The Federal Circuit Bar Association and USPTO announced on July 17, 2017 that they are hosting a webinar on the latest research and developments in standards essential patents (SEPs) in China on July 25, 2017 from 9:00 to 11:30 AM, EST. The draft agenda and suggested reading materials are available via the link here. Registration is free and is required to participate in the program. Some of the speakers will also be discussing live at USPTO, for which registration is also required. The focus of the program is on developments and research in patent prosecution and injunctive relief for SEPs.
A string of recent events suggest that there is increasing confidence by the foreign community in China’s antitrust and licensing regime and that some of the aggressive posturing in the past by the Chinese government on the ”hegemony” of foreign ownership of SEP’s countries, or (more recently) the abuse of dominance of foreign SEP owners (in cases like Huawei vs Interdigital and NDRC v Qualcomm), is shifting to a more balanced view. Hopefully, policy developments in this new phase will also facilitate China’s efforts to become a global innovator and technology exporter.
One of the more hopeful signs of faith in the Chinese legal system was Qualcomm’s filings against Meizu, Since its initial court filings in China, Qualcomm has filed 17 complaints against Meizu. In addition, Qualcomm announced in October 2016 that it launched a 337 action against Meizu in the United States, and is pursuing litigation in Germany and France.
In another sign of confidence Canadian NPE, Wireless Future Technologies Inc, a subsidiary of Canadian PIPCO WiLAN, filed a patent infringement lawsuit against Sony in the Intermediate People’s Court of Nanjing. The choice of the Nanjing court, rather than one of the specialized IP courts has been a source of some speculation, with the media suggesting any of three factors: faster litigation times, local contacts and even, perhaps, anti-Japanese sentiment. Two other reasons: Jiangsu’s efforts to use actual or implied royalties to assess damages, rather than the low statutory damages that applied in the vast majority of cases in China. Damages in a “model case” for patent infringement in 2014 using a royalty based calculation that was first adjudicated by the Nanjing Intermediate Court, were 3,000,000 RMB, relatively high by Chinese standards. See 江苏固丰管桩集团有限公司 vs宿迁华顺建筑预制构件有限公司, 南京中院（2014）宁知民初字第00108号 , 江苏高院（2015）苏知民终字第00038号. Finally, and perhaps, most importantly, Sony’s phones are made by Arima in Wujiang, Jiangsu Province.
The Financial Times has written on the Arima case, noting that “A new corporate era beckons in which a Chinese judge could conceivably cut off the lifeblood of some of the world’s most valuable companies. It was not so long ago that China’s legal system just did not factor into the risk calculus of most global companies.”
Chinese companies are also showing confidence overseas by bringing cases brought against foreign competition. Earlier this year, Huawei brought SEP-related litigation in the United States against Samsung in both the United States and China, and against T-Mobile in the Eastern District of Texas.
China’s growing SEP portfolio may be contributing to this change in perspective. As Dina Kallay of Ericcson noted at the recent Fordham Antitrust conference: “Of the ten largest contributors of technology to cellular standards — and we like to measure it by accepted technical contributions, so it’s not just measured by the number of patents, which arguably you can play with — but by how many of your technical contributions were accepted into the standard, …Three … are Chinese — Huawei, ZTE, and CATT (Datang). No other nation has as many companies in the Top Ten list.” Considering China’s increasing investments in the United States and its rapidly improving patent portfolios, might a Chinese company soon be a complainant in a Section 337 litigation?
By the way, Huawei’s website impressively identifies their contributions to IP in standards as follows;
Huawei has filed over 57,800 patent applications in China, U.S., Japan, European Union, South Korea, and Brazil, as well as other countries and districts, of which approximately 15000 are in the area of wireless communications.
Huawei has 2,137 essential patents in the area of wireless communications…
In the area of wireless communications, Huawei has submitted approximately 20,009 proposals to international standard organizations … 40% of which have been adopted.
