On August 19, 2021, the Intellectual Property Tribunal of the Supreme Court of China handed down its decision in connection with the jurisdictional dispute over the global licensing of the standard-essential patents (SEPs) in Oppo v. Sharp, rejecting the appeal instituted by Sharp and upholding the first-instance ruling ((2020) Yue 03 Min Chu No. 689 made by the Shenzhen Intermediate Court on October 16, 2020). The Supreme Court decision ((2020) Zui Gao Fa Zhi Min Xia Zhong No. 517) affirms Chinese courts' jurisdiction to set global FRAND rates and terms and clarifies the applicable tests in deciding Chinese courts' jurisdiction over such type of cases.
On July 10, 2018, Sharp Corporation and its wholly-owned subsidiary ScienBizip Japan (hereinafter collectively referred to as Sharp) sent a licensing letter to Guangdong OPPO Mobile Telecommunications Co., Ltd. and Shenzhen Branch of Guangdong OPPO Mobile Telecommunications Co., Ltd. (hereinafter collectively referred to as OPPO), listing their SEPs for 3G, 4G, WiFi and HEVC by jurisdiction and seeking for a global license. The Chinese patents represent a significant ratio within the SEP portfolio.
As one of the largest mobile phone manufacturers, OPPO's share of sales in China exceeded 70%, while its share of sales in Europe was approximately 0.20% and in Japan was less than 0.1%, as of December 31, 2019.
On February 19, 2019, OPPO and Sharp held licensing talks at OPPO's Shenzhen office. Sharp proposed a preferred overall structure of license: a five-year period, covering the 3G, 4G, WiFi and HEVC SEPs owned during the term, a global non-exclusive license with no sub-licensing rights, limited to implementation and use of the licensed standards.
In the course of the negotiation, Sharp began to file a series of patent infringement lawsuits against OPPO or its business partners in Japan, Germany, and Taiwan province of China from January 2020 onwards.
On March 25, 2020, OPPO filed a lawsuit with the Shenzhen Intermediate Court, asking the Court to: (1) rule that Sharp violated its FRAND obligations or the principle of good faith during the licensing negotiation; (2) set global licensing rates and terms for Sharp owned SEPs of 3G, 4G and WiFi and (3) order Sharp to compensate Oppo RMB 3 million for economic losses caused by violating the FRAND obligations. Sharp challenged the court's jurisdiction by filing a jurisdictional objection to the case.
In October 2020, the Shenzhen Intermediate Court ruled in favor of OPPO, confirming its jurisdiction to set global licensing rates and terms over the SEPs by taking a wide range of factors into consideration.
Sharp appealed to the Supreme Court requesting: the case be dismissed; and if the above request is not satisfied in full, that the infringement dispute in the case be dismissed, and that the dispute concerning the licensing conditions of the SEPs for 3G and 4G in China be transferred to the Guangzhou IP court, and that the Global licensing conditions of the SEPs for WiFi and the licensing conditions of the SEPs for 3G and 4G in other countries or regions than China be dismissed. The appeal requests are substantially the same as those submitted in the jurisdictional objection.
2. The decision of the Supreme Court
The case is a dispute of jurisdiction over SEP licensing. The issues in dispute during the second trial of the case included: whether Chinese courts had jurisdiction over the case; if Chinese courts had jurisdiction over the case, whether it was appropriate for the first-instance court to exercise jurisdiction over the case; if the first-instance court had jurisdiction, whether it was appropriate for it to rule on global licensing rates and terms of the SEPs in question.
(1) Jurisdiction of Chinese courts over the case
The essence of an SEP licensing dispute is to ask the court to determine the specific licensing rates and terms to urge both parties to conclude a license agreement or to perform the license agreement. Therefore, the Supreme Court considered that such a dispute was relatively more contractual than patent infringement in nature.
Sharp is a foreign enterprise without a domicile and a representative office in China. The jurisdiction of Chinese courts over such a foreigner-related dispute depends on whether the dispute has proper connection with China. To determination whether an SEP licensing dispute is properly connected with China, the following factors may be taken into consideration: the place where the patents in question were granted, the place where the patents are implemented, the place where the patent license agreement was signed or where the patent license agreement was negotiated, the place where the patent license agreement is performed, or the place where the property available for seizure or enforcement is located, etc. As long as one of the afore-mentioned places is within the territory of China, the case shall be deemed to have proper connection with China and Chinese courts shall have jurisdiction over it.
In this case, the SEP portfolio involves a great number of Chinese patents, the manufacturing activities of OPPO to implement the SEPs in question took place in China, and the parties had conducted negotiations on the licensing of the SEPs in question in Shenzhen, China. Therefore, Chinese courts have jurisdiction over this case, whether as the court where the patents were granted, the court where the SEPs in question were implemented, or the court where the licensing of the SEPs in question was negotiated.
