An extract from The Intellectual Property and Antitrust Review, 6th Edition

Standard-essential patents

i Dominance

The SAMR IP Provisions confirm that determination of a dominant market position shall follow the rules in the AML, and they specifically clarify that undertakings would not be presumed to have a dominant market position in the relevant market merely because of the ownership of IPRs.

In combination with the characteristics of IPRs, the IP Guidelines specify that the following factors may be considered: the possibility of transaction counterparties switching to alternative IPRs or goods and the switching costs; the dependency of the downstream market on the products provided by applying IPRs; and the capability of the transaction counterparty to restrict and balance the undertaking.

To identify whether an undertaking that owns a SEP has a dominant market position, the following factors may be further considered:

  1. the market value and the scope and degree of application of the standard;
  2. whether there exists a substitutable standard, or technology, including the possibility to use a substitutable standard or technology and the switching cost;
  3. the dependency of the industry on the relevant standard;
  4. the evolution and compatibility of the relevant standard; and
  5. the possibility of substitution of the related technology that has been incorporated into the standard.18
ii Injunctions

The issue of whether SEP holders may seek injunctions has been heavily discussed in recent years. According to Article 24 of the Interpretations of the Supreme People's Court on Issues concerning the Application of Law in the Trial of Patent Infringement Dispute Cases (II), as to those patents that have been disclosed as essential for the implementation of recommended national, industrial or local standards, the court shall not, in general, uphold injunctions sought by holders of such patents encumbered with FRAND commitments when: the patentee intentionally violated the FRAND obligations when negotiating with the accused infringer for licensing terms such that no agreement was reached; and the accused infringer was patently not at fault during the negotiations.

Under the IP Guidelines, it is likely to find an anticompetitive effect if a SEP holder with a dominant market position requests that a court or relevant department makes or issues a judgment, ruling or decision on forbidding the use of the relevant IPRs to force the licensee to accept the unfairly high licence fees or other unreasonable licensing conditions. The IPR Guidelines indicate that the following factors may be considered when analysing the competition effect of such injunction applications:

  1. the behavioural performance of both negotiating parties in the process of negotiation and the true intention reflected by their behaviour;
  2. relevant commitments related to relevant SEPs;
  3. the licensing conditions put forward by both negotiating parties in the process of negotiation;
  4. the impact of requesting that the court or relevant department makes or issues a judgment, ruling or decision on forbidding the use of relevant IPRs on licensing negotiation; and;
  5. the impact of requesting that the court or relevant department makes or issues a judgment, ruling or decision on forbidding the use of relevant IPRs on the competition in the downstream market and consumers' interests.
iii Licensing under FRAND terms

The Guidelines of the High People's Court of Beijing Municipality for Judging Patent Infringements (the Patent Infringement Guidelines), released on 20 April 2017, for the first time provide comprehensive guidance for the interpretation of the FRAND obligations in Articles 152 and 153. In the following scenarios, the patentee may be considered in voluntary breach of the FRAND obligations if the patentee: (1) fails to notify the infringer of the infringement of the patent right in writing, and fails to specify the scope and ways of infringement; (2) fails to provide the patent information or provide specific licensing conditions in writing in accordance with business practices and trading practice, after the accused infringer has consented to negotiations; (3) fails to offer a reply period in accordance with business practice and trade practice; (4) obstructs or interrupts the licensing negotiation without reasonable justification; and (5) proposes unreasonable licensing conditions in the course of the negotiation, which result in the failure to reach a patent licensing agreement and other conditions.19 If any of the following acts are committed, it may be found that the accused infringer has a clear fault in the necessary patent licensing consultation process: (1) failing to diligently respond within reasonable time after receiving written notification of infringement from the patentee; (2) failing to diligently respond within reasonable time on whether to accept licence conditions of the patentee; or refusing to accept specific conditions proposed by the patentee but failing to propose new conditions, after receiving specific conditions of licence from the patentee; (3) obstructing, delaying or refusing to participate in the licence negotiation without adequate reasons; (4) proposing an apparently unreasonable condition during negotiation that results in failure to reach a licence agreement; and (5) the accused infringer has any other serious faults in the negotiation.20

iv Anticompetitive or exclusionary royalties

In the Qualcomm case,21 the issue of whether it was appropriate for Qualcomm to charge royalties based on the net sale price of whole devices was discussed. The NDRC mentioned in its decision that '[Qualcomm] has insisted on using a relatively high royalty rate, at the same time that it has charged royalties on the basis of entire devices in excess of the coverage of its wireless SEPs, which is manifestly unfair and has resulted in excessive royalties'. It seems that the NDRC did not conclude whether it was appropriate for Qualcomm to use the net sale price of whole devices as the royalty base, but only regarded the royalty base as one of the factors in determining Qualcomm's unfairly high pricing.