EU Requests WTO Consultation with China Regarding Global FRAND Royalties

I just read about this on ip fray.  Yesterday, the EU’s Permanent Representative to the WTO send a Request for Consultations to the Permanent Representation of the PRC.  (There is also a press release, here.)  The letter notes that Chinese courts have taken on “the authority to determine, without the consent of both parties, worldwide licensing conditions, and in particular royalty rates, for portfolios of standard essential patents (SEPs) which include non-Chinese SEPs,” and that “[i]n accordance with China’s law, a legally effective decision determining such conditions is binding on both parties and is enforceable in China including with respect to the non-Chinese SEPs.”  In this regard, the letter references the late 2023 decision of the Chongqing First Intermediate People’s Court in OPPO v. Nokia (previously noted on this blog here and here). 

The letter makes two principal legal claims.  The first is that the “measure at issue adversely affect[s] the protection and enforcement of intellectual property rights,” in violation of article 4bis of the Paris Convention (as incorporated into TRIPS under TRIPS article 2.1) and TRIPS articles 1(1) (first sentence), 28(1), and 28(2).  By way of reference, article 4bis of the Paris Convention, titled “Patents:  Independence of Patents Obtained for the Same Invention in Different Countries,” states in paragraph 1 that “Patents applied for in the various countries of the Union by nationals of countries of the Union shall be independent of patents obtained for the same invention in other countries, whether members of the Union or not.”  The first sentence of article 1(1) of TRIPS states that “Members shall give effect to the provisions of this Agreement. Members may, but shall not be obliged to, implement in their law more extensive protection than is required by this Agreement, provided that such protection does not contravene the provisions of this Agreement.”   TRIPS article 28(1) states that “[a] patent shall confer on its owner the following exclusive rights:  (a)  where the subject matter of a patent is a product, to prevent third parties not having the owner’s consent from the acts of: making, using, offering for sale, selling, or importing . . .  for these purposes that product; (b) where the subject matter of a patent is a process, to prevent third parties not having the owner’s consent from the act of using the process, and from the acts of: using, offering for sale, selling, or importing for these purposes at least the product obtained directly by that process.”  Article 28(2) states that “[p]atent owners shall also have the right to assign, or transfer by succession, the patent and to conclude licensing contracts.”  The gist of this set of claims, set forth in six numbered paragraphs in the letter, is that China’s “measure” has the effect of interfering with parties’ ability to start or continue litigation, or owner’s ability to exercise their exclusive rights, in other member states.  The invocation of TRIPS articles 1(1) and 28 dovetails with some aspects of the WTO proceeding the EU initiated in 2022, which is still pending and was prompted by the flurry of antisuit injunctions Chinese courts issued in 2020.

The other claim is that China has failed to comply with its obligations under TRIPS article 63(3).  Article 63 is titled “Transparency,” and the first sentence of paragraph 1 (which paragraph is referenced in paragraph 3) states that “Laws and regulations, and final judicial decisions and administrative rulings of general application, made effective by a Member pertaining to the subject matter of this Agreement (the availability, scope, acquisition, enforcement and prevention of the abuse of intellectual property rights) shall be published, or where such publication is not practicable made publicly available, in a national language, in such a manner as to enable governments and right holders to become acquainted with them.”  Paragraph 3 then states “Each Member shall be prepared to supply, in response to a written request from another Member, information of the sort referred to in paragraph 1. A Member, having reason to believe that a specific judicial decision or administrative ruling or bilateral agreement in the area of intellectual property rights affects its rights under this Agreement, may also request in writing to be given access to or be informed in sufficient detail of such specific judicial decisions or administrative rulings or bilateral agreements.”  The letter states that the EU requested that China supply the OPPO v. Nokia decision in December 2023, but that China’s response to that request was inconsistent with article 63(3), second sentence.  The EU made analogous claims in the WTO proceeding initiated in 2022.

International trade lawyers may have a better sense that I do how this is likely to play out.  As an initial take, I'll just note a few brief observations.  First, it is interesting to consider whether the EU’s argument, if accepted, would impact the UK’s practice of setting global FRAND rates--though perhaps the UK practice can be distinguished insofar as the English courts offer the infringer a choice of either being enjoined from practicing the infringed patents in the UK, or accepting a court-determined global FRAND license; I’m not sure that the Chinese measure at issue offers a similar option (whatever its value may be) of being enjoined in China and thus not being subject to a court-determined global license.  Also, when the UK courts started setting global terms in 2017 in Unwired Planet, this was seen as being favorable to SEP owners, or at least more favorable than proceeding on a country-by-country basis, which Mr. Justice Birss (as he then was) referred to as “madness”--though in light of the last couple of UK-determined FRAND licenses in Optis v. Apple and InterDigital v. Lenovo, as well as the fall 2024 decision in Panasonic v. Xiaomi, it may seem that the UK approach is actually not such a bad deal for implementers, all things considered.  More favorable to SEP owners is the possibility of getting a relatively quick injunction from a court in Germany or the UPC, which as Olivia Rafferty points out in her ip fray post often compels a global settlement.  Second, it’s also interesting to consider the impact of a WTO ruling on the EC’s own draft SEP Regulation, which would have conciliators make nonbinding global FRAND determinations “unless otherwise specified by the parties in case both parties agree to the FRAND determination or by the party that requested the continuation of the FRAND determination,” and would permit SEP owners to agree to global royalty caps.  Finally, the press release alleges that the Chinese practice "pressures innovative European high-tech companies into lowering their rates on a worldwide basis, thus giving Chinese manufacturers cheaper access to those European technologies unfairly," and the letter states that the EU "reserves the right to raise additional measures and claims . . . regarding the above matters."