Chinese Regional Court Makes Landmark FRAND Judgment

On Feb. 4, 2013, the Intermediate People’s Court in China’s southern city of Shenzhen issued a landmark decision, ruling that U.S. company InterDigital violated China’s Anti-Monopoly Law (AML) by charging excessive royalties and tying the licensing of essential patents to the licensing of non-essential patents.  This is one of the first rulings by a China court in a plaintiff’s favor in an antitrust case, and it is the first antitrust lawsuit in the intellectual property area in China that adopted FRAND principles. The ruling also appears to be the first time that any judicial authority has ruled on the appropriate royalty rate in the context of a requirement to license on FRAND terms.

In its ruling, the court ordered InterDigital to cease the alleged excessive pricing and alleged improper bundling of its essential and non-essential patents and to pay the plaintiff, Huawei Technologies, approximately $3.2 million in damages.  The court ruled that InterDigital’s license offers to Huawei, reviewed under Chinese law, did not comply with FRAND requirements. According to InterDigital’s Feb. 26, 2013 Securities and Exchange Commission filing, the court ruled that under Chinese law, the royalties to be paid by Huawei for InterDigital’s 2G, 3G and 4G essential patents should not exceed 0.019 percent of the actual sales price of each Huawei product. InterDigital has said that the court did not explain how it arrived at the figure and it intends to appeal the court’s ruling. In May 2012, Huawei also filed an antitrust complaint against InterDigital in European court alleging that the company had abused its market dominance by refusing to license key wireless patents.