The Beijing IP Court has issued a landmark judgment I a SEP dispute between IWNCOMM and Sony. Guanyang Yao analyses the key points.

 

The patent at issue in this case is a method patent titled “A method for secure access and data authentication of mobile device in WLAN”. This method is implemented with three devices, a mobile terminal (MT), an access point (AP) and an authentication server (AS). The MT sends related certificates to AS via the AP for authentication and feedback, and if the authentication passes then communication starts. IWNCOMM sought protection for claims 1, 2, 5 and 6.

 

A first instance judgment in a high-profile standard essential patent (SEP) infringement dispute between IWNCOMM and Sony was issued by the Beijing IP Court on March 22, 2017. The patent is for the WLAN technology and is implemented in three separate devices, and the alleged infringing device is only one of those three. In this case, the Court analysed issues such as indirect patent infringement, exhaustion of use method patent right, FRAND obligations, an injunction in SEP litigation and the calculation of damages. The Beijing IP Court judgment will provide guidance for other SEP infringement cases in China.

 

In this case, as confirmed by both sides, the Patent is a SEP for WAPI function. The relevant standard is published on January 7, 2006. The defendant Sony confirmed during the legal proceedings that WLAN access steps by WAPI function of the accused mobiles phones were identical to the technical solutions of above four claims. Therefore, the judgment does not make a detailed comparison of technical features but focuses on whether patent infringement on the MT could be established based on a use method claim for cooperation of the MT, AP and AS, in the situation that the MT, AP and AS are separated devices and only the MT is accused of patent infringement.

 

Whether accused infringing products have WAPI function

Proof of infringement

The notable feature of this case is that the patented method covers three sides aspects; the MT (the accused infringing product), the AP and the AS. The whole solution cannot be implemented only by the MT. Therefore, the Court had to review the relevance and correspondence among the accused phones, the standard and the patent.

 

First, the standard is taken as a bridge to prove that the accused products are implementing the standard, and thereby having WAPI function. Then, the reasoning of the Court proves that the accused phone’s access into WLAN by enabling the WAPI function to use the same steps as the patent. Therefore, regardless of the correspondence between the standard and the patent, or the perspective of the technical solution of the accused phones falling within the scope of the patent, element-to-element correspondence between the accused phones and the patent is confirmed.

 

Specifically, the standard implemented in phones was admitted by the defendant, and not proved by the plaintiff’s evidence. During the court hearing, the defendant confirmed that, from 2009, cellphones had to pass a WAPI test in order to gain network access, meaning that the standard was mandatory in practice. The defendant also confirmed that all 35 models of phones that were accused products had WAPI function using the standard.

 

This self-admission by the defendant to a large degree originates from the mandatory standard in practice. Therefore, the WAPI function in the accused product is certain to correspond to the standard.

 

On the other hand, regarding WLAN access implemented by WAPI function in accused phones, not even considering the standard, both sides make two independent testing reports on four models of accused products by the State Radio Monitoring Center and the Testing Center to show that the accused products have WAPI function. During the litigation, the defendant further confirmed that when WAPI function was enabled, steps of access into WLAN of four models of accused phones were identical with those in claims 1, 2, 5 and 6. Such self-admission by the defendant further authenticated the positive correspondence between accused phones and the patent, which is equivalent to alleviating the burden of proof from the plaintiff.

 

Through the defendant’s self-confirmation, four models of accused infringing products with WAPI function to access into WLAN have been proved to fall within the scope of claim 1 of the patent. Since the defendant did not submit evidence to prove the other 31 models have special WAPI access steps, the court recognised that these other 31 models with WAPI function had fallen within the patented scope by reasonable presumption when they were accessing WLAN.

 

“reasonable presumption”

 

The term “reasonable presumption” is used several times in the judgment, demonstrating the attitude of Beijing IP Court to strengthen the protection of the use method patent. This also shows the application of a new “Obstruction of Evidence” system, which deals with the difficulty of producing evidence because of the lack of US-style discovery.

