I have now had a
chance to read the arbitration award which, as I noted yesterday, reverses the
initial decision of the WTO panel and finds China's antisuit injunction (ASI) policy to
be in violation of the TRIPS Agreement. In some respects,
the award (in my view) raises more questions than it resolves, as discussed below--though
readers should note that what I have written here is a matter of first
impression concerning a fairly densely-written document, and that I may revise
or refine some of these impressions as I continue to give these matters more
thought.
1. My first question concerns
the precedential value of the award. Obviously
it binds the parties (here, the E.U. and China), but aside from that WTO decisions
generally do not create hard precedents as under common-law adjudication
systems. Elsewhere the WTO itself
explains the effect of panel and appellate body reports as follows:
A dispute relates to
a specific matter and takes place between two or more specific Members of the
(WTO). The report of a panel or the Appellate Body also relates to that
specific matter in the dispute between these Members. Even if adopted, the
reports of panels and the Appellate Body are not binding precedents for other
disputes between the same parties on other matters or different parties on the
same matter, even though the same questions of WTO law might arise. As in other
areas of international law, there is no rule of stare decisis in WTO dispute
settlement according to which previous rulings bind panels and the Appellate
Body in subsequent cases. This means that a panel is not obliged to follow
previous Appellate Body reports even if they have developed a certain
interpretation of exactly the provisions which are now at issue before the
panel. Nor is the Appellate Body obliged to maintain the legal interpretations
it has developed in past cases. The Appellate Body has confirmed that
conclusions and recommendations in panel reports adopted under GATT 1947 bound
the parties to the particular dispute, but that subsequent panels were not
legally bound by the details and reasoning of a previous panel report.
If the reasoning
developed in the previous report in support of the interpretation given to a
WTO rule is persuasive from the perspective of the panel or the Appellate Body
in the subsequent case, it is very likely that the panel or the Appellate Body
will repeat and follow it. . . .
The wrinkle here is
that this is not a report of a panel or appellate body, but rather of an arbitration
panel that was called into existence as a result of there being no functioning
appellate body for over five years now. But
surely an arbitration award can’t be any more binding than an appellate body
report, and perhaps it is even less of a persuasive (soft) precedent than an
appellate body report. (If any readers with
knowledge of arbitration and/or WTO procedure could provide some
insight on this issue, I would appreciate it.)
2. Moving on to the contents of the award, the
arbitrators agree with the initial panel that the E.U. established the
existence of China’s ASI policy “as a rule or norm of general and prospective
application” (para. 4.42), constituting an “unwritten measure” going beyond “written
Chinese laws and judicial decisions” (para. 4.22). That policy, as found by the initial panel
and affirmed by the arbitration panel, is described as follows (paras. 4.24,
4.29, 4.100):
. . . Regarding the precise content of the measure,
the Panel based its assessment on the three broad categories of evidence that
the European Union argued demonstrated the precise content and existence of the
ASI policy: (i) the temporal overlaps and the similarities of the five ASI
decisions; (ii) the relevance of the designation of some of these decisions as
typical cases, or other types of designation, and their promotion by the SPC
and regional government bodies; and (iii) the alleged calls from the SPC and
the NPC Standing Committee to continue using and improving the ASI policy. . .
.
While indeed the essential content of the ASI policy
was materialized in the judicial decisions, the European Union did not claim
that these judicial decisions constituted the policy themselves. Rather, as the
Panel concluded, these decisions were "an expression of the ASI policy, as
a principle or course of action, whereby Chinese courts are empowered to issue
ASIs in the context of SEP litigation." As part of the appraisal of the
precise content, the Panel assessed the policy objectives of the Chinese
government and found that the judicial decisions where ASIs had been issued
were in furtherance of broader policy considerations expressed by Chinese
authorities. The policy objectives refer to: strengthening the protection of
independent IP rights; the national innovation-driven development strategy and intellectual
property strategy which included "the construction of an 'anti-suit
injunction' system with Chinese characteristics, and the maintenance of
judicial sovereignty over foreign-related intellectual property rights";
the protection of legitimate rights and interests of Chinese and foreign
property right owners on an equal footing; extraterritorial application of
Chinese laws to protect the security and legitimate rights and interests of
Chinese citizens and enterprises in foreign countries; and the strengthening of
IP-related judicial cooperation with other countries. The Panel found that the policy
objectives "were to be implemented by Chinese courts at all levels. . . .
