Jurisdictional Conflicts in Global FRAND Cases and the EU's WTO Complaint against China for Alleged Violation of TRIPs

Anti-suit injunctions ("ASI") issued by Chinese courts, which prevent parties of proceedings concerning standard-essential patents ("SEPs") from bringing proceedings against each other in different countries, have become one of the controversial issues in these proceedings, highlighting the "jurisdiction of the court". 

As is known, in the case of SEPs, the first issue that confronts the patent holder and the company implementing the SEP is whether a licence has been asked, offered and/or granted on Fair, Reasonable and Non-Discriminatory terms ("FRAND") and how the licence fee should be determined. The court tasked with resolving such a dispute is often deal with multinational companies with worldwide operations and a worldwide interest in the determination of FRAND terms and the licence fee, not only in the country where the relevant court is located, but also worldwide.  Therefore, the court may determine licence fees on FRAND terms limited to the country in which it is located and the patents enforceable there, or it may determine licence fees on FRAND terms applicable worldwide between the parties. In such cases, the common view of the courts in Europe and the United States of America ("USA") is that, since FRAND disputes are essentially contractual disputes, a global rate for the entire patent portfolio licensed under the contract in question can be determined by a single court.

As a matter of fact, in 2017, in the Unwired Planet v Huawei case, the UK Supreme Court held that it had jurisdiction to determine the terms of a global FRAND license agreement between the parties, covering not only the SEP holder's UK patents but also foreign patents valid in other countries covered by FRAND commitments. Similar judgements continue to be issued by US courts.

The fact that the court of a certain country determines the licence terms that apply globally for the parties has led to the operation of different legal mechanisms.  Indeed, in such disputes, while a dispute regarding the license under FRAND terms is pending before a court in one country, the patent holder company may file an infringement action in another country claiming infringement of the same patents, and while the parties have not yet resolved the ongoing litigation over a license fee on FRAND terms, a preliminary injunction grounding on patent infringement may be granted by a court in another country. The legal mechanism that has started to be used for such situations is the Anti-Suit Injunction ("ASI"), which we hear frequently, especially in the decisions of European and US courts, which prevents the patent owner from filing a lawsuit in foreign countries or enforcing the preliminary injunctions granted by foreign courts in favour of the patent holder.

The first notable ASI decision in a case concerning the determination of a licence fee on FRAND terms was rendered by the US District Court for the State of Washington in Microsoft v. Motorola case. In the case, Microsoft alleged that Motorola breached its commitment to offer Microsoft a licence on FRAND terms.  While this case was pending, Motorola filed a patent infringement lawsuit against Microsoft in Germany.  The German court upheld the patent infringement claim and enjoined Microsoft from selling the infringing products in Germany.  In response to the German court's judgement, Microsoft applied to the US court just before the judgement was enforced and sought an ASI decision to prevent Motorola from enforcing the judgement in Germany. The US court ruled a decision to prevent Motorola from filing a lawsuit that would prevent it from enforcing the judicial decision it obtained against Microsoft in Germany for patent infringement.  

The issue to be considered here is that ASI judgements are "in personam".  In other words, they bind the parties, not the courts. In the above example, the US court has issued an injunction that binds Motorola and has the power to impose sanctions on it within the authorization and jurisdiction of the USA in case of non-compliance. 

Although ASI judgements are a type of injunction that is unfamiliar to Continental European legal systems such as Turkey, we can encounter ASI judgements frequently in Anglo-Saxon law. The basis of this difference lies in whether the courts consider themselves competent outside their country.  For example, Turkish courts do not recognise ASI judgements issued by foreign courts within the framework of the right to a fair trial and the freedom to seek justice protected by the Constitution, or do not consider that they have jurisdiction to issue ASI judgements that would prevent the filing of a lawsuit before foreign countries.  

This legal mechanism, which was frequently used by European and US courts until recently, was also applied by Chinese courts in 2020 and caused a great controversy.

As a result of the patent infringement lawsuit brought by Conversant against Huawei and ZTE before the German courts, the German court found that Huawei and ZTE had infringed Conversant's SEPs and issued preliminary injunctions to remove the infringing products from the German market. In the meantime, however, Huawei and ZTE applied to the Supreme People's Court of China to prevent Coversant from enforcing injunctions obtained in Germany and succeeded in obtaining an ASI decision preventing Conversant from filing a lawsuit against Huawei and ZTE regarding its SEPs and from enforcing the injunctions issued by the German court.

