China has its say in the global F/RAND and SEP licensing debate

03.12.2013

A recent Chinese appeal court’s ruling is likely to have made quite an impression on those responsible for the negotiation for licenses for global SEP portfolios. In a licensing dispute between Interdigital and Huawei, essentially it appears that the Chinese appeal court has affirmed the lower Shenzen court’s ruling on two crucial points.
1. On Huawei’s abuse of dominance claim, that InterDigital had abused its dominant market position by: (i) tying its SEPs with non-SEPs during licensing negotiations, and (ii) seeking injunctive relief against Huawei before the US District Court in Delaware and before the ITC, while still in negotiations with Huawei to force it to accept unreasonable licensing terms including excessive royalties.
2. On Huawei’s F/RAND claim, that InterDigital failed to comply with the F/RAND commitments in relation to its SEPs by: (i) bringing injunction proceedings and asking Huawei to pay significantly higher royalties than those paid by Apple and Samsung, and (ii) insisting on Huawei’s licensing, to InterDigital, all of its own patents obtained globally on a royalty-free basis. With few judgments/decisions actually making F/RAND determinations, perhaps of most interest to those in SEP licensing negotiations, is the fact that the Shenzen court had determined that the F/RAND royalty rate for the InterDigital SEPs concerned should not exceed 0.019 percent of the actual sales price of each Huawei product. This (incredibly low and arguably protectionist) figure still stands…
There remains uncertainty about parts of the ruling, but the Chinese appeal court appears also to have indicated that there are efficiencies from portfolio licensing, and appears also to have treated InterDigital as a form of PAE. For the full article and excellent summary of the issues, see here.