Unwired Planet and the Role of Chinese Courts: A Perspective from Shenzhen

This is the second article on recent research on Chinese IP law and practice.  The focus of this blog is  a widely read article of Judge Zhu Jianjun, Shenzhen Intermediate Court, Intellectual Property Tribunal.  His article “Research on Judicial Judgment Issues of SEP Global Royalty Rates” was published in  Intellectual Property, Issue 10, 2020, pages 3-12, and has since been distributed on Wechat.  A slightly edited machine translation of the Wechat text is found here.

Judge Zhu is a prominent IP judge who has adjudicated a number of SEP-related disputes, including one of the earliest SEP cases involving Huawei and Interdigital, and more recently, Huawei v. Samsung.   He published an article on Huawei v. Interdigital with his fellow judges in 2013 (标准必要专利权人滥用市场支配地位构成垄断的认定评华为公司诉美国IDC公司垄断纠纷案 (Recognizing Abuse of Market Position by Holders of Standards Essential Patents – Huawei v. US IDC Company) , 3 电子知识产权 (Electronics Intellectual Property) (2013).  In addition to his case load, and publishing articles on SEPS and IP-related matters, Judge Zhu is scheduled to speak on January 22, on day two of the forthcoming Berkeley-Tsinghua program on transnational IP litigation.

The views expressed by Judge Zhu are not necessarily those of his court.  By the same token, Judge Zhu’s views are controversial among many in the West, and my repeating them here does not necessarily mean that I subscribe to them.

Judge Zhu is concerned about the circumstances where, in his view, a SEP right holder does not abide by the FRAND commitment, and a national court voluntarily sets a global licensing rate by issuing an injunction to the implementer as a coercive force.  In his view, this practice does not comply with FRAND principles. Judge Zhu expresses particular concern about Unwired Planet v. Huawei (“UWP” and the “UWP case”), where the Supreme Court of the United Kingdom determined that Huawei infringed the two British standard requirements of UWP’s patent rights and adjudicated the global licensing terms of UWP’s patent portfolio.

In his article, Judge Zhu encourages China to take a more aggressive posture towards extra-territorial jurisdiction of foreign courts. In his view, the courts of major countries in the world other than the United Kingdom will not ordinarily take the initiative to determine the global standard-essential patent license rate for both parties in the case.  In the UWP case, Huawei was required to pay damages to UWP for infringing two patents unless Huawei signed a FRAND clause binding both parties under threat of a UK-wide injunction.  The British courts, in Judge Zhu’s words, took the initiative to decide “the global rate of the standard essential patents for both parties in the case where … a ban on the sale of wireless communication products guaranteed enforcement.”  

Judge Zhu notes, based largely on Microsoft v. Motorola, that “the U.S. court will only judge the global FRAND rate of the standard essential patent portfolio involved in the dispute when the parties in the dispute agree, and will not actively set the global fee for both parties.”  In the Sisvel case in Germany, Judge Zhu notes that the decision “is based on whether the quotations given by the two parties in the negotiation process conform to the FRAND principle as an important condition for judging whether to issue an injunction.” With regard to global rate setting, Judge Zhu notes that German courts recognized that “acceptance of global patent portfolio licenses cannot be used as a criterion to measure whether a party fulfills FRAND obligations.  Standard-essential patent implementers are allowed to explain why they do not accept global licenses. Non-discriminatory licensing does not require that all licensees be given the same licensing conditions under any circumstances.”  The German approach appears important to Judge Zhu to justify lower, China-specific rates.  Based on Samsung v. Apple in Japan, Judge Zhu also notes that Japanese courts regard whether the parties comply with the FRAND principle during the negotiation process as a condition for issuing the injunction, and will not take the initiative to determine the global licensing rate of a SEP patent portfolio.

Judge Zhu concludes that “the practice of the British courts taking the initiative to judge global rates for both parties in the case is contrary to the mainstream practice of the international community.”  To me this approach sets up a conflict between antitrust jurisdiction and traditional IP jurisdiction.  In the Huawei v. InterDigital decision, for example, Judge Zhu took the view that the filing of a USITC action by InterDigital was an abuse of dominance under Chinese antitrust law. In separate decisions the court awarded antitrust damages and set a FRAND rate, with the foreign antitrust decision acting as another “coercive force.” The most recent Chinese court to blend antitrust jurisdictional concepts in a FRAND IP dispute appears to be the Wuhan Intermediate Court IP case of Samsung v. Ericsson.  

