Tag Archives: InterDigital

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NYU Program on Due Process for Foreign Business in China

I was honored to be invited to moderate the opening session for the 21st annual Timothy A Gelatt Dialogue at NYU Law on “Due Process for Foreign Business in China?” on November 12, 2015.

Here’s a quick summary the program (November 14, 2015):

There were presentations on intellectual property (by me/Mark Cohen), antitrust, human rights, detention and release of foreigners, and cybersecurity.

As several speakers noted business people have human rights too, although these interests are often ignored by the human rights community in favor of non-commercial issues. Another speaker also suggested that the current division between human rights and commercial law made little sense, and that human rights advocacy should pick up commercial concerns, while commercial concerns should also not ignore human rights issues.

In listening to various anecdotes, it became apparent to many of us that no matter how cautious, expert or how much of a “China hand” one is, one (or one’s client) may not be immune from detention, arrest or arbitrary proceedings, and that these legal proceedings may be initiated out of spite and well distanced from any kind of legal accountability. One speaker suggested that in the current environment, China has neither rule of law nor rule by laws, but rule by agency in a range of fields.

I gave a presentation on due process concerns for foreigners, noting that there were increasing concerns about national treatment and differential procedures and remedies for foreigners in IP litigation, including detention during the pendency of a disputed legal matter, extended time periods for civil litigation, delays in evidence gathering and extra-territorial reach of the courts. I also briefly discussed how foreign courts were handling disputes that involved concerns over handling of matters by Chinese courts or enforcement agencies (notably Gucci and Vringo). Some speakers also expressed concern about an increasing extraterritorial reach of the Chinese courts.

Regarding antitrust and intellectual property, one expert in the field asked a question about whether Chinese practices were mercantilistic/outliers, or simply reflected the interests of “implementers” vs innovators.  I noted that I had heard these perspectives expressed previously, but I wondered if China was in fact proposing a different kind of question: whether antitrust law demanded any proportionality with IP protection as it seemed to me that imposing nearly one billion dollars in damages (in the Qualcomm case) is disproportionately high in a country where average patent damages are 20 to 30,000 dollars, and even injunctive relief can be difficult to enforce.

There appeared to be widespread support regarding the Xi/Obama outcome on establishing a dialogue on cybersecurity. Some speakers noted that cybersecurity had widely different concepts in the United States and China, with the Chinese focus on cybersecurity referring to the overall control by the state of the Internet and related infrastructure.  The Chinese government was also interested in direct regulation of the Internet with more government controls.

Several speakers saw an important relationship amongst cyberespionage, innovation policies and antitrust as calculated efforts by China to develop its technological edge. In addition, several speakers from a range of disciplines noted that China and Chinese officials were now increasingly engaged in efforts to advance its own perspectives in areas such as human rights, cybersecurity/internet governance and antitrust, which may increasingly challenge the United States’ role as a global norm setter.

Altogether, it was a great group of thought leaders with divergent backgrounds but convergent and deep interests in China. My congratulations to Jerome A. Cohen, Ira Belkin and NYU’s Asian law Institute.

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Cardozo Law China Program September 24 In NYC

Cardozo Journal of International and Comparative Law,  in association with the Fashion, Arts, Media & Entertainment (FAME) Center sponsored a program on The US & China: Perspectives on Brand Protection and Intellectual Property at 5 PM in New York City.  Here was the agenda:

5:30 p.m. Opening remarks by Dean Leslie

5:45 – 7 p.m. Panel 1: U.S. Issues for Chinese Businesses

Moderators

Geoffrey Sant  |  Special Counsel at Dorsey & Whitney LLP

Barbara Kolsun  |  Professor and Director of FAME at Cardozo School of Law

Panelists

Cindy Yang  |  Partner, Schiff Hardin LLP

Helen Su  |  Counsel, Alston & Bird LLP

Mark Cohen  |  Senior Counsel, U.S. Patent and Trademark Office and author of the China IP Blog

