作者：倪振华 金杜律师事务所知识产权部

Guangdong High People’s Court recently issued a “Working Guideline of Guangdong High People’s Court on the Trial of Standard Essential Patent Dispute Cases (for trial implementation)” (hereinafter referred to as “the Guideline”) on 26 April 2018, which is the most comprehensive guideline for trial of SEP-related disputes in China till now. Theoretically speaking, this Guideline has a binding effect on three major IP courts/tribunals in view of jurisdictional mechanism of SEP-related cases in Guangdong province, including Guangzhou IP Court, Shenzhen IP Tribunal (of Shenzhen Intermediate People’s Court) and Guangdong High People’s Court which is the appellate court of the former two.  However, this Guideline actually reflects some widely recognized court practices on SEP-related issues, and will probably be referred to by other courts in China.

Interestingly, this Guideline has incorporated rules established in a number of SEP-related cases worldwide, including Huawei v. ZTE (CJEU), Unwired Planet v. Huawei (UK), Motorola v. Microsoft (US), TCL v. Ericsson (US), Iwncomm v. Sony (CN) and Huawei v. Samsung (CN).  Below are some bullet points of this Guideline as well as a few comments from the author of this article.

Injunctive Relief

The Guideline does not differ much from Article 24 of “SPC Judicial Interpretation II”[1] and Articles 149-153 of “Guidelines for Patent Infringement Determination” of Beijing High People’s Court as issued in 2017, in terms of injunctive relief as sought by the SEP holder.  You may find a chart below to illustrate the conditions under which the Court may issue an injunction or not.

  No obvious fault of Implementer Obvious faults of Implementer
No obvious fault of SEP holder No injunction (Implementer prefers to depositing a bond) Injunction
Obvious faults of SEP holder No injunction TBD based on  whose fault leads to failure in a negotiation

The Guideline gives clear rules about factors to be considered to decide the faults of the parties in view of business practices, including (a) overall negotiation process between the parties; (b) time, manner and content of the negotiation between the parties; and (c) reasons for interruption or deadlock of the negotiation. Furthermore, the Guideline also provides specific circumstances in determination of obvious faults of both the SEP holder and the standard implementer in Articles 13 and 14 respectively.

In particular, the SEP holder will be found in fault if they commit the following conducts:

  • failing to issue a negotiation notice or failing to notify the scope of patents to be licensed;
  • failing to provide the patent list or claim charts;
  • failing to make a specific offer or providing obviously unreasonable license conditions, which results in failure to reach a license agreement;
  • failing to make a response within a reasonable period; or
  • obstructing or interrupting the negotiation without due cause.

On the other hand, the standard implementer will be found in fault if they commit the following conducts:

  • refusing to negotiate with the SEP holder or to make a clear response within a reasonable period of time;
  • refusing to conclude an NDA without due cause[2];
  • refusing to make substantive responses to the patent list and claim charts as provided by the SEP holder within a reasonable period of time[3];
  • refusing to make substantive responses after receiving license conditions from the SEP holder within a reasonable period of time[4];
  • proposing obviously unreasonable license conditions which results in failure to reach a license agreement[5]; or
  • deploying delay tactics.
  1. License Royalty Disputes

The Guideline has made it clear that any party engaged in an unsuccessful SEP negotiation could file a royalty (FRAND rate) dispute lawsuit before the Court.  And more importantly, as inspired by the aforementioned cases in the UK and the US[6], the Guideline has imparted to the court a right to determine the FRAND rate not only for China, but also for other jurisdictions unless the answering party has made a clear opposition and its opposition is found reasonable by the court.  We invite your particular attention to this provision since it may have enormous implications on SEP holders and standard implementers.  For example, a non-Chinese SEP holder may face the prospect of having a global royalty rate decided by the home court of a standard implementer in China.  That being said, a non-Chinese SEP holder may seek for, at an early stage of negotiation, an agreement with the standard implementer for a neutral arbitration institution or court to decide a FRAND rate in case no consensus could be reached within a period of time, to prevent a Chinese court from ruling on worldwide rates in case the SEP holder does not have much belief in the Chinese court.  On the other hand, a standard implementer who has more belief in Chinese courts (probably its hometown court), may have more incentive to file such a FRAND rate action proactively.

