Developments of SEP Cases in China

12 Dec 2022 | Newsletter

Guanyang YaoLiu, Shen & Associates, China
Xiaoning YuLiu, Shen & Associates, China

China is becoming a preferred battlefield for SEP cases worldwide. Since 2020, 4 anti-suit injunction rulings were issued in Huawei v. Conversant, Xiaomi v. IDC, Samsung v. Ericsson  and LENOVO v. Nokia cases, and 3 jurisdiction opposition rulings were issued in ZTE v. Conversant, OPPO v. Sharp and OPPO v. Sisvel cases. Among those 4 anti-suit injunction rulings, 3 cases were successful while the request for an anti-suit injunction in LENOVO v. Nokia case was rejected by Shenzhen Intermediate Court, with the reason being that because the disputes between Lenono and Nokia regarding overseas injunctions were still pending, the court could not evaluate whether the request for anti-suit injunction had met the legal requirements. The jurisdiction oppositions in all 3 cases were rejected, confirming the jurisdiction of Chinese courts on such cases. After these rulings, settlements were reached between ZTE and Conversant, OPPO and Sharp and OPPO and Sisvel, to end patent disputes worldwide.

In April 2022, the Shanghai High Court released news about a SEP litigation between Siemens AG v. Xiaomi. The royalty of standard essential patents involved in the case was calculated through a “top-down approach” and the defendant was ruled to compensate over RMB 12 million. In June 2022, the Chongqing First Intermediate Court publicized the cases between OPPO and Nokia and Vivo and Nokia, which are also related to royalty rate setting. The flourishing number of SEP litigation results from great developments in telecommunication companies in China and also the huge market in China for manufacturing and selling phones. The Supreme Court is encouraging Chinese courts to handle such SEP cases more actively, so that the strength and confidence of Chinese courts could contribute to building SEP management frameworks worldwide.

Some characteristics of Chinese courts handling SEP cases can be observed from these prior rulings. Regarding jurisdiction opposition, courts believe that SEP licensing disputes are rather special, involving the determination of patents essentialities on SEP standards, implementation of patents and patent validity on the one hand, and divergences on licensing conditions during negotiations on the other hand. In view of this, courts hold that connections would include the country where patents are granted, the place to implement patents, the place to sign contracts, and the place to perform contracts. Only if one of the above acts takes place in some city in China, can the jurisdiction be established in the court covering this city.

Another issue attracting attention is the royalty setting, global rates or local rates. The courts generally believe that global rates can not only provide packaged and cost-effective solutions for disputes not yet solved by rounds of negotiations, but also to a maximum degree reduce litigation exhaustion and conflicts of jurisdiction caused by parallel litigations in various countries or regions. Therefore, global rates is favourable to resolve the dilemma of determining the licensing scope and eliminate interferences and repetitive lawsuits, achieving the ultimate goal of reaching reasonable agreements.

The most important factors in the evaluation of anti-suit injunctions include irreparable harm and the balance of interests of both parties. On the evaluation of an anti-suit injunction, irreparable harm to plaintiff are a must to consider. The scope is rather broad, including physical harm on materials and intangible harm on business opportunities, market and economic interests and litigation interests, no matter in China or foreign countries. It is generally believed that if the harm is able to be compensated by money, then there should not be such irreparable harm. The proof is also not difficult and even possible just by reasoning. Regarding harm to the other side due to an anti-suit injunction, emphasis is mainly laid on the suspension of the request of the other side for the enforcement of foreign judgements.