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  • Marta Beckwith

First Pop Quiz Revisited - The EU Complaint Against China

There was a point to the first pop quiz. Last year, the European Union filed a complaint in the World Trade Organization against China related to SEP litigation. In its First Written Submission (filed on June 8, 2023), the EU argues that the Chinese courts’ global FRAND setting and anti-suit injunctions violate the Trade-Related Aspects of Intellectual Property Rights “TRIPS” agreement.[1] The EU brief argues that the Chinese courts’ decisions to set global FRAND rates and issue anti-suit injunctions against other courts (including in the Huawei v. Conversant case which the submission calls “China’s first act of preservation measure”) have “disrupted the carefully balanced system of protection and enforcement of patents laid down in the TRIPS Agreement” and “positioned Chinese courts as the forum of choice for implementers seeking to obtain more favourable patent licensing terms.” The EU brief goes on in this same vein going so far (at least in the English version) as to say that the Chinese courts’ decisions have “nefarious effects.”


Let me start by saying that I do not agree that any court in any jurisdiction should arrogate to itself the right to make determinations about SEPs held in other jurisdictions or sales that take place in other countries. In other words, I do not agree that either the UK courts or the Chinese courts should have decided that they have the right to make world-wide FRAND determinations absent the truly voluntary consent of both parties. But, where was the EU when the UK decided to position itself as the forum of choice for SEP holders – when the UK decided it could determine worldwide FRAND rates and when it issued anti-suit injunctions against other jurisdictions even though those other jurisdictions had a much closer connection to the parties and to the overall dispute?


Given the UK’s overreach, it is hard to blame China for trying to protect its homegrown companies. Many of the companies hauled into the UK courts for a global FRAND determination have been Chinese companies, including Huawei, ZTE and Lenovo. These Chinese companies were forced to litigate the amount they would pay for a global FRAND license in the UK courts, including for non-UK patents and non-UK sales, even though the UK had only a limited connection to any of the companies involved, the UK represented only a small amount of the overall sales of standardized products and most of the patents in each of the SEP portfolios to be licensed were not UK patents. In other words, the UK courts gave themselves the authority to make global FRAND determinations for Chinese companies, including on Chinese patents and much larger Chinese sales, even though the UK had extremely limited connection to the parties (in all of these cases, none of the parties was really based in the UK) or the overall dispute.[2]


So, it must have seemed eminently reasonable for the Chinese courts to decide that they, like their UK counterparts, could make world-wide FRAND determinations for their home-grown (and other) companies rather than see those companies hauled into far-away jurisdictions with limited connection to the parties, the bulk of the SEP portfolio, the bulk of the sales or the overall dispute. It also must have seemed eminently reasonable for the Chinese courts to issue anti-suit injunctions to protect their ability to make such determinations. They were after all only following the lead of the United States, France, Germany and the UK: (a) a US court first issued an anti-suit injunction in the Microsoft v. Motorola FRAND licensing dispute a decade ago to protect that US court’s ability to make a FRAND determination and to restrict other jurisdictions (e.g. Germany) from issuing injunctions and (b) the courts in the UK, Germany and France have all issued anti-anti suit injunctions to protect their ability to make determinations and restrict other courts from making decisions.


You can imagine how surprised China must have been when the European Union filed the complaint against it in the WTO. China did not originate the concept of world-wide FRAND determinations, the UK did. China did not originate the concept of anti-suit injunctions in SEP licensing disputes, the US did. But the EU hasn’t filed suit against the UK nor has it filed suit against the US. It hasn’t even tried to clean up its own backyard (e.g., Germany and France which have both issued anti-suit injunctions).


You have to ask yourself: why did the EU actually file this complaint? Let’s start with the reasons China is an outlier in the FRAND world – its political system is not democratic and its courts are political bodies.[3] Global tensions between China and many Western nations are rising. The EU might be concerned that EU companies will not get a fair shake if hauled into Chinese courts for a global FRAND determination. But that does not make China an outlier. The Eastern District of Texas in the United States is also perceived to have an anti-foreigner/anti-Asian (as well as an anti-large company) bias. Apple seems to have gotten a better shake in the UK courts than did the Chinese implementers – was it better lawyering, better evidence or maybe anti-Chinese bias in the UK courts? A recent commentator has suggested that the German courts are not treating Chinese companies equitably.[4] It is therefore equally reasonable for China to be concerned that Chinese companies will not get a fair shake if hauled into UK, US or EU courts.


What then is motivating the EU complaint? Is it xenophobia? Is it an offshoot of the rising tensions between the EU and China? Is it because the EU wants to set itself up as a global FRAND determiner and does not want the competition?[5]


Is it agitation in the Commission by fringe SEP holders?[6] The EU submission does seem hand-crafted by SEP holders. It complains over and over about how the Chinese policy is unfair to SEP holders and discounts the value of SEP holdings. It talks about “unlicensed implementers which manufacture and export globally goods using the teachings of the relevant patents.” It complains that “Chinese courts have not provided for safeguards against the abuse of these procedures nor ensured that they do not create barriers to legitimate trade by restricting the competitive opportunities for licensing and patented goods.”


