wong-Ervin, Professor Joshua Wright, Judge Douglas Ginsburg, and Professor Bruce Kobayashi.

I previously distributed on this blog the GAI’s response to the NDRC questionnaire here. Overall, these additional comments of GAI urge the NDRC to recognize throughout its Draft Guideline an IPR holder’s core right to exclude as a “legitimate” or “legal” use of IPRs, and to incorporate the “but-for” approach taken by the U.S. antitrust agencies of comparing the competitive impact of the IPR use against what would have happened in the “but for” world in the absence of a license.

The GAI’s comments also focused on the issues of applying “unfairly high price” prohibitions on IPR royalties. The GAI asked the NDRC to 1) explicitly recognize that “reasonable” compensation should reflect the risk-adjusted break-even price; and (2) state that, in determining whether a particular royalty is “unfairly high,” the NDRC will calculate a reasonable royalty as a minimum floor baseline using the hypothetical negotiation framework from U.S. patent damages law. The patentee should have the opportunity to prove, in addition, its lost-profits as part of its damages, which would seem to be equal to the profits denied by the “unfairly high” pricing provision.  GAI emphasized that the goal of a reasonable royalty calculation is to replicate the market reward for the invention in the absence of infringement, and explained that comparable licenses are often the best available evidence of the market value of the patent. The comments also discuss use of the “Georgia-Pacific” methodology to help determine minimum rates for what a willing licensee and a willing licensor would otherwise have negotiated if an unfair pricing calculation is to be applied.

The comments also consider complex portfolio licensing by urging NDRC not to unduly take into account whether some expired patents are included in a portfolio. The commenters suggest that it would be impractical, if not impossible, for portfolio owners to constantly renegotiate licenses (or provide updated patent lists) every time an IPR in a licensed portfolio expires or, conversely, every time new IPR is added to the portfolio, both of which occur commonly.  As GAI notes, portfolios include patents with a variety of expiration dates and the parties to the license take the variety of expiration dates into account when negotiating a price.   Moreover, patent claims may change due to reexaminations, court and administrative proceedings, which can affect how they read on a particular technology over time.   In my own experience, most licensees are seeking freedom to operate from parties asserting patents, rather than a technical solution found in the patent itself.  Indeed, former Chief Judge Rader at a recent conference hosted by SIPO noted that one of the biggest differences he saw between being a judge and a private practitioner is that judges (and enforcement agencies) may look at litigation as patent-based or even claim-based, while the real commercial world is concerned with portfolios and freedom to operate considerations  I would add one other factor that the comments don’t mention involving licensing expired patents – the patents may still have some litigation value and considerable commercial value post expiration if relevant statute of limitations have not expired. In many cases, such as pharma patents, the principal value is to be found towards the end of the patent term. Moreover, if global licenses are entered into, longer statute of limitations in countries like the United States, (six years versus two years in China, and ten years in many other countries) should necessitate that Chinese licensees actively consider taking licenses on expired patents up until the relevant statute of limitations’ expiration.

The drafters also suggest rejecting that a refusal to license constitute an abuse of IP, noting that a patent exhaustion doctrine could also make refusals to license difficult to apply since licensors may choose to license its patents to a manufacturer, user or distributor.

The comments also suggest a cautious approach, using an effects analysis, in looking at discriminatory analysis. My own personal perspective is that China’s regulatory regime insures that non-discriminatory licensing is almost impossible to universally achieve. More specifically, there will likely be a certain amount of discriminatory licensing, as foreign licensors to Chinese licensees have to provide indemnities, non-mandatory grantbacks and access to markets under Chinese law which they will not need to provide elsewhere, or which Chinese licensors do not need to provide in their own domestic market or to foreign licensees.

The commenters also suggest that that “the NDRC not impose an AML sanction for merely seeking injunction relief” when a standards essential patent is involved, or at worst only deny injunctive relief when the licensor seeks “supra-competitive” royalties, i.e., is engaged in patent hold-up by seeking royalties that are not consistent with prior commitments by the SEP holder. Finally, the commentators direct NDRC to consider as a last alternative adopting a rule similar to the European Court of Justice decision in Huawei vs. ZTE. That case would provide a safe harbor for an SEP holder seeking an injunction that (1) prior to initiating an infringement action, alerts the alleged infringer of the claimed infringement and specifies the way in which the patent has been infringed; and (2) after the alleged infringer has expressed its willingness to conclude a license agreement on FRAND terms, and presents to the alleged infringer a specific, written offer for a license, specifying the royalty and calculation methodology.  The ECJ would then put the burden on the alleged infringer to “diligently respond” to that offer, “in accordance with recognized commercial practices in the field and in good faith,” by promptly providing a specific written counter-offer that corresponds to FRAND terms, and by providing appropriate security (e.g., a bond or funds in escrow) from the time at which the counter-offer is rejected and prior to using the teachings of the SEP.  This approach is necessary to take into account the conduct of both the patentee and the accused infringer when considering whether to impose an AML sanction and is especially useful in the Chinese context where the data suggests there is a high degree of under-licensing.

The GAI also provided comments on numerous other provisions, such as refusals to license, the essential facilities doctrine, bundling, cross-licensing, grant backs, and no-challenge clauses.

Thanks to GAI for making these comments publicly available. Distributing comments such as these, when affected parties may be unaware of the opportunity to comment, and in order to encourage more informed public discourse.