A Review Of High-Profile SEP Royalty Cases In China

Although China is generally not the first choice for NPE (Non-Practicing Entity) to initiate litigation, when facing global litigation strategies against a particular company, the Chinese market is often considered as one of the battlegrounds for countermeasures. Therefore, it is essential for both rights holders and licensees to be familiar with and understand the relevant judgments of Chinese courts regarding SEP (Standard-Essential Patent) royalty rates.

The judgments of Chinese courts regarding SEP licensing rates can be traced back to as early as 2011. In December 2011, Huawei sued InterDigital in the Shenzhen Intermediate People's Court, alleging a violation of FRAND (Fair, Reasonable, and Non-Discriminatory) licensing principles. Before the litigation in Chinese courts, InterDigital had already sued Huawei in Delaware, United States, and simultaneously initiated a 337 investigation with the International Trade Commission (ITC). The focal point of the litigation in Chinese court is the royalty rate. InterDigital's proposed a royalty rate of 2% for Huawei, significantly higher than that of 0.0187% for Apple and 0.19% for Samsung. The Shenzhen Intermediate People's Court analyzed the comparable licensing agreement and applied it to the actual circumstances, determining that InterDigital's reasonable royalty rate for SEP should not exceed 0.019% of the actual selling price of Huawei's wireless devices. This determined patent royalty rate is approximately 1% of InterDigital's initially proposed rate for patent royalties. InterDigital appealed the decision, but the Guangdong Higher People's Court upheld the first-instance judgment of the Shenzhen Intermediate People's Court regarding the FRAND rates.

Another significant patent litigation related to royalty rates in China was the patent lawsuit between Huawei and Luxembourg's Conversant. Before the conflict between the two parties escalated to China, Conversant filed a lawsuit against Huawei in a UK court in 2017, seeking a patent infringement ruling and requesting payment of patent royalties. In response, in January 2018, Huawei filed three lawsuits against Conversant in the Nanjing Intermediate People's Court, seeking confirmation of the licensing rates for standard-essential patents in China. During the trial process, Conversant proposed calculating the rates using the comparable agreement method and ultimately suggested rates of 0.032% for 2G multimode phones, 0.181% for 3G multimode phones, and 0.13% for 4G multimode phones. Although Conversant proposed reasonable rates through comparable agreements, the court ultimately calculated the rates using a top-down approach. On September 16, 2019, the Nanjing Intermediate People's Court issued a first-instance judgment regarding the licensing rates: a rate of 0 for single-mode 2G or 3G phones, a rate of 0.00225% for single-mode 4G phones, and a rate of 0.0018% for 2G/3G/4G multimode phones. The final judgment rates were nearly 1.3% of Conversant's proposed royalty rates. Conversant appealed to the Supreme People's Court. However, due to a settlement between the parties during the appeal period, the Supreme Court did not make a substantive judgment on the royalty issue.

On the one hand, due to the limited number of cases involving SEP royalty rate judgments, it is challenging to determine the prevailing approach of Chinese courts in choosing between the top-down calculation method and the comparable agreement method to determine rates. On the other hand, the effective rate judgments made in China so far have been exclusively applied to specific companies' licensing rates in China and have not involved global licensing rates. It was in August 2021, in the case of OPPO v. Sharp, that a Chinese court first confirmed jurisdiction over global licensing rates for standard-essential patents. In 2022, the Supreme People's Court once again affirmed this viewpoint of "having jurisdiction over global licensing rates for standard-essential patents" in the case of OPPO v. Nokia.

Regarding the case of OPPO v. Nokia, the battle between the two parties had already commenced globally before it erupted in China. Nokia first filed patent infringement lawsuits against OPPO in Europe and Southeast Asia, and OPPO subsequently retaliated by suing Nokia in China. Currently, the litigation between the two parties in China is still ongoing. From the perspective of both rights holders and licensees, the forthcoming FRAND rate ruling by the Chongqing Intermediate People's Court will be a highly anticipated landmark case. It will provide new guidance on whether rights holders will choose China as a venue for litigation and whether licensees will take countermeasures in China.

In addition, numerous litigations related to SEP royalty rates have occurred in China.. These cases reflect the challenges in defining FRAND terms and calculating reasonable patent fees in the context of SEPs. While some cases have not reached a final judgment on rates, they have already brought the issues of FRAND licensing practices to the forefront. Looking ahead, parallel multinational litigation involving SEPs may continue, and as one of the world's largest economic markets, China will also be of interest to all parties. Therefore, when examining the same negotiation of the parties in different jurisdictions, stakeholders must maintain a high level of legal vigilance across various jurisdictions to optimize their licensing strategies and formulate optimal implementation plans.

References:

[1] http://www.iprchn.com/Index_NewsContent.aspx?newsId=67398

[2] http://gongbao.court.gov.cn/Details/5555e9be08ce2e65fb6c560368abdc.html；

[3] https://wenshu.court.gov.cn/

[4] https://www.worldip.cn/index.php?m=content&c=index&a=show&catid=114&id=246

[5] Huawei v. Interdigital, Civil Judgment No. 858 of the Shenzhen Intermediate People's Court, China, 2011.

[6] Huawei v. Interdigital, Civil Judgment No. 306 of the Guangdong Higher People's Court, China, 2013.

[7] Huawei v. Interdigital, Civil Judgment No. 858 of the Shenzhen Intermediate People's Court, China, 2011.

[8] Huawei v. Interdigital, Civil Judgment No. 306 of the Guangdong Higher People's Court, China, 2013.

[9] OPPO v. Sharp, Civil Judgment No. 57 of the Supreme People's Court, China, 2020.

[10] Huawei v. Conversant, Civil Judgment No. 232 of the Suzhou Intermediate People's Court, China, 2018.

[11] Huawei v. Conversant, Civil Judgment No. 732 of the Supreme People's Court, China, 2019.

[12] OPPO v. Nokia, Civil Judgment No. 1234 of the Chongqing Intermediate People's Court, China, 2021.

[13] OPPO v. Nokia, Civil Judgment No. 1232 of the Chongqing Intermediate People's Court, China, 2021.