Court finds IP licensing violates Anti-monopoly law

Few details are available, as the official decision has not been published. However, InterDigital summarised the rulings in securities filings and several of the judges wrote an article in an official journal of the Ministry of Information and Industry describing the litigation. These sources shed light on the Court's approach.

The Court considered each of InterDigital's standard-essential patents to constitute a separate product market and defined China and the US as the relevant geographic markets. As the owner of these patents, InterDigital held a dominant position in each of these product markets. The Court then found that InterDigital had abused its dominance in several ways:

• InterDigital demanded higher royalties from Huawei than from other licensees, in violation of the FRAND principle. The court found that FRAND licensing was required both by the relevant SDO's rules and by applicable Chinese laws.

• InterDigital required Huawei to cross-licence its own relevant patents. The judges reasoned that because InterDigital only licenses technology but does not manufacture products, this cross-licensing amounted to an increase in costs to Huawei.

• InterDigital sued Huawei for patent infringement in the US and petitioned the US International Trade Commission to exclude infringing Huawei products from the US, even though royalty negotiations with Huawei were still pending.

The decision raises serious questions about the impact of Chinese litigation risks on licensing and standard-setting practices. For example:

• Article 2 of the AML establishes extraterritorial jurisdiction over “conduct outside the territory of the PRC that has eliminative or restrictive effects on competition in the domestic market of the PRC”. Although InterDigital's US litigation strategy might be characterised as a coercive tactic for royalty negotiations affecting consumers in the domestic market of the PRC, the judges' article explains that the US was treated as a separate relevant geographic market precisely because InterDigital's licensing practices may result in anti-competitive effects in Huawei's export market. By this reasoning, could Chinese courts treat other forms of litigation excluding Chinese products from export markets as AML violations based solely on harm to Chinese competitors in export markets?

• InterDigital's SEC filings suggest that the court construed InterDigital's FRAND obligations under Chinese law, even though the SDO agreements were governed by French law. Substituting Chinese law for the substantive law designated by SDOs may destabilise standard-setting efforts.

• It is unclear how the court derived the 0.019% royalty rate or how the court evaluated any differences between InterDigital's licensing agreements with differently situated licensees. The AML (following vestigial European models) explicitly lists imposition of unreasonable high prices as an abuse of dominance; might Chinese courts rely on this provision to correct unreasonable royalties outside the standard setting context?

It remains possible that these issues will be clarified on appeal. In any event, Huawei v InterDigital is a milestone in the evolution of Chinese antitrust and its implications for global licensing and standard-setting practices may be felt for years to come.