Europe challenges China over essential patents

Business news |
By Nick Flaherty

The European Union is today filing a case against China at the World Trade Organization (WTO) over essential patents for wireless systems.

The case covers anti-suit injunctions issued by Chinese courts that restrict EU companies from going to a foreign court to protect their patents.

The European Commission believes that China severely restricts EU companies with rights to key technologies (such as 3G, 4G and 5G) from protecting these rights when their patents are used illegally or without appropriate compensation. Patent holders that do go to court outside China often face significant fines in China, putting them under pressure to settle for licensing fees below market rates. 

This Chinese policy is extremely damaging to innovation and growth in Europe, says the Commission.

“We must protect the EU’s vibrant high-tech industry, an engine for innovation that ensures our leading role in developing future innovative technologies. EU companies have a right to seek justice on fair terms when their technology is used illegally. That is why we are launching WTO consultations today,” said Valdis Dombrovskis, Executive Vice-President and Commissioner for Trade for the Commission.

Since August 2020, Chinese courts have issued four such injunctions that the Commission believes are intended to exert pressure on EU companies with high-tech patents and to prevent them from protecting their technologies. Chinese courts also use the threat of heavy fines to deter European companies from going to foreign courts, it says.

In August 2020, China’s Supreme People’s Court decided that Chinese courts can prohibit patent holders from going to a non-Chinese court to enforce their patents by putting in place an “anti-suit injunction”. The Supreme People’s Court also decided that violation of the order can be sanctioned with a €130,000 daily fine. Since then, Chinese courts have adopted four such anti-suit injunctions against foreign patent holders.

The four cases involved Ericsson and Conversant Wireless, based in Europe, as well as InterDigital in the US and Sharp in Japan.

The Commission says it has raised this issue with China on a number of occasions in an attempt to find a solution. As the Chinese actions are, according to the EU, inconsistent with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), the EU has requested consultations at the WTO.

The Chinese authorities say there is no jurisdiction as this is Chinese matter, which has some merit. The Ericsson case, filed in Wuhan, was against Samsung , which has a small business in China an dis not a typical case of a Chinese company infringing on essential patents. The injunction prevented a similar suit that could have restricted shipment in the US, a major market for Samsung.

A study this week by the US Patent Office showed that Ericsson and Samsung are among the leading filers of standard essential patents (SEPs) for wireless technologies.

The case involving Conversant in Germany does cover these standard-essential patents. Because the use of the technologies protected by these patents is mandatory for the production of, for example, a mobile phone, patent owners have committed to licensing these patents to manufacturers under fair, reasonable, and non-discriminatory (FRAND) terms. Licensing of patents on a FRAND basis is a key issue for many areas including video codecs as well as wireless.

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 obtain a licence, 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. For example, Chinese phone maker Xaomi filed an anti-suit injunction against InterDigital in September 2020, while another Chinese phone maker, Oppo, filed against Sharp.

The EU has requested dispute settlement consultations as a first step. that the EU has requested are the first step in WTO dispute settlement proceedings. If this does not lead to a satisfactory solution within 60 days, the EU can request the WTO to set up a panel to rule on the matter.

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