The UK Unwired Planet judgment
The Unwired Planet case1 concerned two joined cases before the UK Supreme Court with similar facts and arguments, pitting two Non Practicing Entities ("NPEs"), whose businesses mainly consist of exploiting patents through licensing deals, against two standards implementers in the telecoms industry, who want to implement a number of SEPs in their products.
For a patent to be considered an SEP, it has to be essential to implementing a technical standard. Such standards are generally fixed by Standard Setting Organizations ("SSOs"), such as, in this case, the European Telecommunications Standards Institute ("ETSI"). Companies joining the SSO generally agree under contract to collaborate and make available their SEPs to others on fair, reasonable and non-discriminatory ("FRAND") terms.
In its judgment in Unwired Planet, the UK Supreme Court confirmed that proving infringement of a single UK SEP within a larger global portfolio of patents can force an infringer to elect between (i) agreeing to take a global, full portfolio licence on FRAND terms, as set by the Court, if not agreed by the parties, or (ii) being subject to a UK injunction, forbidding use of the SEPs by the implementer in the UK, and therefore practically shutting the implementer out of the UK market. This decision essentially gives UK courts the power to require implementers to take a FRAND licence on a global and full portfolio basis, or to shut out the implementer’s product from the UK market.
Shift to China?
Given the fact that a large number of SEP implementers, especially in the telecoms industry, are based in Mainland China, an important SEP question post-Unwired Planet is whether Chinese implementers would be able to take the battle over royalty rates to their home courts, and therefore whether the Chinese courts would declare themselves competent to set global, full-portfolio license rates, using approaches that result in rates that may be more beneficial to such Chinese implementers. Another related issue is whether Chinese courts would be willing to grant anti-suit injunctions, enjoining SEP owners from bringing parallel procedures to determine royalty rates in other jurisdictions, as these might frustrate attempts to obtain a global royalty rate from a Chinese court.
Anti-suit injunctions
Anti-suit injunctions are a relatively unusual legal tool, particularly used to prevent forum shopping in cases where conflicting decisions of various national courts may frustrate prior legal proceedings dealing with the same issue. These tools are especially relevant in SEP disputes when one of the parties requests a court to set a global royalty rate, as that would preclude, in principle, another royalty rate being set by a court in another country. The core of the controversy lies in that anti-suit injunctions, although they are always directed at a private party in the dispute, essentially rule on the suitability of proceedings in a foreign court, and therefore affect another country's sovereignty. For this reason, certain courts around the world have also issued anti-anti-suit injunctions (sometimes referred to as anti-interference injunctions), prohibiting the obtaining or enforcement of an anti-suit injunction. Recent examples are the anti-anti-suit injunctions issued by the Delhi High Court in the Xiaomi v InterDigital case and by the US District Court for the Eastern District of Texas in Samsung v Ericsson, discussed below.
As can be seen clearly from three recent decisions, one by the China IP Court of Appeal at the Supreme People's Court ("SPC"), i.e. Huawei v Conversant2, and two issued by the Wuhan Intermediate People's Court, i.e. Xiaomi v InterDigital3 and Samsung v Ericsson4, the answer to the question whether the Chinese courts would be willing to grant anti-suit injunctions, is that Chinese courts will not shy away from issuing anti-suit injunctions in SEP cases.
Legally speaking, these injunctions are based on a liberal reading of the action preservation measures provided by article 100 of China's Civil Procedure Law and the provisions of the Supreme People's Court's Measures on Several Issues concerning Application of Law in Review of Cases involving Behavior Preservation in Intellectual Property Right Disputes (最高人民法院关于审查知识产权纠纷行为保全案件适用法律若干问题的规定), which do not explicitly mention anti-suit injunctions. Article 100 of the Civil Procedure Law particularly provides that Chinese courts may: "make a ruling to preserve the assets of the other party or order the other party to perform certain acts or to prohibit the other party from committing certain acts". Anti-suit injunctions therefore seem to be based mainly on this last phrase, giving the courts the power to issue injunctions prohibiting a party from committing certain acts.
In the Huawei v Conversant case, China's SPC granted Huawei an injunction (on an ex parte application) ordering Conversant to refrain from enforcing an earlier injunction granted by the Dusseldorf court, which enjoined Huawei from selling its products in Germany unless it accepted a royalty rate fixed at an amount more than 18 times higher than the rate set by the Nanjing court earlier in parallel Chinese proceedings. The SPC ordered Conversant not to enforce this German injunction until the Chinese proceedings on the merits were finalized. The SPC particularly explained its order by referring to the overlapping proceedings, to the detrimental effect of the German injunction on the Chinese proceedings, to the lack of prejudice to Conversant's rights in Germany by the SPC injunction, to the fact that the Chinese proceedings were brought before the German proceedings and that the Chinese injunction would not hinder the German procedure.
