The Chinese Supreme Court Affirms Chinese Courts’ Jurisdiction over Global Royalty Rates of Standard-Essential Patents: Sharp v. Oppo

By Zhongren Cheng, LL.M. 2021

On August 19, 2021, the Supreme People’s Court of the People’s Republic of China (SPC) affirmed the jurisdictional ruling of the Shenzhen Intermediate People’s Court¹ (Shenzhen Court) in Sharp Corp. v. Guangdong OPPO Mobile Telecom. Corp., Ltd.,² holding that it is appropriate for the Shenzhen Court to rule on global licensing terms for standard-essential patents (SEPs).

Sharp, a Japan-based company, held SEPs for 3G, 4G, Wi-Fi, and HEVC (High Efficiency Video Coding) and wanted to collect patent royalties from Oppo.³ The dispute between Sharp and Oppo arose from the parties’ failed licensing negotiations.⁴ First, Sharp filed several patent infringement suits in Germany, Japan, and other jurisdictions against Oppo and related entities for using SEPs.⁵ In response, Oppo filed this licensing terms lawsuit with the Shenzhen Court.⁶ Oppo requested the Shenzhen Court to confirm that Sharp violated its fair, reasonable, and non-discriminatory (FRAND) licensing obligations or the principle of good faith and to decide the global licensing terms for Sharp’s SEP portfolio.⁷ Sharp objected to the Shenzhen Court’s jurisdiction, specifically challenging its jurisdiction over the global licensing terms.⁸

In analyzing the appropriateness for Chinese courts to decide the global licensing terms, the SPC considered whether the parties were willing to reach a global license agreement and whether the case was “more closely connected” to China.⁹ To establish the “closer-connection” element, the SPC relied on the following facts: (1) most of the patents are Chinese patents; (2) Oppo’s main business is in China; (3) the parties conduct licensing negotiations in Shenzhen, China; and (4) the licensee’s assets and properties are also in China.¹⁰

The SPC also responded to the issue of potential conflicts with foreign judgments raised by Sharp. The SPC held that the core disputed issue of the parallel patent infringement cases outside mainland China was different from that of the current suit: the former related to the damages when patent infringement was established, while the latter focused on the global licensing terms, specifically the global royalty rate.¹¹ Furthermore, even if the subject matter was similar in some cases, Chinese courts could still exercise jurisdiction over a licensing term lawsuit involving global SEPs irrespective of parallel litigations in foreign countries if Chinese courts’ jurisdiction could be successfully established.¹²

This Sharp decision may be deemed as a response to Unwired Planet v. Huawei,¹³ where the UK Supreme Court held that UK courts could decide global royalty rates for SEPs.¹⁴ In fact, in April 2018, the Guangdong High People’s Court¹⁵ issued a judicial guideline,¹⁶ opening the possibility for Chinese courts to decide global royalty rates. Chinese courts have the discretion to decide whether to try a royalty rate claim regarding territories outside of China as requested by one of the parties.¹⁷ Undoubtedly, when the licensee is a Chinese company mainly doing business in China, Chinese courts will have more incentive to set global royalty rates. A more complicated situation is where a licensor has filed licensing term lawsuits for SEPs against a Chinese company outside of China. Even so, Chinese courts will likely exercise their jurisdiction as long as the case is found to be “more closely connected” to China.¹⁸ Also, patent holders should be more careful with how they conduct licensing negotiations with Chinese licensees, especially as to the negotiating parties and the negotiation place.¹⁹ In Sharp, since Oppo Shenzhen Branch joined the negotiation and the parties negotiated in the branch’s office in Shenzhen, the personal jurisdiction of the Shenzhen Court was successfully established based on such connections with Oppo Shenzhen Branch.²⁰