This content is from: China (PRC)

China begins issuing anti-suit injunctions in SEP cases

On August 28 2020, the Chinese Supreme People's Court (SPC) granted the very first anti-suit injunction in the standard essential patent (SEP) royalty dispute case of Huawei v Conversant, which enjoined Conversant Wireless Licensing (Conversant) from seeking enforcement of the Dusseldorf regional court's injunction ruling against Huawei Technologies (Huawei). This case thus opened the door for Chinese courts to issue anti-suit injunctions (ASIs).

ASIs have a long history in common law countries. Recently, courts in the US and UK adjudicating cases involving SEPs and FRAND rates have increasingly issued ASIs in patent litigations to prevent parties from litigating the cases elsewhere. Several ASIs had already been issued against Chinese companies, including Huawei and ZTE, obstructing the corresponding proceedings in Chinese courts, and consequently triggering heated discussions in China about why Chinese courts should be refrained from doing the same thing. On the other hand, an ASI is fundamentally incompatible with Chinese jurisprudence and its long-held diplomatic policy, which puts emphasis on the principle of sovereign equality and non-interference. No Chinese law explicitly permits the courts to issue an ASI.

In Huawei v Conversant, it is thus important to note that the SPC issued the ASI under the umbrella of Article 100 of the Civil Procedure Law of China. This only permits a court to order or prohibit the respondent to do or from doing certain actions, if the respondent's actions may lead to difficulty enforcing the judgment or cause other damages to the other party. However, this had never been applied as the ground for an ASI. The SPC extended a regular act preservation measure to cover ASIs in this case, creatively interpreting the provision, in fact making a new law.

Notably, the SPC granted the ASI based on a five-factor test. The first four factors are rather common for Chinese courts when considering an act preservation injunction, namely the following: i) the possible impact if Coversant seeks to enforce the German injunction; ii) the necessity for granting the injunction because of the irreparable damage Huawei may suffer; iii) the damages to Huawei caused by not granting the injunction may outweigh the damages to Conversant by granting the same; and iv) granting the injunction is not detrimental to the public interest. The fifth factor, namely whether it will violate international comity, is a new one that is worthy of particular attention.

Given that an ASI is a very controversial instrument in that it may infringe foreign judicial sovereignty and international comity, the SPC apparently did not take issuing an ASI lightly. By adding this new factor, it is clear that the SPC intended to set up a high threshold to cross. Accordingly, at least in Huawei v Conversant, the SPC made great efforts to elaborate its reasonings on this new factor, stating that the Chinese court accepted the first instance case earlier and the injunction would only have an interim effect on the German court proceeding. It finally reached the conclusion that international comity would not be violated by this injunction.

With this precedent case set up by the SPC, other Chinese courts quickly followed, but with less attention on the newly-added international comity factor and with much more controversy. For example, on September 23 2020, the Wuhan Intermediate Court (Wuhan Court) issued a similar ASI in the case of Xiaomi v InterDigital. Among others, the ASI includes the following: a) ordering InterDigital to withdraw its injunction request in India in the corresponding proceeding; b) prohibiting InterDigital from seeking any further injunctive relief in China or any other jurisdictions; and c) prohibiting InterDigital from asking any other courts to determine the FRAND rate relating to the 3G/4G SEPs at issue in the case. Apparently this ASI is much broader than the ASI issued in Huawei v Conversant, and it drew attention, particularly because its geographic scope is not limited to the country in which InterDigital sought injunctive relief (India), but extends to all jurisdictions in the world, and prohibits InterDigital from asking any other courts in the world to determine a FRAND rate for its 3G/4G SEPs.

Normally, under US and UK law, a court considering an ASI request will always need to compare the domestic action with the parallel foreign action and determine whether they address the same matter within the same scope and whether the resolution of the domestic action would dispose of the foreign one. Consequently an ASI of the range as broad as that in Xiaomi v InterDigital may not be possible. However, under the current Chinese ASI scheme established in Huawei v Conversant, the aforesaid analysis is not relevant, because here the ASI is not directed to a parallel foreign proceeding, but prospectively prohibits any actions anywhere that may be deemed as detrimental to the proceeding pending before Chinese courts.

We believe that Chinese courts need to take time to finally resolve this inherent discrepancy if they are about to enter the ASI party in SEP cases. We are confident they will.

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