Wireless tech giant IDC pledges fair licensing fees

To end a monopoly investigation against it in China, US wireless technology giant InterDigital Communications has pledged to license use of its patents in "fair, reasonable, and non-discriminatory terms", local media reports.

IDC also pledged to withdraw intellectual property complaints with the US International Trade Commission against Chinese telecommunication makers Huawei Technology and ZTE, both headquartered in Shenzhen, Guangdong province.

The anti-monopoly investigation by the National Development and Reform Commission started last June, Xu Kunlin, an official of the commission, said at a press conference in Beijing in February.

The key issue is whether the US technological powerhouse has abused its dominant position in the market to charge higher prices in China, Xu said.

Han Liang, a partner at the law firm Freshfields Brckhaus Deringer LLP, told the business news portal caijing.com.cn that the complex case combines anti-monopoly and intellectual property issues as well as competition and innovation.

When doing business in telecommunications, companies cannot get around IDC, industry observers said.

The conglomerate has an enormous patent portfolio of more than 19,500 technologies related to wireless communications, many of them crucial for the industry's technological standards.

Its annual report shows that it makes its profit mainly from patent licensing rather than direct production.

It has licensed some 40 wireless device manufacturers to use its patents, which are necessary to meet industry standards. Its clients include well-known cellphone brands Apple, Samsung and HTC.

After many rounds of negotiations since late 2008, IDC and Huawei failed to reach an agreement on licensing fees.

Huawei refused to accept IDC's proposal because it is 19 times the rate for Apple and more than twice that for Samsung, according to local media.

IDC filed complaints against the Chinese company with the ITC and in a Delaware court in 2011, claiming Huawei infringed on seven of its patents.

The trade commission announced a preliminary ruling in June, 2013 that said one of the patents is invalid and Huawei did not violate rights to the other six.

Huawei filed an anti-monopoly complaint against IDC with a Shenzhen court at the end of 2011 and won the case.

Judges found it legitimate for the case to be heard in China as Huawei is based in the country and "IDC's monopoly in the US and patent authorization could directly affect Huawei's production in China as well as its exports", the Xinhua news agency reported.

The court found patent licensing rates offered by IDC to Huawei are much higher than for other companies, said Xinhua.

The Guangdong provincial high court upheld the verdict by the Shenzhen Intermediate People's Court and ordered IDC to pay 20 million yuan ($3.26 million) in compensation for monopolistic practices.

The ruling was met with wide acclaim among domestic critics.

"The purpose of intellectual property protection is to advance innovation and promote competition," said Wang Xiaoye, a researcher on law at the Chinese Academy of Social Sciences.

"Rights owners should be punished in accordance with the anti-monopoly law in the case of abusive use of their IP rights resulting in exclusion, restriction and distortion of the market competition," she said.

Yang Lixin, a law professor at Renmin University of China, said that the key to Huawei's court victory was that the company has developed the will and expertise to use the rules for protecting itself in international IP competition.

Zhang Ping, a law professor at Peking University, said the landmark ruling gave a clear definition of the FRAND principle - fair, reasonable and non-discriminatory - which will have far-reaching influence in China and abroad.

Yet William Perry, a partner at US law firm Dorsey American who worked with ITC before, expressed his concerns to Caijing business magazine.

He said the Chinese government goes all out to encourage local innovation and has a strong desire to help homegrown high-tech companies rid themselves of reliance on overseas patents.

The Ministry of Industry and Information Technology projects that investment in the telecommunication industry will surpass 350 billion yuan this year, 100 billion yuan of it in construction on a 4G mobile communications network.