China issues new rules on patents in domestic standards
The issuance of the Patent Measures is a significant development for standards in China, especially for the telecommunications and electronics industries. The Patent Measures provide much-needed guidance on key issues for Chinese standard essential patents (“SEPs”), such as disclosure and licensing requirements.
Disclosure obligation for standard-setting participants
Under Article 5 of the Patent Measures, organizations and individuals participating in the formulation or revision of a national standard must disclose the SEPs that they own and have knowledge of to the entity responsible for the standard. A participating entity or individual will be liable for its bad-faith failure to disclose its SEPs, but the Patent Measures do not specify what constitutes bad faith or any specific sanctions for failure to disclose.
A participating entity’s SEP disclosure obligation under Article 5 is very general, and more clarification is needed. In January 2010, SAC issued the draft Disposal Rules for the Inclusion of Patents in National Standards (“Draft Disposal Rules”) for public comment. The Draft Disposal Rules provide some guidance on including patents in standards, but they have not yet been implemented.
Who must disclose?
Under the Patent Measures, any organization or individual participating in the formulation or revision of a standard is required to disclose its known SEPs. Under the Draft Disposal Rules, the concept of a “participant” in the standard-setting process includes individuals and organizations that initiated the standardization process, are members of a standard-setting organization’s working groups, or made a “technical contribution.” A “technical contribution” here means technical materials or technical advice officially submitted to the standard-setting organization’s working groups by paper or electronic media.
What must be disclosed?
Under Article 5 of the Patent Measures, all known “essential patents” must be disclosed. Article 3 defines “patents” to include granted patents and pending patent applications. Article 4 defines “essential patents” as those patents required to implement the standard. The Draft Disposal Rules define an “essential patent” as a patent whose claim(s) will be unavoidably infringed by adopting a commercially-acceptable technical solution as a standard. While the Patent Measures provide only that SEPs and their corresponding information and materials must be disclosed, the Draft Disposal Rules specify that the patent holder should list the SEPs one by one, explain the relationship between the SEPs and the standard, and disclose the SEPs held by its affiliates.
When must disclosure occur?
The Patent Measures state that the participants in a standard-setting process must disclose SEPs “at any stage in the formulation or revision of the national standard” and do so “as early as possible.” The Patent Measures provide no further guidance on the timing of disclosure.
Disclosure right for non-participants
Organizations and individuals not participating in the standard-setting process are not required to disclose known SEPs, but they are “encouraged” to do so under Article 6 of the Patent Measures. Article 8 requires SAC to publish any proposed national standard involving patents and the corresponding patent information for 30 days before approving release of the standard. This is to give the public the opportunity to notify SAC of any patent information relevant to the standard. A non-participant that discloses patent information risks being considered a standard-setting participant by the standard-setting organization, and thus subject to the patent-disclosure and other obligations under the Patent Measures.
Patent licensing declarations from participating patent holders
Under Article 9 of the Patent Measures, participants disclosing SEPs during the standard-setting process should issue a licensing declaration chosen from one of the following options:
- the patentee agrees to license its SEPs free of charge and on fair, reasonable and non-discriminatory (“FRAND”) terms
- the patentee agrees to license its SEPs for a FRAND royalty and on other FRAND terms
- the patentee refuses to license its SEPs under either of the above two options.
The Patent Measures do not provide guidance on how to calculate a FRAND royalty rate in specific cases, other than to say the royalty will be determined through negotiations between the patent holder and the standard implementers. But what if the parties fail to reach an agreement through negotiations? Earlier versions of the Patent Measures suggested that patent holders should offer licenses for their SEPs at significantly lower rates than normal royalties. This approach may have come from a 2008 opinion by the Supreme People’s Court in the Chaoyang Xingnuo case. In addition, a more recent SEP case – Huawei v. InterDigital before the Shenzhen and Guangdong courts – has shown that if the parties cannot agree on a FRAND royalty, the court will assign one.
For non-mandatory national standards, if a patent holder does not agree to option 1 or 2 (i.e., refuses to license), the standard shall not include any provision based on the patent at issue. For mandatory national standards, the general rule is that they should not involve patents. Under Article 15 of the Patent Measures, if a mandatory national standard involves a patent and the patent holder refuses to license the patent under option 1 or 2, then SAC, State Intellectual Property Office, and other relevant departments and the patent holder shall jointly negotiate a resolution. Unfortunately, the Patent Measures are silent on what happens if they fail to reach an agreement. It is possible that the SEPs at issue may be compulsorily licensed under these circumstances, but it remains to be seen how this will play out in practice.
Adoption of international standards as national standards
Under Article 18 of the Patent Measures, if China adopts an international standard formulated by the International Organization for Standardization (ISO) and the International Electro-technical Commission (IEC), the patent licensing declarations made for the SEPs involved in the international standard will extend to the national standard. For standards formulated by other international organizations, it is not yet clear what rules relating to SEPs will be adopted.