Several Chinese smartphone manufacturers, including Xiaomi and OPPO, have been sued by a company that claims to own patents related to Enhanced Voice Services (EVS), a high-definition voice technology for mobile networks.

The Intermediate People’s Court of Xiamen City, Fujian Province, recently heard a series of patent infringement cases filed by Ultra HD Codec Co., Ltd. (hereinafter referred to as Ultra HD Codec) against OPPO Guangdong Mobile Communications Co., Ltd. (hereinafter referred to as OPPO). Ultra HD Codec asserted its rights over six patents involving EVS technology that it owns.

According to sources, one of the patents has been declared invalid and is currently under administrative litigation, while the remaining five patents are still valid. The claim amount for each patent exceeds 30 million yuan. Previously, Xiaomi Communication Technology Co., Ltd. (hereinafter referred to as Xiaomi) was also sued by Ultra HD Codec over the same patents.

Well-known Enterprises Involved in Lawsuits

As industry insiders explained, EVS is a mobile phone high-definition voice service technology that aims to meet the needs of packet-switched mobile communication networks. It can significantly improve the voice quality and network capacity of voice services and is one of the standards developed by the Third Generation Partnership Project (3GPP).

In May 2019, Ultra HD Codec was established. The six patents involved in the case all came from six EVS patent families that the company holds, which include 114 granted patents and 13 pending patent applications. Lu Yuanhui, a lawyer from Fujian Jingyan Law Firm and an agent of Ultra HD Codec, told China Intellectual Property News that the patents held by Ultra HD Codec are standard-essential patents for EVS. Xiaomi and OPPO manufacture and sell mobile phones with EVS codecs that support EVS functions and comply with the EVS standard, which allegedly constitute patent infringement.

Wu Bing, a patent agent from Beijing Sitao Intellectual Property Agency Co., Ltd. and another agent of Ultra HD Codec, told this newspaper that EVS has been widely used in mobile phone products and has a broad market prospect. Huawei is one of the main EVS research and development and EVS standard-setting units, and the EVS patents that Ultra HD Codec is enforcing against Xiaomi and OPPO originate from Huawei.

One of the defendants argued in court that objectively speaking, Ultra HD Codec does not engage in physical research and development and production operations, but rather profits from patent transfers and litigation as a non-practicing entity. At present, Ultra HD Codec has filed lawsuits in multiple regions such as China, the United States, and Germany based on the patents involved in the case. The companies involved in the lawsuits include Apple, LG, OPPO, Xiaomi and others. The actual controller of Ultra HD Codec also founded HD Codec Technology Co., Ltd., which sued Xiaomi, OPPO, TCL and vivo in Shanghai and Nanjing based on six patents belonging to St. Lawrence Communications Co., Ltd., which is an intellectual property operation company.

“As a right holder, Ultra HD Codec exercises its right to sue for alleged patent infringement, which is a legal right granted by the Patent Law. At present, there are long-standing inappropriate comments on patent licensing and legal rights protection in the industry. In fact, it is one of the common ways in the licensing field for non-practicing entities to obtain patents from practicing entities and realize patent value through operation. Patent operation is irrelevant to nationality and object. It is reasonable to obtain reasonable feedback on patent value through legal and industry-standard operation methods, which can then feed back research and development and stimulate innovation.” Wu Bing said.

However, in the view of the above-mentioned defendant, Ultra HD Codec’s behavior may violate the FRAND (fair, reasonable, non-discriminatory) principle. First of all, from a procedural point of view, Ultra HD Codec filed a lawsuit without license negotiations, which may lead to deterioration of the patent licensing environment in the communication industry. Secondly, its license fee rate for EVS is extremely unreasonable. Compared with other declarers of standard-essential patents for wireless communication, Ultra HD Codec’s patent family fee rate is several times or even tens of times higher.

License Fee Rate Disputes Continue

At present, it seems that the high license fee rate for EVS is a major issue of dispute between the parties.

