“Significant Development in SEP Enforcement and Licensing: Analysis of the Supreme People’s Court Judgment in ACT vs. OPPO Case”
In a landmark ruling, the Supreme People’s Court (“SPC”) of China recently delivered a second-instance judgment in the case of Advanced Codec Technologies, LLC (“ACT”) vs. OPPO Guangdong Mobile Communications Co., Ltd. (“OPPO”) for infringement of standard essential patents (SEPs). The judgment marks a significant development in the legal landscape of SEP enforcement and licensing in China.
The case revolved around six Chinese patents related to AMR-WB, an audio codec technology. Since 2014, numerous global smartphone manufacturers have recognized the market value of AMR-WB patent technology and successively reached licensing agreements with ACT or its affiliates. However, in 2018, after protracted licensing negotiations, ACT filed lawsuits over the infringement of SEPs against OPPO, Vivo, Xiaomi, and TCL.
The SPC’s ruling provided approaches and guidelines for resolving several issues related to SEP licensing and other disputes that are of great interest to the industry. These include the determination of SEP infringement, setting of licensing rates, assessment of the degree of fault of the parties involved, and the calculation of compensation for SEP infringement.
This judgment is a pioneering one in guiding SEP holders and technology implementers in conducting FRAND (Fair, Reasonable, and Non-Discriminatory) licensing negotiations and resolving related infringement disputes. It significantly enhances the predictability of outcomes in FRAND licensing negotiations and dispute resolutions in China. Moreover, this ruling is particularly important in the context of the evolving global technology landscape, where SEPs play a crucial role.
In its judgment, the SPC responded to several issues related to FRAND licensing and dispute resolution that have long been of concern in the industry. It clarified that in SEP infringement cases, even if the rights holder has proven that the patent in question is an SEP and that the infringing product follows the relevant standard, concluding its technical solution falls within the scope of the patent protection, if the alleged infringer can prove that the patented technical solution is not itself implemented in the infringing product in the real world, then infringement is not established.
The SPC also provided guidelines on the determination of licensing rates, adopting the “comparable license approach”. This approach reflects market pricing and is based on the result of genuine negotiations and voluntary consensus reached through business discussions. The SPC believes that the licensing rates determined through negotiation can relatively objectively, fairly, and reasonably reflect the market value of the licensed patent technology at the time of signing of the agreement.
The SPC also clarified the factors to consider when selecting comparable licensing agreements. These include the context of the licensing negotiations, the similarity of the licensing entities, the similarity of the licensed patents, and the similarity of the licensing terms.
The judgment also addressed the determination of parties’ fault in contracting. The SPC clarified that the negotiating behavior of the SEP holder and the implementer during the process of negotiating licensing terms, as well as whether there was fault and the degree of fault for not reaching an agreement on licensing terms, are not statutory factors to be considered when determining the reasonable multiplier for calculating damages based on royalty according to the patent law.
The SPC’s ruling in this case is a significant advancement in enhancing the predictability of FRAND licensing negotiations and dispute resolution in China. It sets an important and pioneering precedent for SEP licensing in the country. As an increasing number of Chinese companies transition from technology followers to leaders in the telecommunications industry, China’s role as a key site for both technological innovation and implementation is growing in importance on the global stage. Therefore, when conducting SEP licensing in China, both licensors and licensees should adhere not only to the universal principles of fairness, reasonableness, and non-discrimination, but also develop more targeted licensing and litigation strategies within the context of Chinese licensing practices and legal frameworks.