 

The application of reasonable presumption is probably based on the consideration that the practical mandatory standard has proved the 35 accused phones were following the standard recording the steps of accessing into WLAN steps via WAPI function. Then, even if no further comparison between the accused phone and the patent were made, 31 models of accused phones were certain to implement the steps for accessing into WLAN together with the AP and AS. Moreover, the defendant has confirmed that four models of accused phones adopted the related WLAN access solution, which is a starting point of such reasonable presumption.

 

In the situation that there was no contradicting evidence to prove any peculiarities in the access steps, it would not be unreasonable to consider the other 31 models of phones to be implementing patented WLAN access steps in cooperation with the AP and AS. In this logical line, the court itself is quite “reasonable” to apply this reasonable presumption, to protect the benefits of the patentee, making up for the lack of evidence on the plaintiff’s side and warning the defendant over its obstruction of evidence and delaying of legal proceedings.

 

DETERMINATION OF PATENT INFRINGEMENT

 

A core problem for judicial review was whether the accused infringing products would be sufficient to prove the defendant’s infringing acts, with the following sub-items: (1) whether the accused infringing products have WAPI function; (2) which acts could be regarded as using the patented method; (3) whether acts of implementing the WAPI function would infringe the patented use method; and (4) whether there would be exhaustion of right. In the judgment, the Beijing IP Court strengthens legal protection for use method patents.

 

Proving SEP infringement in practice

 

In certain circumstances, relevance among the accused products, the correlation between the standard and the patent would not be that certain.

 

Since standards formulated by international standard organization generally will not be accepted as national domestic standards in China in a timely way, for newly implemented standards, the plaintiff cannot produce evidence to prove its corresponding domestic version. In this situation, the plaintiff has the burden to produce evidence, and the defendant’s arguments will become powerful regarding other mature standards already introduced into China (for example WAPI standard in this case).

 

The Chinese legal system does not have regulations on international standards and the system for implementation of standards in China is not mature. From the perspective of being fair and reasonable, courts can assign a judicial appraisal institute to technically appraise accused products for fact finding, such as which telecommunication standards are adopted in phones and which detailed sub-versions are applied. In this case, both sides submitted testing reports with similar results and a technical investigator was involved to hear the case, meaning it would be reasonable for the court not to arrange further judicial appraisal. However, in some other situations, technical appraisal may be necessary to find the technical facts. Of course, the plaintiff generally does not seek such judicial appraisal because the legal proceeding would be prolonged. But this will also force the plaintiff to faithfully handle its right of launching lawsuits at least by preparing convincing and complete evidence.

 

Acts regarded as using the patented method

 

The most significant part of this case is that the three devices are physically separated and individually for sale, but the plaintiff is only claiming patent infringement for the MT. The question is that in the situation that the AP and AS are sold in an authorized commercial channel, what acts should be regarded as using the patented method and infringing the patent? The Court says that there are two acts of implementing WAPI function to access into WLAN.

 

Testing during development, manufacturing and checking

As to the use method patent, the act of using the method is intangible itself and cannot be directly shown to the court by physical evidence. For the plaintiff, according to the principle that the claimant bears the burden of proof, it would be difficult to prove that the act of using the method was practically and dynamically implemented by the defendant. If the defendant carries out this use method, the timing would be substantially during the development, manufacturing and checking process before marketing, the act would be testing the WAPI function to access into WLAN, and the location would only be in the factories or laboratories. However, all of the above is not available to the plaintiff for evidence collection. This causes a dilemma in evidence production.

 

In this case, the plaintiff is aware of this evidence dilemma, and files a request to the court to retrieve evidence. The court approves this request and orders the defendant to submit all the technical and testing documentation.

 

The standing of the court to help the plaintiff is to some degree influenced by the evidence of Management System for Quality Control: Requirements from the plaintiff. This evidence is a national standard, in which quality checking during design, development and manufacturing is regulated. Although this national standard is just for recommendation, the existence of this evidence means that the plaintiff has fulfilled the burden of proof and this evidence may prove that generally China is advocating enterprises to establish quality management systems. Even if an enterprise would not follow this standard, it would be reasonable for the enterprise to have an internal quality management system.

