With the rapid development and dissemination of technology in the modern world, disputes involving standard essential patents (“SEP”) and patents subject to reasonable and non-discriminatory licensing (“FRAND”) are becoming increasingly prevalent. The interplay and interconnected nature of modern technology poses unique challenges in the balancing of intellectual property rights with the public interest and continued innovation. The availability and applicability of injunctive relief are particularly important questions at this intersection of conflicting interests. Different countries have adopted differing practices on the availability of injunctive relief for holders of SEPs. This article discusses when a holder of an SEP may be eligible for injunctive relief in the US, Germany and China by reviewing relevant legislation, judicial practices and administrative practices and focuses on the potential factors relevant to SEP holders seeking injunctive relief in China.
- US and German Practice
US courts apply the well-established four-factor balancing test commonly used in injunctions, to injunctions for patent infringement cases. However, FRAND patents have unique difficulty satisfying this four-factor test. Holders of FRAND patents have committed to fair licensing terms and not to deny licenses. Therefore, there is an underlying presumption that monetary damages are sufficient in disputes involving FRAND patents because of these FRAND commitments. In addition, the fundamental logic of FRAND patents is to benefit the public interest. These features make it especially challenging for FRAND patent holders to demonstrate several elements in the four-factor test, namely irreparable harm, the inadequacy of monetary damages and the preservation of the public interest.
However, in Apple v. Motorola, the court indicated that it would be theoretically possible for the holder of a FRAND patent to obtain an injunction in certain situations where a licensee is engaged in bad faith. One example the court gives is if an infringer refuses to pay the FRAND royalty or unreasonably delays negotiations.
German courts track American practice in certain aspects. There, a holder of an SEP subject to FRAND would only be entitled to an injunction against infringers if eight conditions are met. However, to date, there has not been a single instance in which a holder of an SEP has successfully obtained an injunction.
Chinese judicial practice and administrative enforcement refer to American and European practices, which are reflected in legislation, judicial decisions and administrative enforcement.
- Practice and Opinions of Chinese Courts
Compared to US and German practice, Chinese courts seems to pay more attention to the subjective attitudes of holders of SEPs as well as licensees. Chinese courts also focus on formulating restrictions and limitations on the scope of injunctive relief, i.e., the circumstances in which injunctive relief will not be granted. For example, in Huawei v. IDC, the court compared the terms in IDC’s license to Huawei with those in the licenses of Apple, Samsung and other technology companies to conclude that IDC breached its FRAND commitment. Also, the court found that IDC was using its US lawsuit to force Huawei to accept the more onerous licensing terms. The court looked at this combination of facts to determine bad faith by IDC and intimated that a holder of an SEP would unlikely obtain an injunction if it breached its FRAND commitments.
Then on July 31, 2014, the Supreme People’s Court issued the “Interpretations of the Supreme People's Court on Certain Issues Concerning the Application of Law in the Trial of Patent Infringement Cases (II) (Draft for Public Comments)(the “Interpretations”),” which provides that the subjective attitudes of both parties in a license are the primary considerations when deciding to grant an injunction. For example, Art. 25 in the Interpretations states,
During negotiation process between an SEP patentee and licensee, if the patentee willfully violates fair, reasonable and non-discriminatory licensing commitments and causes a failure of negotiation, and the licensee has no obvious fault in the negotiation process, then the court generally should not grant the SEP patentee’s injunction claims.
This approach reinforces the holding of Huawei v. IDC, which provided that SEP holders that neglect their FRAND commitments are unlikely to receive injunctive relief, especially when their licensees are negotiating in good faith.
- Practice and Opinions of Chinese Administrative Authorities
Similar to Chinese courts, Chinese administrative authorities also look whether holders of FRAND patents observe and honor their FRAND commitments in their dealings with licensees as a premise enforcing injunctions. In contrast to the courts, which seldom deal with SEP injunctions given their rarity, administrative bodies have had more opportunity to explore these issues given their roles in antitrust and anti-monopoly investigations. Chinese administrative authorities have also developed guidelines, including four factors, to regulate the granting of injunctions for patent infringement.
In the anti-monopoly investigation into Microsoft’s purchase of Nokia (an M&A case), the Ministry of Commerce provided a restriction on the purchase condition by stating “Nokia cannot prevent the implementation of the SEPs, which have FRAND commitments by filing an injunction, unless the licensor provides the FRAND conditions to a potential licensee but the licensee does not sign and follow the FRAND licensing agreement in good faith.” Accordingly, the Ministry of Commerce considers how an SEP holder and its licensee behave as a factor for enforcing an injunction. Where the SEP holder honors its FRAND commitments but the SEP licensee does not act in good faith, an injunction may be appropriate. The Ministry of Commerce reiterated this doctrine in the anti-monopoly investigation into Nokia’s purchase of Alcatel-Lucent.
On December 31, 2015, the Anti-Monopoly Commission of the State Council issued the Anti-Monopoly Guidelines for the Abuse of Intellectual Property Rights (Draft for Comments), which provided guidelines on how SEP holders may obtain injunctive relief. The guidelines consist of four factors:
- The performance and actual will of both parties in the negotiation;
- Whether the SEP commitment contemplated injunctive relief;
- The licensing conditions provided by both parties in the negotiation; and
- The impact of an injunction on licensing negotiations, the relevant market, downstream competition, and consumer welfare.
These guidelines clarify and refine the considerations for injunctive relief by providing clear instructions on how SEP holders may seek injunctions. Although these guidelines are department provisions, if a court hears a case involving an SEP holder seeking an injunction, the court will consider these four factors. Therefore, although these guidelines are not judicial in nature, they still have important influence on Chinese courts.
Chinese courts and Chinese administrative authorities adopt a consistent approach on injunctive relief for SEPs. The key considerations both courts and administrative authorities examine when deciding the appropriateness of an injunction are whether the holder of the SEP has honored their FRAND commitments and if the licensee has acted in bad faith. Chinese administrative authorities have further clarified certain specific conditions for obtaining injunctive relief.
Generally under Chinese practice, SEP holders may obtain an injunction if the following conditions are met:
- Licensor provides its licensees with a FRAND offer and acts in good faith in the negotiation.
- Licensee engages in bad-faith behavior, specifically:
- Engages in negligent or willful misconduct in the negotiation of the license agreement with the SEP holder, such as willfully delaying negotiations, which is known as “reverse patent hold-up.”
- Proposes unreasonable license terms. SEP holders cannot accept unreasonable licensing conditions not only because it would be inequitable but also because it would upset the public interest by creating a competitive disadvantage for all other SEP licensees.
- The injunction does not harm the public interest. SEPs are usually part of a larger patent portfolio, which means preventing the implementation of an SEP can significantly impair a product or an entire industry. This will ultimately harm consumers. Therefore, courts and authorities consider the impact of injunctions on larger public interests. Claims to prevent ordinary consumers from using related products are generally not supported for this reason.