In the Xiaomi v InterDigital case, the Wuhan Intermediate People's Court went even further. This case was initiated when SEP license negotiations regarding 3G/4G patents between Xiaomi and InterDigital failed, and Xiaomi subsequently brought the dispute before the Wuhan Intermediate Court, directly requesting the court to set a global FRAND rate for the relevant patent portfolio owned by InterDigital. In response, InterDigital brought patent infringement proceedings against Xiaomi before the Delhi High Court, claiming both damages and an injunction. In response, Xiaomi requested, ex parte, an anti-suit injunction from the Wuhan Court, which the Court granted. The Wuhan Court granted a particularly broad anti-suit injunction, not restricting it to the parallel proceedings in India, instead covering proceedings anywhere in the world and prohibiting InterDigital from asking any other court in the world to determine a FRAND royalty rate. The Delhi High Court later issued an anti-anti suit injunction against this very broad anti-suit injunction by the Wuhan Court, ordering Xiaomi not to enforce it against InterDigital.
Just twenty days after Xiaomi v InterDigital, the same Wuhan Court made its second anti-suit decision in Samsung v Ericsson in favor of Samsung, restraining Ericsson from seeking injunctions or determination of violation of FRAND commitments, as well as seeking anti-anti-suit orders elsewhere in the world. The Wuhan Court’s anti-suit injunction was subsequently met with an ex parte anti-anti suit injunction from the US District Court for the Eastern District of Texas, indicating a further heating up of the battle.
Chinese courts ready to set global rates
Apart from the willingness of the Chinese courts to grant anti-suit injunctions to preserve their jurisdiction over SEP cases, recent cases have also shown that the Chinese courts appear increasingly willing to set global royalty rates in disputes involving the infringement and FRAND licensing of global patent portfolios, echoing the English court’s decision in the Unwired Planet case.
In a very recent judgment on jurisdiction5, the Shenzhen Intermediate People's Court ruled that it has jurisdiction in an SEP licensing case pitting OPPO against Sharp, based on the fact that the asserted patents are implemented in China, and because OPPO’s research and development activities as well as the manufacturing of its products take place in China. In a notable statement, the Shenzhen Court also remarked that it is in principle willing to set a global FRAND rate for the global asserted patent portfolio as this could safeguard procedural efficiency, and avoid parallel litigation between the parties. Furthermore, in Samsung v Ericsson, the Wuhan Court stated that it has the jurisdiction to determine global patent rates and decided that allowing parallel lawsuits in another jurisdiction would, when the Wuhan Court received the complaint on the same SEP dispute first in the world, likely undermine the effective enforcement of the court’s decision. While Chinese courts have set FRAND rates in cases before (e.g. the Nanjing Court set a FRAND rate in Huawei v Conversant), until recently, these have not been global rates. In this sense, the OPPO v Sharp, Xiaomi v InterDigital and Samsung v Ericsson cases provide an indication of what the future of SEP litigation may look like. In the aforementioned three cases Chinese courts have so far only dealt with procedural issues such as the court’s jurisdiction, so it will be interesting to see how a Chinese court would deal with the substantive issue of setting a global FRAND rate and whether its decision will allow for the parties having a different rate set by a foreign court for foreign patents or for further litigating the validity and SEP-nature of the non-Chinese patents in the foreign courts, etc.
What's next?
The fact that Chinese courts have adapted quickly to global SEP litigation strategies, taking account of practices in courts outside of China, shows a clear willingness of Chinese courts to transition from a conservative and cautious approach in dealing with SEP litigation to a more global business-focused and trend-setting approach, competing with courts internationally for jurisdiction over such high-tech cases. This development may be prompted by both legal and policy reasons, and is consistent with China's government policy to develop itself into a global hub for high-tech and R&D activities. It is therefore unlikely that the willingness of the Chinese courts to decide such challenging cases will diminish.
Whether global FRAND rates that may potentially be set by the Chinese courts are in accordance with international standards, or are manifestly too low remains to be seen. However, if SEP owners believe Chinese courts are setting global FRAND rates at a low level, the next step may be that SEP owners will try to challenge such rates in foreign courts and ask them to apply different rates. Foreign courts may deal with this issue differently, depending on how they apply decisions made by courts in other countries on the same factual issues (here, the appropriate global FRAND rate) and consider the effect of a global licence signed as a consequence of decisions of foreign courts. Looking forward, parties will need to coordinate carefully patent infringement litigation brought by owners of SEP outside China with any FRAND royalty rate litigation brought by manufacturers against SEP owners in China.
Nevertheless, given the sheer size of China and the importance of its manufacturing base and market on a global scale, SEP owners are unlikely to be able to avoid Chinese court decisions altogether, which should give the Chinese courts an important and influential future role in the global SEP arena.
Authored by Stefaan Meuwissen, Julia Peng, and Andrew Cobden.
1. Unwired Planet v Huawei and Conversant v Huawei & ZTE proceedings [2020] UKSC 37
2. Huawei v Conversant, (2019) Zui Gao Fa Zhi Min Zhong 732, 733 and 734 No 1
3. Xiaomi v InterDigital (2020) Er 01 Zhi Min Chu 169 No 1
4. Samsung v Ericsson (2020) Er 01 Zhi Min Chu 743
5. OPPO v Sharp (2020) Yue 03 Min Chu 689
