The Supreme Peoples Court of People's Republic of China

Civil Ruling

(2019) ZuiGaoFaShangChu 2

Plaintiff: Asia Optical Co., Inc.

Domicile: 22-3South 2nd Road, Tanzi District, Taichung Export Processing Zone, Taichung City, Taiwan Province, the People's Republic of China.

Legal representative: Lai Yiren, chairman of the boardof Asia Optical Co., Inc.

Plaintiff: Dongguan Sintai Optical Co., Ltd.

Domicile: Xiaobian Village, Chung-an Town, Dongguan, Guangdong Province, the People's Republic of China.

Legal representative: Lai Yiren, chairman of the board of Dongguan Sintai Optical Co., Ltd.

Attorney jointly entrusted by the two plaintiffs above: Yu Shulin, Beijing Zhonglun W&D (Guangzhou) Law Firm.

Attorney jointly entrusted by the two plaintiffs above: Huang Bingxin, Beijing Zhonglun W&D (Guangzhou) Law Firm.

Defendant: Fujifilm Holdings Corporation.

Domicile: 2-26-30Nishi-Azabu, Minato-ku, Tokyo, Japan.

Representative: Kenji Sukeno, director of Fujifilm Holdings Corporation.

Defendant: FUJIFILM (China) Investment Co., Ltd.

Domicile: Room2801,68 YinCheng Zhong Road, China (Shanghai) Pilot Free Trade Zone, Shanghai, the People's Republic of China.

Legal representative: Masahiro Ota, chairman of the boardof FUJIFILM (China) Investment Co., Ltd.

Defendant: Shenzhen Branch of FUJIFILM (China) Investment Co., Ltd.

Domicile: Room1511, 1512, 1513, 1515, Block F, West Sea Pearl Garden, South Taoyuan Road, West Nanyou Road, Nantou Sub-district, Nanshan District, Shenzhen, Guangdong Province, the People's Republic of China. 

Person in charge: Masahiro Ota, general manager of Shenzhen Branch of FUJIFILM (China) Investment Co., Ltd.

Defendant: Fujifilm Opt-Electronics (Shenzhen) Co., Ltd.

Domicile: Building 1-7, Fushan Industrial Zone, Qiaotou Residents Committee, Fuyong Sub-district, Baoan District, Shenzhen, Guangdong Province, People's Republic of China.

Legal representative: Masahiro Ota, chairman of the board of Fujifilm Opt-Electronics (Shenzhen) Co., Ltd.

Attorney jointly entrusted by the four defendants above: Guan Bing, Beijing East & Concord Partners.

Attorney jointly entrusted by the four defendants above: Shi Xiaonan, Beijing East & Concord Partners.

For the case involving disputes over processing contracts between the plaintiffs Asia Optical Co., Inc. ("Asia Optical") and Dongguan Sintai Optical Co., Ltd.("Sintai") and the defendants Fujifilm Holdings Corportaion ("Fujifilm"), FUJIFILM (China) Investment Co., Ltd. ("FUJIFILM Investment"), Shenzhen Branch of FUJIFILM (China) Investment Co., Ltd. ("FUJIFILM Investment Shenzhen Branch"), Fujifilm Opt-Electronics (Shenzhen) Co., Ltd. (hereinafter referred to as "Fujifilm Opt-Electronics"), People's Court of Nanshan District of Shenzhen ("Nanshan District Court") ruled to transfer the case to Shenzhen Intermediate People's Court ("Shenzhen Intermediate Court") on the grounds that the value of the object of the action of the plaintiffs' additional claimis beyond the court's level jurisdiction. The Shenzhen Intermediate Court also ruled to dismiss the lawsuit on the grounds that there is an arbitration agreement between the parties and the claim has been arbitrated by the arbitration institution. The plaintiffs refused to accept the ruling and appealed to the Guangdong Higher People's Court ("Guangdong Higher Court"). The Guangdong Higher Court ruled to revoke the ruling of dismissal by the Shenzhen Intermediate Court, on the grounds that the value of object of the action is over CNY200 million and Shenzhen Intermediate Court has no jurisdiction over the case according to the relevant provisions on jurisdiction by level. This case shall be under the jurisdiction of the Guangdong Higher Court. After hearing the case, the Guangdong Higher Court held that the case was a difficult and complicated international commercial case and requested for hearing by the International Commercial Court of the Supreme People's Court. The Supreme People's Court ruled that this case should be heard by the First International Commercial Court of the Supreme People's Court, and the case was accepted on February 19, 2019.

