Tuesday, January 3, 2017

SEPs and FRAND in China

Three new articles on SEPs and FRAND issues in China have recently come to my attention.

1.  Jyh-An Lee (Assistant Professor, Chinese University of Hong Kong) has published an article titled Implementing the FRAND Standard in China, in 19 Vanderbilt Journal of Entertainment and Technology Law 37 (2016).  Here is a link to the article on the journal's website, here is a link to the paper on ssrn, and here is the abstract:
The modern world relies on technical standards, most of which involve standard-essential patents (SEPs). To balance SEP holders’ fair compensation with standard implementers’ access to standardized technologies, standard-setting organizations (SSOs) generally require that their members commit to license their SEPs on a fair, reasonable, and non-discriminatory (FRAND) basis. In recent years, the communications industry has seen a growing amount of litigation concerning SEPs and FRAND in many jurisdictions. As China has grown into a major player and market in the worldwide communications business, its public policy, court decisions, and private business strategies concerning SEPs and FRAND are likely to have a huge global impact in the high-technology sector. The high-profile Huawei v. IDC is the first Chinese court decision ruling on FRAND-encumbered SEPs issues. This is also the first Asian case in which the court determined a FRAND royalty rate to calculate the fee paid by the standard implementer to the SEP holder. Based on the Chinese government’s policy toward technical standards and the case of Huawei, this Article identifies two distinguishing features in China’s encounter with standard-related issues. The first is the active role played by the government in domestic standard-setting activities, while the second is Chinese courts’ civil law approach, associated with good faith, to the enforcement of FRAND commitments. Based on a comparative and critical viewpoint, this Article uses Huawei as an example to illustrate the challenges and perplexities for the judicial determination of a FRAND rate. The reasoning in Huawei is far from sufficient and satisfactory, and it is unclear whether the Chinese courts are tasked to implement the government’s industrial policy. Nonetheless, Huawei did identify some crucial factors concerning FRAND and SEPs, and it has had a significant impact on Chinese related standard-setting activities.
The article contains a thorough discussion of the relevant legal principles under Chinese law, and how they compare with those in other jurisdictions, as well as a detailed discussion of the methodology used to determine the amount of the FRAND royalty in Huawei v. IDC.  Highly recommended.

2.  Zhu Li (Judge of the IP Division of the Supreme People's Court of China) has published an articled titled Anti-monopoly Analysis of SEP-Based Injunctions in the July-August 2016 issue of China IP Magazine, pp. 56-59 (translated by Ren Qingtao).  The article provides an interesting discussion of the circumstances under which ownership of an SEP does or does not confer monopoly power.  It also describes the Court of Justice of the European Union's (CJEU's) "proportionality principle" as requiring the SEP owner to "take business measures no more than those necessary to achieve its legal purposes, and . . . not .. . beyond the extent necessary to influence the competition.  As for what constitutes the necessary extent, it must be assessed in connection with the competitive environment and the competitive result.  However, reasonable self-defense," such as seeking an injunction against an unwilling licensee, "is often considered legitimate."   The article goes on to suggest some factors for determining whether the amount the SEP owner is requesting is excessive, though it concludes by noting that each matter must be determined on a case-by-case basis, and generally seems supportive of the CJEU's Huawei framework.

3.   Li Yang (Professor, Sun Yat-Sen University) has published an article titled FRAND Holdup and Its Solution in China Patents & Trademarks No. 4, 2016 (pp. 97-101).  Although the author seems generally a bit more skeptical than I am that patent holdup is an actual problem (and somewhat more receptive than I am to the notion that reverse holdup, which he refers to as "FRAND holdup," is), he makes an interesting proposal for a "notice and counternotice" procedure (similar in some ways to, but more detailed than, the one adopted by the CJEU in Huawei v. ZTE) that in his view would induce the parties to negotiate rather than litigate.

In other news from China, I should note that SIPO has published a short press release on the record Chinese patent damages award I mentioned recently (here).  (Hat tip to Norman Siebrasse for bringing this to my attention.)  And in other FRAND news, on FOSS Patents Florian Mueller has an interesting discussion of the Korean Fair Trade Commission's recent $853 million fine against Qualcomm, as well as a link to a translation of the KFTC's press release.  Finally, Mr. Mueller notes in another post that there will be a media briefing conference call tomorrow, January 4, at 11 a.m. Eastern Time on the Samsung v. Apple design patent damages case.  I believe that anyone who's interested may dial in and participate free of charge.  My own panel discussion of Samsung v. Apple will be on January 12 (see details here).

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