April-May China Bulletin

On February 4, 2013, the Shenzhen Intermediate People’s Court issued two rulings in a patent licensing dispute between InterDigital and Huawei.  The Court decided that InterDigital abused its patent rights by requiring Huawei to pay “excessive” royalties for essential patents for mobile telephone technology and by tying standard essential patents with non-essential patents.  It referred to complaints InterDigital had filed with the ITC and the Delaware District Court in the U.S. in an attempt to ban Huawei from using the patents while negotiations to license the patents were ongoing.

According to the court, InterDigital breached the obligation in its promise to the European Telecommunications Standards Institute to license its standard essential patents under fair, reasonable and non-discriminatory (FRAND) terms to any company wishing to implement the standards.  It then ruled that the royalties to be paid by Huawei should not exceed 0.019 percent of the sale price of Huawei products using the patents, in effect imposing a compulsory patent at a lower royalty than InterDigital had been willing to accept.

In a development also impacting use of intellectual property rights in China, the State Administration for Industry and Commerce (SAIC) stated on its website that it had held meetings with industry participants in April, 2013, regarding a draft of the Regulation on the Prohibition of Conduct Eliminating or Restricting Competition through Abuses of Intellectual Property Rights.  This is part of an ongoing effort by the SAIC to draft guidance on how the Anti-Monopoly Law should apply in the context of intellectual property rights.

The draft Regulation developed by the SAIC will cover the use, licensing, assignment and enforcement of patents, trademarks, copyright and trade secrets and address refusal to license, tying intellectual property rights with other rights or products, and imposition of unreasonable restrictions in licenses.  Such restrictions include unjustified grant-back provisions, prohibitions on challenging the validity of the underlying rights or using competing technology after the license terms – prohibitions already familiar from the legal regime governing technology import-export contracts that applies even in the absence of market dominance.

Anti-monopoly and other regulations restricting potential abuse of intellectual property rights should be taken into account with draft technology license contracts.

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