Log in
Show password
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Dynamic quotes 
  1. Homepage
  2. Equities
  3. Japan
  4. Japan Exchange
  5. Hitachi Metals, Ltd.
  6. News
  7. Summary
    5486   JP3786200000


SummaryMost relevantAll NewsOther languagesPress ReleasesOfficial PublicationsSector news

Hitachi Metals : Chinese Court Enforces Mandatory Licensing For "Essential Facility" Patents In Antitrust Case

06/22/2021 | 02:11am EDT

In Short

The Development: China's Ningbo Intermediate People's Court ruled that Hitachi Metals ("Hitachi") allegedly abused its dominance when it refused to license patents necessary for the production of sintered neodymium-iron-boron ("sintered NdFeB").

The Significance: This is the first case in which a Chinese court applied the "essential facilities doctrine" to patents that are not standard-essential patents. The controversial doctrine requires a dominant company to provide its competitors with access to an asset that its competitors must have to compete.

Looking Ahead: Hitachi has appealed the ruling to the Supreme People's Court. However, unless and until that court overrules the decision, licensors with "necessary" patents should evaluate their licensing practices in view of the Ningbo court's decision. Licensors should develop and document their legitimate, procompetitive reasons for denying a license.


Ningbo Ketian Magnet Co., Ltd. ("Ketian") and three other Chinese local magnetic material manufacturers filed complaints against Hitachi in 2014. The dispute centered on Hitachi's portfolio of patents related to sintered NdFeB, which is a magnetic material made from rare earth metals. Although the court noted that Hitachi is the "recognized worldwide leader" in the field, with more than 600 related patents in major jurisdictions, the technology is not the subject of any industry standard, and Hitachi made no promise to license its IP rights on fair, reasonable, and non-discriminatory ("FRAND") or any other terms. In the years leading up to the lawsuit,Hitachi licensed patents to eight other magnetic material companies in China.

According to the court's findings, sintered NdFeB is the mainstream magnetic material widely used for many applications, although there are other types of magnetic materials based on different materials or processes. The court's decision reported that Hitachi was the leading supplier for sintered NdFeB globally with a market share of 9.1% in 2016. There are approximately 200 other sintered NdFeB suppliers globally, nearly all of which operate without a license from Hitachi. Despite the large number of suppliers, the court found that the Chinese magnetic material suppliers' ability to export sintered NdFeB to the United States, Germany, and other key countries would be constrained absent a license from Hitachi.

The Parties' Claims

The plaintiffs argued that licensing of Hitachi's patent portfolio relating to sintered NdFeB was a relevant product market in which Hitachi was dominant. Plaintiffs further alleged that Hitachi committed two antitrust violations, (i) bundling "non-essential" patents with "essential" ones and (ii) refusing to license to the plaintiffs.

Hitachi's defense centered on market definition. It argued that the real relevant product market was the downstream market for sintered NdFeB and that there could be no harm to competition in a market with such fierce competition.

The Court's Ruling and Reasoning

The court's decision follows a four-step analysis: (1) defining the relevant market; (2) finding Hitachi's alleged dominance in the relevant market; (3) finding Hitachi's allegedly abusive conduct; and (4) determining the appropriate remedies including damages. The court also noted that steps (1) and (2) may not be necessary in cases where the abusive conduct is obvious.

The court ruled that Hitachi's patents were "de facto" essential, and that the company's refusal to license them without reasonable justification was an abuse of dominance.

Definition of Relevant Product Market

The court adopted two markets, an upstream market for the licensing of patents and a downstream market for products sold based on the patents. Starting with the downstream market, the court determined that sintered NdFeB was a separate relevant product market from other magnetic materials due to its unique characteristics and functions, substantial use in high-tech applications, and other factors. The court also The court also cited a past Hitachi merger filing, which had defined sintered NdFeB as a separate product market.

Having defined a separate market for sintered NdFeB, the court then defined a separate upstream product market for the licensing of Hitachi patents necessary for production of sintered NdFeB ("Hitachi Necessary Patents"), based on plaintiffs' expert reports and Hitachi's marketing materials, which promoted its patents as "essential" and "critical." The court noted that it would have defined a broader upstream licensing market had it determined that sintered NdFeB was in a downstream relevant market with other magnetic materials because potential licensees could seek substitute patents to make products to meet the needs of end customers.

Abusive Conduct

The tying count. The court dismissed the plaintiffs' claim that Hitachi improperly tied essential and non-essential patents, holding that the plaintiffs lacked standing to assert the claim because they were not licensees of the Hitachi Necessary Patents. The court also found that Hitachi neither explicitly nor implicitly said that it would require purchase of non-essential patents in the license package.

The refusal to deal count. The court found that Hitachi had improperly refused to deal with the plaintiffs. First, the court reasoned that because IP fosters innovation and public welfare, application of the essential facility doctrine, which compels access, warrants great caution. Specifically, the court highlighted five necessary conditions that a plaintiff must satisfy to state a proper essential facility doctrine claim:

  • Access to the "facility" (or, in this case, IP) must be necessary for other market players to compete;
  • The defendant controls access to the facility;
  • Competitors cannot replicate the facility using reasonable efforts;
  • The defendant unreasonably refuses to provide competitors access; and
  • It is possible for the defendant to provide access.

The court found that Hitachi's refusal to license the Hitachi Necessary Patents to the four Chinese plaintiffs substantially restricted and eliminated competition in the downstream market, even though Hitachi already had licensed eight other Chinese competitors. The court did not address the fact that there were an additional 200 smaller, unlicensed sintered NdFeB suppliers in the downstream market.

