What is Europe doing about anti-suit injunctions issued by Chinese courts?

On 7 April the European Parliament submitted two questions to the European Commission relating to anti-suit injunctions (“ASIs”) issued by Chinese courts in cases involving standard essential patents (“SEPs”). They read as follows:

1. What is the Commission’s analysis of the recent decisions by Chinese courts on SEPs, determining erga omnes the amount of royalties and/or handing down ASI?

2. How does it intend to ensure that the use of European patents is fairly remunerated?

For many observers, this question comes as a pleasant surprise. It is surprising because our own national parliaments, in their daily scrabble for popularity, rarely look at questions of industrial and patent policy. Having a considered plan for our economic future is something we might expect of China’s government, or President Bartlet in one of the more uplifting episodes of The West Wing. So, it is encouraging to see Members of the European Parliament applying their minds to such issues.

The European Parliament sets out the background to its question: the Samsung v Ericsson litigation, which recently settled. This is one of several recent cases where Chinese courts have issued ASIs, with the aim of prohibiting foreign patent holders from enforcing their rights outside of China, according to the European Commission. Ericsson is the well-known mobile communications company headquartered in Sweden. Together with other European companies, it pioneered the GSM system: the mobile phone system which today covers the world. Mobile telecommunication is Europe’s great technology success story of the last 50 years: the rare occasion on which Europe, rather than the United States or the countries of the Asia Pacific region, lead the world. Nordic companies Ericsson and Nokia went on to pioneer development of 3G, 4G and 5G mobile technologies. Samsung, like many other major implementers of mobile technology, needs to take a licence and pay royalties for the use of that technology.

The problem arises because the patents that protect this technology are purely national rights.  This gives rise to an awkward geo-political question: who should decide how much companies like Samsung should pay? It may be in the national interests of some countries to drive royalty rates down, if for example they have a local manufacturing industry. Other countries, those with research and development based economies, may benefit from higher royalties.

Samsung apparently concluded that its best chance lay in the courts of China. It brought litigation against Ericsson in the Intermediate Court in Wuhan (Hubei, China), and on Christmas day 2020 the Wuhan court prohibited Ericsson from bringing actions against Samsung in any other country. Lawyers call this an “anti-suit injunction”.

It is not immediately clear what Wuhan has to do with a dispute between a Korean company and a Swedish company. Only 1% of Samsung’s sales are in China: Samsung’s major market is the United States. Yet the Chinese court reserved to itself the question of how much Samsung should pay for use of Ericsson’s patents, under threat of penalties.

The European Parliament’s question suggests that we are witnessing a politicisation of the Chinese justice system: in other words, it suggests that China’s courts are influenced in their decisions by what is best for China’s own industry. Parliament observes that it will have major consequences for European businesses if they are subject to extremely low royalty rates for the use of their technologies. This is particularly the case if European businesses are prohibited from challenging such decisions: Parliament notes that Chinese courts will fine parties or order criminal penalties to enforce their orders.

It is certainly the case that, Chinese courts, by issuing ASIs in patent cases, are taking steps beyond what other national courts would do. The courts of most countries have adopted rules of mutual conduct in relation to other countries, and they expect other countries to adopt those same rules in return. One such rule is the principle of comity: the idea that one State should not apply measures of coercion to the property of another state. Patents are an example of such property, and imposing a cheap or free license to them would be a measure of coercion.

Typically, a national court asked to impose a royalty rate on a patent owner would set a rate only for its own national patents. That is not unreasonable: patents are sovereign grants by each country and if a country wishes to incentivise cheap production over innovation as a matter of internal policy it can do so. Trade deals may limit the extent of that freedom in practice, but that freedom fundamentally exists. Equally, countries can take the opposite view and prohibit infringement of their national patents unless the infringer pays royalties (as the UK Supreme Court has done in Unwired Planet v Huawei). But where they do so, the infringer remains free to sell elsewhere: he is only precluded from selling in that country. The national court has not interfered with any other national rights.

The European Parliament is quite correct that this needs a political solution: a mutual acceptance that an anti-suit injunction is an interference with the property of another state. German judges have expressed their concern, and have asked their federal government to seek a remedy through a political agreement with the Chinese government, and section 6 of the European Commission’s intellectual property action plan already identifies anti-suit injunctions as a problem that jeopardises fair play at a global level for European businesses. The European Parliament’s question highlights that Europe needs a coherent industrial plan to solve this political issue and promote its technology industry.