Asia Optical and Sintai filed a lawsuit in the Nanshan District Court, demanding that: 1. Fujifilm return USD 6 million in unjust enrichment to Asia Optical and Sintai; 2. Fujifilm bear all the litigation costs of this case; 3. FUJIFILM Investment, FUJIFILM Investment Shenzhen Branch and Fujifilm Opt-Electronics shall bear joint and several liability with Fujifilm. The plaintiffs then submitted to Nanshan District Court an Application for Additional Claims, changing claim No.1 to the claim of the repayment of gains of USD33,726,531 by Fujifilm to the plaintiffs. On June 1, 2018, the plaintiffs submitted to Guangdong Higher Court their Supplementary Opinion to Civil Complaint, changing claim No.1 to the claim that the defendants shall pay USD33,726,531 with interest (from December 2013, the interest shall be calculated based on the loan interest rate of the People's Bank of China for the same period until the date when the defendants actually repay off the debt). On May 30, 2019, the plaintiffs clarified to this Court their final claims: 1. Fujifilm shall pay the plaintiffs the manufacturing price of USD24,147,344 with interest (from December 2014, the interest shall be calculated based on the loan interest rate of the People's Bank of China for the same period until the date when the defendants actually repay the debt); 2. Fujifilm shall pay the plaintiffs the loss of USD13,325,367 with interest (from December 2014, the interest shall be calculated based on the loan interest rate of the People's Bank of China for the same period until the date when the defendants actually repay) due to the failure of timely payment of the above manufacturing price; 3. Fujifilm shall bear all the litigation costs of this case; and 4. FUJIFILM Investment,  FUJIFILM Investment Shenzhen Branch and Fujifilm Opt-Electronics shall assume joint and several liability with Fujifilm. Facts and Reasons: Fujifilm entrusted the plaintiffs to process digital cameras. A company that is not a party to the case, Eastman Kodak Company ("Kodak") sent a letter to the plaintiffs during the production process, alleging that they used its patents, requiring the plaintiffs to pay patent royalties to Kodak and initiating a lawsuit against the plaintiffs to a U.S. court. The plaintiffs were ordered to pay the patent royalties of USD24,147,344 and relevant accrued interest of USD13,325,367 to Kodak which totaled USD37,472,711. The plaintiffs have paid these patent royalties and interest to Kodak. In accordance with the entrusted processing and manufacture of OEM products (OEM, that is, the entrusted party manufactures products and parts for the entrusting party at the request of the entrusting party, and the entrusting party is responsible for design and development and control of sales channels) and performance relationships between the plaintiffs and Fujifilm, Fujifilm shall pay the corresponding manufacturing price and interest and losses due to breach of contract to the plaintiffs. The plaintiffs sued in Guangdong Higher Court for unjust enrichment, and later called this case a dispute over an entrusted processing contract. In accordance with international practice of OEM, the entrusting party is liable for the entrusted party's infringement of the rights of any third party as instructed by the entrusting party. In the course of the court's inquiry, the plaintiffs clarified upon explanation that they sued on the ground of dispute over entrusted processing contract and listed FUJIFILM Investment, FUJIFILM Investment Shenzhen Branch and Fujifilm Opt-Electronics as defendants in the lawsuit. Since these three companies are the wholly-owned subsidiaries of Fujifilm in China, they shall bear joint and several liability.

