Anti-suit injunctions – a new global trade war with China?

The EU filed a dispute complaint at the World Trade Organization (WTO) against China on February 22 2022 over Chinese courts’ use of anti-suit injunctions.

Considering that more than $20 trillion worth of goods are traded globally every year, spats among nations are hardly surprising.

In fact, a core responsibility of the WTO is to resolve trade disputes among its member states. Since its inception in 1995, the organisation has received 611 dispute complaints and issued more than 350 rulings.

Dispute complaints involving IP enforcement are also growing. WTO members have lodged 43 such grievances, alleging that the respondent’s law, policy or regulation violated the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

But the EU complaint, as mentioned, is based on China’s court decisions. The EU argues that China’s Supreme People’s Court’s (SPC) decision that its lower courts can issue anti-suit injunctions under civil law is tantamount to a state policy that violates TRIPS.

An anti-suit injunction is an injunctive order issued by a court that prohibits a litigant from initiating or continuing parallel proceedings in a foreign court.

In Huawei v Conversant, Conversant had appealed a Chinese intermediate court’s determination of the license rate for its 4G standard essential patent (SEP) implemented by Huawei to the SPC.

While the appeal was pending, the Düsseldorf regional court in a parallel proceeding issued an injunction prohibiting Huawei from selling certain mobile devices in Germany. Huawei immediately applied to the SPC for an injunction preventing Conversant from enforcing the German injunction.

The SPC granted the anti-suit injunction, finding that Chinese civil law allowed for such an injunction prohibiting a litigant from seeking judicial relief outside China and for the imposition of a maximum fine of RMB 1 million ($156,845) per day to enforce the bar.

Following Huawei v Conversant, several Chinese courts issued anti-suit injunctions. In ZTE v Conversant, the Shenzhen Intermediate Court issued an anti-suit injunction that prohibited Conversant from enforcing an injunction issued in a parallel SEP case in Germany.

In Xiaomi v InterDigital, the Wuhan Intermediate Court issued an anti-suit injunction requiring InterDigital to withdraw an injunction already filed against Xiaomi in a parallel SEP case in India.

In Samsung v Ericsson, the Wuhan court issued a worldwide anti-suit injunction prohibiting Ericsson from requesting any injunction or decision based on its 4G and 5G SEPs outside China.

The Shenzhen court issued an injunction in Oppo v Sharp that prohibited Sharp from initiating any action against Oppo based on its SEPs involved in that case anywhere in the world.

The EU said these court decisions demonstrated that China had a “measure of general and prospective application”prohibiting a party in a Chinese patent action from seeking relief from a non-Chinese court.

This measure, the EU argued, prevented patent owners from enforcing their non-Chinese patent rights and interfered with the ability of other nations’ courts to order injunctions in their national patent cases, thus violating the TRIPS Agreement.

Three WTO members – the US, Japan and Canada – have now asked to join in this trade dispute as third-party participants.

In addition, the US Senate introduced a bill called the Defending American Courts Act, which sought to deter defendants in patent suits from obtaining anti-suit injunctions from non-US courts.

If a defendant did so, the US court should assume upon a finding of infringement that the underlying infringement was willful and the underlying lawsuit was exceptional, exposing it to treble damages and attorney fees. These defendants also wouldn’t be allowed to seek post-grant reviews of any patent.

Chinese courts are not the first entities to issue anti-suit injunctions.

In 15^th century England, royal courts began issuing writ of prohibition to stay parallel proceedings in the ecclesiastical and common law courts.

The use of anti-suit injunctions later expanded to prevent parallel proceedings in British colonies and eventually foreign countries.

Since then, anti-suit injunctions have become an established feature of international litigation, frequently used by the UK and US courts to prevent concurrent parallel proceedings that might result in inconsistent or incompatible decisions.

The propriety of anti-suit injunctions has been in question, however.

Even though anti-suit injunctions are directed to litigants and not to foreign courts, they essentially interfere with foreign courts’ ability to hear parallel proceeding because there can be no parallel proceeding without litigants.

