June 2024
Yanting Pei and Teresa Huang
In the previous article, we mainly analyzed how to defend against patent infringement in general situations. In the defense of non-infringement of patents, there is also a special situation that involves STANDARD ESSENTIAL PATENTS (SEP). Generally speaking, if the patent implementer, while adhering to the principle of good faith, makes all reasonable efforts to lawfully implement the patent but fails, there is still an opportunity to request exemption from liability for patent infringement. However, in such cases, the implementing party needs to ensure that their actions are not at fault. Therefore, this article also provides a brief analysis for readers to refer to.
I. How to determine whether it constitutes a SEP?
The so-called SEPs refer to the patents that must be used to implement technical standards, as outlined in the “Beijing High People’s Court Patent Infringement Determination Guidelines (2017)” (hereinafter referred to as the “Beijing High Court Infringement Determination Guidelines”). The patent itself represents a technical standard, and failure to implement it may result in the technical standard not being met.
According to Article 24 of the Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Patent Infringement Disputes (II) (2020 Amendment) (hereinafter referred to as the Judicial Interpretation II[1] of the Supreme People’s Court), the standards here mainly refer to recommended national, industry or local standards. In the Beijing High Court Infringement Determination Guidelines, it is also pointed out that standards formulated by international standard organizations or other standard-setting organizations can be included. However, in judicial opinions in Shanghai, Jiangsu, Guangdong, and other regions, it is not clear whether standards formulated by international standard organizations or other standard-setting organizations are equally applicable. If such jurisdictions are involved, further confirmation of the scope of the standards may be necessary.
II. Under what circumstances can we request to continue implementing the SEP?
According to Article 24 of Judicial Interpretation II of the Supreme People’s Court, if a recommended national, industry, or local standard clearly states the necessary patent information involved and the accused infringer argues that the implementation of the standard does not require the patent owner’s permission and does not infringe on the patent right, the people’s court generally does not support it. Therefore, even if the patent must be implemented for the purpose of implementing standards, the first step is to obtain permission from the rights holder before implementation. Of course, if the patentee knows that their patent will become a standard but fails to disclose it, unless it is required by law that the patent must be implemented in the form of a standard, the people’s court may determine that the patentee authorizes others to implement their patent while implementing the standard but still needs to pay the corresponding licensing fee[2].
In the process of requesting permission, if the right holder intentionally violates their fair, reasonable, and non-discriminatory licensing obligations as promised in the standard formulation, leading to the failure to reach a patent implementation license contract, and the accused infringer bears no clear fault in the negotiation, according to the Judicial Interpretation II of the Supreme People’s Court, the court typically does not uphold the right holder’s request to cease the standard implementation behavior.
Generally speaking, only when the implementing party has made all efforts to facilitate the achievement of the implementation license contract but still fails, can they request not to stop the implementation of the standard essential patent. Article 150 of the Beijing High Court Infringement Determination Guidelines states that in the licensing negotiations for SEP, the negotiating parties should conduct licensing negotiations in good faith, and the patentee who makes a fair, reasonable, and non-discriminatory licensing declaration should fulfill the relevant obligations under the declaration. The accused infringer who requests the patentee to grant a license on fair, reasonable, and non-discriminatory conditions should also actively negotiate in good faith to obtain the license. In other words, any party that engages in negotiations based on the principles of good faith can be considered faultless. What is the principle of good faith?
III. How can we determine if both parties involved in the standard essential patent license have adhered to the principle of good faith?
According to the “Beijing High Court Infringement Determination Guidelines” and the “Judicial Interpretation II of the Supreme People’s Court”, it is evident that the rights holder must ensure they have met the obligations of fairness, reasonableness, and non-discrimination (referred to as the “FRAND” principle). On the other hand, the implementer needs to verify if they have no clear faults in the negotiation process.
A. How can one determine if the obligations of fairness, reasonableness, and non-discrimination have been met?
According to Article 152 of the Beijing High Court Infringement Determination Guidelines, if any of the following circumstances occur, it can be determined that the patentee intentionally violated the fair, reasonable, and non-discriminatory licensing obligation:
1. Failure to notify the accused infringer in writing of patent infringement, and failure to specify the scope of patent infringement and specific infringement methods;
2. Failure to provide patent information or specific licensing conditions to the accused infringer in writing, in accordance with commercial and transaction practices, after the accused infringer has clearly expressed their willingness to engage in patent licensing negotiations;
3. Failure to provide a response deadline that complies with commercial and transaction practices to the accused infringer;
4. Obstructing or interrupting license negotiations without reasonable cause during the negotiation of the implementation license conditions;
5. Advocating obviously unreasonable conditions during the negotiation of the patent implementation license process resulted in the inability to reach a patent implementation licensing contract;
6. Other obvious faults in the licensing negotiation.
In addition, there are similar provisions in the “Guidelines for the (Trial) of Standard Essential Patent Dispute Cases “(hereinafter referred to as the ” Guidelines of the Guangdong High Court”) issued by the Guangdong Provincial High People’s Court in 2019.