Upon the first inquiry made to Fujifilm prior to the court hearing, FUJIFILM Investment, FUJIFILM Investment Shenzhen Branch and Fujifilm Opt-Electronics raised an objection to jurisdiction that all of the eight  Entrusted Development Contracts among Asia Optical(Party B), Sintai (Party B) and Fujifilm (Party A) from 2004 to 2009 included clear and valid arbitration clauses and the parties agreed that "all disputes in connection with this Entrusted Development Contract shall be settled by Party A and Party B through consultation based on the principle of good faith. However, in case no settlement can be reached through consultation, and either Party A or Party B applies for arbitration for the purpose of dispute resolution, such dispute shall be finally settled through arbitration in Tokyo in accordance with the commercial arbitration rules of the Japan Commercial Arbitration Association. All results of the arbitration shall be legally binding upon both Party A and Party B and shall be final and enforceable by all courts with competent jurisdiction." The dispute in this case is subject to"all disputes relating to this  Entrusted Development Contract " as provided for in the arbitration clause of all the Entrusted Development Contracts. Therefore, the dispute shall be settled through arbitration. As a matter of fact, the plaintiffs submitted the request for arbitration to Japan Commercial Arbitration Association upon the same cause of this case, and signed a written arbitration confirmation with Fujifilm. All claims were dismissed by the arbitration award. The claims made by the plaintiffs in this case are the same as their claims made in Japan during the arbitration, claiming against Fujifilm for payment of patent royalties and losses (that is, the amount of USD24,147,344 and accrued interest that the plaintiffs shall compensate Kodak according to the judgement of the U.S. court). Therefore, the plaintiffs' action constitutes a repeated action. In accordance with the "principle of res judicata ", the complaint shall be dismissed. In addition, although Guangdong Higher Court ruled to revoke the ruling of Shenzhen Intermediate Court to dismiss the complaint and ruled that the court shall have jurisdiction, it did not mean that the people's court shall have jurisdiction over this case. The ruling only dealt with issues concerning the violation of the court's level jurisdiction by the Shenzhen Intermediate Court, and did not involve the court's jurisdiction over this case. Therefore, the Supreme People's Court shall also handle the issue concerning the court's jurisdiction before promoting the case for substantive hearing.

As to the jurisdiction objections of the four defendants, the plaintiffs alleged that there were two legal relationships among Asia Optical, Sintai and Fujifilm: the first is the entrusted technology development contractual relationship, and all parties have performed the contracts concerned; and the second is the entrusted processing and manufacturing contractual relationship involved in this case. Although the two parties did not sign the written agreement, the specific rights and obligations during the stage of entrusted processing and manufacturing had actually been determined by means of emails, telephone conference, orders, etc., thus forming the contractual relationship of entrusted processing and manufacturing. Therefore, this claim is based on the fact that Asia Optical and Sintai requested Fujifilm to pay the manufacturing price and the relevant losses for this stage, which is not the same legal relationship as the matters involved in the Japanese arbitration. The arbitration in Japan is based on the Entrusted Development Contract and the emails between the plaintiffs and the defendants during the technology development stage. "All disputes arising in connection with this Contract in the Entrusted Development Contract and the Arbitration Acknowledgement refer to the disputes in connection with the aforesaid contract, i.e. the arbitration in Japan is limited to rights and obligations during the technology development stage, which does not cover the manufacturing price of this lawsuit. Therefore, the dispute in this case is not bound by the arbitration clause in the Entrusted Development Contract and arbitration in Japan, and the court has jurisdiction over this case. In addition, the Guangdong Higher Court ruled to revoke the ruling of the Shenzhen Intermediate Court to dismiss the complaint and ruled that the Guangdong Higher Court had jurisdiction over this case, that is, this case shall be within the jurisdiction of the people's court.

