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Xiaomi v. IDC: First Suit over Global FRAND Rates before Chinese Courts

DATE:2020-10-13      FROM:LexField

Qishan Zhao, Zhe Lu (Lexfield Law Offices)


  On June 9, 2020, Xiaomi sued IDC in the Wuhan Intermediate People's Court, requesting the court to determine global FRAND rates for the SEPs involved in the negotiation between the two parties.  This is the first case over global FRAND rates accepted by a Chinese court.

  On July 29, 2020, after learning the Wuhan lawsuit, IDC filed two patent infringement actions against Xiaomi based on its eight SEPs before the Delhi High Court in India, applying for preliminary and permanent injunctions and requesting the India court to determine the relevant FRAND rates.

  On August 4, 2020, Xiaomi filed an application of anti-suit injunction against IDC in the Wuhan court and the court granted the injunction on September 23, 2020.  This is the second anti-suit injunction issued by a Chinese court this year for SEP disputes involving parallel litigations in another jurisdiction.

  On September 29, 2020, after learning the anti-suit injunction from Wuhan, IDC applied to the India court for an anti-anti-suit injunction against Xiaomi, which was granted on October 9.


Background

The negotiation between IDC and Xiaomi over the license of wireless communications SEPs started in 2015.  In May 2017, IDC made a verbal offer to Xiaomi and then on June 15, 2019, IDC made a written offer to Xiaomi covering 3G, 4G, 5G, 802.11, and HEVC SEPs and provided the relevant royalty rates.  As a response Xiaomi requested IDC to further provide the rate calculation methodology and comparable licenses.  On July 30, 2019, Xiaomi made a counter offer to IDC, which was however rejected by IDC.  In February 2020, IDC made its second offer to Xiaomi, which in Xiaomi's view did not materially differ from the one IDC made in 2019.  On June 9, 2020, Xiaomi sued IDC before the Wuhan Intermediate People's Court and requested the court to determine the global FRAND rate of the SEP portfolios involved in the negotiation.

 

Litigation Progress

After accepting the case, the Wuhan court started the service process to IDC.  On July 28, 2020, Xiaomi informed IDC of the Chinese proceedings.  On the following day, July 29, IDC filed two patent infringement actions before the Delhi High Court against Xiaomi.  In one of the cases (Case No. CS. COMM. 295/2020), IDC claimed that Xiaomi infringed its five 3G and 4G SEPs (Patent Nos. 262910, 295912, 298719, 313036, and 320182); and in the other one (Case No. CS. COMM. 296/2020), IDC sued Xiaomi for infringement of three SEPs relevant to the H.265 or HEVC standard (Patent Nos. 242248, 299448, and 308108).  In both cases, IDC sought compensatory and punitive damages, as well as a "FRAND injunction" under which Xiaomi would face an injunction from the Indian court when infringement is founded unless it enters into a license agreement on terms determined as FRAND by the Indian court.

 

On August 4, 2020, Xiaomi filed an application for an anti-suit injunction with the Wuhan court, with the following claims for IDC's 3G and 4G SEPs involved in the Wuhan case:

(1)   to order IDC to immediately withdraw or stay the preliminary and permanent injunctions that IDC applied in the Indian court against Xiaomi;

(2)   to enjoin IDC from filing for preliminary and permanent injunctions in China or other jurisdictions;

(3)   to enjoin IDC from enforcing any already existing or possible preliminary and permanent injunctions in China or other jurisdictions;

(4)   to enjoin IDC from requesting a court in China or other jurisdictions to hear disputes between the parties over the royalty rates or royalties; and

(5)   to enjoin IDC from initiating any form of legal proceedings in China or other jurisdictions.

Xiaomi provided a bond of RMB 10 million for the application.