In determining whether to issue an injunction, Judge Zhu notes that “the Chinese court will judge whether the standard essential patent portfolio quoted by both parties in the negotiation process conforms to the FRAND principle, as an important condition for judging whether the parties should be given an injunction.”  For example, with respect to the Huawei v Samsung case, Judge Zhu notes that the Shenzhen Court determined that Samsung carried relative fault in the negotiations, and it was ordered to stop infringing Huawei’s patent rights.  The standards for determining fault are articulated in the Guangdong SEP guidance, and other judicial documents.

In Judge Zhu’s view, the UK Supreme Court in UWP was seeking to force Huawei to accept higher licensing fees.  Another view is that Chinese courts are charging unfairly low licensing fees.  Judge Zhu also notes this wide disparity in his article when he discusses the German UWP case: “[t]he German court determined that Unwired Planet complies with FRAND’s Chinese licensing rate quotation, which is 18.3 times higher than the Chinese fee rate confirmed by the Nanjing Intermediate People’s Court in the first instance.”  This huge gap in understanding between Western and Chinese courts of what constitutes a FRAND rate calls into question whether the Chinese courts are behaving in a results-oriented manner.  This is also substantiated by a lack of proportionality between China’s low rate setting decisions and its more aggressive decisions regarding abusive licensing practices. NDRC’s penalty of $975 million against Qualcomm was was 13,000  to 50,000 times higher than the average patent damage award at that time.  By contrast, the Chinese lower court decision in Huawei v InterDigital awarding InterDigital a rate of 0.019% was miniscule.

As the recent decisions in Wuhan suggest, Chinese judicial activism in this area has not focused on preserving a Chinese rate setting for China which might nominally be within the scope of Chinese “judicial sovereignty”, but instead, as Profs. Contreras and Yu have pointed out,  enabling Chinese courts to engage in global rate setting under the compulsion of a global anti-suit injunction.  This also facilitates implementation of Chinese government industrial policies to increase China’s global licensing balance of trade.  It is not surprising that Samsung recently saw a similar opportunity by bringing a case in Wuhan to obtain a global ASI as part of its toolbox of remedies, despite Samsung and Ericsson having a small market presence in China when compared to the United States.

Without the benefit of ASI’s, Chinese courts already enjoyed the advantages of a forum that automatically grants injunctions, grants them quickly, and grants them over the huge Chinese market for companies that sell or manufacture there.  Even if a company does not manufacture in China, the automaticity of Chinese injunctions provides significant advantages. Another advantage for plaintiffs, as the Samsung v. Ericsson case revealed, is that China is  non-transparent prior to the long period that extends from case acceptance to international service of process.  Moreover, forum non conveniens decisions, where the court relinquishes jurisdiction in favor of a more appropriate forum, are rare. 

An additional reason for lower values in China, according to Judge Zhu, may also be higher invalidation rates for foreign patents filed in China, which may be “due to language translation and other reasons” which places those patents in an “unstable state.”  Another translation issue occurs with respect to rate setting when “it is difficult to separate the standard-essential patent fee rate in Chinese jurisdictions because the description of the prior patent package fee rate agreement is generally very general or very vague.”   Judge Zhu also does not discuss another factor that tilts the scale in favor of low foreign portfolio values, namely over-reliance on Chinese patent quantities to judge patent values

For Judge Zhu, the UWP case involved a plaintiff who “had only 3 months of contact and negotiation with Huawei. It can be said that when the negotiation has just begun and there is no sign that the negotiation cannot proceed, UWP immediately filed a case with the British court… It is difficult to say that UWP’s behavior conforms to FRAND principles.”  There may be, of course, different foreign perceptions of what constitutes reasonable or fair behavior.   Foreigners making decisions regarding when and where to file court cases may need to consider such factors as: the short statute of limitations of Chinese court cases; the rapid time to trial and appeal of a Chinese case; a lower licensing rate if the case were filed in China; delays in service of process from Chinese courts; the flexibility of Chinese courts in setting their docket when a foreign party is involved; the aggressive use of ASI’s; difficulties of a Chinese court relinquishing jurisdiction; and other factors which may lead to a truncated period of negotiations prior to a foreign court case.  Considering these uncertainties, courts may also need to be cautious in assessing what does not constitute a FRAND pre-trial offer.

Judge Zhu suggests several strategies to address the challenges posed by the UWP case: Chinese companies should seek to invalidate patents in China, and Chinese companies should initiate a lawsuit against the Chinese court for the licensing rate of standard essential patents.  Judge Zhu also believes that when a Chinese company requests a ruling on the standard-essential patent license rate in the Chinese jurisdiction, regardless of whether the time of litigation is first or later, the Chinese court is required to determine the rate in the Chinese jurisdiction. Therefore, extraterritorial courts should exclude the trial of standard essential patent licensing fees in a Chinese jurisdictions.  Consistent with that view of exclusive jurisdiction over Chinese rate setting, China should establish an anti-suit injunction system for handling SEP disputes in China: “[t]he practice of foreign courts issuing anti-suit injunctions to civil litigants in China has caused great obstacles to the normal exercise of rights by litigants in civil litigations in China. At the same time, it has also caused a greater impact on the legal exercise of jurisdiction by Chinese courts.” 