Huawei’s extensive experience in standards setting and its own investments in IP have likely contributed to its opposition to some of the mandatory disclosure / mandatory licensing standards-related aspects of the proposed revisions to China’s patent law (eg., Article 85). Interestingly, Huawei objected to this provision due to the the complexity of international regulation of standards setting organizations, and because it alleged that foreigners do not participate in the development of Chinese domestic standards; therefore this provision might primarily be applied by Chinese against Chinese. Nonetheless, its rejection would be a positive step by avoiding an unfortunate precedent for SIPO and reducing overregulation of standards setting bodies.
One can also point to other recent factors, such as government to government engagement, and the pressure of overseas litigation in Huawei vs ZTE (ECJ), Sisvel vs Haier (Germany), Unwired Patent vs Huawei and Samsung (United Kingdom) and Vringo vs ZTE (SDNY and other jurisdictions) as other informative experience and perhaps sources of pressure for greater international conformity.
These changes in IP ownership, standards participation, litigation experience and maturity due to increased engagement are likely having their effect on domestic policy. Within China, early this year draft IP abuse guidelines of NDRC recognized that ownership of an SEP does not automatically confer market dominance. In July of 2015, the State Council announced its plans for China turning into a “strong IP economy”, and identified several projects involving standards. One of the projects identified by the State Council calls for the development of rules on standard essential patents that are based on FRAND licensing and “stopping infringement”, with the involvement of AQSIQ, SIPO, MIIT, and the Supreme People’s Court (Art. 38). As the focus of this task is on stopping infringement, rather than “abuse of dominance”, this suggests to me that a more rights-holder friendly approach.
Another hopeful sign which I have been following are suggestions that China’s Technology Import/Export Regulations (“TIER”) may now be under revision, as was noted in the European Business in China Position Paper (2016/2017) . Some aspects such as ownership of improvements have been the subject of the TIER and also appear to factor into AML enforcement policy such as in the Qualcomm case. (see also QBPC’s paper on the TIER at “应允许当事人对后续改进的技术成果的权利归属进行自由约定”, attached here.[Chinese Language]).
What do you think? Please feel free to comment with your own experiences or examples (in favor or against) in this area!
Rev. Nov. 19, 2016
To the uninitiated, Qualcomm’s licensing practices in China must appear confusing. Since paying a fine of 975 million USD to NDRC – about 50,000 times average patent damages according to the CIELA database for its Standards Essential Patent licensing practices, Qualcomm has entered into approximately 100 licensing settlements with Chinese companies. How can the weak become so successful, so soon?
According to press accounts, Qualcomm has settled with the major cell phone manufacturers in China, most recently with Chinese cell phone companies Vivo and Oppo. Both deals came after Qualcomm decided to bring law suits against cell phone manufacturer Meizu in the Beijing and Shanghai intellectual property courts for damages that reportedly total about 520 million RMB. The first law suit was filed by Qualcomm around June 23 at the Beijing Intellectual Property Court. The complaint essentially sought to enforce an NDRC rectification plan imposed on Qualcomm against other infringers/potential licensees. The original complaint, according to Qualcomm’s press release “requests rulings that the terms of a patent license offered by Qualcomm to Meizu comply with China’s Anti-Monopoly Law, and Qualcomm’s fair, reasonable and non-discriminatory licensing obligations. The complaint also seeks a ruling that the offered patent license terms should form the basis for a patent license with Meizu for Qualcomm’s fundamental technologies patented in China for use in mobile devices, including those relating to 3G (WCDMA and CDMA2000) and 4G (LTE) wireless communications standards.” Since that filing, Qualcomm filed 17 new complaints were filed in Beijing and Shanghai.
