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September 2017
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Legal Highlights Behind the Attack Between Xidian Jietong and Fangda Partners

by Nancy QU from Chang Tsi & Partners

In the afternoon of September 5, 2017, the attack between Cao Jun, the general manager from Xi’an Xidian Jietong Wireless Network Communications Co., Ltd. (hereinafter referred to as “Xidian Jietong”) and an attorney from Fangda Partners in the scene of the 8th China Patent Annual Conference aroused wide concerns among insiders, and the public attention was once again directed back to the patent battle between Xidian Jietong and Apple Inc., involving the standard-essential patent, which is a threshold issue in the IP field.

A patent battle regarding a standard-essential patent between Xidian Jietong and Apple Inc. is behind the attack between Xidian Jietong and Fangda Partners. The relevant casesare:

1、Patent infringement litigation

In April 2016, Xidian Jietong filed a lawsuit against Apple Inc. regarding the infringement of the patent “Method for safe access of a mobile device in a WLAN and secure data communication” (patent no.: 02139508.X, date of filing: November 6, 2002; hereinafter referred to as “patent involved”) before Shaanxi Provincial High People’s Court. Apple Inc. raised an objection to the jurisdiction. After the objection was overruled by the Shaanxi Provincial High People’s Court, Apple Inc. appealed to the Supreme People’s Court. The Supreme People’s Court issued the final verdict, (2016) Zui Gao Fa Min Xia Zi No. 159 verdict, rejecting the appeal and upholding the original ruling.

2、Patent Invalidation

In May 2016, Apple Inc. filed a request for invalidation regarding the patent involved before the Patent Reexamination Board of SIPO. In February 2017, the Patent Reexamination Board issued  the No. 31501 Decision to maintain the patent. Apple Inc. was dissatisfied with the decision, and thus filed an administrative litigation against the invalidation decision before the Beijing Intellectual Property Court.

3、Disputes on License Contract

In October 2016, Apple Inc., on grounds of the breach of the FRAND duty by Xidian Jietong, filed a lawsuit regarding the disputes over the invention patent license contract before the  Beijing Intellectual Property Court.

The patent involved in the above series of disputes is entitled “Method for safe access of a mobile device in a WLAN and secure data communication” with the patent No. 02139508.X, which was filed on November 6, 2002 and granted on March 2, 2005. The patentee is Xi’an Xidian Jietong Wireless Network Communications Co., Ltd. During the prosecution of the patent involved, Xidian Jietong as one of the members in the standard drafting team, participated in drafting the relevant mandatory national standard (WAPI [Wireless LAN Authentication and Privacy Infrastructure], which is a security protocol and is also a mandatory standard for WLAN security in China), and the patent involved becomes a standard-essential patent of the national mandatory standard of China GB15629.11-2003/XG1-2006.

The patent involved is the same as the patent involved in the Xidian Jietong vs Sony Mobile Communications (China) Co., Ltd. (hereinafter referred to as “SONY China”) case regarding the WAPI standard-essential patent infringement as concluded by the Beijing Intellectual Property Court in March 2016. The Beijing Intellectual Property Court in the (2015) Jing Zhi Min Chu Zi No. 1194 Judgment identifies that SONY China infringed  Xidian Jietong’s standard-essential patent right, and thus SONY China should immediately cease the infringing acts. In consideration of the following factors,i.e.,. the patent involved is a basic invention in the WLAN security field, has won relevant scientific awards, and is incorporated into the national standards of China, and the defendant has failed during negotiation, the Beijing Intellectual Property Court supported the plaintiff’s claims, i.e., “to determine the amount of compensation, which is three times the license fee,” to determine the financial damages in the amount of more than  CNY8.62 Million, and fully supportedthe plaintiff regarding the reasonable expenses for patent protection in the case in the amount of more than CNY0.47 Million. The above two items of expenses  total more than CNY9.1 Million. In July 2015, SONY China filed a request for invalidation regarding the patent involved before the Patent Reexamination Board.

