China Patent Holders Beware!
By Xu Jing
On July 8, 2008, when China’s Supreme Court addressed the question raised by the Liao Ning High People’s Court arising from a patent infringement dispute, it stated, “If a patentee participates in the formulation of the Standard or agrees to incorporate its patented technology into the National Standard, the Industrial Standard and/or the Local Standard, it shall be deemed as the patentee authorizing other parties to exploit the patent for the purpose of conforming to the standards.
The exploitation by the said parties may not constitute patent infringement as specified under Article 11 of the Patent Law.”
How can this impact your patent in China?
The Chinese Supreme Court further clarifies, under such circumstances, that the Patentee is allowed to demand exploitation fees from the users, however, such fees are to be much lower than the licensing fees which could be obtained through normal commercial dealings.
It is worth mentioning that neither a patent disclosure system nor a patent exploitation system exists in China during the process of standard formulation. China’s Supreme Court, as the highest judicial authority having the authority to interpret laws and regulations in judicial practices, filled in rules where the law itself was silent. Though its opinion is made upon a specific case tried in Liaoning Court, this posturing will be a guide for inferior courts nation wide and will be binding on similar cases.
Patent holders in China would be wise to exercise caution when participating in the formulation of industry standards. Taking part in formulating standards could potentially result in the patentee forfeiting its chance to bring a claim for patent infringement and fees collected for exploitation will likely be significantly lower than those gained through market-based licensing agreements. Given the impact which this opinion could potentially have on protecting and profiting from one’s patent rights, we suggest that patent holders weigh the benefits of participation in industry forums with the risks inherent in the process.
Xu Jing, Partner from IP Litigation Group, article from China Law Insight
October 10th, 2008 at 3:24 pm
It is not certainly a bad thing, especially for small companies that do not collect patents for fun.
October 10th, 2008 at 6:08 pm
Thank you, Xu Jing, for your report and for your very helpful advice. It would be prudent for patent holders in China to exercise caution in participating in the development of standards, as you suggest.
I would like to add a comment on the position taken by the Chinese government. I don’t always agree with the Chinese government, but on this point I am in full agreement. There have been problems in the United States and elsewhere when patent holders have inserted their patented technology into a standard and then tried to collect royalties on the patent when people use the standard.
Standards, by their very nature, should be open and free for all to exploit. If you want to have a patented technology and provide a private solution and license that to those who are willing and able to pay, that right should be protected as well.
But you should not have it both ways. No one should be allowed to insert your technology into a patent without your agreement, and there should be very clear legal documents to make this very clear, but once you agree to put something into a national standard, that should come with the agreement that you are giving up any claim to enforce a patent on it.
It will be interesting to see how the Chinese experience plays out. We are living in a time where there is more and more open source development, so I think this kind of legal framework for patents is a natural extenshion of this trend.
Regards,
Merle
October 11th, 2008 at 5:31 am
Hello Xu Jing. 你好！
Thank you for sharing this in the forum. I have this information useful, as well as alarming.
My ex-company Xilinx actually participated in at least 2 China standard bodies – China TD-SCDMA and China AVB. I have forwarded your article to the concern party and business friends.
October 17th, 2008 at 5:13 pm
At what level are standards put together? What kind of an entity is a standards body? It looks like its a combination of government and business entities, but who oversees it? How are these things passed and who makes the final decision?