The above-mentioned defendant argued that patent license fees are an economic manifestation of patent value. From this perspective, Ultra HD Codec’s pricing of EVS license fees is not reasonable. From public quotations, Ultra HD Codec’s patent package only contains six patent families, while each phone’s license fee of 0.44 US dollars is obviously beyond a reasonable level. And EVS belongs to 4G standard which contains tens of thousands of standard-essential patent families. According to Ultra HD Codec’s license fee, each phone’s license fee will exceed seven or eight hundred US dollars, which is unbearable for the public.

Lu Yuanhui said that EVS is applied to voice coding and decoding, while the communication technology that people often talk about mainly refers to cellular technology. The two technologies are related but not of the same kind and cannot be confused. “Cellular technology is like building bridges and roads, while voice is like vehicles traveling on bridges and roads. Although they both belong to the field of transportation, the technologies are completely different. Different technologies have different economic values, which will form different rules for setting license fee rates. Whether the license fee rate of standard-essential patents conforms to the FRAND principle depends on whether it can be recognized by the market. The total cumulative fee rate of 6% to 8% for 4G cellular technology is consistent with its value and has been recognized by the main participants in the industry. Ultra HD Codec’s license fee pricing has also been recognized by the industry, and it has reached license agreements with many well-known terminal manufacturers around the world.” Lu Yuanhui believes.

In response, the above-mentioned defendant argued that from a technical effect perspective, EVS mainly provides a voice bandwidth of 7000 Hz to 14,000 Hz, while the frequency range of human voice is 82 Hz to 1100 Hz. Within the bandwidth of 7000 Hz, human voice can be fully included. And EVS’s expansion of the frequency band above 7000 Hz has almost no improvement for people’s call experience. The actual usage rate of EVS is low at present. China Mobile once collected data on the use of EVS in voice calls in some cities in China, and the data showed that the monthly usage rate of EVS was less than 10%. The actual usage rate of ultra-wideband and full-bandwidth EVS involved in Ultra HD Codec’s patents may be even lower. Therefore, EVS does not reflect patent value in the current voice call application scenario, but still charges such high license fees, which may constitute damage to consumer interests.

Enhance Mutual Trust and Develop Together

In recent years, the number of cases involving non-practicing entities in China has generally shown an upward trend. Zhong Chun, an associate professor at the Intellectual Property Institute of Jinan University, said in an interview with this newspaper that non-practicing entities have a dual nature. Objectively speaking, most non-practicing entities obtain considerable economic returns through reasonable operation of intellectual property rights, while also activating the intellectual property transaction market, which can help more business organizations improve their innovation capabilities, which is in line with commercial market logic. But there are also individual institutions and individuals who use non-practicing entities to adopt more aggressive and rash intellectual property litigation strategies, entangle or harass entity enterprises in an attempt to make profits by speculation, which goes against the original intention of encouraging innovation by law with intellectual property rights. Therefore, we need to dialectically view the impact of non-practicing entities on innovation entities.

Regarding the dispute between Ultra HD Codec and Xiaomi and OPPO, Zhong Chun believes that if patent holders cannot achieve their satisfactory license fees through negotiations, they often use litigation means to achieve them. Patent litigation in the field of standards is basically aimed at promoting both parties to eventually reach a patent license agreement. It can be speculated that this is most likely Ultra HD Codec’s main purpose for filing patent infringement lawsuits.

Facing non-practicing entity litigation rights protection, Zhong Chun reminded relevant innovation entities: to strengthen intellectual property protection awareness, conduct careful patent layout, and actively take legal means to protect their own rights and interests. Although there are many opposing and critical voices on the solution proposed by the EU for standard-essential patents, making technology licensing more transparent is a correct problem-solving idea. Standard-essential patent transactions cannot be compared with three goods, so it is very important to improve the transparency of patents in quantity and quality. In addition, licensors and implementers should enhance mutual trust, while also creating sufficient deterrence against any dishonest party in terms of system. Only in this way can we achieve a win-win situation.