 

The Wuhan court held that:

(1)   since IDC filed a lawsuit in India and applied for injunctions immediately after learning about the Wuhan case, IDC's intention to circumvent this Wuhan court's jurisdiction and to interfere with the adjudication of this Wuhan case is obvious;   

(2)   IDC's filing of the Indian cases is an abuse of judicial remedy procedures since injunctions by the Indian court against Xiaomi, if issued, might lead to conflicts with decisions by this Wuhan court;

(3)   IDC's application for preliminary and permanent injunctions in India would necessarily affect Xiaomi's operations in India and thereby significantly harm Xiaomi's interests; and

(4)   except a delay for IDC to pursue legal protection of its rights after the breakdown of negotiation, the issuance of an anti-suit injunction would not cause any other material injury to SEPs held by IDC, and nor would it affect or harm the public interests.

 

On September 23, 2020, the Wuhan court ruled that IDC shall immediately withdraw or stay the preliminary and permanent injunctions it sought in the Indian court.  Besides, the Wuhan court ruled that while the case is pending before it, IDC shall not, based on its 3G and 4G SEPs involved in this case, seek preliminary or permanent injunctions against Xiaomi in or out of China, enforce such injunctions that it already obtained or might obtain, or require another court to determine the FRAND royalties.  If IDC did not comply with the anti-suit injunction, it would be fined RMB 1 million for each day of incompliance.  IDC may apply for a reconsideration of this ruling, but its enforcement would not be stayed during the reconsideration.  Following the Intellectual Property Division of the Supreme People’s Court, this is the second time for a Chinese court to issue an anti-suit injunction for a SEP dispute involving parallel litigations in another jurisdiction.

 

On September 29, 2020, after learning the anti-suit injunction issued by the Wuhan court, IDC applied for an anti-anti-suit injunction in the Delhi High Court of India, seeking to enjoin Xiaomi from restraining IDC's patent infringement actions in India.  The India court granted this injunction on October 9, 2020, enjoining Xiaomi from enforcing the anti-suit injunction issued by the Wuhan court while the infringement cases in India are pending.

 

Litigation Battle between IDC and Lenovo & Motorola

In China, IDC is also in SEP litigation with Lenovo and Motorola.  On April 10, 2020, Lenovo and Motorola sued IDC before the Beijing IP Court, requesting the court to determine the FRAND rates payable for IDC's Chinese 3G, 4G, and 5G SEPs. The court accepted the case on June 16, 2020.

 

The series of SEP actions between IDC, Lenovo and Motorola first began in the U.K.  On August 27, 2019, IDC sued Lenovo and Motorola before the High Court of Justice in London for patent infringement and requested the court to declare that the global royalty rates that IDC offered were FRAND rates, or to determine the terms for a worldwide license for its 3G and 4G patent portfolios.  IDC also sought a "FRAND injunction" in the proceedings.  The five patents in dispute were EP 2 363 008, EP 2 557 714, EP 2 485 558, EP 2 421 318, and EP 3 355 537.

 

Meanwhile in the U.S., on August 28, 2019, IDC sued Lenovo and Motorola in the U.S. District Court for the District of Delaware (the "Delaware District Court").  IDC accused Lenovo and Motorola of infringing its patents, and requested the court to declare its offer did not breach the FRAND commitments.  Furthermore, IDC requested that if Lenovo refused to negotiate for a global license, enter into an international arbitration, or accept the FRAND terms determined by the High Court in the U.K, the US court should issue an injunction.  The 8 patents involved in the patent infringement action are patents Nos 8,085,665, 8,199,726, 8,427,954, 8,619,747, 8,675,612, 8,797,873, 9,203,580, and 9,456,449.  Lenovo and Motorola challenged the validity of the patents in the suit and their motion to dismiss 6 of the 8 patents in the entirety was denied by the court on July 14, 2020.

 

On April 9, 2020, Lenovo and Motorola also filed an anti-monopoly suit against IDC in the same Delaware District Court, seeking rulings that IDC violated the Sherman Act and its FRAND commitments to ETSI with its licensing of the 3G and 4G SEPs.  They also requested the court to determine that they were entitled to a FRAND license for IDC's 3G and 4G SEPs, and to enjoin IDC from obtaining excessive royalties from them or their customers for its U.S. 3G and 4G SEPs through patent infringement litigation.

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