Guest Post: Yes, you can get an injunction in a SEP case in China!

Today, we have a guest post from my colleague at Beijing East IP, Austin Chang.  Austin provides a summary of the IWNCOMM v. SONY standard-essential patent decision by the Beijing IP Court (IWNCOMM v. Sony (2015) Jing Zhi Min Chu Zi No. 1194).

Austin Chang

Plaintiff Xi’an Xi Dian Jie Tong Radio Network Co. (“IWNCOMM”) filed a patent infringement action against Sony Mobile Communication (China) Co., Ltd. (“Sony”) on July 2, 2015 for infringing IWNCOMM’s standard-essential patent (“SEP”) No. ZL02139508.X for a mandatory national WAPI standard.  According to the judgment, Sony was ordered to (1) immediately cease infringement of IWNCOMM’s SEP found in 35 of Sony’s mobile handsets, (2) pay damages of RMB8.62 million (approximately USD1.25 million), and (3) pay reasonable litigation costs of RMB474,194 (around USD69,000).
 
This is a first instance decision and is appealable to the Beijing High Court within 15 days for IWNCOMM (as a domestic entity) and within30 days for Sony (as a foreign entity) upon receipt of the decision. We will continue to provide updates regarding any further developments.
 
Please see below for the summary of the ruling:

1. The court found that the report produced by the State Radio Monitoring Center Testing Center (SRMCTC) determining that Sony’s handsets possess the WAPI function shall be deemed as valid, because the SRMCTC is an authoritative national test center, the report submitted by Sony also shows identical results, and Sony failed to provide evidence to prove that the lack of access point and access server specifications influenced the result of the report. Therefore, the report is sufficient to establish that Sony’s handsets possess the WAPI function. 
2. The court also found that Sony implemented testing of the WAPI function. Sony argued that although the Requirement of Quality Control System (“Requirement”) is a national standard, it is merely suggestive and not mandatory. Moreover, Sony also submitted documents showing that it has tested the WAPI function during the development phases. Sony, however, failed to submit documents proving methods used to test the WAPI function other than those stated in the Requirement. The court reasoned that since Sony had admitted it had tested the WAPI function and failed to produce documents to prove this testing was performed other than the Requirement, the court had reason to conclude that Sony followed the Requirement in testing the WAPI function.
3. The court reasoned that under the current legal framework, patent exhaustion of methods only applies to “products directly obtained following the patented method,” namely, “manufacturing method patents.” Furthermore, the exhaustion doctrine does not apply to a pure “use method patent.” Here, the disputed patent is a use method patent, not a manufacturing method patent.  Therefore, IWNCOMM’s use of the manufacturing method patent when selling its detection equipment does not exhaust its patent right.
4. The court reasoned that even if the disputed patent is a SEP it does not affect the determination of whether there is a patent infringement. Thus, any unauthorized use of a patent, such as in this case, is subject to a determination of patent infringement.
5. The court reasoned that a patentee’s commitment to a FRAND statement is not equal to a valid licensing agreement. Thus, even if IWNCOMM has committed to license under FRAND terms, this does not mean IWNCOMM actually licensed its patent to Sony.
6. The court reasoned that, in general, indirect infringement should be based upon the existence of direct infringement. However, this does not require that the patentee prove direct infringement by another party. Rather, the patentee need only prove that the use of the alleged infringing product according to the product’s default use method is covered by the patent’s claims. The issue of whether third-party users should bear infringement liability is unrelated to the establishment of indirect infringement. Here, Sony’s use of the WAPI module has no other substantive use except to implement the disputed patent, thus Sony’s inclusion of the WAPI module in its phones without IWNCOMM’s authorization constitutes indirect infringement.
7. In determining whether an injunction should be applied as a remedy if the dispute involves a SEP, the court reasoned that such determination should be based on mutual beneficial agreement, and whether there were faults made during the negotiation of the agreement. Specifically, where neither party is at fault, or the patentee is at fault and the implementer is not, the patentee’s request for an injunction shall be denied. Where the patentee is not at fault, but the implementer is at fault, the patentee’s request for an injunction shall be granted. Where both parties are at fault, the court shall balance the interests of both parties when making the decision for the injunction request.
8. In a license negotiation regarding a SEP, the patentee has no duty to provide claim charts if the intended licensee possesses sufficient documents to determine the likelihood of infringement. In this case, Sony had been uncooperatively asking IWNCOMM to provide claim charts since the parties began its negotiation in 2009 all the way through 2015 at the same time that Sony had, in its possession, sufficient documents to make a determination regarding infringement of the disputed patent. The court determined that such intentional delay warranted IWNCOMM’s request for an injunction.
9. In determining the amount of monetary damages, the court applied treble damages based on the IWNCOMM’s evidence, including agreements made with other licensees not involved in this case. The court also supported IWNCOMM’s claim of reasonable expenses incurred for this litigation, including its attorney fees of RMB400,000 (approximately USD58,000). 

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