Chinese court awards damages and determines appropriate royalty in Huawei/IDC anti-monopoly litigation
The Guangdong High People's Court recently held that US based Inter Digital Co. (IDC) had abused its dominant market position in relation to the licensing of standards-essential patents (SEPs) for 3G wireless communication devices. The decision highlights the role that anti-monopoly litigation in China can play in international patent disputes.
Facts and background
On 6 December 2011, after IDC had commenced patent infringement litigation against it in the US, Huawei Technology Co. (Huawei), a Shenzhen-based Chinese telecom company, filed lawsuits in Shenzhen, claiming that IDC had abused its dominant market position in relation to the licensing of standards–essential patents (SEPs) for 3G wireless communication.
Huawei filed two cases simultaneously. In one, it claimed that IDC had applied a discriminatory royalty rate, and that it had tied the licensing of SEPs and non-essential patents. In this action, Huawei sought damages of RMB 20 million (approx. US$3.25 million); in the other, it requested the court to determine an appropriate royalty rate applying FRAND principles. As a member of ETSI (the European Telecommunications Standards Institute), IDC was bound to license its SEPs on fair, reasonable and non-discriminatory (FRAND) terms.
The Guangdong High People's Court has upheld Shenzhen Intermediate People's Court's finding that the royalty rate offered to Huawei was discriminatory because it was higher than that offered to other companies, such as Apple and Samsung, and that this constituted an abuse of IDC's dominant marketing position under China's Anti-Monopoly Law. Huawei's other claim, that IDC had tied th licensing of SEPs and non-essential patents, was, however, rejected. The Court awarded damages of RMB 20 million.
Interestingly, the court held that the terms on which SEPs are licensed comes within the jurisdiction of the courts. It rejected IDC's argument that such terms are solely a matter for commercial negotiation between the parties. The court also determined the appropriate royalty rate based on FRAND principles, though the exact rate determined was not disclosed for reasons of confidentiality. In determining the appropriate royalty rate, the court considered the following: a) general profit margins in the wireless communication industry; b) the quantity and quality of IDC's patents, the company's reputation, and its R&D costs; c) the royalty rate offered to other companies, such as Apple and Samsung; and d) the applicable jurisdiction for determining issues relating to the licensing of SEPs.
Separately, IDC had filed an opposition to jurisdiction when the case was initially accepted by the Shenzhen court, arguing that because the alleged abuse had occurred in the US, and IDC had no domicile in China, the Chinese court had no jurisdiction over the case. The court rejected this by broadly interpreting the 'place of the abuse' to include places where the results of the alleged abuse had occurred.
This is a significant decision under China's anti-monopoly law, demonstrating the willingness of the courts both to assume jurisdiction in litigation relating to foreign-owned SEPs, and to determine appropriate royalty rates, applying the FRAND principles.
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