Was the InterDigital arrest controversy just a misunderstanding?
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Was the InterDigital arrest controversy just a misunderstanding?

China has made considerable strides at increasing transparency in its legal and IP system, but the Huawei-InterDigital dispute shows that much improvement still is needed

In late October, the Guangdong High Court affirmed two decisions of the Shenzhen People’s Intermediate Court in the FRAND licensing dispute between Huawei and American NPE InterDigital. The trial court found that InterDigital violated the Anti-Monopoly Law (AML) as well as its obligations to license out its standards-essential patents out on FRAND terms. The cases have been closely watched for a number of reasons, one being that they are the first decisions out of China involving the licensing of standards essential patents.

Unfortunately, many of the details of the cases have not been divulged. Zhao Ye of King & Wood Mallesons, who represented Huawei, told Managing IP that because of the amount of trade secrets involved on both sides, many of the important details could not be shared. Neither decision has been published, which has led to considerable speculation about the specifics of the ruling.

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William Merritt, President and CEO of InterDigital, said that the NDRC said that it could not guarantee the safety of InterDigital executives

An ominous turn

The uncertainty increased in December when China’s National Development and Reform Commission (NDRC) said that it could not “guarantee the safety of” InterDigital’s executives. The statement came during a discussion when the NDRC, who has broad authority to investigate a wide range of matters, including antitrust issues, requested that InterDigital’s CEO William Merritt come to China for a meeting.

Neither InterDigital nor Fangda Partners, its lawyers in China, responded to a request to comment for this piece.

Not surprisingly, there were considerable concerns among international companies and government officials. What exactly was said in this meeting? Did the AML have criminal provisions to justify arrests? What level of authority did the NDRC have in such matters?

Speculation was rampant among the international IP community. One China-based observer said he heard the threat was made after Merritt offered to send lower level executives in his place, as a means to pressure him to show up personally (as his safety presumably could be guaranteed). 

A foreign government official suggested that the threat was made under provisions of the Civil Law, which he said allows the NDRC to ensure that parties being investigated in civil matters to be present for the investigation. One lawyer suggested that the NDRC believed that InterDigital had received threats of violence from various companies it had angered, thus the inability to guarantee the safety of its executives. And several wondered if the NDRC was taking an aggressive stance on behalf of a favoured Chinese company.

A simple misunderstanding?

The wide variety of interpretations is unsurprising given the lack of information about both the case and the NDRC. However, one person involved in the matter told Managing IP that the situation is considerably more pedestrian.

“The NDRC’s statement was one of those made in the heat of the moment,” he says. “Both sides said the sort of things that they probably later regret. I don’t think that the NDRC meant to make arrests, but it came out that way.”

He argues that the concern is warranted from InterDigital’s perspective, given the NDRC’s broad authority.

“It’s a huge agency with many different branches,” he points out. “When they make a threat you have to take it seriously.”

Moving toward clarity

China’s IP system has made considerable strides to increasing transparency and making procedures more open. Customs and law enforcement are often praised for being quite responsive to rights holders seeking information and clarity, and starting this year, all court cases in China will be published. However, the Huawei-InterDigital dispute illustrates that the lack of available information is still a problem for rights holders in China. And perhaps more importantly, the opacity of these proceedings serves to detract from the progress China has made and reinforces its reputation as a place unfriendly to IP.

UPDATE: According to Amy Gao of Huawei, Huawei had requested that the court decisions be published with the trade secret information redacted, but the judges sided with InterDigital and declined to do so.

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