By George T. Willingmyre, P.E.

On 21 January, 2010, the China National Institute of Standardization (CNIS)¹ issued and requested comments from all stakeholders on its Disposal Rules for Inclusion of Patents in National Standards² (Disposal Rules). The Disposal Rules are a key component of the Standards Administration of China’s (SAC) Proposed Regulations for the Administration of the Formulation and Revision of the Patent-Involving National Standards³. The Disposal Rules are specifically referenced therein. Previously, many of those commenting⁴ including this author⁵) and materially affected parties expressed serious reservations with the SAC proposed regulations:

The SAC patent policy proposal is unbalanced against an intellectual property owner’s rights and will discourage participation from owners of intellectual property within and outside of China. Implementation of the SAC patent policy proposal as worded will place China in a position to have to accept and promote inferior technologies and/or more costly implementations for important standards.⁶

The Disposal Rules do not contain some of the more troubling provisions contained in the SAC Draft Regulations. For example, the Disposal Rules do not mirror those portions of Article 9 of the SAC Draft Regulations which prohibit the inclusion of any patented technology in a standard unless the patent holder agrees to grant licences with royalties at a price significantly lower than the normal royalties. The Patent Licensing Section 4.3 of the Disposal Rules does not contain this troubling phrase. According to one commenter to CNIS on the Disposal Rules:

“Current proposed rules are far more consistent with international norms and practices in the technical standardisation area than the SAC document and demonstrate China’s desire to participate on equal terms with other nations in the development of standards that are critical to the functioning of the information economy.” ⁷

Even so this wording of the Disposal Rules is problematic. For example:

4.3 Patent Licensing
4.3.1 For purpose of patent licensing, the licencer should fill out the Patent Licensing Declaration Form (see Form A.3 in Annex A)

may convey the misimpression that completing the licensing option described is an actual grant of a licence rather than a commitment to negotiate a licence. It is internationally recognised that a commitment to negotiate a licence is all a patent holder can offer. It takes more than one party to have a licence.

A second troubling provision in the SAC Draft Regulations is compulsory licensing, or forced negotiations in the shadow of the threat of compulsory licensing, for mandatory national standards. The SAC Draft Regulation, Article 13 compulsory licensing text is not in the CNIS document.

By excluding the provisions above from its Disposal Rules, CNIS has taken significant steps toward aligning them with international norms. There remain, however, several areas of the Disposal Rules that require refinement for further progress to achieve this goal. These include: 1) distinguishing between essential patents and essential patent claims, and the obligations with respect to each; 2) clarifying that the declaration form is not a licence; and, 3) clarifying the disclosure obligations as discussed herein, including those with respect to non-participants.

Essential Patents and Essential Patent Claims

The Draft CNIS Disposal Rule defines “essential patent” as follows:

3.1 Essential Patent
One of the claims of the patent can not avoid from being infringed through the adoption of another commercially feasible and non-infringing mode of implementation when the standard is implemented.

The definition above combines two distinct concepts of essential patent and essential claim. But it does not use or define the term “essential claim.” Rather this CNIS construction depends on the finding that “one of the claims of the patent can not avoid from being infringed…” that makes that patent an essential patent. Rather more commonly in patent policies an essential patent is one defined as containing at least one essential claim.

This definition also defines infringement based upon “commercial feasibility” as opposed to the internationally accepted norm of “technical essentiality.” This seemingly innocuous language broadens possible infringement to technical solutions that are outside the standard (not technically and specifically defined in the standard) and to technology that comes into existence after the standard has been approved. The language creates a quagmire of legal issues, makes compliance with patent disclosure requirements impossible in some cases, and creates a disincentive for further research and development to improve on the standard after it has been approved.

One commenter has suggested that the Disposal Rules define essential patents as a patent that includes at least one essential claim.⁸ CNIS could then define an essential claim as one that is technically essential and unavoidably infringed by implementation of a Chinese national standard.

Possible technically essential patents are typically the subject of required standards disclosure provisions, whereas truly technically essential patent claims are the subject of required standards licensing statements.

