Beijing IP Court Issued Decision Based on SEP Infringement

By: Ken Yu and Han-Mei Tso

On March 22, 2017, the Beijing IP Court (the “Court”) issued its first instance judgment on Xi’an China IWNcomm Co., Ltd. (IWNcomm) v. Sony Mobile Communications (China) Co. Ltd. (Sony).  The Court held that Sony has infringed IWNComm’s Utility Patent No. ZL02139508.X which involves a Standard Essential Patent (SEP) in connection with WLAN Authentication and Privacy Infrastructure (WAPI).  The Court granted a permanent injunction against Sony, which prohibits Sony from making and selling 35 models of mobile devices.  The Court also awarded RMB 9.10 million (about $1.3 million USD) including damages based on a rate of three times the offered royalty rate, attorney fees, and other reasonable expenses.  This case has drawn extensive attention in China’s IP practice because this is the first injunction decision in China based on an SEP and also because the damage award of this case is relatively high.

According to the regulations of Ministry of Industry and Information Technology of the PRC, to acquire a network access license, the WAPI test is mandatory.  That is to say, if one wants to sell mobile phones in China, the phones must pass the WAPI test, which inevitably involves use of the patent in suit.  The patent holder of WAPI core technology, IWNComm, tried to reach an agreement with Sony on a patent license prior to the litigation (from March 2009 to March 2015), but Sony insisted that IWNcomm should provide more information and a claim chart for further consideration, refusing to continue the licensing negotiation.  Although IWNComm committed when the patent was announced as an SEP, “we are willing to negotiate a patent license with anyone who will use the SEP under reasonable conditions and terms without discrimination,” the Court held that because Sony had fault in prior licensing negotiation for willfully delaying the process of negotiation, the plaintiff’s injunction petition should be supported.

Other points noteworthy to address in this judgment are: 1) Sony alleged the WAPI components of their phones were purchased from licensed chip makers, so the patent right had been exhausted.  Thus, Sony was not involved in any direct infringement.  The Court held that according to Article 69.1 of the Chinese Patent Law, only “manufacturing method patents” are subjected to exhaustion of the patent right.  Accordingly, the patent in suit, as a “usage method patent”, is excluded from the exhaustion provision.  2) Indirect infringement should be based on direct infringement.  However, the Court held that this does not mean the patentee should prove another party actually has the direct infringing conduct.  Rather, it only needs to show evidence that use of the product by a user according to the product instruction, will fully cover all the technical features of the patent in suit.  Whether the user bears infringement liability is not relevant to the determination of indirect infringement.  3) In SEP licensing negotiation, the patentee is not obliged to provide a claim chart.  4) The Beijing IP Court awarded damages based on a rate of three times the royalty rate IWNComm submitted as a reference, as well as attorney fees and other reasonable expenses during the litigation, showing that the Court is moving toward to a direction open to increase the damage amount for patent infringement.

Osha Liang will continue to monitor the development of this case and will provide instant updates to our readers.