B. How can one determine if there are any obvious faults in the negotiation?
According to the Beijing High Court Infringement Determination Guidelines and the Guidelines of the Guangdong High Court, if any of the following behaviors are committed, it can be determined that the accused infringer has obvious fault in the SEP license negotiation process[3]:
1. Failure to respond positively within a reasonable time after receiving a written notice of infringement from the patentee;
2. Failure to actively respond within a reasonable time to whether or not to accept the licensing conditions proposed by the patentee after receiving written licensing conditions from the patentee, or failure to propose new licensing conditions when refusing to accept the licensing conditions proposed by the patentee;
3. Obstructing, delaying, or refusing to participate in license negotiations without valid reasons;
4. Advocating obviously unreasonable conditions during the negotiation of implementation license terms resulted in the inability to reach a patent implementation license agreement;
5. Other obvious faulty behaviors in the license negotiation.
C. If both parties are at fault, what should be done?
According to Article 153 of the Beijing High Court Infringement Determination Guidelines, if the patentee fails to fulfill their fair, reasonable, and non-discriminatory licensing obligations, but the accused infringer also has obvious faults in the negotiation, the court generally analyzes the degree of fault of both parties and determines the party who bears the main responsibility for the interruption of licensing negotiations before deciding whether to support the patentee’s claim to stop the standard implementation behavior.
In addition, according to the Guidelines of the Guangdong High Court, when assessing the subjective fault of all parties based on commercial practices, the court’s review includes: (1) the overall negotiation process between the parties; (2) the timing, method, and content of negotiations among the involved parties; (3) the reasons for any interruptions or deadlocks in negotiations; (4) other relevant factors. If both the patentee and the implementer are at fault during negotiations, considering aspects such as the extent of fault of each party, whether remedial measures have been implemented, the impact of the fault on the negotiation process, and the connection between the fault and the breakdown of negotiations, the court may ultimately decide not to support the request to halt the implementation of the SEP.
D. If neither party is at fault, what should be done?
In practice, besides situations where both parties are at fault, it is also possible that both parties are not at fault, making it difficult to reach a consensus on the implementation conditions. In this case, either party may request the people’s court to make a determination. According to Judicial Interpretation II of the Supreme Court, when determining the conditions for implementing a license, the court should take into account the principles of fairness, reasonableness, and non-discrimination, and comprehensively consider factors such as the degree of innovation of the patent and its role in the standard, the technical field to which the standard belongs, the nature of the standard, the scope of standard implementation, and relevant license conditions. From the provisions of Part III of Guidelines of the Guangdong High Court, the methods for determining the SEP licensing fees can be referred to as follows: (1) referring to comparable licensing agreements; (2) analyzing the market value of the SEP for the involved standards; (3) referring to license information in comparable patent pools; (4) other methods. Due to space limitations, this article will not delve into further discussion here.
IV. Compliance recommendations
In summary, when facing SEP, if the enterprise is the implementing party, regardless of how the other party provides feedback, it should actively seek permission; otherwise, it may still be recognized as an infringement. It cannot be directly implemented just because the other party owns a SEP. From the perspective of the right holder, it should disclose the standard patent information in a timely manner and actively negotiate with the other party to determine the implementation conditions in accordance with the principles of fairness, reasonableness, and non-discrimination; otherwise, it may be determined to be a monopoly.
[1] Article 24: If a recommended national, industry, or local standard explicitly states the necessary patent information and the accused infringer argues that the implementation of the standard does not require the patent owner’s permission, the court typically does not support this argument.
If the recommended national, industry, or local standards clearly indicate the necessary patent information and the patentee and the accused infringer negotiate the implementation license conditions of the patent, the patentee intentionally violates its promised fair, reasonable, and non-discriminatory licensing obligations in the standard formulation, resulting in the inability to reach a patent implementation license contract, and the accused infringer has no obvious fault in the negotiation, the people’s court generally does not support the claim of the right holder to stop the standard implementation behavior.
The implementation license conditions referred to in the second paragraph of this article shall be determined through consultation between the patentee and the accused infringer. If a consensus cannot be reached after full consultation, the people’s court may be requested to determine. When determining the above implementation licensing conditions, the people’s court shall, based on the principles of fairness, reasonableness, and non-discrimination, comprehensively consider factors such as the degree of innovation of the patent and its role in the standard, the technical field to which the standard belongs, the nature of the standard, the scope of standard implementation, and relevant licensing conditions.
If there are other provisions in laws and administrative regulations regarding patents in the implementation standards, those provisions shall prevail.
[2] Please refer to Article 5.7 of the Guidelines for the Trial of Patent Infringement Disputes by the Higher People’s Court of Jiangsu Province. In addition, according to the Anti-Monopoly Guidelines on the Field of Standard Essential Patents (Draft for Solicitation of Opinions), individuals who knowingly establish standards but fail to disclose them may also be deemed as monopolies.
[3] Refer to Article 153 of the Beijing High Court Infringement Determination Guideline and Article 13 of the Guidelines of the Guangdong High Court.
Related Articles
- Series Articles of Patent Protection Practice (1) ─ Introduction to the Scope of Protection of Patent Rights and Patent Layout (Mainland China)
- Series Articles of Patent Protection Practice (2) ─ Brief Analysis of the Attribution of Patent Rights in Service Invention and Cooperative Development (Mainland China)
- Series Articles of Patent Protection Practice (3) ─ A Brief Analysis of Disputes in Patent License Contract (Mainland China)
- Series Articles of Patent Protection Practice (4) ─ Determination of Patent Infringement (Mainland China)
- Series Articles of Patent Protection Practice (5) ─ Defense of Patent Infringement (Mainland China)
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