Determining the FRAND Rate: U.S. Perspectives on Huawei v. InterDigital
Edgeworth partner Dr. Fei Deng and co-author Dr. Su Sun, in an article appearing in the February 2014 issue of CPI Antitrust Chronicle, provided some U.S. perspectives on a Chinese court’s determination of a fair, reasonable, and non-discriminatory (FRAND) royalty rate in the Huawei v. InterDigital litigation.
On February 4, 2013, the Shenzhen Intermediate People’s Court in Guangdong province in China issued a decision that specified a FRAND royalty rate for InterDigital’s standard-essential patents in Huawei v. InterDigital, several months before a U.S. court ruled on FRAND royalty rates for the first time in Microsoft v. Motorola. The Shenzhen Court determined that the royalties to be paid by Huawei for InterDigital's 2G, 3G, and 4G standard-essential Chinese patents should not exceed 0.019 percent of the actual sales price of each Huawei product. The Guangdong High People’s Court affirmed the Shenzhen court’s decision on October 28, 2013.
From publicized information, it appears that the Shenzhen court may have used InterDigital’s licenses with Samsung, Apple, and others as “comparable” licenses to calculate the appropriate FRAND royalty rate that should be charged to Huawei. In their article, Drs. Deng and Su analyzed how the FRAND rate could have been determined using the methodologies that have been developed in the United States, as showcased in Microsoft v. Motorola and In re Innovatio. They first illustrated various factors one needs to analyze to determine whether a proposed license is truly comparable, and then described other methodologies such as “top-down” and “bottom-up” approaches that might be used in determining the appropriate FRAND royalty rate.
They proposed that, in order for courts to implement a more rigorous and scientific calculation of royalty rates in FRAND settings and in other complex intellectual property infringement cases in China, the parties need to tender sufficient evidence and in-depth economic analyses. Given the globalization of intellectual property litigation and the importance of China to multinational companies’ business activities and strategies, a trend in this direction can be expected in the near future.