A state-owned entity from Guangzhou is the plaintiff in China’s latest SEP enforcement effort, and the world’s top TV seller, Samsung, is among those in the crosshairs. Shenzhen-based Skyworth and Shandong-based Hisense are the other targets in the campaign, which centres on a domestic Chinese audio-related standards.
Digital Rise, the Guangzhou company, has so far launched patent suits in three separate venues. It first brought suit against Skyworth in the Beijing IP Court in July. That case also names retailer Gome Electrical Appliances as a defendant. Digital Rise followed up with two complaints against Hisense in the Shenzhen Intermediate People’s Court and finally an assertion against Samsung Electronics at the Guangzhou IP Court. According to Chinese media reports the total damages being sought across all these cases is around CNY ¥400 million ($61 million).
All the cases involve two Chinese patents: CN200710141663.5 and CN200810003464.2, which cover “audio coding” and “audio coding and decoding systems” technology. According to the plaintiff, they are essential to the Dynamic Resolution Adaptation (DRA) standard, which was selected in 2009 as China’s national audio coding standard. DRA was also adopted by Blu-ray Disc Association (BDA) as one of its audio standards. But it appears to be little used outside the country; instead, Advanced Audio Coding (AAC) and various MPEG formats are widely employed.
According to its website, Digital Rise was founded in 2004 as a state-owned company by Guangdong Rising Asset Management. It claims to receive support and help from various national ministries, as well as the Guangdong provincial and Guangzhou municipal governments. It describes itself as the only company in China that is devoted to digital audio core technology development, intellectual property and standards utilisation, as well as the only patent holder and sole licensor related to DRA SEPs. Furthermore, it is one of the drafters for Chinese audio and international standards. Interestingly, on its Chinese website home page it states that the company’s short term goal is to become the first Chinese enterprise to make profits from “intellectual property utilisation” (a Chinese expression that includes IP monetisation and broader use of IP). Certainly, Digital Rise is not shy about its ambition to generate licensing revenue with its SEPs.
Skyworth, Hisense and the other big four Chinese TV makers (TCL, Konka, Changhong and Haier) were previously royalty-paying licensees of Digital Rise, according to media reports, but Samsung has never had an agreement with the company. Digital Rise brought in a new DRA SEP licensing policy effective on 1st July 2016 which required chip-makers to pay ¥1 per chip product, end product manufacturers to pay ¥1 per unit if the chip used in the end product has not been charged a royalty and coding equipment makers to pay ¥500 per unit. Licensees which had signed agreements prior to that date could choose whether to renew their contracts based on the new terms or stick to the terms of their existing agreements. It is possible that Skyworth and Hisense did not renew their licence agreements after the old ones expired last year, leading Digital Rise to take both TV makers to court.
This case bears a very strong resemblance to Iwncomm’s efforts to license its WAPI SEPs to companies including Sony and Apple. Both Chinese companies are suing end product manufacturers for infringement of Chinese SEPs, and both of the standards involved are not widely adopted internationally, but have been recognised as mandatory in China. In addition, both firms had recently updated their licence terms. Digital Rise filed its suits over the summer, after the Beijing IP Court granted Iwncomm an injunction against Sony in March.
While disputes related to SEPs are mainly in the smartphone industry, this case is worth noting as it is the first SEP dispute in the Chinese television space. It has also been launched by an entity with close ties to the government. If Digital Rise receives the kind of favourable decision Iwncomm did from the Beijing IP Court, it will be no surprise to see it going after other Chinese and foreign TV makers in China. Iwncomm and Digital Rise also seem to illustrate a new reality for any company doing business in the China market: in addition to paying global licensors for SEPs, you had better be prepared to pay Chinese licensors for national standards.