In the few months that have passed since this important article was published, the global environment for SEPs has become more complex, largely due China’s decisions to issue its own global anti-suit injunctions. Some of these, such as the recent Samsung v. Ericsson case in Wuhan, addressed issues that were within the sovereign jurisdiction of other countries. The issuing of global ASI’s by China is now less inconsistent with the UK approaches. 

Another concept that may not have survived well may be Judge Zhu’s analysis of when extraterritorial courts voluntarily ruling on global rates “would violate a [Chinese] principle of the closest connection in the jurisdiction of intellectual property cases.“ Judge Zhu cites the example of the UWP case. In that matter, In that case, Huawei’s global sales business primarily involved products that are produced in China and the main market is also in China.  I do not know the jurisdictional basis in China of the Samsung v Ericsson case, In that case, however, the United States appears to offer a closer connection to both parties. 

If, on the other hand, if the UWP dispute were heard in China and one were to apply Article 34 of the Civil Procedure Law  of China to the UK case, jurisdiction would have been appropriate.  It only requires an “actual connection” for a court to take jurisdiction in a contract or property dispute.  This threshold is quite low. As Prof. Vivienne Bath has noted, only when “a judgment of a foreign court has been recognized in China must the court reject a suit on the same dispute.”  Furthermore, the United States and many other foreign courts’  judgments are rarely enforced due to the lack of a  bilateral agreement.

Judge Zhu’s article is an important introduction to Chinese perspectives on extraterritorial jurisdiction over SEP matters.  At a conference that Judge Zhu and I both attended in January 2020 at Renmin University, I raised concerns to the audience about China’s lack of familiarity with concepts of comity as an important factor in drafting ASI’s by Chinese courts.  Addressing extraterritoriality and interference in a country’s legal system with appropriate deference to the proceedings of other courts and respect for their legal system is a necessary next step for China’s judiciary in order to be perceived a fair venue for all parties to resolve their IP disputes. 

Judge Zhu as well as Prof. Vivienne Bath are scheduled to speak at the forthcoming Berkeley-Tsinghua program on Transnational IP litigation on January 22, 2021. The SEPS panel will also include Chief Judge Randall Rader (ret.), Judge Andrew Guilford (ret.) and former USPTO Director David Kappos, among other notable speakers.  Profs. Robert Merges and Hao Yuan will be moderating.

March 13 – 19, 2018 Updates

1. China’s export of IP royalties increased 311.5% in 2017  According to the statistics of the State Administration of Foreign Exchange, the volume of trade of Chinese IP royalties totaled 33.384 billion USD in 2017, a 32.7 percent increase from 2016. The amount of exports of IP royalties totaled 4.786 billion USD, a 311.5 percent increase from 2016, which ranked No.1 in terms of the speed of growth in service trade. The exports and imports of IP royalties for manufacturing industry ranked No. 1, at 3.793 billion USD, a 544 percent increase from 2016.  The import amount totaled 20.753 billion USD, up 16 percent. In terms of category. The amount of exports of replication/distribution computer software ranked No.1. at 3.405 billion USD, up 652 percent from 2016. In terms of region, Guangdong province was the No.1 in amount of export and import of IP royalties in 2017. Its export amount totaled 4.013 billion USD, up 591.9 percent from 2016 and its import amount totaled 7.525 billion USD, up 9.8 percent from 2016.

Despite the significant increase in the amount of exports of IP royalties in 2017, China still has a trade deficit in IP royalties. The amount of the deficit totaled 23.812 billion USD, which increased by 0.978 billion USD. About 60% of the deficit reportedly originated from the United States, Germany, and Japan.

IP commercialization and utilization has been a focus of China’s IP efforts since the third plenum of the Communist Party in 2014. However, foreigners continue to view China as very challenging licensing environment despite China’s claims of a licensing “deficit”. China’s technology import/export regulations had been one of the challenges that foreigners expressed special concern. In the US Chamber’s recently released IP Index, it was noted that IP commercialization in China was hampered by “[s]ubstantial barriers to market access and commercialization of IP, particularly for foreign companies.” China received zero points for “Regulatory and administrative barriers to the commercialization of IP assets.”  Here is a link to the discussion of Chinese licensing practices. The US Chamber’s conclusion is not unlike that of the Global Innovation Index (2016) which, as we previously reported, scored intellectual property payments according to a formula as a percentage of total trade. China came out at 72nd place, while it ranked number 1 in high tech exports. Similar concerns were also voiced by USTR in the recently released Section 301 report.

