The court granted permanent injunction against Samsung by holding that Samsung made “obvious mistakes”.
by: Dragon Wang, Beijing East IP Law Firm
by: Austin Chang, Beijing East IP Law Firm
On January 11, the Shenzhen Intermediate Court announced its decisions on the two highly anticipated Huawei v. Samsung cases, which Huawei claimed Samsung infringed on two of its 4G Standard Essential Patents (SEP) No. 201110269715.3 (Method and apparatus for sending control signaling), and No. 201010137731.2 (Method, base station, and user equipment for feeding back ACK/NACK information for carrier aggregation). The court found that Huawei’s two patents are 4G LTE SEPs, and Samsung infringed on Huawei’s SEP rights. The court supported Huawei’s prayer for injunctive relief and ordered Samsung to cease its infringing activities.
As background information, Huawei and Samsung have been negotiating for over 6 years to cross-license a patent portfolios containing 3G and 4G LTE SEPs. Deadlocked in negotiation, Huawei initiated in 2016, followed by Samsung, a series of lawsuits and counter-lawsuits against each other in China and the United States. Weeks before, the Fujian Higher Court in China rendered a second instance decision granting a monetary damage of around US$12.4M in favor of Huawei.
In this case, the Shenzhen court held that: 1) infringement was established based on SEPs; 2) Huawei met FRAND obligation while Samsung did not; 3) permanent injunction was granted against Samsung from making, selling, offering for sale, and importing of the infringing 3G and 4G LTE enabled smartphones; and 4) provided the cross license is reached upon further negotiation, or Huawei requests for non-execution of the permanent injunction, the permanent injunction can be lifted. Huawei did not claim for monetary damages in this case.
- Establishment of Infringement
Huawei established the infringement by showing that the asserted patents are 3G and/or 4G LTE SEPs by relying on 3GPP Release 8, Release 9, and Release 10, and showing that Samsung’s asserted smartphones are 3G and/or 4G LTE enabled.
Samsung raised arguments for non-infringements including use of prior art technologies, but failed to be supported by the court. Specifically, Samsung referred to prior patent documents of Ericsson, literature on network technology, and materials released by 3GPP RAN Working Group 1 to show Samsung was implementing prior art technologies thus exempted from patent infringement assertion. The court however did not upheld the arguments.
Notably, Samsung also argued patent right exhaustion based on using of Qualcomm’s CPU chip and other chips bring pass-through right of license of Huawei’s SEPs. However, the court held that the pass-through right does not apply to smartphones with 4G LTE enabled functionalities.
- FRAND Obligation
- Negotiation history
The court reviewed the negotiation history, finding that Samsung made “obvious mistakes” by a) dragging on the procedures with delayed license offer and delayed counter offer; b) delaying the procedures with insistence on licensing of non-SEPs together with SEPs; c) rejecting Huawei’s proposal for arbitration to resolve disagreement; d) rejecting Huawei’s proposal for tech discussions; e) failing to respond to Huawei provided claim charts in written; and f) failing to propose concrete plan for mediation.
The court also found that Huawei did not make “obvious mistakes” during negotiation, although failing to identify clearly the scope of patents purchased from SHARP at the very beginning, Huawei cured this defect later.
- SEP strength
The court held that whether the license offer Huawei proposed meets FRAND obligation depends on a comparison of SEP portfolio strength between Huawei and Samsung. If the offer aligns with SEP strength, it meets the FRAND obligation.
The court reviewed SEP strength of Huawei and Samsung respectively, holding that Huawei and Samsung hold a similar strength position of overseas portfolios, while Huawei is stronger than Samsung in Chinese patent portfolio. To reach this conclusion, the court reviewed the number of essential patents adopted by 3GPP and the number of 3G and 4G patents declared by ETSI. Additionally, the court agreed with conclusion of a third party report on essentiality and tech contribution of Huawei global portfolios. While the court rejected conclusion of a Thomson Reuters report submitted by Samsung, mainly because the report covers US portfolio only without touching portfolios of other jurisdictions.
Notably, the court rejected Samsung’s argument of referring to InterDigital v. Huawei as a comparable license, because: 1) InterDigital is a patent licensing company, its business model is different from an operating company such as Samsung and it is unsuitable to compare stick license with cross license, and 2) the portfolio strength of InterDigital is far less than that of Huawei or Samsung, which is improper to be taken as a reference.
- Royalty rate
By studying materials provided by Huawei and Samsung, the court held that global 3G aggregate rate is 5%; and global 4G LTE aggregate rate is 6% – 8%. The court further held that Huawei’s proportion in 3G aggregate rate is 5%; and is 10% for 4G LTE.
The court concluded that the license offer proposed by Huawei met the FRAND requirements. The court did not disclose the specific terms and conditions of the license offer for confidentiality reasons.
- Permanent Injunction
The court granted permanent injunction against Samsung by holding that Samsung made “obvious mistakes” from both procedural perspective and substantive perspective. Additionally, the court held that because of Samsung’s obvious mistakes, the negotiation has been dragged on for more than five years, which justifies granting of the permanent injunction.
The court declared that this permanent injunction is a special one as it’s related to license negotiation on SEPs. The court thus held that provided the cross-license is reached, or Huawei requests for non-execution of the permanent injunction, the injunction will be lifted.
Samsung is entitled to appeal the Shenzhen Intermediate Court’s decision up to the Guangdong Higher Court within 15 days.