On February 18, the European Commission (EC) announced that the European Union (EU), on behalf of the EU’s 27 members, was launching a WTO case against China for preventing EU enterprises from entering a foreign court to protect and use their patents.
According to the Commission, China’s Supreme People’s Court (SPC) has been imposing “anti-suit injunctions” since August 2020, prohibiting EU firms who are patent holders from going to foreign courts and threatening them with large fines as a deterrent.
When EU companies with rights to essential technology (such as 3G, 4G, and 5G) have their patents utilized unlawfully or without compensation by Chinese mobile phone makers, China significantly inhibits their ability to safeguard such rights. Patent holders who take their cases to court outside of China typically face significant fines in China, forcing them to settle license fees below market rates.
The patents concerned by this case are standard-essential patents (SEPs). SEPs are patents essential to manufacture goods that meet a certain international standard. Because the use of the technologies protected by these patents is mandatory for producing, for example, a mobile phone, patent owners have committed to licensing these patents to manufacturers under fair, reasonable, and non-discriminatory (FRAND) terms. Therefore, a mobile phone manufacturer should obtain a license (subject to a license fee negotiated with the patent holder) for these patents. If a manufacturer does not accept a license and/or refuses to pay, a patent holder can enforce these patents and get a court to stop the sales of the products incorporating that unlicensed technology.
The EU has raised this matter with China several times, but no solution has been reached.
In the request, the EU listed 4 cases that two lower Chinese courts issued anti-suit injunctions. They were:
Xiaomi v InterDigital by Wuhan Intermediate People’s Court.
ZTE v Conversant by Shenzhen Intermediate People’s Court.
OPPO v Sharp by Shenzhen Intermediate People’s Court.
Samsung v Ericsson by Wuhan Intermediate People’s Court.
Four telecommunication companies that have filed complaints, including InterDigital, Conversant, Sharp, and Ericsson, have been threatened with daily penalties of 1 million yuan (158,000 dollars) per day, implying that executives might face jail time in China for non-compliance, according to the EU.
According to SMCP, Chinese companies like Xiaomi, ZTE, and Oppo have half their license prices due to the injunctions imposed by a Chinese supreme court judgment in August 2020 and later ratified by the National People’s Congress.
The EU has requested WTO discussions because China’s activities violate the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
WTO challenges begin with a formal 60-day consultation process between the parties, after which the EU can request a WTO panel decision. The entire procedure, including any appeals, can take years.