On March 22, the Beijing IP Court issued a decision
addressing standard essential patents (SEPs) related to a China
standard – WLAN Authentication and Privacy
Infrastructure (WAPI). The Court ruled in favour of the
plaintiff – a Chinese technology development company
IWNCOMM against Sony, which sells mobile handsets. The Court
awarded more than Rmb9 million ($1.3 million) in damages. But
what is more noticeable in the decision is the Court's rulings
on the doctrine of patent exhaustion, indirect infringement,
injunctions for SEPs and the determination of damages.
Patent exhaustion does not apply to use method claims
The patent in suit relates to a method of secure access to
WLAN and secret communication, which is performed with the
participation of a mobile terminal (MT), an access point (AP)
and an authentication server (AS). Clearly, this is a system
level claim involving multiple parties. Sony made MT, but used
AP and AS which are purchased lawfully from IWNCOMM.
Accordingly, Sony argued that the patent right was
The Court held that the patent exhaustion doctrine in China
only applies to apparatus claims or manufacturing method claims
(a product derived directly from such a manufacturing method
patent). The Court took an unusual step to interpret the
relevant clause in the patent law and concluded that the patent
law never meant to exhaust "use method claims". It will be
interesting to see how the appellate court will deal with the
ruling in this regard. The ruling in this case brings to mind
the US Supreme Court's decision in Quanta v LGE.
Finally, the Chinese courts have now addressed the exhaustion
issues related to method claims.
IWNCOMM contended that Sony's mobile handsets are essential
for contributing to the performance of the patented invention.
IWNCOMM's independent claims cover three distinct components.
It is very difficult to identify a single player that performs
all the steps.
The Court held that indirect infringement generally requires
the existence of direct infringement, which however does not
mean that the patentee has the burden to prove another entity
has already performed direct infringement. Instead, it is
sufficient to prove that the all-elements rule will be met if a
user uses the accused infringing product in its preset manner.
As to whether the user shall be liable for his/her acts, it is
irrelevant to prove the case of indirect infringement. The
Court held that Sony knew that a combination of WAPI functional
modules built into the accused infringing products was a device
specially designed for practising the patent in suit, but still
provided the products for business purpose to others to
practise the patent in suit, which constituted contributory
Notably, patent infringement act in China must be something
for a business purpose. Consumers' personal use of patent
claims is not liable for patent infringement. The Supreme
Court's patent infringement judicial interpretation clearly
emphasises that establishment of indirect infringement shall
require the presence of direct infringement. It seems that the
Beijing IP Court has some different thinking. This may become a
hot issue at appeal.
Injunction for SEP and damages determination
The Court's judgment reveals something interesting about how
Chinese judges may issue injunctions for SEPs. The patent in
suit relates to a national compulsory WLAN standard, which has
a long history going back to early 2000. One of the factors
that the Court was looking at in determining whether or not the
injunction should be granted is who is to blame for the dead
end in the licensing negotiation. When the patentee initiated
the licensing negotiation, according to the factual findings in
the decision, Sony required IWNCOMM to provide a claim chart to
show the infringement. IWNCOMM countered by asking Sony to sign
a non-disclosure agreement before providing the claim chart,
which caused the negotiation to end in deadlock.
The Court held that a claim chart is not necessary for
starting the negotiation, especially when Sony would be able to
assess the infringement based on the fact of using the WAPI
software in its handsets. And the court ruled that it is
reasonable for the patent owner to ask Sony to sign a NDA
before providing a claim chart. Therefore, it is Sony's fault
for failing to do so, which somehow led to fallout of the
licensing negotiation. Among other conditions, the court
finally approved IWNCOMM's request for an injunction.
Again, the appellate court may have to examine why Sony has
to use the WAPI standard and whether the delays are really some
kind of fault. Chinese judges increasingly use a fault-based
approach in deciding whether injunctions should be granted.
This is a trend both sides should take a note of.
Finally, when it comes to damages, the Court made another
unusual move. The Court used the IWNCOMM's other licences to
determine the suitable royalty rate. But beyond this, the Court
held that the asserted patent is a fundamental invention in the
national WLAN security standard receiving technology awards and
Sony was at fault in the negotiation process. Therefore, the
Court awarded three times the royalty. Again, it is expected
that Sony will challenge the findings of fact and law in this
The Beijing IP Court has been actively setting precedents in
many fronts. This case is another example. Whatever the final
outcome at appeal, this case may shape the way software patents
and SEPs are litigated in China.
AnJie Law Firm
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6A Jianguomenwai Avenue, Chaoyang District, Beijing 100022,
Tel: +86 10 8567 5988
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