Context: In November 2023, China’s Chongqing First Intermediate People’s Court handed down a decision in Nokia v Oppo setting the rates that the Chinese manufacturer had to pay worldwide for using Nokia’s patents related to 2G, 3G, 4G and 5G “smart terminal products”, such as mobile phones. The European Union sent China an official request for it to supply the court’s judgment under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), alleging that the ruling affected the EU’s rights under the agreement. A couple of months later the companies settled their dispute by signing a cross-licensing deal.
What’s new: The EC has today announced that it is targeting China in a new dispute settlement consultation at the WTO, aiming to “remove unfair and illegal trade practices” (January 20, 2025 European Commission press release). The EC has alleged that China has empowered its courts to set binding worldwide royalty rates for EU standard-essential patents (SEPs), without the consent of their patent owners. This is giving Chinese manufacturers cheaper access to those European technologies unfairly, it alleged. China “attempted to force EU companies to give Chinese manufacturers cheaper access to that European technology”, and “unduly interfere” with the competence of EU courts for European patent issues, the EC has stated.
Direct impact: This consultation request is the first step in WTO dispute settlement proceedings. If this does not lead to a satisfactory solution within 60 days, the EU can move towards the litigation phase and request that the WTO set up a panel to rule on the matter.
Wider ramifications: Chinese courts are not the only ones that have assumed jurisdiction over global FRAND rates in the past. In the EU, the Unified Patent Court and German national courts, for example, have done this by requiring implementers to take global portfolio licenses, to avoid the risk of being enjoined in the respective European jurisdiction.
This is the complaint:
“In accordance with China’s law, a legally effective decision determining such conditions is binding on both parties and is enforceable in China including with respect to the non-Chinese SEPs,” it reads. This measure curtails the ability of the SEP owners and implementers to enforce their rights and ensure the respect of obligations with respect to non-Chinese SEPs in the courts of the jurisdictions where the non-Chinese patents were granted, it alleges.
The legal provision also diminishes the power of the courts of the jurisdictions where the non-Chinese patents were granted, it adds.
The EC’s complaint goes on to allege that China’s practices are inconsistent with the country’s obligations under several parts of the TRIPS agreement. In particular:
- It restricts patentees from starting or continuing proceedings before the courts in other WTO member countries to decide on questions relating to products covered by patents issued outside China;
- It also restricts a non-Chinese SEP owner from freely negotiating and agreeing on FRAND contractual licence terms for the use of the SEP within the territory of the WTO member that has granted the patent, among other things.
In a statement today the EC noted that China had not negotiated any satisfactory solutions so the EU was compelled to initiate the WTO dispute settlement procedure, “with the aim to ensure that its high-tech industries – notably in the telecoms sector – can effectively exercise their patent rights and protect their investments in innovation.”
Commenting on the new proceedings today, Maroš Šefčovič, Commissioner for Trade and Economic Security; Interinstitutional Relations and Transparency said:
“The EU’s vibrant high-tech industries must be allowed to compete fairly and on a level playing field. Where this is not the case, the Commission takes decisive action to protect their rights. R&D is an engine for innovation that ensures EU leadership in developing future technologies, and it needs to be properly rewarded. We challenge these unfair trading practices at the World Trade Organization.”
However, Chinese courts were not the first to set global rates in patent disputes.Last November, the Mannheim LD handed down a judgment in Panasonic v Oppo (which the two companies settled prior to this) according to which Panasonic would be allowed to enforce an injunction against Oppo in several UPC member states over a 4G SEP (November 22, 2024 ip fray article). Meanwhile, last August, the Munich I Regional Court’s Seventh Civil Chamber ordered an injunction based on a royalty demand for a global patent portfolio (August 20, 2024 ip fray article).
This case does not mark the first time the EC has targeted China in WTO proceedings concerning EU patentees’ rights. In February 2022, the EC alleged China was restricting EU companies from going to a foreign court to protect and use their patents (EC case summary). It claimed that Chinese anti-suit injunctions restrained high-tech patent holders by fining or sanctioning them if they sought to enforce their IP through a non-Chinese court. That case is still pending – and a report by the dedicated WTO panel is expected to be issued in Q1 2025.