2.SIPO takes efforts to develop ability and capacity of IP mediation entities.  SIPO recently issued a “Notice on Developing the Ability and Capacity of Intellectual Property Mediation Entities” (“Notice”), as part of its effort to strengthen the role of mediation in IP dispute and the overall IP protection system. According to the Notice, SIPO will select 20 to 30 existing IP mediation entities every year as the target for ability and capacity development and help with such development for two years. After the two-year period, SIPO will release the basic information as well as specialties of entities that made great progress. Selection and review of existing entities will start this year, which is done by SIPO. Entities can apply either through local IP offices or to SIPO directly.

Within the region, Japan is also considering the use of mediation system to resolve IP disputes. The Japan Patent Office (JPO) intended to introduce an ADR system to determine appropriate license fee of SEPs in 2017. However, the ADR SEP system is likely to be deferred, as reported after a JPO committee meeting in November 2017.

3.  Huawei v Samsung patent decision released by Shenzhen IP Court. The recent decision in Huawei v Samsung was released by the Shenzhen IP Court.  The case involves assertion of two SEP’s by Huawei, and the grant of an injunction against further infringement.

December 2017 Update

 

Here are some updates on IP developments in China from this past December 2017:

1.  Xi Jinping: China must accelerate implementation of big data strategy (English) 习近平:实施国家大数据战略加快建设数字中国 (Chinese).  Xi Jinping, during a collective study session of the Politburo on December 8th, has urged the country to accelerate implementation of its big data strategy to better serve social and economic development and improve people’s lives. Xi said efforts should be made to advance national big data strategy, improve digital infrastructure, promote integration and sharing of digital resources, and safeguard data security.

2.  Legal Daily on December 5, 2017 notes that leakage of private data from government  websites is getting attention, all local governments start rectification and protection mechanism  政府网站泄露隐私问题受关注,各地整改升级保护机制 (Chinese)

3.  Ministry of Education, Department of Human Resources and Social Security, and Ministry of Finance regulated information disclosure of private information 教育部人社部财政部三部委规范信息公开 保隐私信息安全自查工作要不留死角(Chinese).  This appears to be related to the developments described in the Legal Daily article described above.  Note that unauthorized disclosure of confidential information of foreigners had been a concern during prior meetings of the bilateral Joint Commission on Commerce and Trade.   Compare 2014 and 2016 U.S.-China Joint Commission on Commerce and Trade (JCCT).   From 2014 JCTT: The United States and China confirm that trade secrets submitted to the government in administrative or regulatory proceedings are to be protected from improper disclosure to the public and only disclosed to government officials in connection with their official duties in accordance with law.  Each side will further study how to optimize its respective relevant administrative and regulatory procedures within its legal system, where appropriate, including by strengthening confidentiality protection measures, limiting the scope of government personnel having access to trade secrets, limiting the information required from companies to include only information reasonably necessary for satisfying regulatory purposes, and stipulating that any requirements on government agencies to publicly disclose information appropriately allow for the withholding of trade secrets.  Government officials who illegally disclose companies’ trade secrets are to be subject to administrative or legal liability according to law.  The United States and China agree to exchange information on the scope of protection of trade secrets and confidential business information under their respective legal systems.  China acknowledges that it is to conduct a legislative study of a revised law on trade secrets.  The United States acknowledges that draft legislation proposing a Federal civil cause of action for trade secrets misappropriation has been introduced in the U.S. Congress.  From 2016 JCCT: Both sides confirm that, in those cases in which a judicial or administrative enforcement authority requests the submission of confidential information in conjunction with a trade secret enforcement matter, such requests will be narrowly tailored to avoid putting at risk sensitive business information and will be subject to appropriate protective orders to control additional disclosure and ensure that information is not further misappropriated and that any decision that is made publicly available in conjunction with a trade secret enforcement matter will have all confidential information appropriately redacted. The United States and China confirm that trade secret investigations are conducted in a prudent and cautious manner.

