A new round in the complex dispute over standard essential patents (SEP): On Friday, the EU initiated proceedings against China at the World Trade Organization WTO in order to have crucial questions in this area clarified. She accuses the Middle Kingdom of restricting the legal protection of EU companies in disputes over SEP. Those affected should not turn to a foreign court to enforce their patent claims.
Legal protection for 5G technology
The main concern is the commercial legal protection of key technologies such as 3G, 4G and 5G, explains the EU Commission, which has approached the WTO. In the mobile communications sector, a patent war has been waged with hard drums for many years, which has now spilled over into the automotive industry, for example. The Brussels government institution now sees European mobile phone equipment suppliers such as Ericsson or patent users such as Conversant Wireless falling behind if their protected technologies are “used illegally or without appropriate compensation by Chinese mobile phone manufacturers”.
Patent holders who go to court outside of China are “often subject to significant fines” in the People’s Republic, the Commission complained. This put them under pressure “to be content with royalties below market rates”. According to Brussels, this Chinese policy is “extremely damaging to innovation and growth in Europe”. It “de facto deprives European technology companies of the opportunity to exercise and enforce the rights that give them a technological edge”.
Dispute over standard essential patents
SEPs are essential for the production of goods, such as cell phones, that are designed to conform to a specific international standard. The owners of standard-essential patents are therefore fundamentally obliged to grant a license to interested parties on “fair, reasonable and non-discriminatory terms” (FRAND).
However, it is always disputed how these conditions actually turn out and who has to license a protected technology. If a holder of a Standard Essential patent believes that a fee offered by the licensee is too low or the licensee refuses to pay outright, the patent holder can go to court to prohibit the sale of products incorporating the unlicensed technology.
Compatibility with International Trade Law
For example, the Luxembourg patent exploiter Conversant, whom Nokia bombarded with numerous industrial property rights, obtained a cease-and-desist order against Huawei before the Düsseldorf Regional Court. It was about the licensing rate for a 5G SEP that the Chinese mobile giant implemented in smartphones. Conversant wanted the order to be enforced through a court in Nanjing and was initially right, but Huawei, which now has a state patent portfolio itself, then turned to the Supreme People’s Court of China.
In August 2020, the latter issued an injunction prohibiting Conversant, under pain of a fine of 130,000 euros per day, from applying for the enforcement of the first instance injunction judgment of the Düsseldorf Regional Court before its own final judgment is issued and becomes final. According to the Commission, this amounts to a “prohibition of litigation” in foreign courts, which is incompatible with international trade law.
EU Commission: European companies at a disadvantage
Since the decision of the Supreme People’s Court have according to the complaint two lower courts in Wuhan and Shenzhen took up this supreme court ruling in four other cases and in turn prohibited litigation by foreign patent owners in other jurisdictions. It is about SEP disputes between Ericsson and Samsung, Conversant and ZTE, InterDigital and Xiaomi, which have now agreedas well as Sharp and Oppo.
“As a result, European high-tech companies are severely disadvantaged when it comes to defending their rights,” criticizes the Commission. For them there is no doubt: “Chinese manufacturers are demanding these litigation bans in order to benefit from cheaper or even free access to European technology.” Trade Commissioner Valdis Dombrovskis stressed: “EU companies have the right to defend their rights on fair terms if their technology is used illegally.” That is why the initiated WTO consultations are necessary.
China’s policies and WTO agreements
According to the Commission, the EU had previously “raised the dispute over the litigation with China several times in order to find a solution”. However, these efforts were unsuccessful. The only way to go is to go to Geneva, as China’s measures are incompatible with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
The consultations requested by the EU are the first step in the WTO dispute settlement process. If they do not lead to a solution that is also satisfactory for the international community within 60 days, they can apply for the establishment of a WTO panel, which would then decide on the matter. Another question would then be whether China would recognize and comply with such a decree.
(tiw)
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