On March 22, Beijing IP Court issued a decision regarding a WLAN Authentication and Privacy Infrastructure (WAPI) Standard Essential Patent (SEP) infringement case, ruling that a multinational electronic device maker infringed a WAPI SEP owned by a Chinese company. The court awarded more than 9 million RMB in damages, including the compensation and reasonable cost, and issued an injunction ordering the defendant to stop its infringing acts.

Patent exhaustion doctrine does not apply to use method patents

The patent in suit relates to a method of secure access to WLAN and secret communication for a mobile terminal, which can be performed with the participation of a Mobile Terminal (MT), an Access Point (AP) and an AS (Authentication Server). Clearly, this is a system level claim involving multiple parties. The defendant made MT only, and the AP and AS it used were bought lawfully from the plaintiff. Accordingly, the defendant argued that the patent right was exhausted.

The court held that according to Article 69.1(1) of Chinese Patent Law, the patent exhaustion doctrine only applies to a product obtained directly by a manufacture method patent, while the patent exhaustion doctrine does not apply to a use method patent. Article 11 clearly states the exclusive right of a method patent as "using a patented method and using, offering to sell, selling or importing the product obtained directly by the patented method", and "using a patented method" is not defined in Article 69.1(1). This indicates that for the legislature, the patent exhaustion doctrine does not apply to a use method patent or there is no need to apply the patent exhaustion doctrine to a use method patent. Therefore, a use method patent is not covered by the patent exhaustion doctrine under Chinese Patent Law. The patent in suit is a use method patent, instead of a manufacture method patent. Accordingly, the defendant is groundless to say that the plaintiff's patent is exhausted just because AP and AS are lawfully sold by the plaintiff.

Actually, a similar case once occurred in the U.S. and the Supreme Court had a different opinion in Quanta Computer v. LG Electronics Inc. from the Chinese court opinion.

Contributory infringement

The plaintiff contended that the accused infringing products of the defendant are essential for contributing to the performance of the patent in suit by others.

The court held that indirect infringement generally shall be premised on direct infringement, which however, doesn’t mean that the patentee shall prove another entity has already performed direct infringement. Instead, it's sufficient to prove that the all elements rule will be met if a user of the accused infringing product uses the product in its preset manner. As to whether the user shall be liable for his/her acts, it is irrelevant to the establishment of indirect infringement. The defendant knows that a combination of WAPI functional modules are built in the accused infringing product and the combination is a device specially designed for practicing the patent in suit, but still provides the product for business purpose to others to practice the patent in suit, which led to contributory infringement.

Notably, according to Chinese Patent Law, infringement is limited by business purpose, and therefore ordinary consumers will not be liable for their acts. The drafter of the Judicial Interpretations II of the Supreme Court stressed that indirect infringement shall be premised on direct infringement, but Beijing IP court failed to find direct infringement in this case.

Faults lead to issuance of injunction and increase in damages

The patent in suit is a compulsory SEP. During negotiation, the defendant required the plaintiff to provide a claim chart to show the infringement, but the plaintiff required the defendant to sign a non-disclosure agreement before providing the claim chart, which caused failure to reach an agreement.

The court held that a claim chart is not necessary for launching negotiation, especially when the defendant could assess the infringement based on current conditions. In this case, the defendant should be able to determine that the WAPI functional software running in its handsets falls within the claim scope of the patent in suit, even without any claim chart provided by the plaintiff. According to current practice, a claim chart will compare each element of the patent with the corresponding feature of the accused infringing product, and thus it might contain relevant opinions of the patentee. Under such circumstances, it's reasonable for the patentee to ask the other party to sign a non-disclosure agreement. Therefore, the court determined that it's the defendant's fault for failure of launching the licensing negotiation process. Based on this, the court approved the plaintiff's request for an injunction.

In this case, the defendant made 2,876,391 mobile handsets, and the plaintiff submitted four patent licensing agreements signed with others, in which the royalty fee is RMB 1 per unit. Based on this, the court determined that the licensing fee for the patent in suit should be RMB 2,876,391. However, considering that the patent in suit is a fundamental invention in the WLAN security field, has won relevant technology awards, has been incorporated into national standards and the defendant has faults during the negotiation process, the court supported the argument of the plaintiff that the damages should be three times the licensing fee, i.e., RMB 8,629,173 (2,876,391×3).

Outlook

Since its establishment, Beijing IP Court has received many big patent cases and keeps on boosting damages. In 2015, the average damages for patent infringement in Beijing IP Court reached RMB 450,000; in 2016, the average damages reached RMB 1.41 million. It's almost for certain that we will see a new jump in the future, which shows the court's determination for better patent protection. In view of the above, patentees need actively look into their global patent strategies, in anticipation of a better future to come in China.