7:10 – 8:35 p.m. Panel 2: China Issues for U.S. Businesses

Moderators

Geoffrey Sant  |  Special Counsel at Dorsey & Whitney LLP

Barbara Kolsun  |  Professor and Director of FAME at Cardozo School of Law

Panelists  

Dan Harris  |  Founding Partner, Harris Moure and author of the China Law Blog

Cedric Lam  |  Hong Kong Partner, Dorsey & Whitney LLP

Ling Zhao  |  CCPIT Patent and Trademark Law Office and Cardozo LLM Student

Lara Miller  |  Associate Counsel, International AntiCounterfeiting Coalition

Stephen Lamar  |  Executive Vice President, American Apparel & Footwear Association

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Update from October 28 — Here’s a report on Cardozo Law School’s Semi-Annual Fashion Law Symposium:

Here is a link to a recording of the symposium.

The first panel addressed the issues that Chinese businesses face while entering the U.S. market. The speakers discussed the challenges that businesses based in China encounter when they file intellectual property claims in the United States, and the use of Section 337 remedies to address unfair competition, including design and patent infringements from China-origin goods.  Mark Cohen discussed the increase in “dueling cases” in recent years, including suits involving Vringo, InterDigital, SI Group, as well some lesser known cases such as the recent SDNY judgment in the Gucci case, and the Global Material Techs., Inc. v. Dazheng Metal Fibre Co., which involved US enforcement of a foreign money judgment contract claim, while adjudicating a trade secret claim.

The discussion during the second panel focused on the obstacles that U.S. brands face in China. The speakers analyzed the problems of on-line counterfeiting from such e-commerce providers as Alibaba, as well as the role of organizations such as the IACC (International AntiCounterfeiting Coalition) and the US government in its “Section 301” and “Notorious Market” reports.  Issues involving drafting of contracts and licensing agreements that include counterfeit and infringement clauses were also discussed.

Authors of summary: Anna Radke and Avery Nickerson, with additional edits by Mark Cohen.
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Vringo vs ZTE: What the NDA Dispute in New York Suggests For Licensing Strategies

As many of my readers may know, I was not a fan of the Chinese courts’ decisions in Huawei vs. Interdigital in Shenzhen and Guangdong, which raised a number of process and substantive concerns.  A key question raised in that case was whether “the licensee has been afforded a fair opportunity to take a license.  If the licensee has been afforded an opportunity and declines to take a license, then it is my personal opinion that the licensee should not take the “shield” of a FRAND commitment, and turn it into a sword that weakens the licensors ability to license on fair terms.”    The decisions in those cases plus the Qualcomm investigation has also raised many substantive and procedural concerns, including concerns regarding how to license IP within China in an environment that is increasingly seen as nationalistic, whether foreigners have been singled out, and counter-strategies to deal with Chinese companies inclined to seek protection under China’s antitrust laws.

Prof. Epstein expressed similar concerns in a policy brief  and a Forbes Magazine article earlier this year: “Far from being a device to promote competition, the AML is used to harass foreign firms that provide much needed competition to China’s state-protected agencies….The antitrust laws should not be applied so as to single out patents or any other intellectual property rights for special treatment; all property deployed in the marketplace should be treated equally under the competition laws.”

Two interesting decisions from Judge Kaplan in the Southern District of New York in the matter of Vringo vs ZTE Corp (14-CV-4988) highlight strategic responses to this perception of an aggressive posture of the Chinese courts and administrative enforcement authorities on alleged abusive licensing practices.

By way of background, Vringo has raised money from venture capital firms and is a licensor of telecomm patents, including patents formerly held by Nokia Corporation and Alcatel-Lucent.  From the perspective of a Chinese licensee, of which ZTE may be typical, Vringo is engaged in “abuses of intellectual property” as a “non-practicing entity” that uses “the threat of litigation and injunction to support [its] demands for unfair licensing fees.”  Vringo claims that patents it is asserting are standards essential.  Moreover, it has brought litigation in such places as Australia, Brazil,  France,  Germany,  India,  Malaysia,  the Netherlands, Romania, Spain, and the United Kingdom against ZTE for their alleged infringement.

