In 2021, China became the second country, following the UK, where courts have asserted the power to set the terms of fair, reasonable, and nondiscriminatory (FRAND) licenses for global standard essential patent (SEP) portfolios. Now, China's Supreme People's Court has reportedly held that Chinese courts may also establish global FRAND rates for entire "foreign patent pools", apparently the first time that any court has done so—affirming a ruling in favor of TCL and against patent pool administrator Access Advance LLC. Meanwhile, a Chinese anti-monopoly agency announced this past week that it had it just initiated a formal dialogue with patent pool Avanci, LLC regarding the compliance of its automotive licensing programs with anti-monopoly laws.
The Chinese Pool Decision: TCL v. Access Advance
As reported by Chinese-language WeChat blog Corporate Patent Watch and IAM, TCL filed the litigation below in 2022 in two venues: one in the Shenzhen Intermediate People's Court seeking the determination of a FRAND rate, in response to allegedly "unfairly high prices" sought by Access Advance through its HEVC Advance pool (as characterized by Corporate Patent Watch); and the other in the Guangzhou Intermediate People's Court, asserting that Access Advance had abused its "dominance in the HEVC pool market" (per IAM). Access Advance then objected to the court's jurisdiction, appealing a series of adverse rulings up to the Supreme People's Court. IAM reports that the Supreme People's Court handed down its decision on market abuse in May, and its ruling asserting jurisdiction over pools' global FRAND rates on June 20. Few details are otherwise available on the contents of those decisions.
A UK court previously reached the opposite result. In March 2021, the UK High Court declined to assert jurisdiction over another claim seeking a global FRAND determination against Access Advance (alongside licensor Philips), this one brought by implementer Vestel. While the UK Supreme Court previously established, in Unwired Planet v. Huawei, that UK courts have the authority to make global FRAND determinations, that case was brought by a patent owner, so the claim for relief justifying that declaration was based on the defendant's infringement of UK patents. In contrast, the High Court concluded that Vestel lacked such a right to a FRAND declaration: The lower court had dismissed its claim basing that right on a competition law claim, and here the High Court rejected a revamped argument from Vestel on appeal that characterized its claim as one for a "negative declaration" of patent infringement.
The Chinese decision is also not the first adverse ruling that Access Advance has received with respect to the FRANDness of its licensing program. In December 2021, the District Court of Düsseldorf ruled that some of Access Advance's licensing terms were non-FRAND—though not on the basis of the rates offered. Rather, the German court objected to HEVC Advance's policy on duplicate royalties, determining that it failed to properly account for substantial overlap in the patents covered by the HEVC Advance and MPEG LA patent pools covering the HEVC codec, which was an issue since Vestel had taken a license to MPEG LA's pool prior to the departure of certain licensors. The court held that the license offered to Vestel under that policy was not FRAND for two reasons: It did not grant Vestel a "direct legal obligation" that the pool's licensors would ensure that no duplicate royalties were paid due to the MPEG LA overlap, and it did not detail the steps licensors would take to prevent duplicate royalty payments. As a result, Access Advance modified the terms of its license to allow current and prospective licensees "that qualify" to request deductions based on a license with another pool or program (whereas the old program let each HEVC Advance licensor identify the pool or joint licensing programs that would qualify for a duplicate royalty deduction).
Chinese Anti-Monopoly Agency Launches Soft Inquiry into Avanci Automotive Programs
On June 27, the Anti-Monopoly Division of China's State Administration for Market Regulation (SAMR) announced that on that same day, it had formally "reminded" patent pool Avanci about "monopoly risks in the licensing process of essential patents for automotive wireless communication standards". The SAMR advised Avanci to identify and address any such issues in a "Reminder and Urging Letter", which is the first of four steps in the "Three Letters and One Notice" soft enforcement system for ensuring compliance with anti-monopoly laws as established in late 2023. Per that announcement, the head of the Anti-Monopoly Division met with Avanci leadership and delivered the "Reminder and Urging Letter" in person. This appears to be the first time that a patent pool has received this type of scrutiny.
Avanci has since posted a Chinese-language response on its official WeChat channel, stating that it was "pleased to have had the opportunity to actively communicate with [SAMR]" about its automotive licensing programs. The pool framed that communication as having provided "valuable guidance on [its] joint licensing" that was "[s]imilar to [what] antitrust regulators in other countries and regions around the world" have provided. Avanci stated that it "will continue to comply with the antitrust laws and related laws and regulations in China and other jurisdictions around the world".
In characterizing the value of its programs to patent owners as well as Chinese implementers, Avanci stated that it "look[s] forward to continuing dialogue and discussions with Chinese automakers". To date, the pool has not yet licensed any Chinese automakers.
Time will tell whether the SAMR's Avanci inquiry ends with a similar result to the pool's engagement with the US Department of Justice's Antitrust Division, which at Avanci's request reviewed its licensing programs and in 2020 issued a favorable Business Review Letter in which the Antitrust Division stated that it would not raise a challenge to those programs.
See RPX's second-quarter review for more on notable FRAND developments in another rising SEP venue, Europe's Unified Patent Court—and for a deep dive on other key trends from Q2 and the first half of the year.
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