 

The plaintiff highlights this evidence to preliminarily prove the possibility of the defendant doing testing during the development, manufacturing and checking process, in which the WAPI function is certainly tested. Although some subjective speculation is involved by the plaintiff, such speculation is supported by such preliminary evidence. If there were no such evidence, it would be quite difficult to convince the court to issue the order to the defendant for evidence. Based on this evidence, the defendant admits that the testing work has been done and this testing work is only during the development process and especially on some models of the accused phones.

 

Based on evidence from the plaintiff and self-admission by the defendant, reasonable presumption is made by the court twice, first to extend WAPI function testing during development to the manufacturing and checking process, and second to extend the models of the accused products to all models. This double reasonable presumption is the application of the evidence obstruction principle, remedying the difficulty of evidence preparation in certain situations. The court thereby finds that the defendant has made WAPI function testing on all models of accused products during the development, manufacturing and testing process before marketing.

 

Using act after products are sold to market

 

Unlike the process before marketing, the time of putting products on to the market should be a starting point when users have access to accused products. It is easy to prove that the accused phones MT are able to cooperate with AP and AS by simply using MT with the other two, all of which enable the WAPI function to carry out the method steps to access WLAN.

 

In addition, it should be noted that the act of using but not the act of selling the accused products is involved. When accused products are sold, the seller is doing the act of selling, but not the act of enabling WAPI function to access into the WLAN. The object of the sale by the seller is tangible accused infringing products, but not the using act to enable WAPI function to access into WLAN. Therefore, the act of selling the accused products does not use the patented method by the WAPI function. However, the act of sale should still be considered as patent infringement as discussed below.

 

Will the act of implementing WAPI function infringe?

 

Testing act during development, manufacturing and checking process

 

As to the testing act during the development, manufacturing and checking process, the court decides simply from the technique itself that the testing act infringes the use method patent. The testing act in the above process means that the defendant itself uses the MT, AP and AS together, which covers all steps defined in the use method patent based on the all-element rule.

 

Although literal infringement has been decided, the injunction granted has only a limited influence on the defendants in China. This is because the object of the injunction is only the testing act, which is hidden inside the manufacturing process. It is difficult for the patentee or the public to monitor such hidden acts. If the court only issues an injunction on the testing act, infringers may still manufacture and sell accused products. Therefore, if the court only decides for literal infringement on the testing act, the patentee’s protection is relatively weak. In this case, not only does the court decide for literal infringement on the testing act, but also strengthens protection of the use method patent by deciding indirect patent infringement.

 

Manufacturing and sale acts constitute indirect patent infringement

 

As analyzed above, since acts of manufacturing and sale of accused products do not use the patented method, the major concern is whether such acts should be regarded as patent infringement. In this case, the court tends to provide strong protection to the use method patent owner by applying indirect patent infringement to affirm that the manufacturing and selling acts are “contributory infringement”.

 

Indirect patent infringement was established by the Supreme Court’s Patent Infringement Judicial Interpretation II in April 2016. Before that, the legal system in China only regulated “acts contributing to another’s tortious act” in Tort Law Article 9. There have been disputes over whether this article could be applied to patent infringement. Article 21 of the Judicial Interpretation clearly regulates the acts contributing to patent infringement to be the “indirect tortious act” prescribed in Tort Law.

 

However, the correlation between the existence of direct infringement and indirect infringement is not well established. There has been long discussion about this correlation, with two focuses: whether it would be necessary to prove the existence of direct infringement acts as a basis for indirect infringement, and whether all of the parties involved in direct infringement and indirect infringement should bear the liability of patent infringement.

 

(1)   As to whether it would be necessary to prove the existence of direct infringement” acts as a basis for indirect infringement

 

Under the principle that the claimant bears the burden of proof, it is necessary for the plaintiff to prepare all evidence proving patent infringing acts. However, for complicated products, the basis of direct patent infringement may be a technical solution covering all independent bodies to cooperate. For example, various manufacturers make different parts for assembly of the final infringing products. In this situation, the patentee needs to produce evidence related to all parties involved in patent infringement to prove direct patent infringement.

 

However, the patentee might expect to launch lawsuits against only one of the parties considering business relationships or difficulties of evidence production. For example, in a use method patent involving the cooperation of mobile phones and base stations, to follow the all-element rule, it is necessary for the patentee to prove not only operations at the mobile phone side but also from the base station side. In China, the base stations stations are controlled by three major communication operators and it is impossible for the patentee to enter controlled zones to collect evidence. In this situation, if the proof of existence of direct patent infringement is mandatory, it would not be advantageous to protect such a use method patent.