Given the risks to Qualcomm posed by seeking injunctive relief for standards essential patents, Qualcomm appears to have initially launched its litigation campaign against Meizu by enforcing the NDRC approved licensing terms against one hold out company who might thereafter be left with an unfair competitive advantage. Qualcomm appears to be reducing its antitrust risks by first getting “immunized” by NDRC, and then enforcing the terms of the NDRC “rectification plan” and couching its patent infringement litigation in terms of promoting fair competition. This in effect has turned the tables on recalcitrant licensees who have previously relied on Qualcomm’s FRAND commitments to reduce the risk of being sued by Qualcomm by threatening an antitrust counterclaim. What remains to be seen, however, is the legal status the court affords the rectification plan given the often unclear relationships between judicial and administrative decision making.
Qualcomm’s GC, Don Rosenberg said Qualcomm is taking legal action out of a sense of fairness to other companies that are paying what they owe. In addition, the case represents a vote of confidence by Qualcomm in the court system. As Don Rosenberg noted “”We’re putting our faith in the court system there and we wouldn’t do that if we didn’t think we were in capable hands.” Qualcomm may no doubt have been inspired by the success of its licensing program as well as the perfect or near perfect win rate in the sixty five infringement cases filed by foreigners in 2015 in the Beijing IP court. As I have noted repeatedly on this blog, foreigners do win IP cases in China.
In China’s current legal environment, where licensing is burdened by seemingly contradictory norms – e.g., where the Chinese government sets prices for license transactions in antitrust cases, restricts the freedom to negotiate of foreigners, provides tax incentives for licensing in to China for high tech enterprises, sets national goals for licensing transactions, and where the courts seem to have difficulty imposing damages based on actual or implied royalties, Qualcomm appears to be turning the 975 million dollars of “lemons” of the NDRC fine, into a vat of lemonade.
Qualcomm’s vote of confidence in the courts in a high stakes case may also help set an important model for other foreign and Chinese rightsholders, potentially by highlighting such important issues as: Yes, foreigners win cases in China, the importance of actual or explicit license agreements for determining damages (already being tried in some jurisdictions, see: 江苏固丰管桩集团有限公司 vs 宿迁华顺建筑预制构件有限公司 (Jiangsu, 2015), and the respective roles of patent law, antitrust law, the courts and administrative agencies, in obtaining SEP licenses in China.
Qualcomm and China both have a lot at stake in the handling of SEP issues. A recent report by Thomson Reuters (The Evolving Landscape of Standard Essential Patents: Keeping What is Essential, Sawant and Oak), showed that Qualcomm owns 17% of the patent declarations before the European Telecommunications Standards Institute, followed by Nokia, Huawei, and InterDigital. Decisions in Europe such as Huawei vs. ZTE may also have underscored the importance of looking at whether a putative licensee/infringer is in fact negotiating in good faith with a FRAND encumbered licensor.
Judges such as Zhu Li of the SPC have noted some of these changes publicly. As Zhu Li said in a recent blog:
[T]he owner of standard essential patent FRAND commitment that is made voluntarily does not give up under all circumstances the choice of seeking injunctive relief. Furthermore, it does not mean seeking injunctive relief must produce anti-competitive effects. Therefore, when a holder of a FRAND encumbered SEP seeks injunctive relief, the anti-competitive effects still need specific analysis and judgment。
The evolving practice appears to be that the evidentiary burden to demonstrate that the infringers have refused to pay a license fee is on the licensor and, as Zhu Li noted, a monopoly is not necessarily constituted when an injunction is requested by SEP owners.
The State Council’s recent opinion on how China should become a “strong” IP country, also highlighted how China needs to draft rules on standard essential patents that are based on FRAND licensing and “stopping infringement” (Art. 38) (with the involvement of AQSIQ, SIPO, MIIT, and the Supreme People’s Court) and that encouraging standardization of Chinese patents also remains a priority (Arts. 61, 71).
As I indicated elsewhere, a key question for China is “What circumstances exist to suggest that a prospective licensee is engaged in patent hold-out, i.e., refusing to license in good faith which might suspend the licensor’s F/RAND obligation…” Hopefully China is beginning to ask the better questions that are suitable for its licensing environment and its efforts to become a “strong” IP economy.
What are you observing in this hot area? Please post your comments and corrections!
The preceding is the author’s personal opinion only.
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.