4.  Overview of China’s intellectual property protection: 32000 suspected criminal cases have been transferred since 2011.  中国知识产权保护状况全景式展示  2011年以来移送涉嫌犯罪案件3.2万起(Chinese).  Note: This is data on referrals from administrative to criminal enforcement. The transfer from admin to criminal seems like part of overall efforts that China took to improve IP protection. The article mentioned that three agencies: National Copyright Administration, SAIC and SIPO, all enhanced IP protection enforcement. For instance, National Copyright Administration, through “Jian Wang” (Swordnet) project, investigated 5560 infringement cases over the past 13 years; SAIC investigated 19,400 trademark infringement cases from Jan to Oct 2017; and SIPO and other IP protection agencies investigated 189,000 all kinds of infringement and counterfeiting cases in 2016.Related background information: State Council Opinion on Improving Administrative/Criminal IPR Enforcement Coordination.

5.  China Intellectual Property Development Alliance was established  中国知识产权发展联盟成立 (Chinese).   The focus of this alliance is to create a good environment for IP application and protection and to build an ecosystem for IP operation.

6.  Notice on establishing national intellectual property pilot parks.  关于确定国家知识产权试点园区的通知 (Chinese).  2017 new list of national intellectual property pilot parks 2017年新一批国家知识产权试点园区名单 (Chinese).  These pilot parks are established by local governments.  They will provide IP services, information sharing services, help incubate IP intensive industries, and provide supporting infrastructure. SIPO approves them, and will monitor pilot parks’ work progress and review document for renewal.

7.  The story behind of independent development of C919 (English); C919背后的自主研制之路 (Chinese).  The Chinese article describes the patents involved in the C919 aircraft project.

8.  China implemented the first national military standards of intellectual property management in the field of equipment construction 我国首部装备建设领域知识产权管理国家军用标准实施 (Chinese).

9.  China’s R&D investment hits a new high.  我国研发投入再创新高 (Chinese).   China’s total GDP in 2016 was $11 trillion and R&D investment is around $230 billion, which is about 2.15% of GDP. For US, R&D investment is estimated to be around 2.8% of GDP in 2016.

10. China’s invention patent applications exceed one million from Jan. to Oct. (English); 前10个月发明专利申请量超百万件 (Chinese).

11.WIPO Stats on Patent Application Filings Shows China Continuing to Lead the World (English);  China Tops Patent, Trademark, Design Filings in 2016 (English).

12,  “China Big Data Rule of Law Development Report 2017” released.   《中国大数据法治发展报告(2017)》发布 (Chinese).  Related:  Presentation on 2017 China Big Data Rule of Law Development Report 2017中国大数据法治发展报告(实录与PPT)(Chinese)

13.  China to boost competitiveness in AI (English) 产业三年行动计划提出在八大领域率先取得突破——人工智能服务渐入千家万户(Chinese).  The Ministry of Industry and Information Technology (MIIT) recently released an action plan to substantially improve the development of the AI industry. This plan set to make breakthroughs in eight areas, including smart cars, service robot, drone, AI medical diagnosis, facial recognition, voice recognition, smart translation and smart home product. The MIIT promised more policy support, including special funds, talent cultivation and a better business environment. Measures will also be rolled out to build industry clusters, set up key laboratories and encourage data sharing.

14.  Encourage indigenous innovation and build strong brands.  鼓励自主创新 聚力品牌经济 (Chinese).  The China Council for Brand Development is working with the National Development and Reform Commission to formulate “China’s Brand Development Strategy.” This program aims to cultivate 1000 well-known international brands in five years.

15.  More than 2000 clues have been received for the “Suyuan” campaign against trademark infringement.  打击商标侵权“溯源”行动已收到2000余条案件线索 (Chinese)  SAIC started a campaign called “Suyuan” against trademark infringement in September 2017. Until the end of November, more than 2000 clues on cases have been reported.

16.  Shenzhen IP court and Shenzhen Finance court were established 深圳知识产权法庭和深圳金融法庭同时揭牌办公 (Chinese).   A new Shenzhen IP court was opened on December 26, 2017. This court will handle intellectual property cases which were under the jurisdiction of the Shenzhen Intermediate People’s Court.

17,. Wang Jinshan was appointed as the Chief Judge of Beijing IP Court.  王金山被任命为为北京知识产权法院院长 (Chinese).  Wang replaces Chief Judge Su Chi, who has guided the court since it was first launched and implemented numerous reform projects. We wish him well. Judge Wang graduated from Peking University with a major in Law. He was the party secretary of Beijing IP Court since May 2017. Judge Wang also previously worked at Beijing Intermediate People’s Court.

18.  China’s software copyright registration exceeds 700,000 in 2017.  2017年我国软件著作权登记量突破70万件  http://www.nipso.cn/onews.asp?id=39313 (Chinese).

We hope to be providing more updates in the year ahead from the Berkeley Center for Law and Technology.

As usual the information contained herein does not necessarily represent the opinion of any government agency, company, individual or the University of California.

By Berkeley staff.