Wednesday, September 8, 2021

China to EU: we comply with the TRIPS Agreement and if you have any questions about standard-essential patent enforcement, let's have bilateral talks

On July 6, the European Commission, which represents the EU at the World Trade Organization (WTO) level, filed an elaborate five-page "request for information pursuant to Article 63.3 of the TRIPS Agreement" (TRIPS = Trade-Related Aspects of Intellectual Property Rights) as a formal "communication from the European Union to China." Styled as a request for information for transparency's sake, the EU was expressing concerns over China's standard-essential patent (SEP) case law, particularly global FRAND rate-setting decisions and antisuit injunctions.

The very recent OPPO v. Sharp decision by the Supreme People's Court (SPC) of the People's Republic of China (PRC) already demonstrated that the Chinese judiciary considers it stance on SEPs to be balanced and perfectly compatible with the concept of international comity (which in this context means that courts in one country respect their counterparts in another).

Even clearer is the message that the Chinese government has for the EU. China does not believe to be under any obligation whatsoever to respond to the EU Commission's request for information. The five-page questionnaire drew a five-paragraph response that fits on a single page. The final paragraph invites the EU to have a direct conversation rather than a further exchange at the WTO level:

"5. China and the European Union have established the China-EU IP Working Group, and China stands ready to have further discussions through such existing bilateral channel."

The first paragraph of China's response is a declaration of its commitment to IPR protection and a reference to the bilateral contacts mentioned in the final paragraph. The second paragraph disputes a formal obligation to respond.

In the remaining two paragraphs, one can find absolutely nothing about SEPs or antisuit injunctions. Zero. Nada. It's just about China's rules for publishing judgments online and a clarification that any guidelines found in cases designated as "typical" or "big" cases still aren't generally applicable. In other words, decisions are still made on a case-by-case basis, even if some judgments have a higher profile than others.

Brevity is the soul of wit. If China had filed 10 or 20 pages defending its case law, that would have been weaker than this terse reply. It would have been defensive.

The EU now has four options:

  1. The Commission's DG TRADE can say "alright, this went nowhere, we barked up the wrong tree." And let it go. Considering the effort that must have gone into the EU's five-page request, there's likely more to come though.

  2. The Commission can accept China's invitation, sit down, and talk. Diplomacy. Bilateralism.

  3. The Commission could bring a more formal complaint to accuse China of non-compliance with TRIPS, triggering a WTO dispute settlement procedure.

  4. Theoretically, the EU could start an all-out trade war (with punitive tariffs etc.). I can't imagine that as the next step, but they might threaten with it at some point.

I'm just a neutral observer who understands the interests of European companies in patent enforcement as well as China's interests in being a key SEP jurisdiction (given that most smartphones are made there, many SEPs belong to Chinese companies, and for a number of device makers China is the largest market). Both sides have legitimate interests, but equally legitimate questions can be asked about the EU's request for information:

  • Why are they concerned only about Chinese FRAND determinations and antisuit injunctions when

    • a U.S. court already entered an antisuit injunction almost ten years ago (Microsoft v. Motorola, a masterpiece of a decision) that prevented the enforcement of European (in that case, German) SEP injunctions, and

    • the UK Supreme Court (shortly before the UK formally left the EU) held in Unwired Planet v. Huawei that British courts can present implementers with the alternatives of accepting a global license agreement "made in Britain" or being forced out of the UK market?

  • Why is it OK for European courts (particularly the ones in Germany) to enjoin Chinese and other companies unless they take a global license? The fact that German courts don't set the rate is secondary. A SEP holder can ask for anything that is not facially absurd, provided that the implementer is deemed an unwilling licensee.

    This also affects U.S. companies such as Apple when they get sued in Germany--and they don't get help from their courts, which decline to make global FRAND determinations unless both parties ask them to.

Given that U.S. courts exercise more restraint than their counterparts in the EU, the UK, and China, I'm not even sure it was a good idea for the EU Commission to make extraterritorial overreach in SEP enforcement a WTO issue--and even less so in light of the Biden Administration's rather implementer-friendly leanings.

Let there be no doubt: there are problems that need to be solved. I would encourage the EU and China to talk to each other, and I would also encourage the U.S. and the UK (which may override its top court's case law by legislative means) to engage in discussions with the EU (and vice versa).

What is not a solution is for the pot to call the kettle black. Given that the EU has some sweeping to do in front of its own door, China rightfully gave short shrift to an insinuation of non-compliance with the TRIPS Agreement. But that doesn't have to prevent the parties from engaging in constructive dialog, or multilateral talks that would also involve the United States and the United Kingdom.

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