Chinese Court Publishes Decisions Finding That InterDigital Violated AML Through Discriminatory Pricing, Sets FRAND Rate for Licensing InterDigital’s SEPs Under Chinese Standards

In April 2014, the Guangdong High Court of China published its October 2013 judgments in two Huawei Technologies v. InterDigital cases. One held that U.S.-based InterDigital (IDC) abused its dominant market position by refusing to license standard essential patents (SEPs) for 3G wireless communication devices on fair, reasonable and non-discriminatory (FRAND) terms. The other set a FRAND rate capped at 0.019 percent of the actual product selling price for IDC to license its Chinese SEPs to Huawei.

IDC designs and develops advanced technologies for wireless communications, and has participated in the formulation of international wireless communications standards for which it owns relevant patents. In July 2011, IDC filed patent infringement litigation against Huawei in the U.S. International Trade Commission and in a U.S. District Court. Huawei then sued IDC in December 2011 in the Shenzhen Intermediate People’s Court by filing two complaints, one over an antitrust dispute and one over a FRAND rate dispute.

In the antitrust dispute complaint, Huawei claimed that IDC had abused its dominant market position in the licensing of SEPs for 3G wireless communications, and should compensate Huawei with RMB20 million  ($3.1 million) in damages. The Shenzhen court held that IDC violated its FRAND commitments and abused its dominant position as to Huawei by tying and setting a discriminatory and unreasonably high royalty rate for its Chinese SEPs and non-SEPs. It ordered InterDigital to cease the conduct, and awarded the damages Huawei claimed. However, it rejected the other claims that IDC had tied Chinese SEPs with non-Chinese SEPs. Both parties appealed, and the Guangdong High People’s Court ruled in October 2013, upholding all of the Shenzhen court’s determinations.

In the FRAND rate dispute complaint, Huawei asked the court to determine a FRAND rate. The court set a FRAND royalty rate on the grounds that, although IDC did not directly participate in setting up Chinese communication standards, IDC still bears the obligation to grant a FRAND license to Huawei because IDC voluntarily participated in setting up relevant ISO standards, and IDC thus should have foreseen the adoption of its patents in Chinese standards. IDC appealed, and the Guangdong High People’s Court ruled in October 2013, upholding the Shenzhen court’s decision.

On May 22, 2014, IDC announced that China’s National Development and Reform Commission (NDRC) formally suspended its AML investigation of the company, based on commitments IDC submitted to the NRDC on March 3, 2014. IDC agreed (1) to offer a worldwide portfolio license of only its SEPs and to comply with FRAND principles while negotiating license agreements with Chinese manufacturers; (2) not to require royalty-free, reciprocal cross licenses; and (3) to offer binding arbitration before seeking exclusionary or injunctive relief.

The Guangdong High People’s Court’s antitrust dispute decision is available here.

The FRAND rate dispute decision is available here.

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