China Setting Global Licensing Rates for SEPs in USA, Germany & Japan

Sunday 5th September 2021

What some might see as a violation of the sovereignty of several countries was confirmed by the Intellectual Property Court of the Supreme People’s Court on the 19th and Japan. The Supreme People’s Court ruled Sharp Corporation v OPPO et al. in (2020) 517 号 that Chinese courts in SEP license disputes can set royalties worldwide based on 1. Whether the parties are willing to obtain and negotiate a worldwide license; and 2. there is a close connection to China.

On July 10, 2018, Sharp sent a license letter to OPPO listing SEPs for 3G, 4G, WiFi and HEVC standards and held licensing talks with OPPO in Shenzhen, China in February 2019 in order to license OPPO worldwide. Then, from January to April 2020, Sharp filed patent infringement suits against OPPO companies in Japan, Germany and Taiwan Island for infringing patents for WLAN and LTE technology. On March 25, 2020, OPPO filed a lawsuit to determine that 1. Sharp has violated Fair and Reasonable Non-Discriminatory (FRAND) license obligations; 2. the Court should establish a global license rate for the SEPs; and 3. Sharp should pay compensation of RMB 30 million for breach of FRAND obligations. The court of first instance ruled in favor of OPPO and set worldwide license fees for the SEPs.

In the appeal process, the Supreme People’s Court considered the following factors:

1. The extent to which the parties are willing to negotiate the licensing of the SEPs involved.

While negotiating the standard essential patent license involved in this case, Sharp Co., Ltd’s license is a global non-exclusive license.

2. The country and distribution ratio of the standard essential patent rights involved in the license negotiations.

According to the preliminary evidence presented by the parties, there are many standard essential patents involved in this case, most of which are Chinese patents, but also patents from the United States, Japan and other countries.

3. Main place of implementation or source of income of the SEP.

The main office of OPPO Company and OPPO Shenzhen Company is in China, and the manufacturing base and main sales area of ​​the intelligent terminal products involved in the case are in China. As of December 31, 2019, OPPO’s sales in China accounted for 71.08% of total sales, sales in Europe for 0.21%, and sales in Japan for 0.07%. Based on the analysis of the above data, the sales share of OPPO’s smart terminal products in China is much higher than in other countries such as Germany and Japan.

4. The place of negotiation for the parties’ patent license.

OPPO and Sharp have conducted license negotiations in Shenzhen, Guangdong Province, where the OPPO Shenzhen company is located.

5. The location of the property available to the parties for seizure or foreclosure.

OPPO Company and OPPO Shenzhen Company, the parties applying for the patent license, have assets for seizure or enforcement in China.

The Supreme People’s Court argued:

From the above facts it can be seen that the parties in this case are initially ready to obtain a global license for the relevant standard essential patents and have conducted license negotiations about it … Second, the standard-essential patent license dispute in this case is obviously more closely related to China. The specific manifestations are as follows: In this case, most of the standard essential patents involved in the license negotiations between the parties are Chinese patents; China is the main place of implementation, principal place of business or main source of income for the implementers of the standard-essential patents involved; China is the venue for the party’s patent license negotiations; China is also the place of property that can be seized or enforced by the requesting party.

A full copy of the judgment (Chinese only) is available here (2020) Courtesy of Supreme Law Zhimin Judgment No. 517 Courtesy of Intellectual Property Rights

This decision follows previous Chinese judgments that issued injunctions preventing the enforcement of foreign judgments against Chinese companies, such as the Huawei – Conversant patent litigation in Germany. As the Supreme People’s Court summarized in its top 10 IP cases of 2020:

2. Standard essential patent “preliminary injunction” case:
Huawei Technologies Co., Ltd., Huawei Terminal Co., Ltd., Huawei Software Technology Co., Ltd. and Conversant Wireless Licensing Co., Ltd. confirmed non-infringement of patent rights and standard essential patent license disputes (Supreme People Court (2019) Supreme Law Zhiminzhong No. 732, 733, 734 Civil Decision]
　　[Summary of the case] In January 2018, Huawei Technologies Co., Ltd., Huawei Terminal Co., Ltd. and Huawei Software Technology Co., Ltd. (hereinafter collectively referred to as Huawei) filed a lawsuit in this case with the Nanjing Intermediate People’s Court of. a Jiangsu Province, requesting confirmation that they are not violating Conversant’s three Chinese patent rights and requesting confirmation of the licensing rate of standard essential patents in China. In order to counter Huawei’s lawsuit in this case, Conversant filed a patent infringement suit with the Düsseldorf court in April 2018, asking Huawei to stop the infringement and compensate for the losses. On September 16, 2019, the Court of First Instance decided to set the royalty rate for the affected standard essential patents for Huawei, its Chinese subsidiaries and Conversant. Conversant refused to accept the first instance judgment and appealed to the Supreme People’s Court. During the second instance of the examination of the Supreme People’s Court on 27 recall infringing products etc. The judgment can be provisionally enforced after a guarantee from Conversant in the amount of 2.4 million euros. The ruling found that Conversant’s offer of the Standard License for Essential Patent Licenses to Huawei does not violate the Principle of Fairness, Adequacy and Non-Discrimination (FRAND). The standard essential patent license quota of the multimodal 2G / 3G / 4G mobile terminal products in the aforementioned range from Conversant is around 18.3 times the Chinese standard essential patent license quota determined in the first instance judgment. On the same day, Huawei filed an injunction with the Supreme People’s Court, petitioning for Conversant to be banned from seeking enforcement of the German court’s judgment before the Supreme People’s Court delivers its final verdict. The Supreme People’s Court issued an injunction based on Huawei’s obligation to provide guarantees, meaning Conversant will not seek enforcement of the above German judgment until the final judgment of the Supreme People’s Court. In the event of breach of this decision, a daily fine of RMB 1 million cumulative on a daily basis will be imposed from the time of breach. The verdict was served on the same day. Conversant requested re-examination during the review period. After the Supreme People’s Court organized a hearing for both parties, it denied Conversant’s request for reconsideration.
　　[Typical Significance] This case is the first preliminary injunction with the character of an “anti-suit order” in proceedings for the protection of intellectual property in China. It clarifies the need to prohibit the degree of harm, adaptability and suitability to be taken into account when issuing injunctions, the requests for enforcement of judgments of extraterritorial courts. Public interest and international comity factors etc. and examined for the first time as well as the daily fine system and initially determined the legal practice path of the Chinese “Anti-Suit Injunction”. The ruling in this case eventually led the parties to a global settlement agreement, ended parallel litigation in many countries around the world, and achieved good legal and social impact.

It is important to note, however, that China’s courts are not the only ones setting worldwide rates. In 2020 the UK Supreme Court ruled that its courts have the power to reimburse worldwide royalties for SEPs in Unwired Planet v. Huawei to set a point that OPPO made in the appeal.

The opinions expressed, if any, are those of the authors and do not necessarily reflect the views of Schwegman, Lundberg & Woessner, PA, any other of its lawyers, clients, or any of its or their respective affiliates.

© 2021 Schwegman, Lundberg & Woessner, PA All rights reserved.National Law Review, Volume XI, Number 248