Optimizing Patent Strategy in International Standardization

Since China implemented its national strategy of indigenous innovation and intellectual property， it has been widely acknowledged that Chinese industry should transfer towards structures with high technology and indigenous intellectual property. In foreign trade of goods， service and technology， it is gradually important to manage patented technology in technical standards. More and more Chinese enterprises are faced with a series of challenges brought by international technical standards when they try to enter overseas markets， especially when technical standards involve patented technology. Multiple legal issues and potential risks have arisen during the steps of standard setting， standard implementation and patent license among others. It is important to fully understand the specific situation and steps to make right decisions， adopt counter measures and avoid the risks in advance.

Patent Policy in International Standard Setting

More and more Chinese enterprises have participated in international technical standards setting during the process of going abroad. They have joined international standard setting organizations (SSO) as members and are active in standard setting and revision. Such trends are especially prominent in industries such as telecommunications， consumer electronics and semiconductor. Enterprises like Huawei and ZTE have already accumulated rich experiences in developing standards with international partners， making contributions and exerting influences. Their goals are to track the cutting-edge trends and developments of the relevant industries， as well as to obtain the right to speak in the international technology trends. Furthermore， with their own established patent portfolios， they hope to contribute their patented technology into international technical standards， so as to seize the initiatives in the standardization process.

The most notable SSOs have established their own patent policies， including International Standardization Organization (ISO) and International Telecommunication Union (ITU)， among others. Their patent polices are comprised of two major parts: patent information disclosure and patent license term commitment. SSOs urge the patent owners participating in the standard setting process to disclose the patent or patent applications owned by themselves as early and comprehensive as possible. Such policy aims to avoid unexpected \"patent ambush\" circumstance after the completion of standard setting. In case the patent owners have not disclosed their involved patented technology based on good faith principle， and claim their patents against standard implementers after the standards are published， it is highly possible to be regarded as misusing their patents and therefore impeding competition. There are cases in which such \"bad faith\" patent owners were held as violating antitrust law by courts or antitrust regulators and serious legal liabilities were imposed. For example， in 1996， Dell was held liable under antitrust law by FTC because it intentionally concealed its patents in developing a VESA (Video Electronic Standards Assoaation) standard in 1992.

After patent owners disclosed their SEPsrpatent policies of SSOs usually require them to further make commitments about future license terms of their patents. The principle of \"Fair， Reasonable and Non-discrimination\" (FRAND) are widely accepted in current standardization practice. It requires SEP holders to commit that they will be bound by fair， reasonable and non-discriminatory terms in future SEP license practice. Although FRAND principle is relatively abstract， and some challenge thatitlacks certainty and operability， others hold that its wide applicability could adapt to complex license situations and was proven to be a successful principle in practice.

The determination of specific contents of FRAND has long been a focus ofwide discussion and attention. Courts and anti-monopoly authorities from USA， EU， China and other countries and regions have expressed their own opinions in specific cases based on different license situations. For example， on the issue whether SEP holders could pursue injunction against standards implementers， courts hold that under certain situation， especially when the potentiallicensee can prove they are willing to conduct good faith negotiation in order to obtain the license， the patent owners will not be granted injunction. In Motorola V. Microsoft case， the judge holds that since Motorola had already made RAND license commitment during standard setting， monetary relief should already be already sufficient compensation， therefore denied Motorrola's motion for an injunction. About the definition of \"fair and reasonable term\"， various considerations have been presented in cases from different jurisdictions. The usual consensus is the license rate collected by patent owners should correspond to the value of the patent itself， excluding the \"extra value\" added by the process of standardization.

For enterprises participating into standardization activities， it is highly recommended to fully study SSO's patent policy， especially the binding parts. They should make planning and preparation for patent information disclosure and patent license commitments in advance， in order to avoid potential legal risks. Meanwhile， they shall be adept in analyzing patent disclosure from other members， evaluating potential influence on their own interests based on different solutions in technical standards， and even exerting influence on standard development by making full use of their own advantages.

Patent License in Standard Implementation

After the completion of standard setting， the implementation of standard involves multiple levels ofindustrial chain. In SEP license practice， the parties could be divided into two major categories: licensor， i.e. the patent owner and licensee.

From the standpoint oflicensees， as long as their use of the patents is the unavoidable result of adopting relevant technical standards， they could refer to \"FRAND\" license commitment made by SEP holders， and ask them to fulfill their commitments in negotiating specific license agreement. Based on existing judicial and administrative anti-monopoly practice， the licensee may request SEP holders to conduct good faith negotiation instead of a direct refusal to negotiation and/or further seeking for a cUourt injunction. Licensee could also request fulfillment of \"non-discrimination\" commitment. SEP holders shall not demand for substantially different license rates based on same or similar situation. In Huawei V.IDC case decided by a Chinese court in 2013， IDC's discriminatory license policy between Huawei and other major smart phone makers was held illegal. Furthermore， licensee could also argue SEP holder's high royalty rate violated the \"reasonable\" standard. In the Chinese Qualcomm antimonopoly case， Qualcomm's rate was decided to be too high to be \"reasonable\". Licensees could pursue favorable support from these existing practices in order to grasp stronger bargaining chip.

For enterprises owning SEPs， they may conduct international patent license negotiation as licensors. Since they have made \"FRAND\" commitment in setting the standards， they need to pay significant attention to the restrictions imposed by such commitment and carefully handle the procedure and details oflicense negotiation， to avoid potential legal risk of violating anti-monopoly law. Under the circumstance where the licensee expresses his willingness of good faith negotiation， it is not recommended to start a court procedure rashly. Meanwhile， in asking price for royalty rates， it is necessary to consider comparable license rate， and make explicit explanation of the reasonableness of discriminatory pricing strategy， and avoid excessive pricing level. Otherwise， their license practice may draw attention and question from anti-monopoly administration.

Anti-monopoly Review in SEP License and Transfer

SEPs involve the major steps of setting and implementation of technical standards， and therefore are regarded as possessing \"public good\" features. SEP holders occasionally are held as gaining \"market dominance\" through technical standards. In their patent license and transfer activities， there is legal risk that SEP holders' behaviors are regarded as abusing of their \"market dominance\" and therefore constitute anti-competitive conduct.

Transfer of SEP will be an im-portant part of antimonopoly review for merger and acquisition. Anti-monopoly agency will take the effect of SEP transfer on parties' market power into consideration， as well as the possible effect on market entrance and technology advancement.