This Court determined that Fujifilm signed eight Entrusted Development Contracts with Asia Optical and Sintai respectively from December 14, 2004 to January 29, 2009. To be specific, on December 14, 2004, Fujifilm and Sintai signed the first Entrusted Development Contracts; the rest of the Entrusted Development Contracts were signed on March 1, 2008, March 31, 2008, April 30, 2008(two Entrusted Development Contracts) and January 29, 2009(three Entrusted Development Contracts) respectively by Fujifilmand Asia Optical. According to the Entrusted Development Contract signedby Fujifilm (Party A) and Sintai (Party B) on December 14, 2004, Fujifilm entrusted Sintai to develop digital cameras. The development period was from June 28, 2004 to July 30, 2005. Article 12 (Third Party Intellectual Property) of this contract dated on December 14, 2004 provides that "1. In case of any infringement upon the intellectual property of a third party (hereinafter referred to as "Infringement") by Party A due to the use or sale of the Product, Party B shall bear the responsibility and pay fees to resolve such Infringement without causing any disturbance to Party A. Furthermore, Party B shall indemnify Party A against any losses suffered by it due to such Infringement. However, this Article shall not apply to issues of infringement which are a means necessary to achieve the specifications set out in the Specifications or are due only to specific components indicated by Party A for use (and shall be an infringement). 2. When the infringed party, i.e., the owner of the intellectual property rights, refuses to negotiate/resolve the dispute with Party B, instead, wishes to conduct negotiation/resolution with Party A, Party A shall conduct negotiation with such rights owner at its own cost and responsibility, and resolve such infringement issues. Under this circumstance, the provisions of the previous paragraph shall not prevail. Upon request of Party A, Party B shall assume its own obligations to provide supportive assistance for the negotiation/settlement of Party A (including but not limited to providing the information and technical specifications). 3. If Party A requests Party B in writing for around design for certain intellectual property, Party B shall make its best efforts for around design for such intellectual property and inform Party A in writing of the results/methods of such around design as soon as possible. When Party A makes such request, Party B shall consult with Party A to decide whether to take such additional measures and the content of such additional measures. Under this circumstance, the two paragraphs above shall not prevail. "Article 13 (Commercialization) provides that "1. Party A shall have the exclusive right to the commercialization of the results developed, that is, the product. 2. When Party A decides to commercialize the products and entrust the manufacturing/supply of the products to Party B, Party B shall accept such entrustment upon reasonable conditions and shall provide stable supply of the products to Party A. "Article 26 (Governing law)provides that "Japanese law shall be the governing law of this Contract and shall be interpreted based on this law. "Article 28 (Arbitration) provides that "all disputes in connection with this Entrusted Development Contract shall be settled by Party A and Party B through consultation based on the principle of good faith. However, in case no settlement can be reached through consultation, and either Party A or Party B applies for arbitration for the purpose of dispute resolution, such dispute shall be finally settled through arbitration in Tokyo in accordance with the commercial arbitration rules of the Japan Commercial Arbitration Association. All results of the arbitration shall be legally binding upon both Party A and Party B and shall be final and enforceable by all courts with competent jurisdiction.

Except for the differences in the specific models and development periods of developed digital cameras, other clauses (including arbitration clauses) in other seven Entrusted Development Contracts entered into by and bet1ween Fujifilm and Asia Optical were basically the same.

After the conclusion of the eight Entrusted Development Contracts, the parties began to perform the contracts. Since 2005, Asia Optical has received requests from Kodak for patent royalties based on the relevant Patent License Contract (PLA). On August 26, 2011, Kodak sued Asia Optical in the United States District Court for the Southern District of New York, requesting Asia Optical to pay patent royalties based on the PLA. The court awarded the damages in the amount of USD24,147,344 and interest of USD9,579,187, totaling USD33,726,531 to Kodak in the first instance. Asia Optical disputed the judgement and filed an appeal. On May 1, 2013, the United States Court of Appeals for the Second Circuit rendered the second instance final judgement, dismissing the appeal of Asia Optical. Asia Optical later agreed to satisfy its payment obligations determined by the judgement in installments, pursuant to a direction of the United States District Court for the Southern District of New York. Payments were to be made in four equal installments of USD9,368,103 for each installment amounting to USD37,472,411 (as originally stated). Asia Optical then fulfilled the judgement.

