FTC Chairwoman Ramirez on China’s Approach to Licensing Standards Essential Patents in China

Federal Trade Commission Chairwoman Ramirez recently delivered a speech on  “Standards-Essential Patents and Licensing: An Antitrust Enforcement Perspective at Georgetown University’s Global Antitrust Conference” (Sept. 10, 2014).    Here’s what she said about China:

“In contrast to the FTC’s and EC’s approach, media reports indicate that China’s antitrust authorities may be willing impose liability based solely on the royalty terms that a patent owner demands for a license to its FRAND-encumbered SEPs, as well royalty demands for licenses for other patents that may not be subject to a voluntary FRAND commitment.

I am seriously concerned by these reports, which suggest an enforcement policy focused on reducing royalty payments for local implementers as a matter of industrial policy, rather than protecting competition and long-run consumer welfare.

As I have stated previously, here and elsewhere, I am of the firm belief that consumers are best served when competition enforcement is based solely on sound economic analysis of competitive effects. A contrary approach risks damaging the investment incentives that are critical to continued growth in many of today’s global technology markets, in the ICT sector and beyond. We intend to continue to engage with our counterparts in China and around the world on these issues, in an effort to build consensus on policies that will benefit competition and consumers globally.”

Here is the link to the full text of the speech.

 

In an unrelated development, Deputy FTC Commissioner Marueen Olhausen was reported by the Chinese press as cooperating in a “joint siege” (共商围剿) on “Patent Troll” companies, with the Chinese, European and Korean enforcement agencies, at an antimonopoly law conference in Seoul, Korea on September 4 which focuses on Patent Assertion Entities.  At that conference, NDRC’s Xu Kunlin reportedly discussed  “problems arising from bringing enforcement actions against patent trolls companies” with foreign competition enforcement counterparts.   Xu also reportedly discussed enforcement actions against holders of SEP’s involving bundling of patents, including licensing of expired patents.

Of course, patent trolls have some history in China, as I have previously noted.  The Chinese press noted that Olhausen referred to the FTC’s on-going research into this area.

Xu Kunlin also took the opportunity to respond to criticisms of selective enforcement of China’s AML law against foreign companies. (update posted Sept. 14, 2014)

 

NDRC, IP and China’s Plans for 2014

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The NDRC released to the public last week its Notice of Its Opinion on Key Tasks on Deepening Economic Reform in 2014 (国务院批转发展改革委关于2014年深化经济体制改革重点任务意见的通知) (dated April 30, 2014, released May 20, 2014) (http://www.gov.cn/zhengce/content/2014-05/20/content_8818.htm).   Although not focused on IP, this Notice does encompass several IP and economic reform issues, and is perhaps more notable for how it says things rather than what it says.  Here are some highlights:

Article 2 calls for changes in government functions.  It is the only article that expressly references IP.  In this article, the NDRC calls for “severely punished swindling, counterfeiting, intellectual property infringement, intentional pollution of the environment, and behavior that is contrary to the principles of fair market competition; establishing a scientific sampling system,  a system for tracing responsibility, an ‘anomalous’ businesses directory and blacklist system, with an emphasis  on controlling problem companies and illegal business  operators.”   The article suggests a continued important role for the State Council Leading Group in fighting IP infringement and substandard products.

Article 4 deals with deepening state owned enterprise, science and other reforms. This article  calls for accelerating China’s scientific and technological innovation to  support and promote industrial structure optimization.  It also calls on China to strengthen the “dominant position of enterprises in technological innovation, encourage enterprises to set up  R & D institutions , lead collaborative manufacturing study and research alliances, increase development funds to support SME’s technological innovation efforts,  give full play to the guiding role of the market for scientific and technological innovation, and to improve and promote the industrialization of scientific and technological achievements…”

In addition this article notes that China will “building an innovative platform to promote the development of strategic emerging industries.”   The following industries area also targeted for further development:  “culture, creativity and design services ,… e-commerce , … the Internet of Things and the Internet .”

Article 6 calls for opening to promote reform and promoting “indigenous brands”.

What is the role of IP in this important document?  The word “innovation” (chuangxin) appears 15 times in a variety of contexts, the word “intellectual property”, only once.  By contrast, rule of law (fazhi) appears 3 times, and environmental protection (huanbao, huanjingbaohu) four times. As a goal oriented document, this may suggest that IP is but one vehicle for China to become more innovative, and that IP is a limited part of economic planning for NDRC. 

Direct word counts can, however, also be misleading indicators.  An agency may also wish to bury its important role in a particular area, in order to show broader consensus.  For example, while NDRC has direct enforcement authority under the antimonopoly law, there is no direct mentioning of the AML in this document,  despite NDRC having taken a more active role in AML matters over the past year.   There are however  general references to the market order and the report discusses the creation of joint research alliances, which are potentially exempt from coverage under China’s Antimonopoly Law (Article 15). 

Overall, the document suggests continued, active intervention / guidance in the market by the Chinese government for economic planning purposes, and that IP is one part of that important project.

(Above is what the document looks like as a world cloud, using Google translate  (via http://www.worldle.net).  The  short translations in this blog however do not necessarily correspond to those in Google translate.)

 

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.