Exploitation of patents in industry standards

Rouse

John Wu

[email protected]

Patent owners often 'bury' their patents in industry standards, especially the compulsory ones. However, until now, no formally effective laws and regulations in this nation have set up a rule as to how to assess liability arising from the exploitation of patents through compliance with industry standards. Further instructions and information, however, can be found in the informal opinions of China's Supreme People's Court (SPC) and regulations described below, as well as previous judgments.

Draft judiciary interpretations and regulations

In an attempt to establish a uniform criterion in this regard, the SPC published a draft-for-comments version of the Interpretation on Several Issues regarding the Application of the Law in the Adjudication of Patent Infringement Cases on June 18 2009. Article 20 provided the relevant rules. But in the final version of this interpretation, promulgated on December 28 2009, this Article is missing. This is most probably due to the existence of a later draft-for-comments document – the Provisions on the Administration of Formulating and Revising National Standards Involving Patents (the Provisions) – published by China's Standardisation Administration on November 2 2009.

The draft Provisions principally comprise the following informative instructions for both the patent owner and the user of the standards. In general, it provides that any person (including the patent owner) is required to disclose any patent known to that person to be involved in a standard. This must be done in a timely manner to the technical committee (TC) in charge of standard formulation. If the patent owner and its affiliates participating in standard drafting fail to make a disclosure as required, a royalty-free licence will be deemed to have been granted. Further, if they conceal the patent information intentionally and thus cause any loss to the formulation or implementation of the national standard, they will assume legal liabilities accordingly.

The patent owner has three options when required to make the statement:

1) grant a royalty-free licence on a reasonable and non-discriminatory basis;

2) grant a licence on a reasonable and non-discriminatory basis at a price significantly lower than the customary royalty; or

3) refuse to grant a licence of the patent by either way above, in which situation provisions involving such patent will not be included in that national standard.

However there are still certain pending issues that are not clarified by the draft Provisions:

1) Whether the patent owner is also required to make similar compulsory disclosure when participating in the formation of a local standard;

2) The liabilities of patent owners who fail to make the required disclosure; and

3) Will a compulsory licence be granted if a patent is involved in a standard but the patent owner is not informed of this during the formation of the standard?

In addition, the patent owner may be more inclined to accept a compulsory licence at least at a 'reasonable' licence fee, rather than grant a licence to use the involved patents under a “price significantly lower than customary royalty” as required in the draft Provisions.

Prior judgments

On May 22 2007, Guangxi Zhuang Autonomous Region High People's Court confirmed in an appeal judgment that the defendant's use of a valid patent involved in national compulsory standards without the consent of the patentee plaintiff constituted patent infringement. This was despite the infringer manufacturing medicines being in compliance with the standard.

On August 8 2008, the Hefei Intermediate People's court affirmed that the user of a valid patent was liable to pay damages to the patentee if he used the patent without the patentee's consent, even if the user 'had to' use the patent for compliance with a standard.

In July 2008, the SPC provided an informal reply to the Liaoning Provincial High People's Court (the Reply). It stated that as no related rules and regulations have been established in China, if the patent owner participates in the formation of a standard – or with the patent owner's consent certain patents are involved in a standard – he or she no longer has the right to sue any third party who employs that standard for patent infringement. However, the patentee can ask for a certain amount of fees which, nevertheless, will be substantially lower than normal licence fees.

Further instructions for the future

It is most probable that all courts will comply with the principles reflected in the Reply before the final version of the Provisions is promulgated. However, as the Reply is not a formally promulgated interpretation and was provided only as guidance in the Liaoning case, the final Provisions will probably replace the Reply. Therefore, both the patentee and the prospective user of a standard need to pay close attention to the final version of the Provisions. Furthermore, another regulations document named the 'Rules for Handling the Involvement of Patent in National Standards' has also been announced. This has further specific procedural requirements regarding patent information disclosure and patent licence statement. It does not however indicate the answers to the questions mentioned above.