Patent Litigation in Mainland China

If your enterprise is alleged to have infringed a Mainland Chinese patent, what would you do if you are the enterprise's in-house counsel, having analysed the facts in context? The patentee might approach your enterprise with a view to negotiating a fair, reasonable and non-discriminatory (FRAND) licence for your enterprise, and you might ask the patentee to justify its claims and the amount of royalties payable. If the patentee asks you to execute a non-disclosure agreement on behalf of the enterprise before doing so, would you accept or decline?

In parallel, you may consider trying to revoke the patent on ground that it should not have been granted in the first place. If the Mainland China Reexamination Board upheld the patent, you might still hold the view that if there is no patent infringement and your enterprise does not need any patent licence. And if the enterprise is sued, you may think that your enterprise has a good defence.

In 2005, IWNComm was granted a standard essential patent (SEP) ZL02139508.X ("...a method for the secure access of the mobile terminal to the Wireless Local Area Network (WLAN) and for secure data communication via wireless link...") on WLAN Authentication & Privacy Infrastructure (WAPI) - the wifi-substitute standard adopted as Mainland China's compulsory testing standard for devices to get access to the Internet on Mainland China and be sold there since 2003. IWNComm filed suit against Sony Mobile Communications (China) with the Beijing Intellectual Property Court in July, 2015.

The Court, assuming its jurisdiction and applying a general fault principle, ruled on March 22, 2017 that Sony had infringed the Mainland Chinese patent, granted a permanent injunction stopping the defendant from selling the infringed products. As to damages, the Court, basing on the sales data from the Ministry of Industry and Information and the royalty rate charged by the patentee in four licences, ordered the defendant to compensate the patentee at a rate of three times of the comparable royalties charged amounting to around RMB 9 million.

If the trial court's judgment is not based on trite law, you may like to appeal to Beijing's Higher People's Court, possibly focusing on the exhaustion of rights issue arguing Article 69 of the Mainland Chinese Patent Law - not be deemed to be patent infringement, should apply to patented method as the product were purchased chipsets with the WAPI module in Sony mobile phones. I believe the appeal Court would also take judicial notice of Article 131 (not being deemed as infringement) of the new Beijing High People's Court's Guideline for Patent Infringement Determination (April 20, 2017) ie "(4) After the patentee of the process patent or its or his licensee sells an equipment specially used for exploiting the patent process, anyone using the equipment to exploit this process patent" - as the defence of no patent infringement!

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