Standard-Essential Patent Licensing Negotiations

By Jack Zhanke Li




The content of this article is a partial excerpt from the address at 2018 China Anti-Monopoly Forum.


SEP (Standard Essential Patent) licensing negotiations are closely related to antitrust issues. For example, an antitrust violation might be constituted if the principle of FRAND was not followed by SEP holders during the license negotiations. The implementers should also abide by the principle of good faith to avoid lawsuits of patent infringement, which may possibly lead to injunctions and punitive damages.


The antitrust issues relating to SEPs have been widely concerned in recent years. In fact, these concerns with SEPs are not new. Chinese people started paying attention to SEPs when the DVD standard was adopted, and that was the first time Chinese enterprises learned about the connection between industry standards and patents. At the end of 20th century and the beginning of 21st century, there were some patent licensing alliances in the field of optical storage,such as the fields of DVD disc and DVD player. Those alliances included 3C Alliance [1] dominated by Royal Philips, 6C Alliance [2] ,1C Alliance [3] and so forth. These patent holders licensed their technologies in the form of patent pools, which included many SEPs relating to DVDs.


Nowadays, there are two trends about the intersection between intelectual property and antitrust. First, the intersection in aspect of patents is no longer confined to the field of communications, but extended to medical and other industries. Second, the intersection in aspect of IP not only pertains to patents, but also copyrights and other types of intellectual property. Therefore, the disscussion on SEPs licensing negotiations may also be useful in fields of  other industries and other types of intellectual property.


In addition, this article does not take sides between SEP holders and implementers [4]. The purpose of this article is to explore rules that should be followed during the negotiation between SEP holders and implementers.


Negotiation Rules


From the perspective of law application, article 24 of " Interpretation (Ⅱ) of the Supreme People’s Court on Several Issues concerning the Application of Law in the Trial of Patent Infeingement dispute Cases" (hereinafter refered to as Interpretation Ⅱ) and article 149-153 of "Guidelines for Patent Infringement Determination(2017)" (hereinafter refered to as the Guidelines) from Beijing High People’s Court should be noticed. In particular, the provisions of the Guidelines are very explicit and active, due to the reference of the experiences abroad when it was drafted. The experiences referenced includes the principle of negotiating fault formed by European Court in case Huawei v. ZTE and the requirements of escrow for implementers in good faith.


It should be pointed out that the Guidelines is not law or judicial interpretation, it is only a refenence for the trial within the jurisdiction of the Beijing High Court. However, many views of the Beijing High Court do represent the opinion of the majority in judicial field. On the other hand, where no licensing agreement is reached and a lawsuit involving SEP is filed thereafter, the dispute is most likely trialed by the Beijing Intellectual Property Court. For these cases, Beijing High People’s Court would make final decisions. Therefore, the Guidelines from Beijing High People’s Court is undoubtedly of great reference value for both SEP holders and implementers.


Through our study of the Guidelines and some of the public instructions of the Guideline’s main contributors, we have summarized the following points:


1. Due to the lag of standards-adoption in Chinese industries, the Guidelines might also apply to SEPs of international and regional SSOs (standard-setting organizations);


2. The FRAND commitment should be expressly stated;


3. SEP holders bear the burden of proving that they have expressly stated the FRAND commitment. The standard of determining whether SEP holders have fulfilled their proof obligations is not strict;


4. The FRAND commitment is a unilateral legal act, rather than an offer, so the implementation of SEPs by implementers does not leat to the establishment of license contract;[5]


5. In principle, injunctions will not be issued unless implementers are at obvious faults;[6]


6. Whether it is the initial notice of infringement, statement of coditions for license, a reply or statement of new conditions, it is required to be made in written forms;


7. Principle of active consultation.


SEP holders shall comply with the principle of FRAND


In general, it is SEP holders who initiate licensing negotiations. The patentee shall follow the FRAND principle during the whole process of negotiation, including the initiative stage. Procedurally, the patentee should actively promote the negotiation, provide convenience for the negotiation and satisfy the reasonable requirements of the implementer, such as the requirements for reply deadline, negotiation time and place. In the entity, the patentee should put forward reasonable conditions for license, obviously unfair and unreasonable requirements should be avoided, such as unfair returns, unreasonable tying, and so forth.


In addition, some conventions in the industry should also be followed by the patentee. For example, a patent infringement comparison and analysis table should be sent when requested by implementers. When the implementer agrees to pay the royalty fee but disgree with the amount, he might propose an arbitration. If the patentee does not agree on the proposal of arbitration and file a lawsuit for patent infringement instead, then he is not considered to follow the FRAND principle. In another case, if the patentee put forward obviously unreasonable licensing conditions which deviate significantly from its patent value, and insists on his price quote, due to the particularity of SEP, he might be suspected of abusing its dominant position for his abuse of patent rights.


