EU Takes China To WTO In Smartphone Patent Spat

smartphone, iPhone XR, apple

European Commission launches WTO challenge against China over court decision that forces smartphone tech patent owners to settle for cut-rate licensing fees

The European Commission has challenged China in the World Trade Organisation, arguing that Chinese courts are preventing European patent holders from protecting their licensing revenues in the country.

The Commission, acting on behalf of the bloc’s 27 members, said EU companies were being prevented from going to foreign courts to protect standard-essential patnets (SEPs) used in technologies such as 3G, 4G and 5G.

While the Commission didn’t name specific companies, Sweden’s Ericsson and Finland’s Nokia are affected by the situation, as well as US firms and Japan’s Sharp.

Chinese courts set licence fees at around half the market rate previously agreed between western technology providers and Chinese smartphone manufacturers, the Commission said. China’s biggest phone makers include Honor, formerly owned by HuaweiOppo, Xiaomi and ZTE.

Image credit: European Commission, china
Image credit: European Commission

Licensing fees

The Commission said the situation deprives EU companies of revenues that can be invested in research and development.

An unnamed European Commission official told the Financial Times the situation was a “power grab” by China.

Patent holders agree to participate in global technology standards, and in exchange are required to licence their patents to manufacturers for reasonable rates. If the parties involved can’t agree on a price, they go to a court to set the fee.

In August 2020 China’s Supreme People’s Court ruled Chinese courts can impose “anti-suit injunctions” that forbid a company from taking a case to a court outside the country.

Companies who do so can be fined 130,000 euros (£108,000) per day and the rulings of foreign courts are ignored, the Commission said, forcing companies to settle for the far lower rates set by Chinese courts.

Research investment

After Ericsson lost a court case it said licensing revenues would fall by 100m to 150m euros a quarter. US technology R&D company InterDigital and EU research institutes such as Fraunhofer have also been affected.

“We must protect the EU’s vibrant high-tech industry, an engine for innovation that ensures our leading role in developing future innovative technologies,” said EU trade commissioner Valdis Dombrovskis. “EU companies have a right to seek justice on fair terms when their technology is used illegally. That is why we are launching WTO consultations today.”

The Commission believes China’s actions are inconsistent with the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (Trips).

“Brussels’ lead will safeguard the billions of euros that innovators invest in R&D in Europe and worldwide every year and we hope that other stakeholders follow this lead in enacting measures to protect innovation,” said InterDigital president and chief executive Liren Chen.

China said it regretted the EU challenge and that it always upheld the multilateral trading system.

WTO challenges begin with a formal 60-day period of consultations between the parties, after which the EU can request a WTO panel ruling. The entire process, including appeals, can take years to reach a resolution.