In a June 3, 2015 decision by Judge Kaplan of the Southern District of New York regarding a July 2014 action filed by Vringo for breach of a Non-Disclosure Agreement (NDA) related to possible settlement of these litigations and any other disputes between them, Judge Kaplan issued a preliminary injunction to enjoin ZTE from further disclosing information subject to the NDA in antitrust matters in the EC and China brought by ZTE. The NDA specifically required that confidential information disclosed could not be used in “any existing or future judicial or arbitration proceedings” or “for [their] commercial advantage, dispute advantage, or any other purpose.”

Judge Kaplan’s decisions are suggestive of possible strategies for companies concerned about entering into settlement discussions without increasing Chinese AML litigation risks through well drafted NDA’s. Here is what I derive:

  1. Insist on Appropriate Governing Law, Know Chinese Legal Arguments and Make Sure Your NDA Has A Close Nexus to the Jurisdiction. Judge Kaplan applied New York law, and rejected ZTE’s arguments that Chinese law should govern the NDA and that that ZTE was required to provide the information to Chinese authorities.   Based on an affidavit submitted by my friend Doug Clark, a Hong Kong barrister with considerable Chinese patent experience, Judge Kaplan characterized ZTE’s assertions that it needed to disclose confidential information, as “nothing more than gamesmanship.”  Also of dispositive importance was that Vringo maintains its principal place of business in New York and sought protection under its laws when entering into the NDA.  ZTE voluntarily consented to New York law knowing this background.
  2.  Enter Into Settlement Discussions To Support Resolving Resolve Litigation. Judge Kaplan also rejected ZTE’s argument that the NDA is unenforceable under New York law as “an agreement to suppress evidence.”  The NDA was a permissible agreement between private parties about use of information in private litigation.  New York has a strong public policy encouraging settlement and “[t]here can be no doubt that the NDA was entered into for the explicit purpose of facilitating candid settlement discussions.”  Moreover, “it was entirely lawful for Vringo and ZTE to agree that they would not use information exchanged in settlement discussions in any judicial proceedings.”
  3. Make Out a Case for Irreparable Harm and Appeal to the Courts Sense of Equity. Judge Kaplan found that the irreparable harm requirement was met because “Vringo … probably would suffer injury in the future that could not be undone even if it prevails in this action.”  As with any well-crafted NDA, this NDA also contemplated the availability of equitable remedies for breach including by providing for procedures for the parties to seek a protective order from a court and by reciting, “that money damages may not be a sufficient remedy for any breach of this Agreement and that, in addition to all other remedies to which it may be entitled, the Parties will be entitled to seek equitable relief, including injunction and specific performance, for any actual or threatened breach of the provisions of this Agreement.” Judge Kaplan also noted that Vringo had not been made informed of the initiation of civil litigation or the unauthorized disclosure of its confidential information in an administrative action filed by ZTE in China, which had further compromised its position in those matters. Although he didn’t discuss the fast pace of litigation in China, which I have raised elsewhere in this blog, I am glad to see judges and rightsholders recognize how critical timing is to IP and antitrust matters involving China.

Note that Judge Kaplan did not enjoin ZTE from filing an AML action in China, but only from using the information obtained in violation of the protective order. Although the facts and circumstances are different, from the perspective of the Huawei vs InterDigital case, Judge Kaplan showed deference to the parties’ choice of law and did not take steps to interfere with decisions to file legal proceedings in other jurisdictions.  Of course, from ZTE’s perspective, it was likely being deprived of  information that it thought would be highly valuable to Chinese authorities.