 

(2)   As to “whether all parties should bear the liability of patent infringement”

 

If all parties bear the liability, taking the base station as an example, one of three major telecommunication operators, as users of base stations, will have to be involved in the lawsuit as a defendant. Considering the power and social status of these operators, the plaintiff would be facing unimaginable pressure, risks and outcomes.

 

Apart from the situation of involving an unexpected defendant, there would be another scenario of no direct infringer and infringing acts. The Patent Law Article 11 clearly sets “for manufacturing and business purpose” as a precondition of patent infringement. However, as to a use method patent, generally only common consumers are able to carry out infringing acts and such common consumers are certainly not using mobile phones for “manufacturing and business purpose”, but for private use.

 

In this situation, there would be no direct infringers and infringing acts in the sense of patent law as a basis for patent infringement. If the basis of indirect patent infringement would be literal patent infringement, in the situation that there are no direct infringing acts or infringers, direct patent infringement itself could not be established, therefore providing no basis for indirect patent infringement. For example, in this case, after the accused phones are sold, only phone users have the chance to use the WAPI function to access into WLAN. Such use is private and should not be regarded as “for manufacturing and business purpose”, and is therefore not an appropriate basis for patent infringement. From this logical line, this case would lack direct infringers and direct infringing acts.

 

(3) Answers from Court

 

The Beijing IP Court gives answers in this case. As to “whether it is necessary to prove the existence of direct infringing acts”, the Court holds that in the situation that the “use in preset solution” of the accused infringing products can be proved to be existing in practice, the plaintiff shall be regarded as fulfilling the burden of proof and it would not be necessary to prove complete “use in preset solution” by strict evidence formality.

 

This in fact reduces the burden of proof for the plaintiff, considering the technical elements from an objective technical solution view. The difficulty of proving the fact of “use in preset solution” would be lower than that of proving dynamic acts of “the preset solution being practically used”. As to commercially available products, even Manual Operation Instruction can prove this “use in preset solution”. However, if “the preset solution being used in practice” is to be proved, at least testing devices are needed and a testing report shall follow.

 

Therefore, it is only necessary to prove that the use method is from the basis incorporated into the accused products, and not necessary to prove that the use method is actually operating in the accused products. In this situation, as to the above scenarios not appropriate or not possible for a lawsuit, the patentee may well fulfil the burden of proof by proving technical solutions to be objectively used in “preset manner”. It is not necessary for the patentee to point out who is infringing the patented method or by which acts.

As to “whether all of the parties involved in direct infringement and indirect infringement should bear the liability”, the Court holds that “for non-manufacturing and non-business purpose” should not be a reason for lack of direct infringers and direct infringing acts, regarding consumers’ situation, which otherwise would violate the original intention of protecting the use method patent right in theory. This interpretation by the court answers the question of whether indirect infringement would be established in the situation that infringers are common consumers.That is to say, even if consumers are regarded as not bearing the liability of patent infringement, the legal system should still protect use method patents, otherwise application of the law is rather inflexible, intentionally creating loopholes to weaken the protection of the use method patentee. Such opinions from the Beijing IP Court destroy the obstacles to determine patent infringement for use method patents with ordinary consumers as end users, strengthening protection of use method patents. Thereby, in this case although ordinary consumers are direct infringers using the WAPI function to access into WLAN, indirect patent infringement can still be established.

 

Further, the court also holds that since the WAPI function of the accused products is not set for other substantial use other than accessing into WLAN based on the patented method, the accused products belong to the category of “special product for carrying out the patent”. Thereby, the accused products are a special part to cooperate with the AS and AP to access into WLAN. This opinion of the court means that the using act of accused product is able to contribute to other devices to carry out the patented method, and the use method embedded in the accused products is one inevitable part of the whole technical solution.

 

This judgment is the first to apply Article 21 of the Judicial Interpretation. Whether its application is tenable shall be subject to a second instance appeal.

