PROPRIETARY

China’s SAMR looks at complaints against Apple Sector: Telecommunications: Hardware

for abusing position in SEP licensing negotiations Topics: Abuse Of Dominance/Single
Conduct, Intellectual Property
26 February 2020 | 02:56 EST
Grade: Strong Evidence
• Apple subject of complaints for abuse of ‘comparative
advantageous position’ Companies
Apple Inc.
• Apple allegedly ‘holding out’ in licensing talks, using non- China Iwncomm Co., Ltd
FRAND terms as ‘pretext’
• Iwncomm v. Apple and related cases said to be proceeding, Agencies
Beijing IP Court
albeit at a snail’s pace State Administration For Market Regulation
(SAMR) - Chinese Competition Authority
Shaanxi Higher People's Court
China’s State Administration for Market Regulation (SAMR) has
been looking at complaints against Apple Inc. for engaging in There are no files associated with this
Intelligence
alleged anti-competitive conduct in patent licensing negotiations
by abusing its advantageous position as the implementer of
standard essential patents (SEPs), according to two sources
familiar with the matter.

The US tech giant has been the subject of complaints for

requiring excessively low royalties during patent licensing fee
negotiations with certain small-and medium-sized SEP holders,
said the sources.

Apple holds a “comparative advantage” in negotiations with such

patent holders as a result of its leading sales in iPhones and iPads.
And Apple has allegedly abused this position by requiring
exceptionally low rates for the SEPs it needs to implement,
holding out in licensing negotiations while using non-FRAND
terms offered by SEP holders as a ‘pretext,’ according to the
complaints.

“Comparative advantageous position,” as a legal concept, first

appeared in the draft amendments to China’s Anti-Unfair
Competition Law (AUCL) in February 2016, issued by the then
Legislative Affairs Office of the State Council, which has since
been incorporated into the Ministry of Justice.

The AUCL draft amendments prohibit a company from abusing its

comparative advantageous position to engage in a list of unfair
conduct, according to the draft. However, as the concept was
contentious in terms of clarity and definition, it was deleted
alongside the clause in which it appeared in the final revised
AUCL.
The removal of “comparative advantageous position” from China’s
competition laws makes it challenging to show – from a legal
perspective – how a company can be said to hold such a position,
said the first source.

SAMR has been looking into the veracity of Apple’s alleged “hold-
out” on the matter, which might explain why a formal probe has
yet to be launched, the same source added.

Apple enmeshed in litigation with China SEP holder

Court records in China show that Apple has been locked in patent
litigation with the Chinese tech firm China Iwncomm, the
company that has developed the Wireless LAN Authentication and
Privacy Infrastructure (WAPI) technology, a parallel wireless
network security standard to Wi-Fi used in Wireless Local Area
Network (WLAN).

Adopted in 2003 as a national security standard, WAPI has been

an SEP required in cell phones sold in China. Not all consumers
use the function in their phones, but some industries that require
a higher-level of security in wireless network access are using the
technology, according to an independent SEP lawyer not involved
in the matter.

China Iwncomm’s website disclosed that it has signed patent

licensing agreements concerning its WAPI technology with
dozens of domestic and foreign handsets and laptop makers.

The Chinese SEP holder filed a patent infringement lawsuit

against Apple in April 2016 with the Shaanxi Higher People’s
Court, alleging Apple refused to engage in substantive
negotiations regarding the implementation of its WAPI standard,
and “maliciously delayed and refused to pay the licensing
royalties.” China Iwncomm asked the court to require Apple to
immediately refrain from infringing on its patent and asked for an
injunction to be placed on the sale of iPhones that use WAPI
technology. The Chinese company in the meantime claimed a
financial damage of CNY 150m from Apple.

It has been nearly four years since the plaintiff filed the suit, and
the Shaanxi court has yet to issue a decision.

Following China’s Iwncomm’s suit, Apple in 2016 subsequently

filed two counteractions against the SEP holder. In its antitrust
suit against China Iwncomm in Beijing Intellectual Property
Court, Apple alleged that the Chinese SEP holder abused its
dominant position in licensing its SEPs by requiring excessively
high and discriminatory royalties, bundling its SEPs and non-
SEPs.

Apple in the meantime filed another suit against China Iwncomm

that same year with the Beijing IP Court, alleging the Chinese
company violated its commitment to license its SEPs on fair,
reasonable and non-discriminatory (FRAND) basis and asked the
court to determine the FRAND rate for the concerned SEP.

Besides the antitrust and FRAND rate cases, Apple in May 2016
asked the country’s Patent Re-examination Board to declare the
SEP concerning WAPI invalid. The Board in February 2017
dismissed all invalid requests from the plaintiff and held the
patent valid for China Iwncomm.

Apple later filed a suit against the Re-examination Board and

China Iwncomm over the validity of the decision in Beijing IP
Court.

No decisions have been handed down in any of the cases,

according to the second source familiar with the matter.

Apple did not return requests for comments. SAMR does not
comment on ongoing cases.

by Qianwen Lu in Beijing

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