But this misunderstands the competition rules - the purpose of FRAND is not to ensure “competitive opportunities for [SEP] licensing.” That is simply an idea made up by a few SEP holders that has no basis in the FRAND commitment or the competition laws that underpin it. Rather, the primary purpose of the FRAND commitment is to support fair competition by ensuring that the group of competitors that got together to develop the standard and now hold standard essential patents do not unfairly and discriminatorily restrict others — or each other — from making standardized products through the assertion of those patents.


So maybe it is time for an update to the TRIPS agreement to clarify that no jurisdiction (whether the UK, EU, China or any other signatory) has the right, absent mutual and truly voluntary consent, to make a global FRAND determination. Absent such consent, courts in a country should only make determinations on FRAND rates for sales made, and patents held, in their own country.


Or maybe it is time for an update to set up a forum non conveniens type doctrine to provide that decisions should be made only by (or at least initially by) those jurisdictions with a close connection to the parties or in which large numbers of SEPS in the overall SEP portfolio have been issued or those in which a majority of the sales of the standardized products have taken place.[7]


In any event, the EU should first police its own. Germany is an outlier because it fails to weigh any considerations, other than infringement and occasionally validity, in issuing injunctions. The Commission should strongly encourage Germany (and any other European Union members with similar rules) to change their injunction laws to require their courts to weigh the equities before issuing an injunction in FRAND cases (whether an injunction against sales, an anti-suit injunction or an anti-anti suit injunction). FRAND – Fair, Reasonable and Non-Discriminatory – is all about the equities and the underlying competition concerns that arise when a group of competitors get together to develop a standard. Companies are not forced to make a FRAND commitment but, once made, the commitment should be binding and have meaning. The courts should always contemplate this commitment and the harm to implementers, competition and the public from an injunction before deciding whether an injunction is warranted in a specific matter.


Whatever the actual reason the EU filed the complaint, it would be unfair for the WTO to determine that China had done something wrongful without also addressing the behavior of the UK, the US and German courts (among others). A decision only against China would leave Chinese companies where they were before China decided to follow the UK’s lead – back to being hauled into courts in the UK (or elsewhere) for a worldwide determination of FRAND rates, including on Chinese patents and Chinese sales. That seems fundamentally unfair.


At the end of the day, instead of singling out one jurisdiction for its alleged “nefarious” doings, the EU should be working with other countries to correct the overall problems with how courts in all of these jurisdictions are currently approaching FRAND licensing determinations. The EU should be working with other countries to ensure that no one country’s courts claim jurisdiction over setting rates for sales that took place outside of that country or for patents issued by other countries. Not China, not the UK, not the US, and not the EU.


[1] You can find the EU’s notice and the EU’s first written submission here: https://policy.trade.ec.europa.eu/enforcement-and-protection/dispute-settlement/wto-dispute-settlement/wto-disputes-cases-involving-eu/wtds611-china-enforcement-intellectual-property-rights_en#:~:text=The%20European%20Union%20has%20filed,protect%20and%20use%20their%20patents.


[2] This follows years of Chinese companies being hauled into the Eastern District of Texas in the United States even though the Eastern District of Texas also had only a limited connection to the real parties in interest or the overall disputes in most of those cases.


[3] Not to digress too much but we are coming close to having to say this about the United States as well given what has taken place over the last decade or so.



[5] The European Commission’s “Proposal for a Regulation of the European Parliament and of the Council on standard essential patents and amending Regulation (EU) 2017/1001”seeks to set up a Center with the authority to determine FRAND rates and also the overall aggregate royalty that SEP holders collectively can charge for all SEPs in a standard. As I discussed in the following post, it is unclear whether the EU means for the Center to have authority (without truly voluntary consent) to set global FRAND rates and determine global aggregate royalty amounts. See https://www.sepessentials.com/post/eu-proposal-part-5-final-post-determination-of-a-frand-license. It would be the height of hypocrisy for the EU to be complaining about Chinese global rate setting if, in fact, it is attempting to set the Center up as a (non-voluntary) global FRAND setting authority.


[6] I would hazard a guess that some of the entities complaining about being hauled into Chinese courts for a global FRAND determination are the same ones that have hauled implementers into the UK for a global FRAND determination.


[7] The submission does not acknowledge that Huawei made all of these arguments in the UK version of the Conversant matter arguing that the UK court lacked jurisdiction or should decline to exercise jurisdiction. Nor does the submission acknowledge that the first Chinese decision (in that same Huawei Conversant dispute) that the Chinese courts had authority to issue a global FRAND rate and an anti-suit injunction was only after the UK court’s decision, overruling Huawei’s arguments, that the UK court had authority to decide worldwide FRAND rates, including for Chinese SEPs and Huawei’s much larger Chinese sales.

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