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Accelerated technological innovation and industry convergence have sparked new development trends in standard essential patent (SEP) cases across China in recent years. SEPs, meaning patents indispensable for implementing technical standards, are typically licensed on fair, reasonable and non-discriminatory (FRAND) terms.

Historically concentrated in cellular communications, particularly disputes between terminal manufacturers and patent holders, SEP litigation now spans expanding domains including the internet of things (IoT), audio-video codecs and wireless communication technologies. This expansion has significantly diversified dispute participants and is fundamentally reshaping licensing models and dispute resolution mechanisms.

Cellular communications

Automakers¡¯ strategic move. The automotive sector¡¯s rapid evolution, as marked by advances in new energy vehicles, autonomous driving and vehicle connectivity, is transforming cars from mere transportation tools into sophisticated smart devices. Modern vehicles now integrate cellular communications, intelligent navigation, infotainment systems, remote monitoring and autonomous driving features, with cellular technologies playing a pivotal role.

This technological shift has triggered a surge in SEP licensing negotiations and litigation between automakers and patent holders. While established manufacturers like Daimler and Ford grapple with these disputes, Chinese EV (electric vehicle) upstarts increasingly confront similar challenges. As global competition intensifies, the industry must reconcile SEP licensing demands with innovation imperatives, which is an urgent strategic priority.

IoT¡¯s proliferation. The evolution of IoT devices has driven widespread cellular connectivity adoption across electronics, with point of sale (POS) terminals emerging as a prime example. Traditionally reliant on wired connections, these payment devices are increasingly incorporating cellular communications to meet mobile payment demands, a shift that has drawn POS manufacturers into the SEP licensing arena.

This transition exposes technical gaps. Lacking robust patent portfolios and licensing experience, POS makers often negotiate from a weak position. Some SEP holders now demand excessive royalties or initiate litigation, intensifying industry scrutiny over IoT patent practices.

Chipmakers¡¯ return. SEP holders like Qualcomm initially focused licensing strategies on end-device manufacturers. However, evolving licensing models have now pushed semiconductor companies back into the spotlight.

While conventional wisdom holds that licensing chips deliver suboptimal returns for patent holders, some SEP owners are pursuing chip-level agreements in select market conditions. This strategic shift risks cascading licensing costs upstream to the semiconductor sector, a move that could fundamentally reshape competitive dynamics across the entire supply chain.

AV codecs, Wi-Fi domains

SEP conflicts are now proliferating across audio-video codecs, Wi-Fi and other technical fields, marking a significant expansion beyond traditional cellular communications disputes.

This broadening litigation landscape reflects the growing technical complexity of cross-industry standards, as well as the enhanced global competitiveness of Chinese technology firms. These factors collectively signal impending escalations in both patent licensing demands and infringement lawsuits across affected sectors.

Audio-video technology sector. H.264, H.265 and other codec standards contain dense clusters of SEPs. As Chinese firms strengthen their global position in smart TVs, video-conferencing systems and streaming services, SEP licensing challenges in this domain have become increasingly acute.

Notably, rights holders have adopted more aggressive tactics in recent years. Beyond traditional patent pools and individual licensing approaches, some now employ commanding strategies in litigation to pressure implementers.

With ultra-HD video, virtual reality/augmented reality (VR/AR) devices and related technologies advancing rapidly, the already complex SEP licensing landscape appears poised for further entanglement, promising greater challenges in both standards evolution and royalty negotiations.

Wireless communications. Wireless technologies beyond cellular networks now face similar pressures. As the backbone for smart home devices, wearables and other IoT products, Wi-Fi exemplifies this growing challenge.

Wi-Fi standards incorporate technical contributions from multiple companies, with various patent holders potentially claiming SEP status for their innovations. This landscape compels Chinese manufacturers of Wi-Fi-enabled devices to navigate mounting licensing demands and escalating litigation risks throughout their global supply chains.

Strategies and projections

As China¡¯s SEP litigation environment matures, stakeholders must develop sophisticated patent licensing and dispute resolution mechanisms. For implementers, this requires strategic SEP portfolio development and mastery of licensing negotiations. When confronting disputes, companies should leverage cross-licensing, structured negotiation protocols and vigorous litigation defences to mitigate losses.

Judicially, Chinese courts have demonstrated growing jurisdictional confidence in SEP cases, increasingly influencing global royalty rate determinations. With continuous improvements to the legal framework, China¡¯s SEP adjudication and mediation systems are poised to offer more refined approaches, contributing distinct perspectives to global standard-setting and patent protection.

The evolution of SEP litigation reflects both technology¡¯s transformative effect on traditional industries and the intricate interplay between intellectual property protection and market competition. China now stands at a pivotal juncture in this domain, where coordinated efforts among policymakers, enterprises and judicial bodies promise to catalyse innovation, accelerate industrial upgrading and fuel high-quality economic development.

Luo Rui is a partner at Han Kun Law Offices. He can be contacted by phone at +86 135 2150 0572 and by email at rui.luo@hankunlaw.com
Bian Yi is an associate at Han Kun Law Offices. He can be contacted by phone at +86 135 2017 2994 and by email at yi.bian@hankunlaw.com