China’s Many Faces of FRAND Mark A. Cohen* Asia Society of Northern California

 China has become a major destination for resolution of disputes over the licensing of patents incorporated into global technical standards. These patents are generally required to be licensed on “FRAND” terms. FRAND is an English language acronym that consists of four separate components: (A) “fair”, (B) “reasonable”, (C) “and” (D) “non-discriminatory.” Chinese courts have typically applied these four admittedly vague components in their Chinese translations, rather than their native English. These translations have not been standardised across cases and policy documents. There are often multiple translation variants in an individual judicial decision with at least 120 potential variant translations of the four FRAND components. In addition, there are three significant grammatical variants, plus various combinations of the four components, which brings a total of potential variants used by Chinese courts to over 500. Not all these variants impose new meanings of FRAND. In fact, the most significant of the variant translations is grammatical and not based on a semantic difference. It entails removing a Chinese term for “and” and utilising the Chinese enumerative comma or dunhao, which looks like a backwards comma, to replace the Western comma. According to relevant Chinese national standards and practice, the use of the dunhao means “pause.” It can mean “and” or “or.” It potentially fragments the integrated concept of “FRAND” into its separate components. In this dominant translation variant, FRAND means “fair and/or reasonable and/or non-discriminatory.” It might more appropriately be called “FRND”. 

The Chinese courts’ use of FRND maximises judicial discretion by facilitating new combinations of individual FRAND components, thereby selectively ignoring certain FRAND components, and by introducing new terms into FRAND. These translations have also worked to the disadvantage of the foreign party by imposing preferential treatment for a Chinese licensee or a rate that is equal to the lowest rate charged by the licensee, regardless of the costs and challenges faced by the foreign licensor in negotiating and litigating with its Chinese counterpart. While foreign courts and companies have observed that it is difficult to obtain fair remuneration for standards-essential patents (“SEPS”) licensed to China, these varied translated “faces of FRAND” are not observable to readers who rely solely on English translations. The English translations that I have reviewed have uniformly declined to address inconsistent translations from English into Chinese and back into English. These Chinese translations are also inconsistent with the translations into Chinese of international organisations and the approaches to translating FRAND’s vague components that have been undertaken by many foreign countries and economies. The effect of these mistranslations is to not merely to uniquely translate FRAND in judicial decision making, but, in certain instances, to suggest or impose new meanings based on Chinese law upon FRAND. These new Chinese meanings also serve to facilitate transplanting FRAND into new areas of the law and diplomacy where the Chinese government typically has expressed an interest in managing private property rights to serve governmental interests.

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Standard Essential Patents and Antitrust regulator in China

Now that Indian regulatory authority has got free hand to investigate abuse of monopoly position by SEP holder, Chinese success in this line needs to be highlighted.

The National Development and Reform Commission (NDRC) is the Chinese competition authority charged with investigating price-related conduct that is anticompetitive, such as cartels, “resale price maintenance” (RPM), and abuses of dominance. The NDRC investigated Qualcomm’s standard-essential patents (SEPs) for certain telecommunication standards and its licensing practices on the basis of complaints filed.  The NDRC formally started its investigation in November 2013 when several dozen NDRC officials raided Qualcomm’s offices in China.  There followed multiple rounds of submissions, intense hearings and negotiations between Qualcomm representatives, NDRC officials, as well as many other interested parties. Qualcomm was found to have abused its dominant position in three ways: excessive pricing, unfair terms, and bundling. The NDRC found that Qualcomm charged unreasonable royalties on Chinese mobile device manufacturers.  This finding is actually split into several claims.  First, Qualcomm refused to provide customers with a list of all patents included in its comprehensive licensing package, resulting in customers being charged for patents that had already expired.  Second, Qualcomm imposed unfair cross-licensing conditions: it forced customers to grant Qualcomm free licenses for their own patents whilst refusing to lower the royalties it imposed in consideration of the value of the patents licensed to it.  Third, the royalty rate was set at a high level and applied to the net wholesale price of the mobile devices concerned. The NDRC also found that Qualcomm forced customers to accept the licensing of Qualcomm’s non-essential patents (for which Qualcomm possibly holds no dominant position) in order to obtain a license for its SEPs. 
On 10 February 2015, China fined Qualcomm CNY6.08 billion (approx. USD975m or EUR870m) for abusive patent licensing practices and imposed several remedies on the company. 
The payoff to China continues. Now, Chip maker Qualcomm has agreed a licensing deal with Zhuhai Ewpe Information Technology in China related to 3G and 4G patents. Under the terms of the agreement, Qualcomm has granted Zhuhai a royalty-bearing licence to develop, manufacture and sell subscriber units covering 3G WCDMA and CDMA2000, and 4G LTE for use in China.

