The European Union launched a legal challenge against China at the World Trade Organization on 18 February arguing that Chinese courts were preventing European companies from protecting their telecom technology patents. China severely restricts EU companies with rights to key technologies (such as 3G, 4G and 5G) from protecting these rights when their patents are used illegally or without appropriate compensation by, for example, Chinese mobile phone manufacturers. The patent holders that do go to court outside China often face significant fines in China, putting them under pressure to settle for licensing fees below market rates.
The European Commission, which filed the challenge on behalf of the EU’s 27 members, said EU companies were being deterred from going to a foreign court to safeguard their standard-essential patents (SEPs). The Commission has also consulted the United States and Japan, whose standard-essential patent holders face similar challenges and which want to be setting global tech standards, rather than leaving this to Beijing.
Mobile phone manufacturers need to obtain licences for SEPs for their products to meet certain international standards.
The Commission said Chinese courts had, Since August 2020, Chinese courts have been issuing decisions – known as “anti-suit injunctions” – to exert pressure on EU companies with high-tech patents and to prevent them from rightfully protecting their technologies. Chinese courts also use the threat of heavy fines to deter European companies from going to foreign courts.
In one case, the fine was 130,000 euros ($147,758) a day, and the practice undermined the companies’ negotiations on licence fees with Chinese smartphone makers, the EU executive said.
China said that it regretted the EU challenge and that it always upheld the multilateral trading system.
The European Commission did not specify companies involved. China’s largest smartphone makers are Oppo, Vivo, Xiaomi and Honor, formerly owned by Huawei. European SEP holders include Nokia and Ericsson.
The Commission said it had raised the issue on a number of occasions with China, without resolution. The bloc believes China is violating the WTO’s agreement on trade-related aspects of intellectual property rights (TRIPS).
WTO challenges start with a formal 60-day period of consultations between the parties after which the EU can request a WTO panel ruling. The process, including possible appeals, can take years.