To justify its decision not to license to the plaintiffs, Hitachi argued that (i) the parties never had substantive commercial negotiations because the plaintiffs did not respond to Hitachi's information requests about their respective production processes, and (ii) the plaintiffs initiated proceedings to invalidate Hitachi's patents, indicating their lack of sincerity for licensing negotiations. The court did not accept either argument, finding that Hitachi had refused to deal with plaintiffs in violation of the Anti-Monopoly Law, specifically:

  • When the plaintiffs approached Hitachi to discuss licenses, Hitachi neither responded within a reasonable period nor provided specific pricing terms.
  • Without providing any commitment to license, Hitachi requested that the plaintiffs provide a large amount of information, including specifics about their manufacturing technology or process.
  • Hitachi terminated negotiations because the plaintiffs challenged the validity of certain Hitachi patents. The court rejected that justification under Anti-Monopoly Law implementing regulations, which prohibit a dominant licensor of IP from prohibiting challenges to the validity of its IP.
  • Hitachi did not provide any procompetitive reasons for not granting licenses to the plaintiffs, e.g., concerns regarding the impact of a license on innovation or efficiencies.

Calculation of Damages

The plaintiffs argued that damages should be based on comparing the plaintiffs' performance with those of other licensed Chinese competitors. The court applied an alternative methodology, noting that variations in performance among different companies may result from several factors. The court held that royalties usually reflect parties' mutual assessment of the value of relevant patents and provide a proper measure to calculate damages. The court calculated damages based on the average royalty rate paid by the eight licensed Chinese companies and the average annual sales of the plaintiffs between 2014 and 2017.

Two Key Takeaways

  1. China's Ningbo Intermediate People's Court is the first court in China to rule that an allegedly dominant company abused its dominance by refusing to license patents that are not standard-essential patents.
  2. Hitachi has appealed the Ningbo Court's ruling to the Supreme People's Court, which will conduct a complete review of the decision. Unless and until that decision is overturned, licensors with patents that are considered necessary for marketplace participation should reevaluate how they conduct preliminary discussions with potential licensees in China. Licensors should consider: 
  • Responding to a potential licensee's requests or questions within a reasonable period of time, to the extent that those questions are reasonable. 
  • Not requiring potential licensees to provide significant confidential information in preliminary negotiations.
  • Not raising other requests that may be misinterpreted as malicious attempts to construct obstacles for the negotiation. 
  • Refraining from directly or indirectly enforcing an IP "no-challenge clause." 
  • Clearly communicating and documenting legitimate reasons for any refusal to license IP.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mr Haifeng Huang
Jones Day
31/F Edinburgh Tower
The Landmark
15 Queen's Road Central
Hong Kong
Tel: 2165863939
Fax: 2165790212
E-mail: info@JonesDay.com
URL: www.jonesday.com

© Mondaq Ltd, 2021 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com, source Business Briefing

Stocks mentioned in the article
ChangeLast1st jan.
HITACHI METALS, LTD. 0.00% 2152 End-of-day quote.37.42%
HITACHI, LTD. -2.36% 6443 End-of-day quote.58.50%
All news about HITACHI METALS, LTD.
07/28Hitachi Metals Swings to Profit in Fiscal Q1
07/28HITACHI METALS : Consolidated Financial Report For the 3-month period ended June 30, 2021
07/28Hitachi Metals, Ltd. Reports Consolidated Earnings Results for the First Quarter Ended ..
07/28Hitachi Metals, Ltd. Provides Earnings Guidance for the Year Ending March 31, 2022
06/22HITACHI METALS : Chinese Court Enforces Mandatory Licensing For "Essential Facility" Paten..
05/27HITACHI METALS : (Correction) Partial Correction to "Reorganization of Sales System in Jap..
05/26HITACHI METALS : Reorganization of Sales System in Japan (Transfer of Business Divisions o..
04/28UPDATE2 : Hitachi logs record net profit in FY2020 on IT-related sales
04/28HITACHI METALS : Bain-led consortium to buy Hitachi Metals for $7.5 billion
04/28UPDATE1 : Hitachi logs record net profit in FY2020 on IT-related sales
More news
Sales 2022 891 B 8 134 M 8 134 M
Net income 2022 19 675 M 180 M 180 M
Net Debt 2022 122 B 1 109 M 1 109 M
P/E ratio 2022 46,8x
Yield 2022 0,91%
Capitalization 920 B 8 422 M 8 397 M
EV / Sales 2022 1,17x
EV / Sales 2023 1,07x
Nbr of Employees 28 620
Free-Float 44,8%
Duration : Period :
Hitachi Metals, Ltd. Technical Analysis Chart | MarketScreener
Full-screen chart
Technical analysis trends HITACHI METALS, LTD.
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus HOLD
Number of Analysts 4
Last Close Price 2 152,00 JPY
Average target price 1 994,25 JPY
Spread / Average Target -7,33%
EPS Revisions
Managers and Directors
Mitsuaki Nishiyama Co-Chairman, CEO & Executive President
Hiroaki Nishioka Chief Financial Officer & Head-Administration
Kenichi Nishiie Co-Chairman
Kazuya Murakami Managing Executive Officer, General Manager-R&D
Ryoichi Aida Chief Quality Officer & Head-Technology
Sector and Competitors
1st jan.Capi. (M$)
MISUMI GROUP INC.41.95%12 472
SFS GROUP AG20.19%5 101