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Dispute on FRAND terms in SEP Litigation in China

October 7, 2019 / Blog, Case Comment

In SEP litigation, a key point in deciding whether the injunction remedy is legitimate or not is which party should take liability when license negotiation cannot be reached. To solve this issue, judges need to decide if the violation of FRAND principle of the SEP owner causes the negotiation breakdown. This article researches the tendency of Chinese judges on this specific issue.

IWNCOMM V. SONY (Case reference: cn-(2017)京民终454号, darts ref.: darts-900-720-E-zh)

IWNCOMM filed a patent infringement suit against SONY before Beijing IP court in 2015 and Sony further appealed the first instance decision to Beijing high court before Judge Jiao. Judge Jiao discussed on what circumstances should the issue of injunction remedy be legitimate. In this regard, the court raised the following principles.

“……(a)if a patent owner violates the FRAND principle willfully which results in a failure of patent license negotiation, and the suspected infringer has no obvious fault during the negotiation, the injunction remedy should not be granted. Similarly, if the suspected infringer has obvious fault whereas the patent owner does not during the negotiation, the injunction relief would be considered legitimate. (b)If there is no evidence to prove that the patent owner has violated the FRAND principle, and suspected infringer has no obvious fault during negotiation, the injunction should not be granted as well when the infringer deposits the license fee that the patent owner required or provides guarantee which is not less than that amount before the court . (c)If both parties have faults, we would balance their benefits based on the degree of their faults when deciding if the injunction relief should be given.”

In this case, the court held that:

>During the negotiation, IWNCOMM provided a patents list to SONY, explained related technology, and provided a patent license agreement draft. Further, IWNCOMM’s demand to sign an NDA when SONY asked IWNCOMM to offer a claim chart is consistent with the common practice in this field . Therefore, IWNCOMM is not at fault during the negotiation.

> SONY purposely postponed the process by declining to sign the NDA, which lead to the stagnation of negotiation.

> SONY has not proposed any counteroffer until now, and it didn’t deposit the license fee that IWNCOMM required or provide a guarantee which is not less than that amount before the court.

Conclusion of the court

It is Sony’s fault that the license negotiation came to a deadlock. Therefore, the injunction remedy claimed by IWNCOMM should be granted.

 

HUAWEI V. SAMSUNG (Case reference: (2016)粤03民初816号, darts ref.: darts-858-629-E-zh-2)

HUAWEI and SAMSUNG were in the substantial process of SEP cross-licensing negotiation before litigation, but they failed to come to an agreement. HUAWEI filed a lawsuit against SAMSUNG for patent infringement, claiming that Samsung was at fault during the negotiation and requested injunction relief. The court considered this case from two aspects:

procedure of negotiation

>Scope of the license: SAMSUNG insisted on the package license of its SEPs and Non-SEPs to Huawei whereas Huawei proposed to negotiate on both parties’ SEPs only. Huawei’s proposal is conforming to the common practice while Samsung’s isn’t, thus Huawei has no fault in this regard.

> Technology discussion: the court did in-depth research on the correspondence of both parties and found that HUAWEI had provided its patent list and claim chart to Samsung, and made detailed comments on Samsung’s claim chart in a timely manner, but SAMSUNG didn’t respond to Huawei’s claim chart and postponed the license negotiation multiple times. Hence Samsung has obvious fault while Huawei does not.

>Business negotiation: SAMSUNG has shown laches during the negotiation as it neither quoted a price for its patent portfolio nor gave counteroffer to Huawei’s proposal. HUAWEI attended to ask for arbitration according to the common practice in this field after it exhausted all endeavors including proposing six times and waiting for five years, but SAMSUNG refused without justifiable reason. This indicates that Samsung purposely procrastinated during the negotiation, while Huawei spared no efforts to reach an agreement with Samsung throughout the whole process.

 License condition

1. Considering the amount of each party’s technical proposals adopted by International Standard Organization, the amount of SEPs that are declared to be essential to certain standards, the amount of patents which were invalidated during the invalidity action , the court found there was no obvious difference between HUAWEI and SAMSUNG regarding the strength of each party’s SEPs. However, Samsung’s charges on the license fee are three times what Huawei proposed, and obviously higher than the price that Samsung proposed to Apple, which is unfaithful and discriminating.

Conclusion of the court

SAMSUNG is at fault during the license negotiation and Huawei’s injunction remedy should be granted.

Main takeaways from the cases

In SEP license negotiations, SEP patent owners should not be the only party constrained by the FRAND principle, but also the licensees would act on a faithful manner. The conduct that each party took during the negotiation will affect the judge’s decision on granting of injunction relief. Generally speaking, the following elements will be considered in the license negotiation.

Whether or not the SEP owner has:

1)    sent a patent list to the licensee

2)    provided license terms

3)    proposed a reasonable price

4)    proposed reasonable conditions that are conforming to common practice

Whether or not the license has:

1)    responded to the SEP owner in a timely manner when received offer provided by the owner

2)    replied with whether or not it will accept the license terms, or proposed a counter-offer if it deemed the license terms are unacceptable

3)    procrastinated or refused to enter the license negotiation without a justifiable reason

4)    propose unreasonable conditions that are not conforming to the common practice

5)    refused the third-party arbitration when the license agreement could not be reached

As the SEP litigations are gradually increasing in China, courts are accumulating experiences of dealing with SEP disputes. We can expect that the benefits of SEP owners and licensees would be better balanced and the decisions be more convincing over time.

Author : Yuanyuan He

Yuanyuan He worked as a patent engineer in several large listed companies, and now working in Darts-ip, responsible for patent cases analysis and WeChat blog. She is interested in patent law issues especially patent infringement litigation cases.

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