. . . We note that the objectives of the ASI policy
identified by the Panel (and set out in para. 4.98 above) include
considerations relating to parallel litigation and the protection of the
legitimate rights and interests of Chinese and foreign property right owners.
Further to the objectives of the Chinese authorities, the Panel identified at
least five factors196 that typically form the grounds on which ASIs are
issued by Chinese courts. . . .
196 Panel Report,
para. 7.98. These are: (i) "the impact on Chinese courts of the
application for the enforcement of judgments of extraterritorial courts";
(ii) "the necessity of the ASI (i.e. the harm caused to the applicant if
the ASI were not granted)"; (iii) "the balance of interests (i.e.
whether the damage caused to the applicants by not taking act preservation
measures exceeded that caused to the respondent by taking act preservation
measures)"; (iv) "the effect of granting the ASI on the public
interest"; and (v) "the compatibility of the ASI with the principle
of international comity or a similar consideration"
3. Perhaps the most
important conclusion the arbitrators reach concerns TRIPS article 1.1, first
sentence, which states that “Members shall give effect to the provisions of
this Agreement.” The panel concludes
that, read in context, this sentence means that each WTO “member is obliged to
make operative the Agreement in its territory” (para. 4.70)—and that, as
a corollary, “[a]ctions that frustrate the ability of other WTO Members to
protect and enforce IP rights in their own territories and which thereby upset
the balance of rights and obligations embodied in the TRIPS Agreement would not
be consistent with the requirement to ‘give effect’ to the provisions of the
TRIPS Agreement” (para. 4.71). Moreover,
the panel states that
In
our view, it is clear from the context of the first sentence of Article 1.1
that the TRIPS Agreement seeks to establish "national systems" for
the effective and adequate protection of IP in each and every Member, and that
these "national systems" may interact where necessary to address
trade-related aspects of IP rights. The raison d'être of the TRIPS
Agreement is to have minimum standards for the protection and enforcement of IP
rights given effect through national systems in the territory of each WTO
Member (para. 4.61).
It therefore follows,
in the arbitration panel’s view, that the initial panel’s
conclusion that Article 1.1, first sentence does not
address the implementation of the TRIPS Agreement by other WTO Members fails to
recognize a key corollary of each Member's duty to give effect to the TRIPS
Agreement within its own domestic legal system. As noted above, the raison
d'être of the TRIPS Agreement is to have minimum standards for the protection
and enforcement of IP rights given effect through national systems in the
territory of each and every WTO Member. The provisions of the TRIPS Agreement
would be rendered inoperative if Members
were allowed to frustrate the implementation by other Members of their
obligations under the TRIPS Agreement.
. . . Thus, in our view, there is only one obligation
in the first sentence of Article 1.1, namely, the obligation to "give
effect to the provisions of th[e] Agreement" in its territory, where the
corollary of the obligation is to do so without frustrating the functioning of
the systems of protection and enforcement of IP rights implemented by other
Members in their respective territories. We therefore find that the Panel did
not properly interpret the obligation in the first sentence of Article 1.1
(paras. 4.73, 4.74).
4. Next, the arbitrators consider whether China’s
policy violates TRIPS articles 28.1 and 28.2 in light of article 1.1, first sentence. Articles 28.1 and 28.2 read as follows:
1. 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 (6) 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.
2. Patent
owners shall also have the right to assign, or transfer by succession, the
patent and to conclude licensing contracts.
To cut to the chase,
the arbitration panel concludes, first, that “Article 28.1, read in conjunction
with Article 1.1, first sentence, requires that Members not frustrate the
patent owner's ability to exercise the exclusive rights conferred on it by
another WTO Member under that provision, i.e. to prevent third parties not
having the patent owner's consent from making, using, offering for sale,
selling, or importing the patented product” (art. 4.86); and that China’s ASI
policy violates this provision because it “establishes a course of action that
frustrates the exercise of the exclusive right of a patent owner to prevent the
use of the subject of its patent without its consent, as conferred on it by
another WTO Member under Article 28.1 of the TRIPS Agreement” (para. 4.107). The analysis of article 28.2 is a bit more
complicated. Here, the arbitrators note
the initial panel’s factual findings regarding SEPs, stating that:
. . . the Panel observed that, while claims concerning
the infringement of the subject matter of a patent must be brought before the
national courts of the territory that has granted the patent right, the same is
not true for contractual claims relating to licence fees and that courts in some
jurisdictions will consider contractual claims concerning worldwide licences.
