Draft provisional rules - national standards involving patents

12 April 2010

Sofia Chen

The Standardization Administration of China (SAC) is soliciting public comments on its revised draft Provisional Rules for Formulating and Amending National Standards Involving Patents. China has a range of mandatory and voluntary standards covering the electronic sector for purposes such as health and safety and interoperability. To date there have not been consistent policies on how to deal with patents which are incorporated into such standards and the draft rules are aimed at addressing this issue.

The starting point of the draft rules is that in principle mandatory national standards should not incorporate a patent unless the patent owner has given a royalty free licence or otherwise reached an agreement on licence of the patent. In respect of voluntary national standards, the draft rules provide that for patents which are incorporated with the patent owner's participation, the patent owner must agree to grant a licence of these essential patents on a reasonable and non-discriminatory basis, either royalty free or at a rate that is "significantly lower than customary royalty".

As there is no jurisprudence on the level of royalty payable for an essential patent, Chinese courts are likely to use these rules as guiding principles for essential patent infringement suits although how the courts will assess what is "significantly lower than customary royalty" remains to be seen. The customary royalties may refer to licence fees for the patents before they were incorporated into the standard, or fees for non-essential patents also licensed by the patent owner.

In additional to national standards, it appears that the draft rules may also apply to essential patents incorporated into industry and local standards.

The SAC has received significant number of comments and interested parties are awaiting with interest the final version of the rules.