Jurisdictional Conflicts in Global FRAND Cases and the EU’s WTO Complaint against China for Alleged Violation of TRIPs
Anti-suit injunctions ("ASI") issued by Chinese courts, which prevent parties of proceedings concerning standard-essential patents ("SEPs") from bringing proceedings against each other in different countries, have made the “jurisdiction of the court" a controversial issue.
As is known, in the case of SEPs, the first issue that confronts the patent holder and the company implementing the SEP is whether a licence has been asked, offered and/or granted on Fair, Reasonable and Non-Discriminatory terms ("FRAND") and how the licence fee should be determined. The court tasked with resolving such a dispute limited to the country in which it is located and the patents applicable in that country is often deal with multinational companies with worldwide operations and a worldwide interest in the determination of FRAND terms and the licence fee. In such cases, the common view of the courts in Europe and the United States of America ("USA") is that, since FRAND disputes are essentially contractual disputes, a global rate for the entire patent portfolio licensed under the contract can be determined by a single court.
As a matter of fact, in 2017, in the Unwired Planet v Huawei case, the UK Supreme Court held that it had jurisdiction to determine the terms of a global FRAND license agreement between the parties, covering not only the SEP holder's UK patents but also foreign patents valid in other countries covered by FRAND commitments. Similar judgements continue to be issued by US courts.
In such disputes, while a dispute regarding the license under FRAND terms is pending before a court in one country, the patent holder may file an infringement action in another country claiming infringement of the same patents, and while the parties have not yet resolved the license fee on FRAND terms, a preliminary injunction grounding on patent infringement may be granted by a court in another country. Thus, the notion that the court of a particular country determines the terms of a license that will be globally applicable to the parties has led to Anti-Suit Injunction ("ASI") which prevents the patent owner from filing a lawsuit in foreign countries or enforcing the preliminary injunctions granted by foreign courts in favour of the patent holder.
The first ASI decision concerning the determination of a licence fee on FRAND terms was rendered by the US District Court for the State of Washington in Microsoft v. Motorola case. In the case, Microsoft alleged that Motorola breached its commitment to offer Microsoft a licence on FRAND terms. While this case was pending, Motorola filed a patent infringement lawsuit against Microsoft in Germany. The German court upheld the patent infringement claim and enjoined Microsoft from selling the infringing products in Germany. In response to the decision, Microsoft applied to the US court just before the judgement was enforced and sought an ASI decision to prevent Motorola from enforcing the judgement. The US court ruled a decision to prevent Motorola from filing a lawsuit that would prevent it from enforcing the judicial decision it obtained against Microsoft in Germany for patent infringement.
The issue to be considered here is: ASI decisions of an "in personam" judgements bind the parties, not the courts. In the above example, the US court has issued an injunction that binds Motorola and has the power to impose sanctions on it within the authorization and jurisdiction of the USA in case of non-compliance.
ASI’s, which was frequently used by European and US courts until recently, was also applied by Chinese courts in 2020 and caused a great controversy.
In the patent infringement lawsuit brought by Conversant against Huawei and ZTE before the German courts, the German court found that Huawei and ZTE had infringed Conversant's SEPs and issued preliminary injunctions to remove the infringing products from the German market. In the meantime, however, Huawei and ZTE applied to the Supreme People's Court of China to prevent Coversant from enforcing injunctions obtained and succeeded in obtaining a judgementpreventing Conversant from filing a lawsuit against Huawei and ZTE regarding its SEPs and from enforcing the injunctions.
With this preliminary injunction decision, Chinese courts continued to issue preliminary injunctions "to prevent litigation" ASI within the scope of the Xiaomi v. InterDigital, Oppo v. Sharp and Samsung v. Ericsson files, preventing SEP holders from filing lawsuits in foreign countries or enforcing preliminary injunction decisions issued by foreign courts.
Following these developments, the European Union (“EU”) sent an official request for information to China, about the injunctions granted by Chinese Courts in the Xiaomi v InterDigital, ZTE v Conversant, OPPO v Sharp v Samsung v Ericsson cases and the legal basis for blocking the implementation of judicial decisions made in Europe, pursuant to Article 63.3 of the TRIPS Agreement, which regulates the obligation of member states to provide information in response to the written request of another member country that believes that a judicial decision or administrative decision in the field of intellectual and industrial property rights or a bilateral agreement affects its rights under TRIPs.
Chinese government stated that it was not obliged to respond to the EU’s request for information under the TRIPs Agreement.
Afterwards, the EU filed a request for consultation with the World Trade Organization (“WTO”), claiming that the practices of Chinese courts unfairly restrict patent rights and impede fair trade in violation of TRIPs provisions.
When the petition submitted by the EU to the WTO is examined, the fundamental problems of the conflict determined as: The duration of ASI decisions issued by Chinese courts is subject to daily fines; the ban decision is valid worldwide; the Supreme Court of China has stated that it has the authority to determine a global license fee for a SEP subject to the lawsuit and that the ASI decisions were necessary to prevent license fees that would be too high for the Chinese; and finally, Chinese courts have been making such decisions systematically lately.
Although the EU may be criticized for complaining about the practice of Chinese courts considering that ASI decisions are also made in EU countries, it is seen that the ASI decisions given by European and US courts are limited with a term which is necessary for the relevant European or US court to resolve the case and that these decisions have a nature that prevents a parallel case in a certain country in order not to make the solution of the FRAND case before European or US court meaningless and most importantly extreme high amount of daily fines are not imposed as a sanction for non-compliance with the final decision.
In conclusion, considering that the evaluation to be made by the delegation will serve as a guide for all TRIPs countries on how ASI decisions should be approached, especially within the framework of TRIPs principles, the decision of the delegation is closely followed by us.