Chinese Court Rules that It Can Set Patent License Terms outside China

People in line at Sharp

What patent licensing terms are “fair”?

It depends on what country you ask the question in.

In most cases, “fair” license terms are whatever the parties agree is fair. However, when patents are essential to an entire industry, different rules apply.

Certain patents are called “standard essential patents” (SEPs). An SEP is a patent that claims an invention that has to be used to comply with a technical standard.

As Concurrences explains,

It is impossible to manufacture standard-compliant products such as smartphones or tablets without using technologies covered by one or more SEPs. SEPs are different from patents that are not essential to a standard (non-SEPs), such as design patents, for example, which protect the design features of an invention. This is because, generally, companies can invent alternative solutions that do not infringe a non-SEP (whereas they cannot design around a SEP). For example, the "slide to unlock" technology is covered by a non-SEP. Most smartphone manufacturers were able to develop different technologies for unlocking a smartphone screen which do not infringe the "slide to unlock" patent.

A standards ESSENTIAL patent is one that’s not merely “nice to have” but a requirement.

As Apple notes,

How standard essential patents are licensed affects competition, innovation, product compatibility, and consumer choice. When licensed on fair, reasonable, and non-discriminatory terms, everyone stands to benefit. On the other hand, when companies use the market power of a standard and standard essential patents to demand unfair, unreasonable, or discriminatory terms, consumers are harmed and fewer choices are available.

No one company controls all the patents relevant to any industry. Thus, companies often license their patents to each other. This is called cross-licensing.

Industry organizations that set standards require that SEPs be licensed by the owners on fair, reasonable, and non-discriminatory (FRAND) terms. The problem is, the companies involved may have a hard time agreeing on what license terms are FRAND.

For example, SEP FRAND licensing disputes have involved patents related to:

  • WiFi
  • WiLAN
  • ATSC digital TV standards
  • SD card standard
  • Digital TV/Blu-Ray standards
  • Cellular standards
  • Ethernet standards

Since many products are sold all over the world, courts all over the world are wrestling with what’s FRAND.

A recent case in China involved Sharp (part of Taiwan’s giant Foxconn Electronics) and Oppo (part of China’s BBK Electronics, one of the world’s largest makers of smartphones).

As the National Law Review reported, Oppo asked the Shenzhen Intermediate People’s Court to:

  1. Rule that Sharp violated its FRAND obligations during licensing negotiations;
  2. Set global licensing rates and terms for Sharp’s 3G, 4G and WLAN portfolio; and
  3. Order Sharp to compensate Oppo Rmb 3 million ($459,000 USD) for economic losses caused by violating its FRAND obligations

The Chinese court determined that it had jurisdiction over the dispute because Oppo engaged in manufacturing and research and development in China.

The court ruled that it could set a FRAND rate for Sharp’s portfolio of patents relating to 3G, 4G and WLAN technology not just in China but around the globe.

Sharp isn’t required to accept such a global license, but the Chinese court can impose consequences within China if it doesn’t.

Since different courts in different countries may rule on FRAND issues differently, SEP owners and prospective licensees need to consider carefully where they want to bring FRAND-related lawsuits.

Categories: Patents