The Intermediate People's Court in Shenzhen recently ruled in favour of Huawei against Samsung on 11 January 2018 in a case involving two standard-essential patents (SEP) owned by Huawei, after finding that Samsung infringed the two patents and had "maliciously delayed negotiations". This decision is the latest in an ongoing saga of patent disputes between the Asian tech giants, which have been filing lawsuits against each other in China and the US since May 2016.
The decision was announced by the Shenzhen court via their official social media account in a press release describing the decision as the first SEP injunction to be issued in China. In the ruling, Samsung was ordered to immediately stop the manufacturing and sales of their infringing products and to pay a small court fee, although it is not clear which of the phone models are affected. Huawei's other litigation requests were rejected and Samsung retains the right to appeal to a higher court. Samsung expressed in a statement that it would "thoroughly review the court's decision and determine appropriate responses."
Two main issues were considered in detail by the court during an 18-day trial - the first relates to whether the two patents owned by Huawei are essential to the 4G standard, and the other being whether FRAND was breached by either of the parties during the negotiation discussions.
On the first issue, the two patents asserted by Huawei (201110269715.3 "Method and apparatus for sending control signals", and 201010137731.2 "Method, Base Station, and User Equipment for Feeding Back ACK/NACK Information for Carrier Aggregation") were both declared as essential to the 4G/LTE standard in the decision. It was also found that because Samsung manufactured and sold 4G capable terminal products in China, Huawei's patent rights were infringed. Samsung put forward an argument during the trial that Huawei's patents were exhausted through being implemented in Qualcomm's products (including CPU and chips), which were then used in Samsung products. However, this argument was not accepted as it was found that there could be no exhaustion, as Huawei did not grant any licence with regard to their 4G and LTE technology to Qualcomm.
On the second issue, it was found that during the cross-licence talks (that began in 2011) between the companies Samsung made obvious violations of their FRAND obligations in both procedure and substance. Examples of the breach include employing delaying tactics, demanding non-SEPs as a part of the licensing package from Huawei, and refusing arbitration. On the other hand, it was decided that Huawei made no obvious breach of the FRAND principle as they made conscious efforts to resolve the conflict through negotiation and arbitration.
In the press release, the court indicated that this decision has a great significance on Shenzhen's "innovation-driven development strategy", as well as the "equal protection of the IP rights and interests of intellectual property owners home and abroad". There are also a few more noteworthy points to take away from this judgement, especially for SEP holders:
1. The Shenzhen court has appeared to have adopted a similar approach to its German counterparts, compared to what has been observed in Unwired Planet v. Huawei (UK) and TCL v. Ericsson (US). Instead of imposing a licence on the parties and/or setting the terms of a licence, the Chinese court has elected to grant a SEP injunction against future infringement.
2. Although Huawei has earned an injunction against Samsung, the amount of awarded damages was not included in the judgement - it appears that the court has taken into account the usual nature of SEP-related lawsuits and has made conscious efforts to encourage continuous negotiations between the companies, at least in terms of damages.
3. In its decision, the court has further provided some further guidance and clarification relating to the determination of reasonable aggregate royalty in the smartphone industry, which SEP owners may find useful. For example, the court stated that royalties relating to 4G patents should be determined based on the contributory effect of 4G technology over its predecessors, e.g. according to a difference in the prices between 3G capable products and 4G capable products, rather than the price of the 4G capable products itself.
Huawei first scored its patent infringement win against Samsung in April 2017 and was awarded 80 million RMB in damages, after Samsung filed its own patent infringement case against Huawei the previous year seeking 161 million RMB. This latest and second victory of Huawei in their legal battle against Samsung demonstrates how a strong commitment to maintaining a robust patent portfolio can help a company to remain successful in an increasingly favourable IP licensing and enforcement environment in China.
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