 

Exhaustion of patent right

 

One of the defence arguments was to claim exhaustion of patent right. The defendant provided evidence to prove the AP and AS devices are used for testing and purchased commercially from the plaintiff, with the aim of proving that even if the defendant has tested the method steps accessing into WLAN using WAPI function of the accused products, the AP and AS devices for testing are purchased with the plaintiff’s authorisation. Since the plaintiff sells AP and AS devices, the purpose of such sale must be certain for end users to use such AP and AS devices. In the situation where the complete technical solution defined in claim 1 of the patent covers the steps of using AP and AS devices, the patent right has been exhausted.

 

The Beijing IP Court did not accept the exhaustion of patent right argument. On the contrary, the Court held that “there would not be any exhaustion of patent right simply for use method patent or it would not be necessary to prescribe the exhaustion of patent right for use method patent, therefore, use method patent does not fall within the scope of exhaustion of patent right as regulated in China Patent Law”. The basis for this recognition is that the exhaustion of patent right regulated in China Patent Law Article 69 paragraph 1 item (I) does not cover a use method but only products or products obtained by the patented method. This opinion merits discussion. It seems a little bit simple and rough to exclude use method patent right from the scope of exhaustion of patent right by simply sticking to the literal text of the law without considering actual case situations. Exclusion of use method patent right would contradict common business knowledge. For example, if a manufacturer making a testing device is the owner of both a testing device patent and a use method patent for this testing device, the purchaser of the testing device would still not be allowed to use it after purchasing. Purchasers need to pay a licensing fee for the use method patent to use the testing device. Simply speaking, products purchased cannot be used in a legal way and need extra royalty for use, which violates the principle of fairness.

 

In this case, the defence argument was reasonable. The plaintiff was selling AS and AP devices and the defendant purchased them in a commercial channel, meaning the defendant was certain to use AS and AP devices after purchasing. The object of sale of the device is to allow the users to use. However, when the defendant is using them, such use is forbidden because the use method for AS and AP devices is not authorised, which seems to be a paradox.

 

However, from another perspective, such an injunction is also reasonable. In fact, AS and AP devices are not specially used to carry out only one technical solution of the patent, and they can be used individually in other situations in which using AS and AP devices has exhausted the patent right. When AS and AP devices are used in a particular solution defined in the patent, the AS and AP together with the MT constitute another special new device combination. Accordingly, the use method solution defined in the patent corresponds to a set of devices by nature in combination. This combination contains the accused mobile phone MT, commercially sold AS and AP and operations among these three devices. The right to use, which is necessary for the defendant should be the right to use the set of devices in combination. The separate right of using individual AS and AP devices as obtained by the defendant when purchasing these devices naturally cannot cover the right of using the whole set of devices in combination.

 

This interpretation of the exhaustion of patent right is a new theory by the Beijing IP Court and strengthens the protection for the use method patent. In some sense, a use method patent should be even better than a device patent since there is exhaustion of right for device patents while there is no such exhaustion for use method patents. Could this interpretation be supported by the Beijing High Court at the second instance appeal?

 

FRAND issues

 

Another core problem in this case was the discussion about whether an injunction could be issued in SEP litigation covering several sub-items: (1) how to apply an injunction in the four situations that each side involved in the patent licensing negotiation may have or not have fault; (2) whether patent infringement could be determined when the patent is incorporated into a national compulsory standard and the plaintiff has committed FRAND obligations; (3) how to evaluate behaviours of two sides (plaintiff and defendant) in a patent licensing negotiation. In the current Chinese legal framework, two critical elements should be reviewed when the court is deciding the application of an injunction in SEP litigation: one is whether the patentee would be in violation of its commitment of FRAND obligations, the other is whether standards users had evident fault during the patent licensing negotiation.

 

Four situations

 

According to the Judicial Interpretation II Article 24, the court generally shall not apply an injunction in a situation where the patentee has fault and the user of the standard has no evident fault. Article 24 only regulated the application of injunctions in one situation. As to the other three situations, this Interpretation is empty, waiting for further consideration based on particular cases in the legal practice. In this situation, the Beijing IP Court distinguishes four situations related to each side’s fault for the first time in China:

1) no faults on either side, then no injunction;

2) fault for the patentee, no fault for the standard user, then no injunction:

3) no fault for the patentee, fault for standard user, then injunction (as in this case); and

4) faults on both sides, then injunction decided based on respective degree of faults of the patentee and the user to balance benefits.

