Context: Last year, European Commission made a proposal for a regulation on standard-essential patents (SEPs) that is meant to restrict and slow down enforcement. Meanwhile, the European Parliament has adopted its own version of the SEP Regulation, and ip fray started an article series to shed light on some of the fundamental questions involved (most recent part: March 15, 2024 ip fray article). But in 2022, the EC instigated World Trade Organization (WTO) proceedings against China, complaining of the restrictive impact of cross-border antisuit injunctions (EC webpage).
What’s new: At a March 5-6, 2024 second substantive meeting with the WTO panel that will issue an opinion on the matter, the EC’s opening and closing statements took a patentee-friendly position that is irreconcilable with the thrust of the proposed SEG Regulation.
Direct impact: The EC’s self-contradictory positions may backfire on two fronts. The WTO panel may not deem the EU position consistent and credible, but even if it did, China might still draw its own conclusions. And the EC representatives pushing for the SEP Regulation can’t just explain away the fact that at least parts of the EC still consider it to be in the EU’s interest to maintain a reasonable level of enforceability of SEPs.
Wider ramifications: Any loss of credibility is institutionally undesirable. The EU’s trading partners, above all the United States (whose government views the EU SEP Regulation unfavorably) and China (the target of the EU’s WTO complaint), may wonder what the EC’s position on SEPs actually is. It’s also confusing that the high number of SEPs obtained by Chinese companies is described as a threat and an excuse for complicating SEP enforcement, while the EC simultaneously suggests Chinese companies seek to infringe SEPs with impunity, covered by antisuit injunctions. Both can’t be simultaneously true unless one agrees that there is a wide spectrum of Chinese companies when it comes to SEPs, making “China” a non-starter argument in the SEP context.
If the EU wanted to generally oppose antisuit injunctions preventing SEP holders from enforcing injunctions granted by courts in the EU, a focus on China would be wrong for the simple reason that U.S. federal courts were first to issue such antisuit injunctions, and the differentiated multifactorial approach of Chinese courts is modeled after the U.S. case law more so than after any other role model in the world.
It was already in 2012 that Motorola Mobility (temporarily a Google subsidiary) was barred from enforcing two German SEP injunctions against Microsoft. The United States District Court for the Western District of Washington entered an antisuit TRO, which was then replaced with an antitrust preliminary injunction and ultimately affirmed by the United States Court of Appeals for the Ninth Circuit. The TRO was put in place between two Mannheim trials (two cases were heard together) and the subsequent rulings.
SEP implementers, among them a European industrial icon named Thales, have repeatedly sought antisuit injunctions from U.S. courts and will likely continue to do so, though Lenovo’s current Federal Circuit appeal (March 12, 2024 ip fray article) could result in appellate clarification that a U.S. antisuit injunction is an option only if there is legal certainty that a worldwide license agreement will be put in place when all is said and done in the U.S. proceedings.
If the EU brought a WTO complaint against the U.S., the latter could threaten to counter with a complaint over the SEP Regulation should it be passed into law in any way, shape or form similar to the current version.
China could do the same, but presumably prefers to be left alone by the EU.
In its March 5, 2024 opening statement, the EC described “the challenged policy” as “’empowering Chinese courts to issue anti-suit injunctions which ‘prohibit patent holders from asserting their rights protected by the TRIPS Agreement in other jurisdictions …[and]… forbid patent holders to commence, continue or enforce the results of any legal proceedings before any non-Chinese court.’” Interestingly, the proposed EU SEP Regulation would prohibit patent holders from bringing SEP assertions until a non-binding opinion by an EUIPO-appointed arbitrator comes down.
The EC tries to distinguish U.S. antisuit injunctions from Chinese ones (at least potentially):
“The European Union has made clear that, in its view, some anti-suit injunctions issued by the courts of WTO Members may be consistent with the TRIPS Agreement.”
But it is not clear what criteria the EC would like the WTO to establish. What the EC says is that Chinese antisuit injunctions are issued based on a mere interference of foreign rulings with the Chinese proceedings. The criteria applied by Chinese courts don’t envision that foreign enforcement would be prohibited just because of some kind of interference: Chinese courts focus on the significance of China as a jurisdiction to global dispute.
The EU hasn’t understood, or pretends not to have figured out, U.S. antisuit injunction law. The EC wants Chinese courts to look into whether a foreign action is vexatious and oppressive. But that is not a hard requirement in the United States either. The way it actually works (particularly but not only in the Ninth Circuit, based on Microsoft v. Motorola) is the following:
- The first hard requirement is that the parties and the issues must be substantially the same between the U.S. and foreign actions.
- The second hard requirement is that the U.S. action is dispositive of the foreign action (Lenovo’s problem, and previously Apple’s, in both cases against Ericsson).
- The third and final hard requirement is to find at least one of various Unterweser factors satisfied: “[whether the] foreign litigation . . . would (1) frustrate a policy of the forum issuing the injunction; (2) be vexatious or oppressive; (3) threaten the issuing court’s in rem or quasi in rem jurisdiction; or (4) where the proceedings prejudice other equitable considerations.”
This means even if a foreign action is not vexatious or oppressive, a U.S. antisuit injunction may issue simply because it frustrates a U.S. policy or because it threatens the U.S. court’s jurisdiction or based on other equitable considerations. It’s simply not true that Chinese antisuit law differs from U.S. law with respect to an indispensable requirement that foreign proceedings have a vexatious and oppressive nature.
In practice, U.S. courts may have typically found more than one Unterweser factor satisfied when they issued antisuit injunctions. But that doesn’t change the fact that you need just one.
Another passage of the EC’s opening statement states the following:
“[T]he European Union reiterates that the likelihood of interference with the decisions of Chinese courts cannot justify the issuance of ant-suit injunctions prohibiting SEP owners from exercising their exclusive rights in the countries for which their patents were granted. That amounts to depriving patent holders from their rights, since only the courts of the countries for which the patents are granted are competent to rule on the validity of those patents and take action against their infringement. The anti-suit injunctions issued by Chinese courts are, also for this reason, abusive and inconsistent with China’s obligations under the TRIPS Agreement.”
Interestingly, the proposed SEP Regulation also deprives patentees of their rights to enforce patents in countries in which they are have been granted, constitute exclusive rights and where the courts of law can establish validity and infringement.
The EC recalled that “Article 41.1 [of the TRIPS Agreement] requires making available enforcement procedures so as to permit effective action [emphasis original] against any act of infringement of IPR.” If that is the measure, the EU SEP Regulation also stands in the way of affective action.
Toward the end of its closing statement (on March 6), the EC then stated two reasons for which this case is allegedly important:
“First, given the importance of standard essential patents, which represent a major area of intellectual property protection with significant economic implications in many sectors, and increasingly so in a digital society. Secondly, because this case concerns the effective functioning of the TRIPS Agreement, which requires good faith implementation for the benefit of SEP owners and of all WTO Members.”
Less than a year after the formal presentation of the SEP Regulation, the EC now talks about SEPs as “a major area of intellectual property protection,” especially “in a digital society,” and seeks to ensure that the TRIPS Agreement be implemented “for the benefit of SEP owners.”
Instead of taking divergent positions in parallel contexts, it would be best if the EC could converge on one balanced position. It is correct that SEPs are important and that they must be enforceable, without going so far as to allow patentees to overleverage their SEPs in court.
If the EC means what it told the WTO earlier this month about the importance of SEPs in the digital era, the proposed SEP Regulation needs to be fundamentally reconsidered.