Following this preliminary injunction decision issued by the Supreme People's Court of China, Chinese courts continued to issue preliminary injunctions "to prevent litigation" (Anti- Suit Injunctions (“ASI”)) within the scope of the Xiaomi v. InterDigital, Oppo v. Sharp and Samsung v. Ericsson files, preventing standard patent holders from filing lawsuits in foreign countries or enforcing preliminary injunction decisions issued by foreign courts.

Following these developments, on July 6, 2021, the European Union sent an official request for information to China, requesting information about the injunctions granted by Chinese Courts in the Xiaomi v InterDigital, ZTE v Conversant, OPPO v Sharp ve Samsung v Ericsson cases and the legal basis for blocking the implementation of judicial decisions made in Europe, pursuant to Article 63.3 of the TRIPS Agreement, which regulates the obligation of member states to provide information in response to the written request of another member country that believes that a judicial decision or administrative decision in the field of intellectual and industrial property rights or a bilateral agreement affects its rights under TRIPs.

On September 7, 2021, the Chinese government stated that it was not obliged to respond to the European Union's request for information under the TRIPs Agreement.

Afterwards, the European Union filed a request for consultation with the World Trade Organization on February 18, 2022, claiming that the practices of Chinese courts unfairly restrict patent rights and impede fair trade in violation of TRIPs provisions.  On 4 March 2022, Canada, Japan and the United States also requested to join the European Union's request for consultation.

In the application submitted by the European Union, it has been asserted that:

• With the preliminary injunctions that prevent SEP holders from filing lawsuits in foreign countries or enforcing preliminary injunctions issued by foreign courts (anti-suit injunctions) and with the regulations that impose administrative fines (1,000,000 Chinese Yuan per day, i.e. approximately 4,300,000 Turkish Liras or approximately Euro122.000) against patent-holding companies in case of non-compliance with these decisions, China violated TRIPs articles 1.1, 28.1, 28.2, 41.1 and 44.1 protecting the patent holder's right to prevent third parties from producing, using, offering for sale, selling or importing that product for these purposes without obtaining the consent of the patent owner in cases where patent infringement exists and protecting their right to obtain a judicial decision by applying to the competent courts in this regard.
• China violated the regulation, regulated in Protocol on Accession to TRIPS Section 2(A)(2), which provides that China shall apply and manage in a uniform, impartial and reasonable manner all laws, regulations and all other regulations relating to trade in goods and services, trade-related aspects of intellectual property rights or foreign exchange control.
• China had acted contrary to its obligations regarding the publication of decisions on intellectual and industrial property rights in Article 63.1 of the TRIPS Agreement by not publishing some of the judicial decisions regarding the preliminary injunctions in question, and
• By failing to respond to the request for information sent by the European Union to China on 06 July 2021 regarding three cases concerning the preliminary injunction decisions in question, it breached the obligation of member states within the scope of Article 63.3 of the TRIPs Agreement to provide information in response to the written request of another member state who believe that a particular judicial decision or administrative decision or bilateral agreement in the field of intellectual and industrial property rights affects their rights under TRIPs.

On December 7, 2022, the European Union submitted a petition to the World Trade Organization, requesting that a delegation be formed at the meeting of the Dispute Settlement Body to be held on December 20, 2022, and that the allegations of TRIPs violations against China be evaluated by this delegation. With the agreement between China and the European Union on March 28, 2023, an arbitral tribunal was formed, and it was decided that this arbitral tribunal would examine the current dispute in accordance with Article 25 of the World Trade Organization's handbook on dispute resolution, which relates to the rules of dispute resolution through arbitration. 

When the petition submitted by the European Union to the WTO on 22.02.2022 is examined, it is seen that the following facts are expressed as the fundamental problems of the conflict: The duration of ASI decisions issued by Chinese courts is subject to daily fines; the ban decision is valid worldwide; the Supreme Court of China has stated that it has the authority to determine a global license fee for a SEP subject to the lawsuit and that the ASI decisions were necessary to prevent license fees that would be too high for the Chinese state; and finally, Chinese courts have been making such decisions systematically lately.

Although the European Union may be criticized for complaining about the practice of Chinese courts considering that ASI decisions are frequently made in countries that have adopted the Anglo-Saxon legal system and in many European countries, it is seen that the ASI decisions given by European and US courts are limited with a term which is necessary for the relevant European or US court to resolve the case and that these decisions have a nature that prevents a parallel case in a certain country in order not to make the solution of the FRAND case before European or US court meaningless and most importantly extreme high amount of daily fines are not imposed as a sanction for non-compliance with the final decision.

In conclusion, considering that the evaluation to be made by the World Trade Organization will serve as a guide for all TRIPs countries on how ASI decisions should be approached, especially within the framework of TRIPs principles, the decision of the delegation is closely followed by us.