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
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