Implementing the FRAND Standard in China

Jyh-An Lee · 19 Vand. J. Ent. & Tech. 1

Abstract

The modern world relies on technical standards, most of which involve standard-essential patents (SEPs). To balance SEP holders’ fair compensation with standard implementers’ access to standardized technologies, standard-setting organizations (SSOs) generally require that their members commit to license their SEPs on a fair, reasonable, and non-discriminatory (FRAND) basis. In recent years, the communications industry has seen a growing amount of litigation concerning SEPs and FRAND in many jurisdictions. As China has grown into a major player and market in the worldwide communications business, its public policy, court decisions, and private business strategies concerning SEPs and FRAND are likely to have a huge global impact in the high-technology sector. The high-profile Huawei v. IDC is the first Chinese court decision ruling on FRAND-encumbered SEPs issues. This is also the first Asian case in which the court determined a FRAND royalty rate to calculate the fee paid by the standard implementer to the SEP holder. Based on the Chinese government’s policy toward technical standards and the case of Huawei, this Article identifies two distinguishing features in China’s encounter with standard-related issues. The first is the active role played by the government in domestic standard-setting activities, while the second is Chinese courts’ civil law approach, associated with good faith, to the enforcement of FRAND commitments. Based on a comparative and critical viewpoint, this Article uses Huawei as an example to illustrate the challenges and perplexities for the judicial determination of a FRAND rate. The reasoning in Huawei is far from sufficient and satisfactory, and it is unclear whether the Chinese courts are tasked to implement the government’s industrial policy. Nonetheless, Huawei did identify some crucial factors concerning FRAND and SEPs, and it has had a significant impact on Chinese related standard-setting activities.