On October 30, 2012, Asia Optical and Sintai applied for arbitration to the Japan Commercial Arbitration Association according to arbitration clauses in the eight Entrusted Development Contracts between them and Fujifilm respectively, claiming that Fujifilm shall be responsible for resolving the patent royalties issue with Kodak and requesting Fujifilm to indemnify the plaintiffs for relevant costs and losses caused by the U.S. judgement. On February 28, 2014, the Japan Commercial Arbitration Association rendered an arbitral award (Tokyo No. 12-11), rejecting all claims made by Asia Optical and Sintai. The award held that Asia Optical entered into the PLA with Kodak on April 9, 2004 for the manufacturing and sale of digital cameras(i.e. various patents held by Kodak, including the patents involved in this case, in which certain consideration shall be paid for a so-called royalty-free design license agreement whether to implement the patents or not) before  the eight Entrusted Development Contracts in question were concluded. Even up to the time when Asia Optical and Sintai filed an application for arbitration, although they have communicated to Fujifilm that the royalty rate payable to Kodak for the use of Kodak's patents for the OEM products supplied based on their contracts with Kodak is 3.5% of their net sales, Asia Optical and Sintai have never disclosed to Fujifilm the text of the PLA and the rights and obligations under the PLA, nor have they communicated to Fujifilm the conditions under which Asia Optical could be released from the royalty obligation to Kodak based on the PLA. Fujifilm was willing to deal with the patent issues of Kodak from the early stage of the negotiation of the disputed Entrusted Development Contracts. Therefore, in the said Entrusted Development Contract entered into with Asia Optical and Sintai on June 10, 2004, the royalty rate of 3.5%was not added to the contract. Moreover, in the said Entrusted Development Contract, Asia Optical and Sintai, instead of Fujifilm, were primarily responsible for the infringement of the intellectual property rights of a third party, so there was no provision for Fujifilm to compensate Asia Optical for its losses. Although the parties have had oral discussions since then with respect to the resolution of the issue of the patent royalties to be paid to Kodak, it is inevitable to presume that there was no legal agreement between the parties based on the fact that no written agreement on the results of discussions has been reached by the parties if there are no other special circumstances under which agreement cannot be reached in writing. During the period of arbitration, Asia Optical, Sintai and Fujifilm signed a Letter of Confirmation on April 5, 2013, which stated that: the arbitration opinions of all parties concerning the additional Entrusted Development Contract between Sintai and Fujifilm dated December 14, 2004, the arbitration opinions related to various Entrusted Development Contracts which were entered into by Asia Optical and Fujifilm on March 1, 2008, March 31, 2008, April 30, 2008(two contracts), and January 29, 2009(three contracts), respectively, were subject to the same content of the arbitration opinion for any dispute over the related all contracts, and the procedure for this arbitration. All the parties concerned are mutually confirmed that they had no objection to the examination.

On April 22, 2016, Asia Optical and Sintai filed a lawsuit in the Nanshan District Court against Fujifilm and its three subsidiaries registered in China as defendants. The defendants FUJIFILM Investment Shenzhen Branch and Fujifilm Opt-Electronics raised objections to jurisdiction during the period of submitting the statement of defence: 1. FUJIFILM Investment, FUJIFILM Investment Shenzhen Branch and Fujifilm Opt-Electronics are not qualified defendants in this case. Since the evidence provided by the plaintiffs was not related to the three defendants, there was no relation between the plaintiffs and the three defendants in this case. The plaintiffs maliciously constructed a jurisdiction connection to avoid the legal provisions on jurisdiction; 2. This case is actually a "dispute over the entrusted development contract", and there is an explicit arbitration agreement between the parties on the dispute, so the determination of the cause of action as the dispute over unjust enrichment was wrong in nature; 3. According to the announcement of the Shenzhen Intermediate People's Court on the authority of the Shenzhen Qianhai Cooperation Zone People's Court, the Shenzhen Qianhai Cooperation Zone People's Court centrally exercises jurisdiction over commercial cases involving foreign, HongKong, Macao or Taiwan elements that fall under the jurisdiction of other basic people's courts in Shenzhen. This case is a foreign-related commercial case of first instance, therefore, the Nanshan District Court had no jurisdiction over this case. The Nanshan District Court held that the plaintiffs added the claims and changed the value of the object of action to CNY223,877,134 after the lawsuit was filed. Therefore, according to Article 2 of the Notice of the Supreme People's Court on Adjusting the Standards for the Jurisdiction of Higher People's Courts and Intermediate People's Courts over Civil and Commercial Cases of First Instance(FaFa [2015] No.7), it ruled to transfer the case to Shenzhen Intermediate People's Court on October 10, 2016.