The question mark is still there in case there are concurrent pending FRAND actions out of China.  In other words, will the Chinese court or foreign court show any courtesy to their counterpart?  And the enforcement of the worldwide FRAND rate issued by a Chinese court may also be an issue since no Chinese court has issued any anti-suit injunction like their counterparts in the US, to better impart a deterrent effect to their decisions.

The Guideline also allows the court to give a cooling down period for the parties to a FRAND rate dispute to continue negotiation by staying the court proceeding – the Shenzhen IP tribunal already gave Huawei and Samsung additional time in the court proceeding to negotiate in two recent judgments issuing an injunction against Samsung even if the patent infringement case was not officially stayed.

The Guideline has defined some exemplary methods to decide a FRAND rate, including most comparable licenses and market value analysis.  In terms of the market value analysis, a top-down approach is required to be applied.  And again as the U.S. court rules in TCL v. Ericsson, the Guideline also supports application of a top-down approach by referring to the claimed cumulative royalty rates as declared by industry players.  The Guideline also allows the court to consider (a) technical contributions of the asserted SEP(s) to the standard implementing product without taking into account the added value by being incorporated into a standard, (b) the contribution of the asserted SEP to the standard, (c) technical advantages of the patented technology over other alternative technologies, and (d) the overall SEP royalty assumed by the product implementing the standard, to decide the market value of the asserted SEP.  Most of the aforesaid factors have also been considered in the Motorola v. Microsoft case by the U.S. Court.

  • SEP-related Antitrust Disputes

The Guideline has modified, to some extent, the determination of a dominant market position by an SEP holder as established in Huawei v. Inter Digital.  Instead, the Guideline stipulates a case-by-case analysis on additional factors, like the competition status on the relevant market, limitations on the asserted SEP and bargaining power of the parties, to decide whether the SEP holder has a dominant market position.

Moreover, the Guideline also prescribes that a case-by-case analysis shall be made to decide whether the SEP holder abuses its dominant market position by violating its FRAND commitment or seeking for an injunctive relief against the standard implementer. In particular, the Guideline requests the court to consider whether the accused monopolistic acts would result in exclusion or restriction of market competition, similar to the UK court’s ruling in Unwired Planet v. Huawei.  For example, the Guideline provides that, in order to determine whether the SEP holder’s license model based on a patent package or patent portfolio belongs to tie-in sales that abuse its dominant position, the court shall examine whether the relevant license model is coercive, reasonable or necessary, and whether the related behavior results in exclusion or restriction of competition.  We believe the courts will pay more notes on the real circumstances of SEP negotiations, including overly high offers from the SEP holder and overly low counter offers from the standard implementer, to reach their judgments.

Precedents, including foreign precedents, play a more and more important role in the trial of SEP-related cases by Chinese courts.  We are waiting to see how Guangdong courts and other Chinese courts apply this Guideline in their practice.

[1] Fa Shi [2016] No.1 of the Supreme People’s Court, effective as of 1 April 2016.

[2] Cf. IWNcomm v. Sony ruled by Beijing IP Court and Beijing High People’s Court.

[3] Cf. Huawei v. Samsung ruled by Shenzhen Intermediate People’s Court.

[4] Ditto

[5] Ditto

[6] Like Unwired Planet v. Huawei (Case No.: HP-2014-000050) ruled by the High Court of Justice, Chancery Division, Patents Court of UK, and  TCL v. Ericsson (Case 8:14-cv-00341-JVS-DFM ) ruled by the United States District Court for the Central District of California.