 

As to (1) and (2), the consideration of no injunction is that the court is worried about the patentee’s abuse of SEP right from the injunction, which is not favourable to promote implementation of the standard; as to (3), the court is worried about patent anti hold-out from the user to the patentee without injunction, which is not favourable to protect the patent right. This complies with most opinions of judges in China.

 

As to the application of the injunction, the basic mind in China is to balance benefits of both sides during patent licensing negotiations, along with public interests, to be compliant with FRAND obligations. In this case, the Beijing IP Court reviewed correspondence of both sides during patent licensing negotiation, thereby applying an injunction based on the fault of the defendant and non-fault of the plaintiff, which was the third scenario set out above.

 

National compulsory standard

 

The question whether the patent infringement could be determined when the patent is incorporated into national compulsory standard and the plaintiff has committed FRAND obligations has already been solved by Article 24 paragraph 1 of the Judicial Interpretation II.

 

The court held that elements to constitute patent infringement shall not vary by patent type. Therefore, even if users of standards are compelled to follow national standards, such implantation of standards will generally still be regarded as patent infringement. This regulation favours the patentee because the manufacturer of products has to use this patented technology to make the products comply with compulsory standards, without the possibility of finding a way to design around to avoid SEPs. However, on the other hand, the SEP owner should be committed to FRAND obligations to ensure standard users can withstand a royalty in the long run, along with a certain economic return.

 

In this case, the plaintiff had declared FRAND obligations. But this does not mean that the patentee allows standard users to carry out the patent for free, and should not be regarded as agreement by the two sides on patent licensing. Therefore, the court holds that the plaintiff ’s FRAND obligation shall not be defence arguments for non-infringement.

 

Evaluating each side’s behavior

 

In the current legal framework in China, there is no regulation of patent licensing negotiation. Therefore, considerations are generally made based on the FRAND principle. In the legal practice in China, mainstream elements include: delay in the negotiation process, unreasonable lowering of royalty, refusal of paying royalty as agreed, no presenting of claim charts, unreasonable royalty calculations, royalty stacking.

 

In this case, both sides submit as evidence correspondence that happened before the lawsuit, in order to reflect what really happened during licensing negotiations. As known from the correspondence, whole patent licensing negotiation lasted six years from March 2009 until March 2015. In the years 2009, 2012 and 2014, there was continuous discussion between both sides.

 

Looking through all the correspondence both sides dispute whether the plaintiff should provide claim charts and whether a confidential agreement should be signed with claim charts. Since the plaintiff claims for patent licensing, the plaintiff must provide sufficient reasons in detail, while the plaintiff believes that there would be risks if the claim charts are provided to the other side, and therefore is not willing to do so. The plaintiff only gives a conclusive claim, namely that the defendant’s products followed the WAPI standard, causing patent infringement. Since the plaintiff did not provide detailed reasons, the defendant believed that it should not have to prove patent infringement. Therefore, the defendant pointed out that no patent infringement should be recognised and intended to close the negotiation. The plaintiff certainly was not satisfied with this result, and then had to step back to provide claim charts. However, there was still one precondition set by the plaintiff, which was to sign the confidential agreement. Thereby, the defendant found that the claim charts seemed to be weak point of the plaintiff, and continued to pursue claim charts in the name of the confidential agreement. These short claim charts became bombs for the dispute. The defendant and the plaintiff strategically fought back and forth just for this claim chart.

 

Based on these facts, the Beijing IP Court stands for the patentee one more time. The court holds that “it was not necessary to provide such claim charts, especially in the situation that people carrying out the patent are able to evaluate patent infringement based on existing condition”. The court further believes that during the negotiation, for skilled people, the patent list, licensing agreement and WAPI technology themselves are enough to assist the defendant to find the patent infringement, not necessarily requiring claim charts. The act of the defendant asking for claim charts all the time is “evidently intentional to delay the negotiation”. these opinions from the court are substantial analysis of the defendant’s incentives. Especially in a situation of confidential agreement, an intention to delay the negotiation is more evident. Therefore, the court decided that the defendant in this case, a standard user, was at fault, by delaying the negotiation and applied an injunction.

