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Foundational Factors for China’s Determination of FRAND Rates

 |  September 17, 2019

Foundational Factors for China’s Determination of FRAND Rates By He Jing (Anjie Law Firm)1

In May 2018, the appellate court in China’s Guangdong Province, where
some of largest Chinese mobile handset manufacturers are based, issued special
judiciary guidelines in dealing SEP cases. One of the most interesting
provisions suggested that at least the Guangdong court was willing to
adjudicate the global FRAND rates, at the request of the litigants.  While we have not seen any such global rates
made by any of the Chinese courts, it seems to many of us that Chinese judges,
whether in Shenzhen or in the Intellectual Property Court in the Supreme Court,
may sooner or later encounter opportunities to make a ruling over the rate

This article will briefly discuss some of the foundations China should
focus in developing if the courts are genuinely interested in coming out such
global rates with credibility. FRAND rates are global in nature and any of such
decisions have global significance. 
Whether or not the courts are the ideal place for handling such
disputes, judges are better ready soon after the opportunities come.

Loopholes in Jurisdictional Rules

Generally speaking, Chinese courts may exercise jurisdiction over FRAND
cases through a special FRAND fee dispute cause of action or anti-monopoly
cause of action.  The FRAND fee dispute
cause of action originated from Huawei v. InterDigital case back in 2013.  The anti-monopoly cause of action comes from
the “excessive fee” clause under the Anti-Monopoly Law.  Both causes of actions seem to be loosely
based on Chinese anti-monopoly laws and in particular the nature of the FRAND
fee dispute cause of action is somewhat perplexing. 

Why Chinese courts may exercise jurisdiction under the anti-monopoly
claims? In China, anti-monopoly claims are generally treated as tort claims in
nature.  The jurisdiction for tort claim
includes the places where the tort is committed, and the places where
consequences of tort act occurs, or the domicile of the defendant.  One significant loophole is the so-called
places where consequences of tort act occurs. 
A plaintiff can always allege it suffers from the anti-monopoly tort act
and its home court should have jurisdiction. 
If Chinese courts give a blind yes to such allegations, it will
essentially allow plaintiffs to choose where they want to sue. 

Chinese courts may have to at least set out some clearer rules on
standard of proof about the “consequences of tort act occurs” in the context of
anti-monopoly violations.  A plaintiff
must prove at the outset what are the consequences of licensors and how it
happens, if any at all. 

Chinese courts should be fully aware of the likelihood of abusive forum
shopping by implementers.  This is
particularly problematic when there are earlier court actions between the same
parties outside China.  When a SEP licensor
sues an implementer outside China based on SEP disputes, for infringement and/or
for FRAND rate determination, a Chinese court action will make the situation
much more complex. Conflicting court opinions may be exactly what the
implementers are looking for, as part of its “hold out” strategy.


Chinese judges now widely recognize the use of top down approach and
comparable licenses in determining royalty rates.  In future FRAND rate cases in China, we may
see the courts will first determine which licensees were “similarly-situated”,
then calculate the royalty rates from a set of comparable licenses.  However, disclosure of comparable licensing
agreements is very sensitive issue, even when the parties choose to do so with
waivers from third parties. 

If the courts in China wish to conduct the proceeding with full trust
from litigants around the world, the issue of confidentiality must be handled
flawlessly.  In China, even back in 2012,
Supreme Court’s judicial interpretation for private antitrust lawsuits already
stipulated measures such as ordering non-public hearing, compulsory
undertakings for confidentiality, restriction or bans on reproduction of
documents or review only by attorneys. 
Such measures will be critical when courts try to determine FRAND rates
by looking at “comparable licenses” or other confidential information.  Courts must instruct counsels acting for SEP
owners and implementers to sign the undertaking for protecting confidentiality
agreement.  In China, one sensitive issue
is in-house counsels often appear in the courtroom to particulate in the entire
proceeding and have access to all documents and evidence.  Chinese courts might consider much more
restrictions of access by in house counsels to confidential information
provided by the other side. 

A related point is the possibility of limited discovery.  China does not have US style discovery, but
more courts, the latest example including Beijing, are willing to grant special
orders to counsels to investigate evidence from third parties, which include government
authorities.  This kind of investigation
orders could open up some new opportunities for litigants to find out more

Expert Witness

The value of economic analysis has increasingly been given recognition
by Chinese judges.  In some recent high
profile court cases or antitrust investigations, economists’ testimony have
played substantial roles, even those from US-based economists.  This was quite unthinkable even 10 years

In August 2019, Beijing local government issued a special policy
guideline encouraging active participation of expert witness in evaluation
intellectual property. If this guideline is fully implemented, we may see the
judges are willing to spend more courtroom time for both sides to present
expert opinion and allow cross-examinations and rebuttals etc.  In the past, one reason for judges to be less
willing to grant request for appearance of experts was the concerns of extended
hearings.  Judges probably have to
realize that a lot more time will be needed for FRAND cases. 

We expect that judges may soon scrutinize qualification of experts
although no clear criteria has been established. More rules about the scope of
expert opinion and the way of presenting or cross-examining experts may come
out.  After all, Chinese judges and
counsels receive quite little training in handling experts in the courtroom. 

Amicus Brief

The utility of amicus brief has started to be appreciated.  Beijing Intellectual Property Court has even
experimented publishing such amicus briefs in certain cases. And in certain
high profile cases Chinese courts are known to receive briefings or opinions
from prominent professors or even industry associations. 

The courts in China are short of establishing a formal system close to
amicus brief.  One reason is that China
has not made those litigation documents open to the public and it is almost
impossible for others to timely submit amicus brief. Courts also lack
experience in dealing with amicus in actual proceedings.  But Chinese judges should soon realize that
being open to amicus brief type submissions is a very valuable way for them to
adjudicate FRAND cases that are of global significance.  Even before the official adoption of amicus
brief, industry associations, professors or companies should actively seek
opportunities to submit their opinion or reports to Chinese courts where FRAND
cases are being litigated.

Due Process in Antitrust Investigation

Whenever China antitrust enforcement agencies start looking at the issue
of FRAND rates,  they must bear in mind
fundamental due process requirements. For example, on April 5, 2019, the ICN
published the Framework for Competition Agency Procedures, which
provides that, the antitrust investigation should be focus on the
competition-related information.  The
investigator should provide reasonable time for the relevant personnel to
respond to the inquiry in the investigation in considering the effectiveness of
the investigation.  Such recommendations
need to be implemented in China, so that the parties involved in such
investigation procedures will not be overly burdened.  Noticeably, the recently issued interim SAMR
rules against dominant market position have not set out any additional
procedural safeguards beyond what has been in the general administrative
penalty rules issued by the same agency in December 2018.  The traditional approach in China always
emphasizes “objectivity, completeness, fairness and timelines” in dealing with
to what extent evidence should be uncovered by the enforcement
authorities.  There is a strong and
urgent need to address the issue of relevancy, reasonableness and
proportionality, as shown in the ICN framework document. This should be a
priority when FRAND rates are of the priority concern in any antitrust

To conclude, we believe China’s courts and antitrust enforcement
authorities have to closely look at some of the foundational factors as
discussed here, if they wish to make decisions on global FRAND rates with
confidence and credibility.  None of
these factors are far from reach. There is no reason not to do any of them.

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1 He Jing founded Anjie Law Firm in 2012 and is currently a member of its executive committee.