In a more recent, July 24, 2015 decision, Judge Kaplan threatened sanctions against ZTE’s counsel for interposing objections that appear to be intended to delay or harass the deposition of ZTE’s counsel in what appears to have been subsequent discovery related to the above mentioned brief of the ZTE/Vringo NDA. This order appears to have been issued to support Vringo’s allegations that ZTE’s counsel “had an active role in coordinating pressure tactics by Chinese authorities in response to Vringo’s licensing demands.”   ZTE’s counsel have been ordered by Judge Kaplan to show cause why they should not be sanctioned under F.R.C.P, Rule 11.

The spate of IP-related Chinese licensing and antitrust decisions has also come at a time when the US and Chinese judicial and administrative systems are increasingly interacting, sometimes with a deepening sense of each other’s legal system or the comity that may be afforded to another court, or the different time frames that US and Chinese courts operate under.

The opinions expressed here are the author’s own academic perspectives and should not be taken as a reflection of any opinion of any client or employer, past or present, or a reflection on any market valuation of any stock or equity of any kind. Please email me with any corrections to this or any other posting, or feel free to post your own commentary on this blog.

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InterDigital Settles With NDRC

According to a May 22 press release (http://online.wsj.com/article/PR-CO-20140522-903952.html) , InterDigital has settled antimonopoly charges with the National Development and Reform Commission of China.

InterDigital’s commitments regarding licensing of its patent portfolio for wireless mobile standards to Chinese manufacturers of cellular terminal units (“Chinese Manufacturers”) are as follows:

1. Whenever InterDigital engages with a Chinese Manufacturer to license InterDigital’s patent portfolio for 2G, 3G and 4G wireless mobile standards, InterDigital will offer such Chinese Manufacturer the option of taking a worldwide portfolio license of only its standards-essential wireless patents, and comply with F/RAND principles when negotiating and entering into such licensing agreements with Chinese Manufacturers.

2. As part of its licensing offer, InterDigital will not require that a Chinese Manufacturer agree to a royalty-free, reciprocal cross-license of such Chinese Manufacturer’s similarly categorized standards-essential wireless patents.

3. Prior to commencing any action against a Chinese Manufacturer in which InterDigital may seek exclusionary or injunctive relief for the infringement of any of its wireless standards-essential patents, InterDigital will offer such Chinese Manufacturer the option to enter into expedited binding arbitration under fair and reasonable procedures to resolve the royalty rate and other terms of a worldwide license under InterDigital’s wireless standards-essential patents. If the Chinese Manufacturer accepts InterDigital’s binding arbitration offer or otherwise enters into an agreement with InterDigital on a binding arbitration mechanism, InterDigital will, in accordance with the terms of the arbitration agreement and patent license agreement, refrain from seeking exclusionary or injunctive relief against such company.

A quick read of these commitments suggests that item 1 is a re-commitment by InterDigital to F/RAND licensing of its SEP’s,  Item 2 reflects Chinese antipathy to mandatory grantbacks of technology in a technology transfer agreement, including imposing non-essential requirements on the technology transfer agreement under the Contract Law and related Judicial Interpretation and  Item 3 reflects the interest in many parties in seeking mandatory arbitration to resolve increasingly complex F/RAND SEP disputes, including questions concerning the availability of injunctive relief in light of F/RAND licensing commitments. 

My personal observation: the news release does not indicate under what circumstances a Chinese licensee would have lost the right to an arbitration by reason of a lack of good faith in negotiating licensing terms and thereby does little to incentivize licensors entering into negotiations at an early stage after a standard has been determined.  However, it does appear to offer the possibility of expedited arbitration for licensor and licensee in lieu of the licensor’s seeking injunctive relief, thereby potentially mitigating losses of a licensor due to unreasonable delay.

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Going Sideways on Chinese IP….?