Qualcomm agreed to offer separate licences to certain patents, with licensees whose phones use 4G technology paying a 3.5% royalty rate and those whose handsets incorporate 3G paying 5%.

China imposes $975 million fine against Qualcomm and caps royalty rates at 3.5 percent (4G) and 5 percent (3G).

As per reports, China's National Development and Reform Commission ("NDRC") published its decision in theQualcomm case, which resulted in a $975 million fine against Qualcomm for alleged violations of the Anti-Monopoly Law. The decision provides useful guidance with respect to the NDRC's views regarding several intellectual property licensing practices involving standard-essential patents ("SEPs").

Qualcomm charged excessive royalties. 

• First, Qualcomm engaged in portfolio licensing that included expired patents in the portfolio. In doing so, Qualcomm did not provide licensees with lists of patents covered by the licenses, and did not demonstrate that newly added patents were of the same value as patents that were expiring. Even if that were true, the NDRC said that it was unreasonable not to provide licensees with a list of patents when Qualcomm offered long-term or even non-fixed term licenses. 
• Second, Qualcomm required some licensees to provide royalty-free grantback licenses for relevant wireless communications patents that are not SEPs. The NDRC determined that this practice is not reasonable, and that Qualcomm should take into account the value of grantback licenses when negotiating licensing terms. Third, Qualcomm required licensees to pay royalties based on the price of the finished product, which the NDRC concluded misappropriated value based on unpatented components.  
• Finally, Qualcomm included in its license portfolio non-SEPs that some licensees did not want to license. The NDRC also noted that the practice of requiring royalty-free grantbacks could discourage licensees from technical innovation and have the effect of restricting or eliminating market competition.

Qualcomm unreasonably bundled the sale of non-SEPs with SEPs as a package at a constant licensing rate. 

The NDRC rejected Qualcomm's three reasons for bundling non-SEPs with SEPs: 

(1) it offered to license SEPs separately but licensees prefer the package of non-SEPs and SEPs; 

(2) it is difficult to differentiate non-SEPs from SEPs so licensees are at risk if they license only SEPs; and 

(3) bundling non-SEPs with SEPs does not restrict competition and licensees are free to license a competing technology. 

The NDRC did not accept these explanations, finding that some licensees were not offered a license to SEPs only; non-SEPs and SEPs can be differentiated on a patent list; and bundling non-SEPs with SEPs restricted competition in the market for non-SEPs, hampered innovation, and harmed consumers.

Qualcomm imposed a "no-challenge" requirement on the sale of baseband chips. 

The NDRC objected to Qualcomm's practice of requiring purchasers of base band chips to enter into an agreement that provided that the purchaser would not challenge the license agreement. It found that given the nature of the issues it identified in Qualcomm's license agreements, it was improper for Qualcomm to require licensees to waive their right to challenge the agreements.

The NDRC's decision orders Qualcomm to cease engaging in the identified practices:  (1) Qualcomm must provide patent lists, and it cannot require royalties for expired patents; (2) it cannot require grant backs without consideration; 

(3) it must cap royalty rates at 3.5 percent (4G) and 5 percent (3G), and apply those royalty rates to modified royalty base representing 65 percent of the net sales price of the overall terminal unit; 

(4) it cannot bundle non-SEPs without reasonable cause; 

(5) it cannot require acceptance of royalties for expired patents, grantbacks without consideration, bundling non-SEPs without reasonable cause, or "no-challenge" clauses as conditions for supplying base band chips. 

In addition, the NDRC imposed a fine equal to 8% of Qualcomm's revenue within China for 2013, which was 76.102 billion yuan, resulting in a fine of 6.088 billion yuan (US$975 million).

The NDRC's decision is available here.

civil engineering in China

The Challenge: How to construct overpass over a busy high speed rail track in Wuhan city. Traffic cannot be halted and overpass has to be 256m long weighing 17,000 tonnes spanning 11 rail lines. Engineers in China built the overpass outside the rail lines and rotated it 106 degrees on a 15 metre axis to position it above running trains and it took just 90 minutes.

 source:Saindranath Jonna