(2) Jurisdiction of the Shenzhen Intermediate Court over the case
The jurisdiction of a Chinese court over the SEP licensing dispute may also be based on the above-mentioned jurisdictional connections. OPPO Shenzhen, as a wholly-owned subsidiary of OPPO and one of the subjects implementing the SEPs in question, is located in Shenzhen and implemented the SEPs in Shenzhen too. The Shenzhen Intermediate Court, as the court in the place where the SEPs in question are implemented, could exercise its jurisdiction over the case. Meanwhile, the Shenzhen Intermediate Court, as the court where the SEP license was negotiated, could also exercise its jurisdiction over the case in this connection.
(3) Jurisdiction of the Shenzhen Intermediate Court to rule on SEP global licensing rates and terms
Whether it is appropriate for the Shenzhen Intermediate Court to rule on global licensing rates and terms over the SEPs in question should be considered comprehensively based on the facts of the jurisdictional dispute and in combination with the special nature of SEP licensing disputes. In particular, the Supreme Court considered multiple factors to find the jurisdiction of the Shenzhen Intermediate Court over the case: the scope of the parties' willingness when negotiating the SEP license (Sharp proposed a 5-year global non-exclusive license for its SEP portfolio with no sub-license rights); the countries granting the SEPs and the distribution ratio of the SEPs (most of which are Chinese patents); the main place of implementation, main place of business or source of revenue for the SEPs in question (The main place of business of OPPO, the manufacturing site and the main sales area of its smart terminals involved in the case are all in China, its share of sales in China was 71.08% as of December 31, 2019); the place of negotiation for the SEP licensing between the parties (which is in Shenzhen), and the location of the property available for seizure or enforcement (which is also in Shenzhen).
In view of the above, the parties in this case had the intent to agree on global licensing rates and terms over the SEPs in question and had negotiated the license therefor. The scope of the parties' willingness to negotiate constitutes the factual basis for ruling on global licensing rates and terms. Second, the SEP licensing dispute in this case is obviously more closely linked to China.
Most of the SEPs involved in the licensing negotiation are Chinese patents; China is the main place of implementation, the main place of business and the main source of revenue of the implementer of the SEPs in question; China is the place where the licensing negotiations took place; and China is also the place where the property of the patent licensee is available for seizure or enforcement. It would be more convenient not only to find out the facts of OPPO's implementation of the SEPs in question, but also to enforce a court decision, for Shenzhen Intermediate Court to rule on the global licensing rates and terms over the SEPs in question.
The Supreme Court therefore rejected the appeal of Sharp and affirmed the first-instance ruling.
(1) The most-significant-relationship test
The Supreme Court's decision can find its legal basis from Article 265 of the Civil Procedure Law of the People's Republic of China, which provides for six types of connections for exercising jurisdiction over extraterritorial defendants: “Where an action is instituted against a defendant which has no domicile within the territory of the People's Republic of China for a contract dispute or any other property right or interest dispute, if the contract is signed or performed within the territory of the People's Republic of China, the subject matter of the action is located within the territory of the People's Republic of China, the defendant has any seizable property within the territory of the People's Republic of China, or the defendant has an representative office within the territory of the People's Republic of China, the people's court at the place where the contract is signed or performed, where the subject matter of action is located, where the seizable property is located, where the tort occurs or where the domicile of the representative office is located may have jurisdiction over the action."
So, in spite of different expressions such as "proper connection", "more closely linked to", the Supreme Court found the jurisdiction of the Shenzhen Intermediate Court basically by application of the most-significant-relationship test. This should further attribute to the contractual nature of the SEP global licensing. Applying the most-significant-relationship test, it becomes very clear that Chinese courts have jurisdiction over the dispute and are more suitable to adjudicate the case.
Although the most-significant-relationship test should be deemed the basic test for the Supreme Court to make the decision, the willingness of both parties to enter into a global license over the SEPs and the subsequent negotiations therefor, and the application of so called forum convenience doctrine are also intensively considered by the Supreme Court.
(2) The consent of the parties to jurisdiction is not a premise
The Supreme Court has also made it clear in the decision that the consent of the parties to jurisdiction is not a premise for a particular court to excise its jurisdiction and address the rates and terms of an SEP global license. Where the parties have the willingness to enter into a global license and the case has a closer connection to Chinese courts, it is appropriate for Chinese courts to rule on the rates and terms of the global license of the SEPs in question.
In general, Oppo made an extremely strong case and met almost all of the applicable connections under the most-significant-relationship test, though from the opinions of the Supreme Court, Chinese courts might excise jurisdiction over such dispute when only some of the connections are met in China.
Whatever, the Supreme Court clearly rejected the viewpoint that the court of any country even having a very loose connection with the SEP licensing dispute may adjudicate such a case. This is consistent with the practice of settling international commercial disputes, and is also beneficial to avoid judicial competition to some extent and inhibit forum shopping by an SEP owner or an implementor, which may leverage a case by suing in a country with little interests to the patent portfolio. As the highest court of the second biggest market in the world, the standpoint of the Supreme Court of China on such disputes cann't be ignored.
(Source: CCPIT PATENT AND TRADEMARK LAW OFFICE)