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The American Chamber of Commerce in China recently released its 2014 American Business in China White Paper (http://www.amchamchina.org/whitepaper2014) (16th edition)  and its China Business Climate Survey Report (http://www.amchamchina.org/businessclimate2014).  These papers present useful snapshots of the perspectives of American businesses in China regarding the IP environment in China.

IP rights were listed as the seventh out of nine concerns of greatest risks facing the China operation of US multinationals. IP ranked ahead in importance of  deterioration of bilateral relations and behind the global economic slowdown.   It was however the sole legally-driven issue, rather than a macro-economic or political concern.   Although some us may view IP as being of core importance to US industry in China, IP in fact did not make it to one of the top five business challenges in 2014.  In the last five years it only made the top five in 2011.  This may be the  good news for IP in these statistics.

What was most disturbing as that 54% of respondents rated China’s IP enforcement “ineffective” in 2014 and 14% rated it “totally ineffective”.  There also has been a marked decline in respondents who answered “don’t know” since 2009, with the decline reflected in a corresponding increase in respondents who said the system was “ineffective” or “totally ineffective.”  This migration from respondents who “don’t know” to an opinion of that IP is “ineffective” suggests that there may adverse opinions developing based upon actual experience.   The news is not all bad, however: nearly an equal amount of respondents indicated that China’s enforcement of IPR has improved (39%) or stayed the same (35%).  Overall, 40% of respondents also indicated that there has been progress in the IP environment over the past five years.

Amongst IP rights of key concern, AmCham respondents rated company name protections as the highest priority (56%), with trade secrets second (50%).  Both showed an increase of 12 percentage points since this survey question was asked in 2011.  Trade secret concerns were also reflected in other contexts in this survey.  For example, a number of surveyed respondents (101) expressed concern that non-competition enforcement “caused negative impact or material damage” to their operations.    Twenty three percent of respondents also indicated that proprietary data or trade secrets of their China operations have been breached or stolen.

Despite an interest in IP courts by members, the number of respondents who were “somewhat” or “very” satisfied with IP court actions dropped from a high of 63 percent to 44 percent over the past three years.  For the first time in three years, the number of American companies dissatisfied with the courts are now the majority of the respondents.  By contrast, 54% of respondents were very satisfied or somewhat satisfied with administrative enforcement.

In looking at this data, it is important to keep in mind that the numbers of respondents to these surveys varies and that  other organizations, such as the US China Business Council also conduct surveys.   The responses to questions also appear to me to naturally skew to the types of concerns that individuals who are on the ground would like addressed:  administrative enforcement, for example, is quicker and cheaper and generates data which shows that the local operations are doing something about IP infringement.  Judicial litigation can take longer and may not result in a collectible judgment.  A Chinese language company name is a critical asset to a Chinese subsidiary, although it may not be understood as critical to US-based counsel who may understand little of the company name acquisition and registration procedures, or of how to establish a marketable Chinese name.   In addition, patent issues may typically be handled by the home office and may not be a concern of the subsidiary or branch.

For over a decade I have been asking the audience in programs in the United States and China if they believe the IP environment in China is getting better.  My non-scientific observations, based on years of asking this same question 10 or more times per year, are that generally people think that the IP environment is improving.   My personal response is that generally the situation is going “sideways,” and the AmCham survey, with its conflicting views of how the system is getting better but enforcement is getting worse, would seem to vindicate this.

Why, to me, is it changing but not getting either better or worse?  China recognizes the need to resolve certain old problems (counterfeiting, piracy), while at the same time new problems of increasing complexity (complex patent infringement, antitrust, etc.) are emerging.  In a sense, the good news is that China is interested in IP protection.  However, the bad news is also that China is interested in IP protection.  Increased higher stakes defensive risks (Schneider/Chint, Huawei/Interdigital, IPad/Proview, etc.), problems of abusive trademark registrations and patent trolls (“cockroaches”)  are among the bad news.

What do you think?

(Picture above by Mark Cohen of the sign at Silk Market, Beijing, April 2014)