Appellate Case on Standard Essential Patent Royalty Fee

Huawei Technologies Co., Ltd. v. InterDigital (IDC)

Guangdong High Court Civil Judgment

(2013) Yue Gao Fa Min San Zhong Zi No. 305

Beijing EAST IP Law Firm presented

English Translation for Reference Merely

[CASE BRIEF]

Huawei Technology Co., Ltd (“Huawei”) has negotiated with InterDigital (IDC) for many times on standard essential patent royalty or royalty rate. During negotiations, IDC filed a lawsuit to an American court and requested the International Trade Commission of the United States to start 377 investigations and issue a complete injunction on imports, and cease and desist orders on relevant goods of Huawei. Then, Huawei filed a lawsuit to Shenzhen Immediate Court in Guangdong Province and requested IDC to follow the standard essential patent royalty rate according to the principle of Fair, Reasonable and Non-discriminatory (“FRAND”). The first instance of Shenzhen Immediate Court held that, according to the FRAND principle, the standard essential patent royalty rate should be 0.019%. IDC refused to accept the judgment and appealed to Guangdong High Court. The second instance of Guangdong High Court held that whether understand it literally or according to the intellectual property policies of European Telecommunications Standards Institute and US Telecommunications Industry Association and relevant regulations under Chinese laws, the FRAND obligation should be understood as “fair, reasonable and nondiscriminatory” license duty. The standard essential patent owner shall not directly decline license to standard users in good faith who are willing to pay reasonable fee, which not only guarantee sufficient returns of the patentee, but also prevent the standard essential patent owner from charging high royalty rate or adding unreasonable additional requirements. The core of FRAND duty lies in determination of reasonable and non-discriminatory license fee or royalty rate. Both Huawei and IDC are members of European Telecommunications Standards Institute and IDC has the obligation to license the standard essential patent to Huawei. The two parties shall negotiate on royalty or royalty rate according to FRAND principle and shall request the court’s ruling if the negotiation fails. The People’s Court must consider the essential patent’s characteristics, the profits obtained from patent enforcement and similar patents, and their percentage in sale profits or sale revenue of relevant good of the licensee, the fact that patent royalty shall be less than certain percentage in goods profits, the difference among each company on patent license and Huawei needs to pay extra fee if enforcing other standard essential patents of IDC outside China, and reasonably determine this case’s royalty.

[TYPICAL SIGNIFICANCE]

This case was the first dispute on standard essential patent royalty in China and plays a significant role in application of Intellectual Property laws. The case used new cause of action, which provides demonstration for modification and improvement for future civil cases. More importantly, this case applied the FRAND principle as basis of judgment for the first time in terms of how to determine standard essential patent royalty and put forward the specific reference factor for calculation. All these factors would provide strong support for handling similar case issue and modification for future cases. This case demonstrated the court’s ability to resolve significant and complex cases and established an excellent international image on intellectual property hearings in China, which achieved good legal effects and social influence.