Pursuant to conditions set out by the SSO, the SEP holder commits to provide an
irrevocable undertaking or a licensing declaration to the relevant SSO that it
will license or allow access to the subject matter of the patent-protected
product or process to implementers of the standard on FRAND terms, which is, as
we have explained, known as a "FRAND undertaking". . . . In effect,
the SEP holders have waived their right not to conclude licensing contracts,
but that waiver is conditional on the SEP implementer paying royalties on FRAND
terms. . . .
Accordingly, in the particular context of SEPs, a SEP
holder's "right … to conclude licensing contracts" is conditional.
The SEP holder has effectively waived its right not to conclude licensing contracts,
conditioned on obtaining FRAND rates for such contracts. This necessarily
requires users to enter into good faith negotiations as to what those FRAND
rates will be. As the Panel found, it is possible that those good faith
negotiations between SEP holders and SEP implementers may not yield an outcome,
in which case a court may be called upon to intervene. However, the Panel found
that this occurs only in instances where "parties do not reach an
agreement". Hence, an opportunity for good faith negotiations on FRAND
terms is necessary before any such court intervention can be warranted (paras.
4.137, 4.145).
Based on these
premises, the panel states that the question whether an ASI issued under China’s
ASI policy could frustrate a SEP holder’s right under article 28.2 “is
contingent on whether the ASI policy frustrates that central condition on which
the SEP holder has pre-committed to enter into licencing contracts. It follows
that, in the particular context of SEPs, the underlying reason for which an ASI
is issued under the ASI policy is key to whether it frustrates the patent
owner's ‘right … to conclude licensing contracts’" (para. 1.146). “It is clear, therefore, that the question of
whether the ASI policy is inconsistent with SEP holders' "right … to
conclude licensing contracts" turns on whether the policy disrupts the
negotiating process between SEP holders and SEP implementers” (para. 4.155),
and in the arbitrators’ view:
The option created by the ASI policy for SEP
implementers to obtain ASIs alters the process of negotiation in a fundamental
way. As described in section 4.6, an ASI prohibits SEP holders from pursuing or
enforcing the legal proceedings outside China that are specified in the given
ASI, particularly injunctive relief for infringement by SEP implementers. It
therefore abates the very "risk" that the Panel identified as the
main incentive for SEP implementers to seek to obtain a licence and start
paying royalties for use of a SEP. Meanwhile, SEP holders have made an
irrevocable commitment to provide licences on FRAND terms or risk facing
litigation for breach of contract or other relief. Their ability to withdraw
from negotiations is accordingly constrained. In our view, therefore, the
grounds on which an ASI can be obtained by a SEP implementer are pivotal to understanding
whether the ASI policy frustrates SEP holders' "right … to conclude
licensing contracts" which they have, in effect, conditionally waived
through the irrevocable FRAND undertaking. If the ASI policy undermines the
process of negotiations to arrive at FRAND terms, this would mean that SEP
holders would be entering into licensing contracts without fulfilment of the central
condition on which their exercise of that right was premised. . . .
Accordingly, we consider that the availability of ASIs
to SEP implementers under the ASI policy alters the negotiating position of SEP
holders in a fundamental way. It removes the main incentive for SEP
implementers to negotiate with a SEP holder a licensing contract on FRAND terms
(paras. 4.156, 4.158).
For these reasons,
China’s policy violates article 28.2 read in light of article 1.1 first sentence.
5. The rest of the award of pretty anticlimactic.
First, the arbitrators conclude that the
ASI policy does not violates TRIPS article 44.1 (authorizing members states’
judiciaries to enter injunctions) read in conjunction with article 1.1, because
the in personam nature of an ASI does not affect the authority of the judiciary
of another member state, even though it “may restrict SEP holders from
requesting ‘judicial authorities’ in other Members to exercise their ‘authority’
in this regard” (para. 4.174). Second,
the ASI policy is not an “enforcement procedure” for purposes of article 41.1,
and thus there is no violation of that provision (paras. 4.177 to 4.197). Third, given the arbitrators’ conclusion that
the ASI policy violates articles 1.1 and 28, there is no need to resolve the
E.U.’s “as applied” challenged (that is, to determine whether the five individual
ASI decisions violate TRIPS). Fourth, the
initial panel was correct in concluding that China had violated TRIPS article
63.1 by not making publicly available the Xiaomi v. InterDigital ASI
decision, which was a judicial decision of “general application” (para. 4.234).