 

FRAND issues in this case do not involve other types of fault and are therefore relatively easy to understand.

 

Damages calculation

 

In legal practice in China, calculation on damages for patent infringement cases has long been a difficulty. In lack of US style “discovery”, it would be almost impossible to force the defendant to provide evidence proving profits caused by infringement. Moreover, there is no sophisticated method in China to calculate the value of the patent. Therefore, the damages in the patent infringement cases in China have long been at low level. Law makers in China are striving to solve the problem of low damages. For example, “obstruction of evidence” is regulated in “Patent Infringement Judicial Interpretation II” Article 27, which prescribes that in the situation that the patentee provides preliminary evidence to prove profits of the infringer, the court has the authority to order the infringer to provide financial books and materials, otherwise the court may decide the damages based on the patentee’s claim and evidence. In addition, “Patent Infringement Judicial Interpretation II” Article 27 clearly regulates the considerations on damages in SEP litigation cases, including innovation level of the patent, role of the patent in the standard, the field, property, scope and related licensing conditions of the standard and so on.

 

In this case, the consideration of Beijing IP Court is on patent licensing rate (1 RMB/piece) between the plaintiff and the outsiders and quantity of accused phones obtaining network approval provided by the defendant, based on which the royalty is calculated. Further, the court considers the Patent to be basic core patent in WLAN security field (role of the patent in the standard), related awards in technology field (innovation level of the patent), incorporated into national standard (innovation level of the patent), therefore the court decides the damages on 3 times of the royalty.

 

Although the damages are calculated based on 3 times of royalty, such calculation does not mean punishment. In this case, there are no scenarios such as intentional infringement or repetitive infringement, and no framework on punitive damage is established. “3 times” is still within “reasonable scope” as regulated in Patent Law Article 65, over average level at most.

 

However, the calculation basis “licensing rate 1 RMB/piece” is worth discussion. Although the court considers 4 licensing agreements, from further analysis, it could be seen that these licensing agreements are put on whole patent packages. One agreement is made for one patent package and the respective packages are different from each other. There are patents and patent applications in each patent package. However, the weight of the patent in this case in each agreement, the importance of the patent in this case with respect to other patents or patent applications, are not considered. The court generally regards the royalty rates of 4 different patent packages as the basis to calculate the royalty for one individual patent in this case, which somewhat seems to be “simple and rough” and not convincing. Even so, this damage is still to some degree “favorable to” the defendant, because the damages claimed by the plaintiff at the filing of the lawsuit is about 33 million RMB, but the final decided damages are only approximately one fourth of this value.

 

As to costs such as the attorney fee by the plaintiff, the court decides for the whole amount of above costs based on invoices from the plaintiff. Especially the attorney fee 0.4 million RMB is on the highest level supported by the courts in China. Averagely, the attorney fee would be only about 50k RMB in China. Beijing IP Court is friendly to attorneys. In another patent infringement case just several months ago, Beijing IP Court decides 1 million for the attorney fee.

 

About the author:

Mr. YAO joined Liu, Shen & Associates in 2005, specializing in patent service including patent prosecution, patent re-examination, patent invalidation, patent infringement and administrative litigation, and client counseling with a focus on Mechanical Engineering, Vehicle Engineering, Heavy Engineering, Daily Necessities, Medical Devices, Telecommunication, and Design. Mr. YAO was qualified as a patent attorney in 2006 and an attorney at law in 2008. He has participated in several patent lawsuits including patent infringement litigation, patent invalidation, and patent administrative litigation. He also specializes in all fields of patent services including patent licensing counseling, patent invalidation and pre-litigation analysis.

 

Mr. YAO obtained his bachelor degree in jet propulsion and master degree in information system from Beijing Aeronautics and Astronautics University (BUAA) in 2002 and 2005. He obtained a Master of Law degree (LLM) with Honor from The John Marshall Law School in the United States in 2015. Mr. YAO also obtained a Master of Law degree majoring in Civil Law from China University of Political science and Law in 2017.

 

This article has been published on MANAGINGIP.COM MID-YEAR 2017 “The Global IP Resource”