Royalty rate determination in standard essential patent litigation in China - from regional rate to global rate

Abstract

Standard essential patent (SEP)-related disputes frequently involve parallel litigation cases in various jurisdictions in the world. With the rapid advancement of the telecommunication industry, Chinese companies are more and more embroiled in such global dispute, particularly with the issue of fair, reasonable, and non-discriminatory (FRAND) rate determination by the courts. Chinese courts are actively asserting jurisdiction over global FRAND disputes. It is important to note that within the framework of Chinese court practice, the court should further improve its trial procedures to ensure that parties have reasonable expectations regarding rate determination result on the merits and the procedural due process. This article reviews the judicial practice in China regarding the cases of FRAND rate dispute, summarizing the characteristics and recent development in the court practice. The article outlines how Chinese courts apply comparable license and top-down approach to calculate the FRAND rate. Notably, Chinese courts have taken a more flexible and pragmatic approach when addressing this issue, tailoring their decisions based on the circumstances in individual case. Additionally, it discusses the possibility of Article 24 in the Judicial Interpretation II as the legal basis for determining the global FRAND rate, as well as how the requirement for good-faith negotiation is interpreted by the court and whether the regional discount is reasonable in the context of the global FRAND rate. Consequently, the article argues that the courts should consider harmonizing its practice with prevailing norms in international jurisdictions. Several recommendations for optimizing the trial procedure also proposed, thereby ensuring scientific rigor and transparency of the rate calculation.