The Patent Reexamination Board issued the No. 28356 InvalidationDecision and maintained the patent in February 2016.

TheBeijing Intellectual Property Court has conducted a valuable review of the issues such as “exhaustion of rights of a process patent,” “nature of the FRAND license statement,” “establishment of indirect infringing acts,” and “applicable conditions of injunction” in the first-instance judgment regarding Xidian Jietong vs SONY China case.

As to the issue regarding exhaustion of rights of a process patent, the Beijing Intellectual Property Court holds that exhaustion of rights of a process patent in the current legal framework in China is merely applicable to the circumstance where a product is directly obtained according to the patented process, namely, a manufacturing process patent, and a pure process patent will not lead to exhaustion of rights. This opinion has triggered wide debates among practioners in the industry. Some insiders believe that the pertinent legal provisions shall not be mechanically applied to the doctrine of exhaustion of rights, and the rights of a pure process patent will be exhausted after the detection device is sold.

As for the nature of the FRAND license statement, the Beijing Intellectual Property Court holds that the FRAND license statement is merely the promise made by the patentee, and thus is a unilateral civil legal act. The promise does not mean that the license has been granted; that is to say, it cannot be identified merely from the FRAND license statement  that both parties have concluded a contract for a patent license. The FRAND license statement does not mean that the patentee has granted a license, which is a position widely agreed in the IP field.

However, the legal nature of the FRAND license statement is still a highly debated issue among practitioners in the industry. Some insiders believe that the FRAND license statement does not involve specific information such as the license conditions and rates, thus the nature of the FRAND license statement is merely equivalent to an invitation to offer a license. The processes such as offer and promise of a contract will not commence until the person implementing the standard-essential patent makes a license request.

As to the issue regarding establishment of indirect infringing acts, the Beijing Intellectual Property Court holds that generally speaking, direct infringing acts shall serve as the prerequisite for indirect infringing acts. However, this does not mean that the patentee shall prove that another subject actually implements direct infringing acts, and it will be enough to merely prove that if the user of the prosecuted product used the product in a predetermined manner, such use will comprehensively cover the technical features of the patent right. Whether the user shall bear the liability for infringement has nothing to do with the establishment of indirect infringing acts. Regarding the above opinion, some practitioners believe that it is a disguised “principle of superfluity establisment” which goes against the cornerstone of the patent infringement judgment – “All-elements Rule,” and thus it is unpredictable for subjects in the market to pre-judge whether their acts constitute infringement and to reasonably avoid such risk.

As to the issue regarding an injunction, the Beijing Intellectual Property Court holds that when both parties have not reached a settlement through negotiation, as to whether the implementation of the patent involved by defendant can exclusively eliminate the plaintiff’s right to seek an injunction, both parties’ failures during the patent license negotiation shall still be considered. Considering that the technical solutions to the standard-essential patents cannot be replaced, all countries hold a prudent attitude towards the applicability of an injunction for standard-essential patents. The applicability of an injunction for standard-essential patents is correspondingly provided in the Judicial Explanation II on Some Issues Concerning the Application of Laws to the Trial of Patent Infringement Disputes issued by the Supreme People’s Court and Guidelines for Determining Patent Infringement (2017) issued by the Beijing High People’s Court. In the Xidian Jietong vs SONY China case, Beijing Intellectual Property Court finds that both parties cannot enter the formal patent licensing negotiation process due to the actions of the defendant. Based on this fact, the plaintiff’s claim of injunction is supported.

The standard-essential patent infringement case between Xidian Jietong and SONY China is still under second-instance review. The legal issues involved in this case still need to be finally affirmed by the second-instance court. The series patent wars between Xidian Jietong and SONY China, as well as Apple Inc., will inevitably have a long-term influence on the legal practice among Chinese courts regarding standard-essential patents and related legal issues.

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