China’s Role in Global SEP Strategy – Recent Berkeley Program

On December 1, the Berkeley Center for Law and Technology concluded its four-part China enforcement series with two sessions on “China’s Role in Global IP Strategy”. The first session featured perspectives from US and European judges (Justice Birss, Judge Grabinski, retired Chief Judge Michel), while the second session relayed on-the-ground observations from counsel in Asia.  A recording will be made available to the public in a few weeks.  These two sessions were in addition to the continuing Berkeley series “Towards a Deeper Understanding” moderated and organized by my colleague Dr. Hao Yuan (which concludes with a discussion on 5G=/IoT on December 14), as well as a two-day series from Dec. 2 – 3 organized by George Mason University on licensing in 5G and IoT, the recordings for which are available here.  

Here are some observations from the Berkeley program, with some additional insights from the other events:

The weaponization of the Chinese judiciary may be an overstated label to some, but even the best-intentioned judges are ultimately constrained by the political dictates of industrial policy.

While judges elsewhere understandably bristle at the notion of mobilizing courts to promote economic goals from political leadership, Chinese courts are actively seeking to become a destination for setting global license rates for standard-essential patents. This approach has been to privilege “judicial sovereignty” over comity,  against the backdrop of state directives to promote the extraterritoriality of Chinese law. In Oppo v. Sharp, the Supreme People’s Court set out a rather expansive jurisdictional basis for Chinese courts to hear cases involving FRAND setting based on the place of negotiation. Chinese rulings in the cases of Xiaomi v. Interdigital and Samsung v. Ericsson in Wuhan, also raise serious and familiar concerns about Chinese court procedures reflecting international best practices in areas of transparency, due process, and independence.

Article 533 of the Civil Procedure Law specifies that a Chinese court can hear a case being litigated in a foreign court unless the foreign court has rendered a judgment and that judgment has been recognized in China.  The practical implication of this provision is that  Chinese courts have not had to pay any attention to parallel litigation in SEPS.

IP litigation, particularly pertaining to a FRAND determination, is both a process and an outcome.

The increased push for licenses on a global basis may seem new to the extent that IP is more traditionally a territorial concern. However, courts have had experience with international commercial disputes arising under a contract for quite some time.  FRAND commitments however are typically not encumbered by a choice of forum clause. As we see a race to the courtroom all over the world, the attractiveness of courts for litigation— Chinese or otherwise— is becoming increasingly relevant. Judges are increasingly placed in the awkward position of having to interpret foreign law as well as determining licensing rates in cases with increasingly globalized fact patterns.

FRAND is every bit as much a process as it is an outcome. It should also be viewed in terms of a process of settlement or a process that can bring parties together incrementally. With FRAND, the law mixes outcomes like specific numerical rates with processes like good faith negotiation. Ideally, there is a blended focus on both aspects.  In the current environment, it would be helpful to emphasize process to an even greater extent.

Despite the challenges, there are still reasons to feel relatively positive about the transnational FRAND system.  

Both the Berkeley and George Mason programs underscored that the total cost of patent licensing as a percentage of the cost of a typical mobile handset is still quite reasonable and that the actual amount of litigation compared to the numbers of SEPS is also relatively small.  In general, fears of patent hold-out have not been well-substantiated.  The current system has, instead,  done a reasonably good job fostering firm entry and competitive dynamism. Calls for a greater role of arbitration to determine licensing rates and untangle the difficulties of parallel litigation are understandable, but there will need to be movement from companies themselves or the standard-setting bodies they are a part of to realize such ambitions. Though the newfound assertiveness of Chinese courts vis-à-vis jurisdiction continues to warrant attention, so too do jurisdictional developments within the country itself. Political timbre notwithstanding, Chinese courts are trying to make themselves more efficient and more competitive. As a matter of judicial reform, this effort includes pushing petitions down to bodies below the Supreme People’s Court, whose resources are not sufficient to handle the sheer volume of its caseload. Ideally, the result would be one in which the Supreme People’s Court better reflects its name by only dealing with an appeal on law rather than reviewing factual issues in line with other jurisdictions. Such an outcome would be another step in the Chinese judiciary’s maturation. As discussed in the two points above, there is still a long way to go. It is nevertheless valuable to acknowledge positives to build upon.

Written by Philip Rogers with edits by Mark Cohen

Categories: ASI, Paul Michel, SEP, SEPS, SPC

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