6. Assuming that the award is persuasive
precedent going forward, what are its potential implications? I think the following are worth considering:
a. The E.U. has another matter
pending before the WTO, concerning whether China’s practices in establishing
the terms of global FRAND licenses violates Paris Convention article 4bis, as
incorporated under TRIPS article 2.1, as well as TRIPS articles 1, 28, and 63.
See WT/DS632-1—China—Measures Concerning Patent Licensing Terms: Request for Consultations by the European
Union, Jan. 22, 2025. On my initial reading, this arbitration
award seems to take a firm stand in favor of national determinations, and of
the need (as it sees it) to permit SEP owners to seek remedies in the country
in which the patent(s) at issue are registered.
That understanding would seem, on its face, inconsistent with
nonconsensual global FRAND determinations.
b. Although the arbitration award
does not necessarily condemn all use of ASIs, it might be
difficult to justify any ASI under the arbitrators’ reasoning, because the
whole point of issuing an ASI in a case involving patent rights is to preclude,
albeit indirectly, a court of another state from enforcing the patent owner’s rights
in that state. (That said, the arbitrators
do note some of the unique features of the Chinese policy, including the very
substantial penalties imposed for violations of an ASI. See, e.g., paras. 4.103, 4.104, 4.161. A more traditional ASI, moreover, might only prohibit a party from litigating in another state in which litigation is already pending, rather than anywhere in the world.) But that conclusion seems a bit superficial
to me. The practice of some courts of
routinely granting injunctions in SEP cases also can undermine, as a practical
matter, the ability of other courts to decide SEP cases in accordance with
their own national law, because it can compel the implementer to settle before
the other courts have had a chance to adjudicate the claims before them. (See, e.g., Microsoft v. Motorola.) At least in these types of cases, ASIs in
my view can be defensible. (As a policy matter, this raises the question of whether the court issuing the ASI, or the court poised to enter an injunction that as a practical matter will bring the global litigation to an end (or to enter an AASI), is the one that is defecting from the comity norm. For further ruminations on these sorts of issues, see my forthcoming book Wrongful Patent Assertion and its discussion of Professor Drahozal's game-theoretic analysis of ASIs.) The award also leaves
open the question (as Daniel Gervais points out) of whether SEP owners
might have a legitimate interest in obtaining an ASI, where an implementer is
trying to forestall a national court from making a global FRAND determination
that might preempt litigation in another country (see, e.g., Conversant v. Huawei and ZTE, where Mr. Justice Carr stated that he would have entered an ASI under
just such circumstances, had ZTE not amended its complaint in China). Overall, the arbitrators’ perspective on
FRAND strikes me as similar to that expressed by the German courts, insofar as they
state more than once that a FRAND license is the outcome of negotiations (see,
e.g., para. 4.144).
c.
The arbitrators also cite, with apparent approval, the initial panel’s
observation that “claims concerning the infringement of the subject matter of a
patent must be brought before the national courts of the territory that has
granted the patent right” (para. 4.94, which then goes on to note, however,
that “the same is not true for contractual claims relating to licence fees”;
see also para. 4.137). As Miquel Montañá
suggests, this sort of language might seem to difficult to reconcile with the CJEU’s decision in
BSH Hausgeräte v. Electrolux, which holds that in cases in which the defendant is domiciled
in an E.U. member state the courts of such a state may adjudicate claims
for the infringement of non-domestic patents and, in cases of non-E.U. patents, even adjudicate validity (albeit only inter partes). (See my blog post here.) But that might be reading too much into the
WTO proceeding, where this language might be characterized as dicta. Taking it too literally also would call into
question the (I think relatively uncontroversial) position of U.S. and U.K. courts
that domestic courts may adjudicate claims for the infringement of foreign
copyright rights. But, we’ll have to see
what others make of these statements.
d.
The TRIPS Agreement wasn’t designed with today’s SEP cases in mind, but
as is frequently the case the law lags behind real-world developments. This might suggest the need for some degree of flexibility in interpretation. In this regard, while I have long expressed concern over the profligate
use of ASIs and of global FRAND determinations, I wonder whether the reasoning
in the award is perhaps a bit too formalistic in view of where matters stand today.
