Chinese judiciary aiding firms involved in intellectual theft

As evident from the rush of nations and multinationals for dominating the digital age, securing intellectual rights in latest communication technologies is the new global goal. The way Information technology provided the much-needed support to the covid ravaged economies and societies during last three years, its importance for the world is expected to increase only. Companies have visibly expedited their movement to digital working by investing in telecom systems and assets.

Service providers across the globe have responded to the opportunity by augmenting their offerings through raising the number of their patents in digital devices and technologies. However, not all the companies want to undergo the toil in the form of long drawn research & development. A few including some prominent ones from China believe in exploiting the international patent system to their advantage by using the institutions of their country including judiciary. The mechanism being used involves so-called “standard-essential patents” (SEPs) through which the Chinese firms, especially the telecom ones exploit the IP/Patent system to gain favorable rates for licensing critical patent to and from global competitors.

The modus operandi came to light in February 2022 when the European Union (EU) challenged China’s use of its courts to block non-Chinese telecoms vendors from backing their patents. The complaint concerning Chinese policy over 3G, 4G and 5G patents was filed with the World Trade Organization (WTO). The EU also alleged that non-Chinese companies were being effectively banned by the Chinese courts from complaining about infringement of their patents.

For aiding the violating firms, the Chinese courts also intervene in patent lawsuits filed in the courts of US, EU and other jurisdictions. Instead of listening to the plea of foreign firms, courts in China blatantly set low royalty rates for patents on 5G and other technologies used in smartphones and other tech products made by Chinese companies like Huawei and Xiaomi.

China’s courts intervene in patent infringement lawsuits by court decisions that lawyers call “anti-suit injunctions.” These are court orders that shut down a patent infringement lawsuit already filed in a US or European court. The prominent cases include those of Huawei, Xiaomi, ZTE where a Chinese court banned a party from applying for enforcement of judgments of a non-Chinese court. In sum, orders by Chinese courts mandate that patent owners litigate only in China. If the patent owner fails to comply, it faces severe sanctions, including seizure of company assets and hefty fines. While the companies from EU and US need to earn billions from licensing revenue, Chinese companies save a considerable amount by non-payment of royalties. In two peculiar cases, courts in Wuhan issued anti-suit injunctions after ignoring basic due process. The affected patent owners from US and EU— Inter Digital and Ericsson, were ordered to terminate their patent infringement lawsuits in the US and in other jurisdictions.

Notably, such orders by the Chinese courts also involve threats of imposing high fines on foreign companies which go upto $1,50,000 per day in some cases. Huawei leads in filing technical standard proposals with high rate of acceptance of obtaining patents. This ensures that the telecom giant would be benefited disproportionately from its patent licensing to other companies. In 2020, Huawei won a ruling from the Supreme People’s Court of China ordering Conversant Wireless not to apply for enforcement of an injunction granted by the District Court of Düsseldorf, Germany.

Patent is a matter of exclusive territorial rights and only applicable to countries where it is filed and granted provided both the filing and file countries are signatories to International Patent Co-operation Treaty. Chinese firms have been misusing its provisions to benefit from other filed countries. While the tactics may be yielding results in the short term, they are bound to impede the development of research eco-system in the country by dis-incentivizing the incoming technology.