After hearing, on April 18, 2017, Shenzhen Intermediate Court held that the claim made by the plaintiffs that Fujifilm had legally sold products without paying patent royalties and obtained ill-gotten gains and requested Fujifilm to return the ill-gotten gains was, in fact, still a demand on Fujifilm to be responsible for the patent royalties that Asia Optical paid to the company that is not the party in this case, Kodak during the performance of the Entrusted Development Contracts by the U.S. court. In accordance with Paragraph 1of Article 247 of the Interpretation of the Supreme People's Court on the Application of the Civil Procedure Law of the People's Republic of China on relitigation of a cause of action, the plaintiffs filed the lawsuit with unjust enrichment as the cause of action, and listed the enterprises invested by Fujifilm in China as co-defendants, the purpose of which was to create a connecting point so that the case could be filed with a Chinese court and could avoid the arbitration agreement. In this case, the parties concerned are actually the same as those of the case decided by the Japan Commercial Arbitration Association, and the object of the actionis the same as well  the patent royalties that Asia Optical was ordered to pay by the U.S. court, and the claim is still that Fujifilm was required to bear such patent royalties. The claim made by the plaintiffs is not within the jurisdiction of the court due to the arbitration agreement; the claim has been arbitrated by the arbitration institution, and the complaint has violated the principle of res judicata, so the complaint of the plaintiffs is ruled to be dismissed.

Asia Optical and Sintai disagreed with the ruling and appealed to the Guangdong Higher Court. After hearing this case, the Guangdong Higher Court held that in this case, Asia Optical is a limited company incorporated in Taiwan Region while Fujifilmis an enterprise incorporated in Japan; therefore, this case is a foreign-related and Taiwan-related civil and commercial dispute case. The case was filed and accepted on July 1, 2016. The then-applicable provisions on the hierarchical jurisdiction of civil and commercial dispute cases involving foreign, Hong Kong, Macao or Taiwan elements were stipulated in [YueGaoFaFa [2008] No. 28] Circular on Matters relating to Adjusting the Regional Jurisdiction and hierarchical jurisdiction of Civil and Commercial Dispute Cases of First Instance in Guangdong Province involving Intellectual Property Rights and Civil and Commercial Dispute Cases involving Foreign, Hong Kong, Macao or Taiwan Elements(hereinafter referred to as the "Circular"). According to Item 1 of Article 6 and Article 7 of the Circular, Shenzhen Intermediate People's Court shall have jurisdiction over all the first instance civil and commercial dispute cases involving foreign, Hong Kong, Macao or Taiwan elements with the amount of the object ofaction not more than CNY200 million within its jurisdiction, except for those under the jurisdiction of basic people's courts, and Guangdong Higher Court shall have jurisdiction over the first instance civil and commercial dispute cases involving foreign, Hong Kong, Macao or Taiwan elements with the amount of the object of action not less than CNY200 million (inclusive) within its jurisdiction. In this case, according to the additional claim, the amount of the object of action of Asia Optical and Sintaiis USD33,726,531, equivalent to CNY223,877,134. The amount of the object of action exceeds CNY200 million, so this case falls within the jurisdiction of the Guangdong Higher Court over first instance civil and commercial dispute cases involving foreign, Hong Kong, Macao or Taiwan elements and shall be subject to the jurisdiction of the Guangdong Higher Court while the Shenzhen Intermediate Court has no jurisdiction over this case. Therefore, it is ruled that the ruling of Shenzhen Intermediate Court shall be revoked and the Guangdong Higher Court shall have jurisdiction over this case. Afterwards, the Guangdong Higher Court held that this case was a difficult and complicated international commercial case and submitted it to the International Commercial Court of Supreme People's Court for trial. Upon hearing, this Court opined that this case is an international commercial case of first instance with significant impact and typical significance, involved commercial contracts, intellectual property rights and other legal issues, as well as a number of countries and regions. The facts of this case are complex, societal concern about this case is great, and the amount of subject matter of litigation was large. It is ruled that this case shall be heard by the First International Commercial Court of Supreme People's Court.

Upon hearing, this Court opines that the current issue of dispute in this case is whether the people's court shall hear this case, which specifically includes the following sub-issues: whether the defendants in this case can challenge the jurisdiction of the court, whether the court has jurisdiction over the dispute between the plaintiffs and Fujifilm, and whether FUJIFILM Investment, FUJIFILM Investment Shenzhen Branch and Fujifilm Opt-Electronics are qualified defendants in this case.