Implementers shall comply with the principle of good faith


According to the principle of good faith, implementers should actively respond in written forms to the notices, negotiation requirements, patent infringement comparison and analysis tables and licensing conditions proposed by SEP holders. They should not delay or refuse to negotiate on SEP licensing. Once a patent infringement comparison and analysis table has been received, an assessment should be made within a reasonable time. If the technologies used by potential implementers are very likely within the protection scope of SEP, but the conditions for licensing proposed by SEP holders are controversial, potential implementers can propose new conditions within a reasonable time. If the assessment indicates that the risk of infringement is small or the stability of the patent is poor, potential implementers can also explicitly inform patentees and provide preliminary instructions or evidence. If the implementer has been negotiating with the patentee based on the principle of good faith,even if the negotiation fails to reach an agreement, the patentee is not likely to get injunction relief from the Court. Moreover, based on the current courts’ attitudes, as long as the implementer actively request the mediation of licensing conditions or take the initiative to do the escrow when negotiation fails, his acts will be considered as bona fide. The court will take all of this into consideration when deciding whether injunctions should be issued.


Implementers should try their best to avoid some obviously negotiating faults. For example, implementers shall not delay on deciding time and place for negotiation which is requested by the patentee, neither excuse themselves with obviously unreasonable reasons. In a patent infringement case of Xidian Jietong v. Sony Mobile WAPI that has been finalized by the second instance, one of the reasons the court held that Sony Mobile was at obviously fault is that the two parties couldn’t decide whether the patent infringement comparison and analysis table or the confidentiality agreement should be sent first. The court held that, according to the convention, the confidentiality agreement should be signed first and then comparison table should be sent, and Sony's move was obviously faulty.[7]




Licensing negotiations between SEP holders and implementers can effectively avoid litigation if both parties are in good faith. In many cases, although the negotiation fails and lawsuit is filed, negotiations will continue in the litigation or after the litigation has ended. If the new round of negotiation fails, the litigation will resume and the process will proceed. As business entities, both parties have different goals at different stages, but at any time, the general rules of negotiation, industry practice and the principle of good faith should always be followed.


[1] The DVD3C Alliance was originally made up of Sony,Pioneer,Philips,and LG later joined. The alliance was dominated by Philips and has achieved great success globally.

[2] The DVD6C Alliance was originally formed by six companies in 1997, which included Hitachi, Panasonic, Toshiba, JVC, Mitsubishi Electric and Time Warner. Although the 6C alliance was established earlier, 6C's patent licensing activities in China are not successful compared to the 3C alliance.

[3] Refers to the French Thomson Corporation, whose influence in China was less than 3C’s and 6C’s at that time.

[4] In practice, the roles of the SEP holders and implementers are not always fixed. For example,in the cross-licensing negotiation, the SEP holder is also implementer; and the SEP holder in one project may be the implementer in another project.

[5] To address this issue, in addition to unilateral legal act thoery generally recognized by courts in judicial practice, there are also opinions on offer theory, invitation to offer theory, mandatory contract theory, and third-party benefit theory.

[6] At present, it’s quiet controversial about the understanding of the principle of injunction issuing among academic and practical fields. Many people believe that article 24 of the Interpretation (Ⅱ) established the principle of “ issue injunctions unless in exceptional cases”. Although the Guidelines quoted the provisions in the original text, it also adopted a series of supplementary provisions that seems to establish the principle of “not to issue injunctions unless in exceptional cases." In fact, I believe that this doesn’t necessarily lead to contradictory conclusions. From the first-instance, second-instance judgment of the highly-cited Xidian Jietong v. Sony Mobile WAPI patent infringement case, it seems that both the Beijing Intellectual Property Court and the Beijing High People's Court have applied injunctions with important support of implementer’s “obvious faults”.

[7]  "Since December 4, 2014, Xidian Jietong Company has agreed to provide a claim comparison table under the premise of signing a confidentiality agreement, but Sony China Company has emphasized that Xidian Jietong Company is required to provide claim comparison table without a confidentiality agreement. Xidian Jietong Company proposed various solutions for signing confidentiality agreements in order to promote negotiations, including re-interpretation of confidentiality agreements and simplification of procedures for extension of confidentiality agreements, but Sony China did not show the sincerity to promote negotiations. Specifically, Sony China stated on March 13, 2015 that “Sony Mobile cannot conduct any commercial negotiation with Xidian Jietong before it can fully evaluate the patents claimed by Xidian Jietong and determine that these patents are of reasonable value. Sony China ignored the negotiation process of the two parties for as long as six years, fully demonstrated that Sony China Company's request for Xidian Jietong to provide a list of claims is just an excuse to delay negotiations." - Quoted from Xidian Jietong v. Sony Mobile second instance judgment.

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