China is rising for patent litigation

WiLAN’s choice of Nanjing as venue for its infringement lawsuit against Sony may be the “first step”

A Canadian company’s patent infringement lawsuit against Sony could be the first step in China’s emergence as a venue for international patent litigation.

“As lawyers, we’ve been waiting for China to become a more attractive place to litigate patents,” says Joe Simone, a US lawyer and director of Simone IP Services, a boutique firm in Hong Kong. “And finally we’re starting to see more cases and bigger awards, which is important given China’s place in the global economy.

The lawsuit is the first in China in which a foreign “patent troll” or “non-practising entity” (NPE) is suing another company. The plaintiff, Delaware-based Wireless Futures Technology, is a subsidiary of Ottawa-based and NASDAQ-listed WiLAN Inc., a small wireless company that no longer operates actively but retains some 800 patents from which it derives income. WiLAN seeks to prevent Sony from selling LTE-standard handsets in or exporting them abroad from China.

Since 2002, WiLAN has sued virtually every major mobile and laptop manufacturer in the world, as well as other tech companies, for infringing its Wi-Fi and DSL technology. Some of the cases have settled, but in 2012, a California court ruled, in a case similar to WiLAN’s China suit, that the company’s claims were invalid and its patents not infringed.

Still, WiLAN has entered into licensing arrangements with a host of companies around the world, most recently Mitsubishi of Japan and ZTE Corp. of China. Erick Robinson, a China-based lawyer who is advising WiLAN, told The Wall Street Journal that his client’s goal is to achieve a similar deal with Sony.

WiLAN’s decision to sue in China is significant because large damage awards have been few, hampered by difficulty in collecting evidence to support the claim. But is appears as if WiLAN is focusing on the injunction remedy, which would prevent Sony from exporting wireless devices from its large manufacturing facilities in China. Although Sony’s sales in China are a relatively small portion of the company’s revenue, Sony makes many of its electronic products, including batteries, smartphones and television sets, in China. Success for WiLAN, observers say, will encourage others, particularly foreign patent trolls, to sue in China.

China’s recent reform of its intellectual property rights regime, with a focus on patent protection, has added grist to the mill for potential foreign plaintiffs. Among other things, the government has created specialized intellectual property courts in response to international criticism of the previous IP regime. On the whole, foreign companies, daunted by the delays and costs that populate United States and European IP courts, have discovered that Chinese courts can provide quicker and more efficient routes in which to institute patent infringement proceedings.

These reforms have produced some successes for foreign claimants, and have tended to occur in larger centres like Beijing. The inconsistency in Chinese courts, then, has tended to encourage forum shopping sometimes to odd effect. WiLAN, for example, chose to sue Sony, a Japanese multinational, in the eastern China city of Nanjing (traditionally known as Nanking). There, over a period of six weeks in late 1937, Imperial Japanese Army forces brutally murdered hundreds of thousands of soldiers and civilians. To this day, the Nanking Massacre remains a sensitive subject between the two nations.

Simone suggests that’s precisely why WiLAN chose Nanjing for its suit. “Nanjing is not generally a place where anyone brings patent cases,” Simone says. “WiLAN’s choice of venue is a cynical approach to pressure a Japanese company that doesn’t want to be in the press about anything to do with Nanjing.”

However that may be, it points to the fact that consistency is hardly the hallmark of Chinese IP law and the courts that administer it. But Simone says that if the abuses continue or become flagrant, China’s supreme court will crack down. “I suspect they’ll restrict the rights of parties to manufacture jurisdiction by making the occasional purchase in their forum of choice,” he says.

But like a lot of things in China, the strengthened IP regime could be a two-way street. After all, China’s rapid IP reform has been driven mostly by the government’s desire to protect the growing number of patents owned by Chinese companies. In May 2016, for example, Beijing’s IP regulator, prompted by a complaint from a Chinese company, ordered Apple to stop selling its iPhone 6 and iPhone 6 Plus in the city. Apple has appealed.