I. Whether the defendants in this case can challenge the jurisdiction of the court

The plaintiffs argued that the Guangdong Higher Court recognized that people's court has jurisdiction over this case based on the fact that the Guangdong Higher Court had ruled to revoke the Shenzhen Intermediate Court's ruling to dismiss the complaint and ruled that the Guangdong Higher Court had jurisdiction over this case. The defendants argued that the ruling made by Guangdong Higher Court did not recognize the people's court's jurisdiction over this case, but only handled the issue of the Shenzhen Intermediate Court's violation of the court's level jurisdiction. Therefore, this Court shall deal with the issue of the court's jurisdiction prior to any substantive trial. Based on the results of preliminary circumstances, the plaintiffs originally filed a lawsuit in the Nanshan District Court. The Nanshan District Court ruled to transfer this case to Shenzhen Intermediate Court on the ground that the plaintiffs changed the amount of the object of action to the amount more than CNY200 million after filing the lawsuit, which exceeds the upper limit of amount under its jurisdiction. Shenzhen Intermediate Court ruled to dismiss the complaint on the ground of the existence of an arbitration agreement or otherwise. The Guangdong Higher Court held that the amount of the object of action in this case exceeds CNY200 million which falls within its level jurisdiction, and therefore it shall have jurisdiction over this case; Shenzhen Intermediate Court had no jurisdiction over this case; so it ruled to revoke the ruling of Shenzhen Intermediate Court, and this case shall be under the jurisdiction of the Guangdong Higher Court. The Guangdong Higher Court ruled to revoke the ruling of dismissal by the Shenzhen Intermediate Court just on the ground that the Shenzhen Intermediate Court violated the provisions on level jurisdiction, and did not rule on whether there was an arbitration agreement in the case or whether the court had jurisdiction over this case. Therefore, after the transfer of this case to a higher court, the defendants still have the right to challenge the jurisdiction of the court on the ground of the existence of the arbitration agreement.

II. Whether the court has jurisdiction over the dispute between the plaintiffs and Fujifilm

Paragraph 1 of Article 271 of the Civil Procedure Law of the People's Republic of China provides that: "Where disputes arising from economic, trade, transport or maritime activities involve foreign parties, if the parties have included an arbitration clause in their contract or subsequently reach a written arbitration agreement that provides that such disputes shall be submitted for arbitration to an arbitration institution of the People's Republic of China for foreign-related disputes or to another arbitration institution, no party may institute an action in a people's court. "Accordingly, it shall be first determined whether the dispute in this case between the plaintiffs and Fujifilm falls within the scope of the arbitration clause.

In addition to the entrusted development business, the eight Entrusted Development Contracts respectively concluded by and bet1ween Fujifilm and Asia Optical and Sintai also contain provisions regarding the issues concerning the infringement of intellectual property rights of any third party involved in the process of the performance of the contracts and the commercialization of the developed products, etc. It is thus clear that the commercialization of the development products, i.e. entrusted processing and manufacturing is also a part of content of the Entrusted Development Contract . Asia Optical and Sintai claimed that they have defined the specific rights and obligations during the entrusted processing and manufacturing via emails, conference calls, orders and other ways and formed the entrusted processing contractual relationship. Although the agreement on entrusted processing and manufacturing in the Entrusted Development Contract is relatively concise, the contractual relationship for entrusted processing is jointly established upon the consensus reached by the parties in subsequent negotiations. Even if the entrusted processing contract is independent from the Entrusted Development Contract , the above circumstances at least indicate that the entrusted processing and manufacturing is closely related to the Entrusted Development Contract . The arbitration clause in the Entrusted Development Contract is: All disputes in connection with this Contract, if not resolved by negotiation between the parties hereto, shall be finally settled by arbitration in Tokyo in accordance with the commercial arbitration rules of the Japan Commercial Arbitration Association. Since entrusted processing is a part of or at least closely related to the Entrusted Development Contract, disputes arising from the entrusted processing relationship shall also be settled through arbitration, which shall fall within the scope of the arbitration clauses.

