Chinese firm Guangzhou Digital Rise Co. Ltd. (hereinafter referred to as "Digital Rise") has sued Skyworth, Samsung and Hisense (in that order) for patent infringement. This SEP dispute is a first for China's television industry, and its fallout could have a major impact on the way patent fees are collected as well as the rates for said fees. It could also have an effect on the ways in which policies relevant to this industry are formulated.
Digital Rise invented an audio coding technology invented called "Digital Rise Audio" (hereinafter referred to as DRA). The patents involved in the current lawsuit are as follows: "Audio Decoding (patent no. ZL200710141661.6)," "Audio Coding and Decoding System (patent no. ZL200810003464.2) and "Method and Apparatus for Decoding Audio Signals (Patent No. ZL200810003462.3).
In fact, it would be sensible to say that the main battle in the patent war being waged by the television industry is taking place overseas. Furthermore, the television manufacturers are in a rather strong position when it comes to the question of patent licensing royalties. Digital Rise, who is suing for damages amounting to roughly more than RMB400 million, hopes -and they have stated this publicly- through this patient rights lawsuit, that they will become the first Chinese firm to obtain profitability on account of enforcing intellectual property rights.
Digital Rise is a Guangdong-based wholly-owned subsidiary of Guangdong Rising Assets Management Co., Ltd., a member of a provincial holding group, and is the holder of the patent for the DRA audio standard as well as that of the digital audio coding technology which supports both stereo sound as well as multi-channel surround sound. Its most notable feature is that its technology possesses a very low level of complexity and has achieved a high level of efficiency vis-a-vis that of other technologies internationally.
On July 1, 2016, Digital Rise announced the licensing policy for DRA as well as the newest rates for its licensing fees. The license, which had already been used by chipmakers, came at a cost of RMB1 per chip. The end product manufacturers were not charged of any fees. The chip manufacturers who had not yet received licensing rights have already expressed that they wish to cooperate with Digital Rise would charge the end product manufacturer on a 1RMB per chip basis. As for professional equipment manufacturers in their use of professional encoders on a basis of RMB500 per product (the number of audio channels in its audio code output is no greater than four. Should any product have more than four channels, every four channels will be viewed as being a licensed product. The same applies in the event that there are fewer than four channels). However, this licensing policy has as of yet failed to yield the profit expected by Digital Rise.
In late July of 2017, Digital Rise filed suit against Shenzhen Skyworth Group Co, Ltd. (hereinafter referred to as Skyworth) in the Beijing Intellectual Property Court, alleging that Skyworth had, through its subsidiary Skyworth-RGB Electronics, infringed on its patent rights for "audio decoding" and "audio coding and decoding system" by using the relevant technology in more than 100 lines of television sets, including S9-1, S9D and W9. Furthermore, Digital Rise alleges that Skyworth had manufactured, sold, offered to sell and imported television sets without first having obtained rights from Digital Rise. Digital Rise has also alleged that the home appliance retailer GOME Electrical Appliances (hereinafter referred to as "Gome") sold and offered to sell the allegedly infringed product without having obtained prior permission from Digital rise, thus constituting a violation of Patent Law. Digital Rise has requested that the three defendants cease their infringement and pay RMB192.2 million to Digital Rise so as to cover economic losses as well as other reasonable expenses.
Following the aforementioned suit, Digital Rise filed suit against “Tianjin Samsung Electronics Co., Ltd. and Gaochuang (Suzhou) Electronic Co., Ltd. in the Guangzhou IP Court. Digital Rise also filed suit against Qingdao Hisense Electric Co., Ltd., Hisense Group and Shenzhen Suning Cloud Commercial Sales Co., Ltd. in the Intermediate People's Court of Guangdong Province alleging that the defendants had violated its patent rights. Digital Rise requested the defendants to cease their infringement and pay compensation for damages. Digital Rise has explained that it sought roughly RMB400 million in compensation from its various suits in the three aforementioned courts. However, it is as of yet an unknown whether licensing fees in the lawsuit are calculated on the basis of a certain proportion or they are counted according to a fixed rate.
The patent suit filed by Digital Rise regards what is known as a Standard Essential Patent (SEP). SEPs are patents that will inevitably be used when implementing technical standards. The decline in the number of patent lawsuits with respect home appliances is chiefly due to the gradual maturation of relevant technology. Disputes are more likely where one or a small number of firms control a certain technology; however, should every firm jointly have control over a technology the potential for disputes decreases. The "Audio Decoding" patent held by Digital Rise was filed for on August 17, 2007 and patent right was granted on May 20, 2009. Regarding the audio decoding patent, there has been an opinion to the effect of that a patent such as the audio decoding patent can be used should there be a declaration that a party wishes to conform to standards. However, the party who has said this has not issued any opinion regarding the scope, effectiveness or the validity of the information.
In litigious disputes involving SEPs, should the patent be valid, then the focus of the dispute between the parties involved should be the standards regarding licensing fees. Although SEPs and the licensing thereof have existed outside China for quite some time now, the tardiness of China's legislative supervisory agencies in dealing with the licensing issue has caused a degree of confusion. Digital Rise's SEP lawsuit represents the beginning of an effort in China to remedy this.
China’s "Temporary Provisions on the Governing of National Standards for Patents" was put into effect in 2014. And, regarding the issue on patent authorization implementation and the fees for authorization in the National Standards Regulations, these should be coordinated and resolved by the standards user and Patentee, or patent applicant in accordance with the Patent Implementation Authorization Declaration made by the patentee or the patent applicant. DRA International has stated that patent-holders should issue a guarantee to the agency responsible for issuing standards that they are willing to meet with any applicant on a rational and non-discriminatory basis in order to discuss licensing.
One learns from the above description that China lacks detailed rules regarding the collection of licensing fees for SEPs. Generally speaking, however, the fees for SEPs and regular patents should differ in that SEPs must have their fees set and discussed by each party involved, and meanwhile licensee enterprises should have the opportunity to participate in negotiation.
Though this dispute emerged from the television industry, its ramifications are relevant to the smart phone market. Conventional telecommunications giants, including Nokia, Qualcomm and Ericsson have in days past relied on SEPs to obtain what is essentially an endless stream of returns. The DRA audio decoding technology owned by Digital Rise can be used in digital television sets, digital audio broadcasting, digital cinema, video disks, internet streaming multimedia, IPTV and mobile multimedia among other fields. However, with regards to television products, in addition to audio decoding technology, video decoding also exists. Thus, in the future, holders of video decoding SEPs may exercise the same rights as Digital Rise.
In addition, the world will be watching to find out whether or not Digital Rise will win this lawsuit as well as the amount of compensation Digital Rise is to gain should it win. However, as the lawsuit involves a state-owned enterprise and has policy ramifications for China, perhaps the case will be waning out and producing nothing significant. Nonetheless, it will still have an effect on other SEPs affecting the television industry. Thus, it is worth following how the Digital Rise case develops.