I. Regulatory Framework and the Huawei v. Conversant Case
Standard Essential Patents (SEP) are patents that are indispensable for the implementation of a technical standard. As SEP licensing practices now extensively cover sectors such as wireless communication and the Internet of Things, the diversification of licensing entities and the complexity of these models have significantly increased the unpredictability of global business activities. To establish a clearer governance framework, the State Administration for Market Regulation (SAMR) released the Antimonopoly Guidelines for Standard Essential Patents in November 2024. These Guidelines aim to refine the rules for antitrust enforcement, particularly regarding information disclosure and good faith negotiations, thereby promoting fair market competition and protecting the impetus for industrial innovation. Because prospective licensees are distributed globally and intellectual property rights are territorially independent, SEPs and cross-border parallel litigation are frequently concomitant.
The author has conducted an in-depth study of the Huawei v. Convergence case, which fundamentally shaped the legal landscape in China regarding global SEP disputes, that involved a dispute over a portfolio of patents essential to 2G, 3G, and 4G LTE networks. This litigation represents China’s first "action for declaration of non-infringement of international SEPs" and the first instance where a Chinese court determined the licensing royalty rates for a foreign SEP portfolio. The conflict intensified when Conversant initiated parallel proceedings in the United Kingdom and Germany. Notably, a German court rendered a judgment that approved a royalty rate approximately 18.3 times higher than the rate determined by the Nanjing Intermediate Court in China. To prevent irreparable damage and ensure the enforceability of domestic rulings, the Supreme People's Court of China issued its first anti-suit injunction (ASI). This act preservation ruling prohibited Conversant from enforcing the German judgment under the threat of a daily fine of RMB 1 million, eventually prompting a global settlement between the parties.
The Judicial Framework for Anti-suit Injunctions: The Huawei v. Conversant case established a robust judicial framework for the application of anti-suit injunctions in China through a comprehensive "six-factor test". Under this framework, the court evaluates whether a respondent's foreign litigation will have a substantive impact on the trial and enforcement of the Chinese lawsuit. Crucially, the court examines the necessity of the injunction, assessing whether the applicant will suffer irreparable harm—including loss of market interest or business opportunities—if the measure is not taken. The test further balances the potential damage between the applicant and the respondent, considers the impact on public interests, and adheres to the principle of international comity. By successfully navigating these factors and resolving conflicts such as the "anti-anti-suit injunction" (AASI) encountered in subsequent cases like OPPO v. Sharp, Chinese judicial authorities have demonstrated their evolving role as active participants and "rule guiders" in the international intellectual property arena.
II. FRAND Principles and Rate Determination
The cornerstone of SEP licensing is the FRAND principle, which mandates that patent holders grant licenses under terms that are fair, reasonable, and non-discriminatory. Standard essential patent holders are obligated to engage in good faith negotiations, which include providing a clear offer that typically comprises a definitive list of SEPs, claim charts mapping patents to standard specifications, and the specific calculation basis for the proposed royalty rate. In practice, the determination of "essentiality" requires a rigorous necessity test, comparing patent claims with standard specifications; a patent is deemed an SEP only if every technical feature of a claim corresponds to the standard.
Regarding the determination of royalty rates, Chinese courts have shown a preference for the "top-down method" over the "comparable agreement method" when benchmarks lack substantive comparability. The top-down method first determines the aggregate licensing fee for all essential patents related to a specific standard and then rationally allocates this total rate among different patent holders based on their actual contribution share. This methodology prevents "patent holdup" and "royalty stacking," ensuring that the total fees do not exceed a reasonable upper limit. In the Huawei case, the court rejected Conversant’s comparable agreements because the quality and scope of the portfolios were not equivalent, particularly as many patents in Conversant's package had been declared invalid or were found to be non-essential.
III. Strategic Recommendations for SEP-Involved Enterprises
For domestic enterprises navigating SEP disputes, it is highly recommended to utilize the top-down method to calculate licensing rates during negotiations. This allows for a preliminary assessment of reasonable licensing costs and provides a data-driven basis for controlling licensing fees. Furthermore, standard implementers must recognize that expressing a "willingness" to negotiate in good faith does not waive their right to challenge the necessity or validity of the patents involved. Invalidation challenges are particularly critical when patents have been modified to align with standards in a way that exceeds the scope of their original disclosure. Finally, when caught in the impasse of cross-border parallel litigation, enterprises should strategically consider applying for an anti-suit injunction as a legitimate means of rights protection, provided that a comprehensive assessment of the litigation risks and international legal implications has been conducted.