The application for arbitration to the Japan Commercial Arbitration Association by Asia Optical and Sintai and the Letter of Confirmation signed by and bet1ween Asia Optical, Sintai and Fujifilm during the arbitration, also further prove that the dispute in this case falls within the scope of the arbitration clauses. Asia Optical and Sintai applied to the Japan Commercial Arbitration Association for arbitration based on the Entrusted Development Contracts and requested Fujifilm to pay the damages and interest that have been paid by Asia Optical and Sintai to Kodak in order to perform the judgement of the U.S. Federal Court. None of the claims made by Asia Optical and Sintai in this case against Fujifilm are substantially different from the main claims made during the arbitration. Asia Optical, Sintai and Fujifilm are the parties to this case as well as the parties to the arbitration; the object of the arbitration and litigation, namely, the civil legal relationship on which the two objects are both based, is the entrusted processing contractual relationship; and both in this case and the arbitration, Asia Optical and Sintai requested Fujifilm to pay the patent royalties and interest payable by Asia Optical to Kodak according to the same facts. Asia Optical and Sintai voluntarily applied for arbitration and signed a Letter of Confirmation with Fujifilm during the arbitration, specifying in writing that the above arbitration clauses shall apply to all affiliated disputes. Asia Optical and Sintai applied for arbitration and signed the Letter of Confirmation according to the arbitration clause in the Entrusted Development Contract, which indicates that they also agreed that the aforesaid arbitration clause shall bind the entrusted processing relationship. Therefore, the dispute in this case arising from the entrusted processing relationship is also bound by the arbitration clause.

In summary, the litigation claims in this case are those regarding which Asia Optical and Sintai brought a suit for patent royalties against Fujifilm under the entrusted processing contractual relationship, so this case falls under the scope of the arbitration clause in the Entrusted Development Contract , and the parties shall settle the dispute through arbitration; Asia Optical and Sintai shall not file a lawsuit with any court and the court has no jurisdiction over this case. In fact, Asia Optical and Sintai applied for arbitration and the relevant arbitration institution has made an award. Therefore, the complaint of Asia Optical and Sintai against Fujifilm shall be dismissed.

III. Whether FUJIFILM Investment, FUJIFILM Investment Shenzhen Branch and Fujifilm Opt-Electronic are qualified defendants in this case

Besides Fujifilm, the plaintiffs named FUJIFILM Investment, FUJIFILM Investment Shenzhen Branch and Fujifilm Opt-Electronic as defendants on the basis that FUJIFILM Investment, FUJIFILM Investment Shenzhen Branch and Fujifilm Opt-Electronic are wholly-owned subsidiaries of Fujifilm in China and Fujifilm has properties in China. So the plaintiffs requested the three subsidiaries to assume joint and several liability for the debts of Fujifilm. However, these three subsidiaries are not the parties to the entrusted processing contractual relationship and had no civil legal relationship with the plaintiffs. These three companies are subsidiaries of Fujifilm registered in China, all of them have independent legal person status and their properties are independent from those of their parent company. Therefore, these three companies are not qualified defendants in this case. The reason why the plaintiff listed these three companies as defendants is that these three companies are wholly-owned subsidiaries of Fuji Corporation in China and therefore should bear joint and several liability, which obviously lacks legal basis and aims at creating a connection point under the jurisdiction of the people's court and avoiding the arbitration clause. Therefore, the complaint of the plaintiffs against these three companies shall be dismissed.

In summary, there is an arbitration clause between Asia Optical, Sintai and Fujifilm, under which Asia Optical and Sintai may not file a lawsuit against Fujifilm in the court; Asia Optical and Sintai have no legal grounds to list FUJIFILM Investment, FUJIFILM Investment Shenzhen Branch and Fujifilm Opt-Electronic as defendants. In accordance with Paragraph 1 of Article 271 and Article 119 of the Civil Procedure Law of the People's Republic of China, and Paragraph 3 of Article 208 of the Interpretation of the Supreme People's Court on the Application of the Civil Procedure Law of the People's Republic of China, this Court rules as follows:

The complaint of Asia Optical and Sintaiis dismissed.

This ruling is the final ruling.

Presiding Judge Zhang Yongjian

Judge GaoXiaoli

Judge Xi Xiangyang

Judge Ding Guangyu

Judge Zhu Li

October 25, 2019

Assistant Li Guangqin

Clerk XieSongshan

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