A patent may contain many claims both technically essential and non-essential. Some of the claims may not be related to the standard at all. Therefore it is important to specify that a commitment to offer a licence only applies to the claims within the patent which are technically essential.

A representative comment to CNIS on this issue is that of the US-China Business Council:

Many patents include multiple claims some of which may be essential for elements of a given standard and some of which may not be. Distinguishing clearly between essential patents and essential claims in those patents will ensure that licensing statements are well-crafted and not overly broad…⁹

and the American National Standards Institute (ANSI):

ANSI recommends that it be clarified that only “essential claims” will be subject to the licensing commitment selected by the patent holder.

And the Intellectual Property Owners Association:

It would be clearer to define both an “Essential Patent” and an “Essential Claim.” Such clarification would encourage patent holders to disclose early.¹¹

Declaration Form is Not a Licence

CNIS created A.3: Patent Licensing Declaration Form to collect information about essential patents. The form regrettably requests an onerous amount of information regarding patents and published/unpublished patent applications far beyond the forms used by comparable standards bodies. This may have the net effect of discouraging patent holders from disclosure or being able to comply.

CNIS has a significant yet straightforward and simple opportunity to immediately correct a confusing and potentially serious misunderstanding that the declaration form itself is a licence. CNIS could simply insert a statement that completion of such a licensing declaration form as intended by A.3 is not an offer or grant of a licence itself but rather an indication of the patent holder’s willingness or commitment to offer a licence consistent with the terms of the patent policy. Such a statement would align with international practices.

In the case of a commitment to offer a licence under reasonable and non-discriminatory (RAND) terms, the commitment means a willingness to engage in a negotiation of mutually acceptable terms and conditions that are reasonable and non-discriminatory. By definition, RAND may include a royalty or be royalty-free, and may or may not include other terms and conditions. Concerns on the scope of essential patents and the purpose of the form A.3 were a substantial component of the GTW comment to CNIS¹²:

The filling out of a declaration form is a commitment to offer a licence. The filling out of the declaration form is not the offer or grant of a licence itself. This is a key distinction. In the case of RAND commitment, the commitment means a willingness to engage in a negotiation of mutually acceptable terms and conditions that are reasonable and non-discriminatory.¹³

And that of the American National Standards Institute¹⁴ :

and that the commitment made to the organisation to offer licences is different than an actual licence which may be negotiated between parties at a future date¹⁵

Participants, Non-Participants and Disclosure

Another area of concern is lack of certainty regarding who is bound or impacted by the rules. Of particular concern is the applicability of the Disposal Rules to non-participants in the standards process. While it is desirable to know whether non-participants hold patents, it is also important to reassure non-participating innovators that they will not be required to monitor each and every standard in development. It is particularly problematic when the non-participant does not even know the work is in progress. The Disposal Rule 4.1.1. below uses the term “participating” and “not participating” but the term “participation” is not defined.

4.1.1 The Professional Standardization Technical Committee (PSTC) or the Unit in Charge (UIC) should encourage all the entities or individuals participating and not participating in the standard formulation and revision to disclose any known or possible patent related thereto as early as practically possible in the process of standard formulation and revision.¹⁶

Obligations for disclosure of patents during standardisation properly vary greatly between participants and non-participants. Arguably, a non-participant cannot be bound by the policies of a process in which they did not participate. The Disposal Rules attempt to provide specific requirements in different stages of the standards process. However, although the term “participating” and “not participating” are used in the policy, “participate” is not defined.

One example of a definition for “participate” is found in the ABA reference Standards Development Patent Policy Manual:

“Participate” means active participation in an activity of an SDO. Without limiting the generality of the foregoing, an Organizational Participant shall be deemed to Participate in a Working Group if any of its employees [are members/have attended __ or more meetings of the Working Group] [during any 12-month period][1], made any Contribution to the Working Group [during the most recent 12-month period], and an individual Participant shall be deemed to Participate in a Working Group if he or she [is a member thereof/has attended __ or more meetings] [during the most recent 12-month period], made any Contribution to the Working Group [during the most recent 12-month period].¹⁷

