Jacob Schindler

This post has been updated with details of the New York State Court case

Chinese appliance maker Haier has filed an antitrust lawsuit in the Northern District of New York against MPEG LA and six licensors that are part of its ATSC patent pool. The complaint accuses the companies and pool administrator of a range of anti-competitive practices affecting the market for televisions, the effect of which it says is to disadvantage implementers like Haier which compete on price at the lower end. For that reason, Chinese companies – many of which have argued that their low margins entitle them to different patent licence terms – will be interested to see how far this case goes.

The case revolves around the Advanced Television Systems Committee (ATSC) standard, and the patent pool to license it operated by MPEG LA. As the pool administrator explains, ATSC receiver products include an MPEG-2 decoder, meaning implementers must also obtain a licence to that technology. Haier agreed to license those technologies after settling an infringement lawsuit launched by numerous ATSC licensors back in 2009.

The lawsuit filed 10 days ago, which I accessed using Lex Machina, names MPEG LA along with seven of the nine licensors involved in the ATSC pool: Phillips, LG Electronics, Panasonic, Samsung Electronics, Columbia University and Zenith Electronics (an LG subsidiary). Among other things, the suit asks the court to rule that the ATSC licence is unenforceable or illegal under the federal Sherman Act, and to certify that various patents owned by LG, Samsung and Columbia are not essential to the standard.

Alleged excessive pricing is the backbone of the complaint. Up until 2016, the ATSC licence fee was a flat $5 per device; on 1st January this year that figure decreased to $1.50, and it will fall again to $1.00 from 2021. Haier argues that television prices fell precipitously as the rate stayed at $5, meaning royalty rates increased as retail revenues fell. The “regressive” system, it argues, meant the Chinese company was paying an effective rate of 3.5% while higher end models from companies like Samsung owed more in the range of 0.35%. Haier claims that rate of $5 was five times greater than the cost of equivalent licences in Europe, where the ATSC standard is not mandated. After the rate reduced to $1 this year, it will still be up to 200% more expensive than the DVB-T2 standard implemented in Europe, Haier argues.

Haier also objects to the inclusion of numerous patents owned by LG and Columbia which it says are non-essential to the standard, further claiming that 54 patents in the portfolio apply to broadcasting rather than receiving signals, a feature Haier’s sets do not have. The Chinese company claims it has tried to negotiate licences with individual members of the patent pool in order to license only the rights it thinks it needs, but has been rebuffed.

According to a TV industry blog, Haier announced last year that it would stop paying the “unfair” ATSC licensing fees at the end of 2016. New York State court records show that MPEG LA first brought a case against Haier in March 2017. The complaint says the Chinese company "failed to report or pay royalties for any period after July 31, 2015".

Regardless of what happens in this particular US case, it seems clear that the types of arguments being made by Haier in its brief are not going to go away anytime soon. The status of many Chinese companies as low-margin, low-end competitors is one of the most common objections raised in licensing negotiations with foreign licensors. It has driven initiatives by multiple licensors to introduce different rates for high and low-end products in various ways.

Some observers have said they don’t expect Haier’s arguments to attract much sympathy from the US court. But with major antitrust and patent guidelines on the way from Chinese authorities, we should remember that there is a domestic audience for these claims too. And for pool operators and other licensors, that’s probably a much bigger concern that this suit.