China: When Administrative Adjudication Of Patent Infringement Encounters FRAND Issues

In China, patent disputes are handled through a dual-track system: administrative relief and judicial relief. Patent holders can negotiate settlements, file lawsuits, or seek assistance from IP administrative offices to address infringement and enforce judgments. Administrative adjudication, known for its efficiency and simplified procedures, plays a significant role in resolving a large number of disputes. However, administrative adjudication faces certain challenges when it comes to cases involving Standard Essential Patents (SEPs) and Fair, Reasonable, and Non-Discriminatory (FRAND) principles.

Overview of SEPs

SEPs are patents that are essential for implementing technical standards. In China's patent law, SEPs are not explicitly defined, and their characteristics must be inferred from relevant guidelines and interpretations. These patents possess both patent and standard attributes and are subject to FRAND principles. The aim is to strike a balance between granting patent holders reasonable rights and ensuring fair consumer access to standardized products. Allowing SEP holders to abuse their patent rights and monopolize the market would hinder competition and impede innovation. On the other hand, patent hold-up occurs when SEP holders exploit the ambiguity of FRAND principles and weak intellectual property legal environments to demand unreasonable licensing fees or avoid licensing altogether, which also hampers technological progress.

Chinese Legal Provisions on SEP Infringement

Regarding legal provisions, China's "Patent Law of the People's Republic of China" and its implementing regulations do not directly address SEPs. Instead, guidelines and court interpretations provide some guidance. For instance, the "Working Guidelines (Trial) for Adjudicating Standard Essential Patent Disputes" issued by the Guangdong Provincial Higher People's Court and the "Provisions on Prohibiting the Abuse of Intellectual Property Rights to Eliminate or Restrict Competition" issued by the State Administration for Market Regulation shed light on FRAND-related issues. However, legal gaps still need to be addressed to deal with FRAND obligations during administrative adjudication effectively.

Special Characteristics of SEP Infringement

One of the challenges in administrative adjudication of SEP infringement disputes is the special nature of these cases. While administrative authorities are not obligated to follow judicial interpretations, they can refer to informal legal bases. However, when it comes to FRAND issues, jurisdictional differences need to be considered. Administrative authorities must determine whether they have the power to adjudicate FRAND-related matters and whether it is possible to avoid addressing these issues, potentially leading to unreasonable or unlawful situations.

The nature of FRAND obligations is another aspect that requires attention. The "Working Guidelines (Trial) for Adjudicating Standard Essential Patent Disputes" provides specific behaviors that patent holders and implementers should comply with, including notification, information exchange, licensing terms, and deadlines. Violations or refusals to comply with these obligations can be considered faults applicable to SEP holders and implementers. However, there is a need for more clarity regarding the reasonableness of licensing fees within the scope of FRAND. Further exploration of the nature of licensing fees is necessary to ensure fair and balanced outcomes.

Should the reasonableness of licensing fees in FRAND be categorized as compensation amount issues?

It is crucial to distinguish nature between licensing fees and infringement compensation amounts. They differ in their legal basis, payment purpose, amount determination, and usage rights. Treating them as the same would hinder administrative authorities from effectively addressing FRAND issues, contradicting the legislative purpose. Administrative authorities face a dilemma for either 1) avoiding FRAND issues and focusing solely on infringement analysis or 2) suggesting that the plaintiff pursue the judicial route. Continuing with administrative adjudication prevents the second approach. In contrast, the first approach fails to resolve hold-up and hold-out issues in established infringement cases, especially when the infringing party or implementer violates FRAND obligations or other relevant parties dissatisfied with the administrative enforcement decision turn to the courts, resulting in prolonged litigation and increased judicial costs, undermining the advantages of the dual-track administrative and judicial protection system.

Considering the legislative intent, it can be argued that administrative adjudication of FRAND issues aligns with the goals of promoting social development while safeguarding individual rights. Addressing FRAND issues through administrative authorities is a legitimate way to protect individual rights and promote overall societal progress.

Is it reasonable and legal for administrative authorities to avoid adjudicating FRAND obligations?

Another aspect to consider is the rationality and legality of administrative authorities avoiding adjudicating FRAND obligations. From a rational perspective, infringement adjudication should be based on FRAND obligations to achieve a harmonious "dual-track" patent protection system and minimize conflicts between administrative and judicial adjudication. The Supreme People's Court and the China National Intellectual Property Administration (CNIPA) emphasize unity and cooperation between administrative and judicial standards. In SEP infringement cases, the court not only considers the patent's scope but also considers intentional FRAND violations and implementer faults. Ignoring FRAND obligations and solely focusing on infringement analysis can lead to unreasonable discrepancies between administrative and judicial standards.

Legally, administrative authorities may not be illegal to adjudicate infringement without considering FRAND. Judicial interpretations do not serve as the legal basis for administrative adjudication, and existing laws and regulations do not fully correspond to FRAND principles for SEPs. While FRAND relates to good faith and anti-monopoly concerns in Article 20 of the Patent Law which addressed the recommended standard, SEPs are not directly addressed. Local judicial documents do not impose legal constraints on administrative authorities, and no clear mandate requires FRAND-based adjudication in SEP disputes. The apparent impropriety of inconsistent standards remains contentious, as the vague "obviousness" scale can lead to disputes.

The adverse effects of applying for an injunction in administrative adjudication in cases of avoiding FRAND

Applying for injunctions in administrative adjudication without due consideration of FRAND has adverse effects. Inconsistencies in the treatment of FRAND issues waste resources, exacerbate patent hold-ups, and encourage speculative behavior. Courts consider FRAND in their judgments, while administrative authorities may overlook it, leading to inconsistent rulings. Such disparities in standards and jurisdictional disputes hinder the establishment of legal uniformity.

Recommendations

We suggest revising the administrative regulation and rules governing patent enforcement and establishing specific provisions for adjudicating cases of SEP infringement. The current system requires greater specificity and updates to align with international practices and effectively address FRAND-related issues. The CNIPA, as the central agency responsible for patent administration, can play a crucial role in enhancing the legal framework by formulating departmental rules and streamlining procedures.

Furthermore, the establishment of centralized jurisdiction for the administrative adjudication of SEP infringement cases is vital. The decentralized system currently in place needs more resources and struggles with handling complex cases, which hampers the quality and effectiveness of the adjudication process. The complexities involved in SEP litigation, including non-patent issues such as contract and antitrust law, necessitate specialized expertise and experience accumulation. Centralization of jurisdiction allows for the concentration of resources and expertise, resulting in shorter enforcement cycles and improved consistency in decision-making. The CNIPA, as the central authority, can ensure unified adjudication standards, while regional patent administrative authorities in developed regions can contribute to enhanced professionalism and consistency.

Conclusion

In conclusion, addressing FRAND-related issues in SEP infringement cases during administrative adjudication requires revising legal provisions, clarifying FRAND obligations, and even establishing centralized jurisdiction. Revising administrative regulations and establishing specific provisions for SEP infringement adjudication will enhance the efficiency, consistency, and fairness of China's patent dispute resolution process. By bridging the legal gaps and considering international best practices, China can strengthen its patent protection system and promote innovation while safeguarding the rights of patent holders and ensuring fair access to standardized products for consumers.