The European Union has been pursuing a series of new disputes since the start of 2022. Three are listed in the WTO list of disputes.
On Friday, February 18, 2022, the European Union filed a second request for consultations with China and its fourth request this year, this one addressing China’s use of anti-suit injunctions to prevent parties seeking redress from intellectual property infringement by Chinese firms from seeking redress in non-Chinese jurisdictions. Chinese courts can impose penalties of 1 million RMB per day for violating anti-suit injunctions. In addition, many of the court decisions issuing the anti-suit injunctions are not publicly available. China has taken the position it is not obligated to publish the decisions or to provide them when requested by a WTO Member.
The EU reviews in its request for consultations four decisions affecting EU companies all involving patents in the high tech sector (e.g., patents relevant to aspects of 3G, 4G or 5G telecommunications).
The European Commission’s press release on the request is copied below and reviews what the European Commission sees as important about the consultation request.
“The European Union is filing today a case against China at the World Trade Organization (WTO) for restricting EU companies from going to a foreign court to protect and use their patents.
“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 by, for example, Chinese mobile phone manufacturers. The 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, effectively depriving European technology companies of the possibility to exercise and enforce the rights that give them a technological edge.
“Valdis Dombrovskis, Executive Vice-President and Commissioner for Trade, said: ‘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.’
“Since August 2020, Chinese courts have been issuing decisions – known as “anti-suit injunctions” – to exert pressure on EU companies with high-tech patents and to prevent them from rightfully protecting their technologies. Chinese courts also use the threat of heavy fines to deter European companies from going to foreign courts.
“This has left European high-tech companies at a significant disadvantage when fighting for their rights. Chinese manufacturers request these anti-suit injunctions to benefit from cheaper or even free access to European technology.
“The EU has raised this issue with China on a number of occasions in an attempt to find a solution, to no avail. 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 dispute settlement consultations that the EU has requested are the first step in WTO dispute settlement proceedings. If they do 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.
“The patents concerned by this case are standard-essential patents (SEPs). SEPs are patents that are essential in order to manufacture goods that meet a certain international standard. 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. A mobile phone manufacturer should, therefore, 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.
“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 EU has been a strong backer of the WTO’s dispute settlement system. Launching four new disputes in the first two months of 2022 shows the EU’s continued intent to utilize the WTO dispute settlement system.
On the specific request for consultations filed last Friday with China, both the EU and China are parties to the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) that was agreed to by some WTO Members for handling further review of panel decisions while the Appellate Body is not operational. Thus, there will not be an appeal into the wind by either China or the EU from whatever decision flows from the dispute if a panel is sought later this year.
On the substance of the request for consultations, China has demonstrated an unwillingness to comply with full transparency obligations at the WTO which is reflected in several of the issues raised by the EU (lack of public release of certain judicial decisions; failure to provide such information when requested by the EU). China’s failure to comply with transparency obligations is a major issue for trading partners in many areas of the WTO’s work.
More importantly, the actions of China in authorizing anti-suit injunctions is a major challenge to the proper functioning of intellectual property rights which should draw participation requests from many other WTO Members. China has been viewed by many as permitting/encouraging/supporting intellectual property theft — a view hotly denied by China. Letting Chinese courts prevent other courts around the world from evaluating patent infringement by Chinese companies or setting licensing fees is not consistent with WTO obligations and could obviously lead to abuse by the Chinese courts and substantial harm to innovative companies around the world.
The EU’s request for consultation is a very important first step in ensuring that China conforms to its obligations under the TRIPS Agreement. The fact that resolution will take years will permit Chinese companies to weaken intellectual property protection for years for innovative companies in other countries.
Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, Current Thoughts on Trade.
To read the full commentary from Current Thoughts on Trade, please click here.