China IPR

China in the DOJ Draft Policy: A Summary of the Comments

The comment period ended February 4, 2021 on the DOJ/USPTO/NIST Draft Policy Statement on Licensing Negotiations and Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments (the “2021 Draft”), to which I submitted comments regarding China’s impact on global licensing negotiations.

USTR was not a named author of the 2021 Draft. My guess is that USTR did not participate due to its role in approving USITC exclusion orders and a reluctance to establish domestic policy that may limit its discretion in an international context.  Nonetheless, the absence of USTR and the lack of discussion around international context in the 2021 Draft strongly undercut its utility. 

Public commentators did address the impact of international developments on SEP licensing policies.  DOJ noted  on January 9, 2021 that there were over 100 comments that raised concerns that “the result of this [2021 Draft] policy would be less innovation in the United States and a further shift in global technological leadership to China and other competitors.”  For example, among the commentors, Gary C. Hufbauer (Peterson Institute for International Economics) noted that the 2021 Draft contained “no review of Chinese license fees paid to US innovators, nor any mention of Chinese state policy (inadvertently supported by the 2021 Draft) of driving down SEP license fees.”   A coalition of  “Conservatives for Property Rights” noted that “the beneficiaries of enfeebled SEP enforcement aren’t American start-ups or consumers; they are nations like China, with centrally controlled economies that funnel enormous resources toward technologies like AI, 5G, and quantum computing. China is also the world’s largest consumer of SEP-based technology, so weakening America’s protection of its own patents directly benefits Chinese manufacturers.” The US Chamber also submitted China specific comments.

There was also at least one commentator from China.  Mr. Weiye Ma, a former SIPO official, submitted comments in his capacity as the Vice President and Secretary General  of the Patent Protection Association of China (PPAC). PPAC describes itself as a Chinese organization consisting of “patent owners, as well as potential licensees for standards-essential patents.”  Mr. Ma’s comments, however, did not directly address the Chinese legal context of SEP licensing.

PPAC raises one criticism of the 2021 Draft with which I partially agree.  In PPAC’s view, the 2021 Draft Policy would be more helpful if it “could expose clearer information assisting patent holders and potential implementers in predicting whether their behavioral patterns conform to the rules of good faith negotiations.”  Such an approach is generally consistent with Chinese judicial guidelines of SEP disputes.  My comments noted that “the 2021 Draft fails to effectively articulate what constitutes a lack of good faith, but only [a limited set of] actions that ‘might’ constitute good faith.”  However, I differ with PPAC in what a more granular approach would look like, largely due to the international context of SEP negotiations.

PPAC requests that licensors submit a “random sampling patents of no less than 50% of the patent families in the patent list issued by an independent third party.”  Such an approach does not adequately elevate qualitative approaches to determining patent value, which have been concerning in Chinese global SEP determinations.  In addition, PPAC suggests that licensors “disclos[e] the relevant F/RAND statements, F/RAND quotations, and comparable agreements that have been signed.”  This necessarily raises concerns over Chinese confidentiality protections for prior F/RAND quotations in the United States, which have been of continuing concern in negotiations with Chinese licensees.  I also take issue with other approaches, such as imposing burdensome reporting requirements for large and evolving multijurisdictional portfolio licensors, particularly at early stages of negotiations, and especially when such offers have been used as evidence to support antitrust complaints in China

In my view, a more granular US approach might also include emerging international practices, including those regarding anti-suit injunctions (ASIs).  As I pointed out in my comments, China was the largest grantor of anti-suit injunctions in the world last year and has long had a history of leveraging its expedited court proceedings to undercut foreign jurisdictions in IP disputes of all types.  In appropriate circumstances, seeking an ASI might be considered as an indicator of bad faith in negotiations.  My comments noted:

Discussions around “balance” such as are being proposed the 2021 Draft, have their place when parties to a litigation are behaving.  They have little place when one party has pursued proceedings which, in the words of retired Chief Judge Michel, “raise significant concerns about… sufficient notice and due process.” Such actions should be deemed, at a minimum, as offensive to standards of good faith/clean hands in SEP proceedings.  An offending party might be denied injunctive relief and be required to pay fines as the Indian Court did in Interdigital v. Xiaomi.

The US Chamber of Commerce also submitted comments addressing Chinese ASI’s, noting that “The Supreme People’s Court has upheld the jurisdiction of Chinese courts to force foreign SEP holders into such F/RAND rate-setting proceedings and has prohibited foreign IP holders from enforcing their patents in other jurisdictions under threat of significant monetary fines.”

In addition to case-specific practices that may raise concerns over good faith, I also discussed the various WTO disciplines under the TRIPS Agreement that might be implicated by national SEP practices. These disciplines over such measures as deterrent remedies, access to independent counsel, and transparency may also constrain when the use of overseas proceedings can constitute “good faith” in negotiations.  

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