The parallel proceedings at issue in the EU complaint are global SEP disputes.

A lot of electronic devices including smartphones, laptops and televisions can be sold globally because they comply with global technical standards. Such standards are developed by Standard Setting Organisations (SSOs) and covered by SEPs owned by SSO members who contribute to the underlying technology.

SSOs typically require their members to license their SEPs globally on a FRAND (fair, reasonable and non-discriminatory) basis. But FRAND is in the eye of the beholder, and disputes often arise over royalty rates and related licence terms.

Moreover, patents are issued under national law and enforceable only within the boundaries of the issuing nation, whereas FRAND commitments are global and apply to all the national patents in the relevant SEP portfolios.

This disparity raises a thorny question: if a national court is to determine a FRAND royalty rate, should it do so solely on its national patents or the patents issued by other nations as well? If the latter, what stops other national courts from doing the same?

Given that the anti-suit injunction has been part of international litigation for centuries, it is surprising that the EU should file a WTO dispute complaint over the Chinese courts’ use of the same remedy for a few short years.

Perhaps, unlike common law jurisdictions such as UK and US, the EU courts have not had the tradition of issuing anti-suit injunctions. In fact, the Court of Justice of the European Union (CJEU) ruled in West Tankers Inc v Allianz SpA (2009) that anti-suit injunctions were incompatible with EU law.

Given that, perhaps the EU is trying to level the playing field by insisting that no anti-suit injunctions should be issued by the Chinese courts and, by logical extension, any other national court.

But the EU courts have begun issuing anti-anti-suit injunctions in recent years.

Although some argue that an anti-anti-suit injunction is necessary to counteract the extraterritorial reach of an anti-suit injunction, the EU courts have issued the former pre-emptively.

The ready availability of anti-anti-suit injunctions from the EU courts also begs the question of why the WTO complaint is even necessary.

The US reactions, especially the Senate bill, are easier to understand as a reflection of simmering trade tensions between the US and China, rather than an attempt to address undue extraterritorial reach of anti-suit injunctions.

The bill, for example, penalises obtaining anti-suit injunctions from foreign courts but does not prohibit the US courts from issuing anti-suit injunctions. If anti-suit injunctions issued by foreign courts offend the rule of law, then the converse should be true of anti-suit injunctions issued by the US courts.

If the WTO rules in the EU’s favour, it may set a precedent that anti-suit injunctions by any nation violate the TRIPS Agreement.

Without anti-suit injunctions, fragmentation of the FRAND law will accelerate along national boundaries. If a FRAND dispute is litigated concurrently in UK and China, for instance, the litigants could end up with two different “global” FRAND royalty rates.

Another ramification may be a race among SEP litigants to their favorite jurisdictions. The availability of injunctions in Germany and the UK could make them attractive to SEP licensors because design-around is not an option with SEPs.

German courts are also known for their speedy disposition of patent cases, which will make those forums even more attractive to SEP holders.

China, the second largest market in the world, will continue to be attractive to potential SEP licensees because its courts tend to set FRAND rates much lower than other jurisdictions.

The US, the largest market in the world, will likely see many SEP cases because the US courts tend to award much larger patent damages than other jurisdictions.

Global technical standards are one of the glues that hold today’s interconnected economy together.

The fragmentation of FRAND law will likely bring about confusion and inefficiency. SMEs in the EU are already expressing confusion, and that has slowed down their willingness to adopt 5G and IoT technologies.

The SSOs should take a leadership role in finding a better approach. After all, they created the current system of global technical standards, SEPs and FRAND commitment.

Government agencies including the US Federal Trade Commission have already recommended that FRAND disputes be resolved through mediation and arbitration rather than litigation.

Several academics have gone further, arguing that SSOs should require their members to submit FRAND disputes to binding arbitration.

A few SSOs such as the Digital Video Broadcasting Project, the VMEbus International Trade Association and the Blu-Ray Disc Association have introduced such mandates.

Given the current state of FRAND law, having one tribunal provide a global resolution to FRAND disputes looks sensible and rather enticing.