Further, CNIS could helpfully clarify that the disclosure obligation in 4.1.1 above with respect to essential patents is limited to the personal knowledge of the person or persons participating, or making a contribution, or a corporate/organisation agent appearing on behalf of an organisation. Regardless, the definition of “known” in 4.1.1 should be based on an individual’s personal knowledge. The US-China Business Council suggested the following:

We respectfully suggest that Section 4.1.1 be revised to state, “The standardization technical committee or the organization in charge shall encourage all organizations or individuals participating in the formulation or revisison of a standard to disclose any relevant essential patents that are known to the participating individual as soon as possible during the formulation or revisions of such standard. Individuals who are not participating in the formulation or revision of a standard are encouraged to disclose, on a voluntary basis, any essential patents that are known to the non-participating individual. Non-participants are not required or expected to review any draft Chinese national Standard.”¹⁸

Conclusion

The proposed CNIS Disposal Rules strive to align with the harmonised patent policy of ISO/IEC/ITU.¹⁹ The concepts of disclosure and licensing are addressed at many stages in the standards process using a RAND licensing framework. By distinguishing between technically essential patents and technically essential patent claims in relation to disclosure and licensing statement obligations, clarifying the patent licensing declaration form and required supporting documentation, and to whom the policy applies, CNIS will be able to significantly enhance the current proposed rules.

A translation in Chinese of this Inside Views article is now available here.

George T. Willingmyre. P.E. is president and founder of GTW Associates, an international standards and trade policy consultancy. GTW Associates advises companies, associations and governments on the strategic role of standards and conformity assessment practices in competitiveness of businesses, organisations and countries in the global marketplace. Current projects include representing US business interests to national and international organisations; recommending corporate standards strategies and tactics; interpretation of standards processes and IPR policies, litigation support, assisting foreign organisations and businesses with US market access issues.

1. CNIS is a non-profit national body involved in standardisation-related research activities. [^]
2. http://www.gtwassociates.com/answers/CNISProposal.html [^]
3. http://www.sac.gov.cn/templet/default/ShowArticle.jsp?id=5298 [^]
4. Re: IPO’s Comments on the Standardization Administration of China’s Draft Provisions on the Administration of Formulating and Revising National Standards Involving Patents [^]
5. Comments of GTW Associates [doc] on Regulations for the Administration of the Formulation and Revision of Patent-Involving National Standards (Interim [^]
6. Take Two: China’s Proposed Regulations For Patent-Involving National Standards Intellectual Property Watch December 21, 2009. This article also highlights that although the SAC patent policy applies to Chinese national standards, it contains a provision allowing it to be applied to all Chinese standards. [^]
7. Re ABA Section of Science & Technology Law Invitation to China National Institute of Standardization to Exchange Information and Collaborate on Technical Standards Patent Policy Issues February 26, 2010 [^]
8. Re: American Intellectual Property Association Response to Request for Comments on Draft Disposal Rules for the Inclusion of Patents in National Standards [^]
9. The US-China Business Council Comments on Draft National Standard Disposition Rules for the Inclusion of Patents in National Standards [pdf] (Standard No. 20090445-Z-424) March 2010 [^]
10. Re: The proposed CNIS standard No. 2009045-Z-424) March 1,2010 “Guide tor the Inclusion of Patents in National Standards,” ANSI Comments [pdf] [^]
11. Re: IPO’s Comments on the Standardization Administration of China’s Draft Provisions on the Administration of Formulating and Revising National Standards Involving Patents [^]
12. Comments of GTW Associates [doc] on Disposal Rules for the Inclusion of Patents in National Standards（Draft for Comments) February 28, 2010 [^]
13. ibid [^]
14. Re: The proposed CNIS standard No. 2009045-Z-424) March 1,2010 “Guide tor the Inclusion of Patents in National Standards,” ANSI Comments [pdf] [^]
15. ibid [^]
16. http://www.gtwassociates.com/answers/CNISProposal.html [^]
17. Standards Development Patent Policy Manual [pdf] [^]
18. The US-China Business Council Comments [pdf] on Draft National Standard Disposition Rules for the Inclusion of Patents in National Standards (Standard No. 20090445-Z-424) March 2010 [^]
19. ISO/IEC/ITU common patent policy [^]