Chinese courts are deciding key patent cases — US and its allies should be wary

 U.S. Senators Thom Tillis (R-N.C.), Chris Coons (D-Del.), Tom Cotton (R-Ark.), Mazie Hirono (D-Hawaii) and Rick Scott (R-Fla.), in the bipartisan Defending American Courts Act advanced earlier this year, are right to express concern over China’s courts. A pair of recent cases in London illustrate why the senators’ concern is well-placed. China’s courts aim to be the forum of choice for the world’s disputes over whether rates on standard-essential patents (SEPs) are meeting commitments to offer fair, reasonable and nondiscriminatory (FRAND) licensing terms — and current statutory law little equips courts in rule-of-law countries such as our own to stop them.

While disputes over rate setting might seem arcane, China’s courts, by asserting the power to adjudicate these disputes, are poised to help China dominate global technology markets — and compromise litigants’ most sensitive technology and data.

On July 1, 2022, an English High Court judge granted an injunction in London against OPPO, a Chinese consumer electronics company, from seeking an injunction in Chongqing against Philips, a European mobile technology company, from suing OPPO in London. Philips alleges that OPPO is infringing certain Philips SEPs.

While the court granted the “anti-anti-suit injunction” in favor of Philips, allowing Philips to proceed in England against OPPO for patent infringement, the injunction applies only to proceedings in England addressing the validity of English patents; it “does notrestrict, even indirectly… the courts of the PRC from conducting global [FRAND] rate-setting if [OPPO] initiate proceedings [in the PRC] and if the courts of the PRC consider it appropriate.”

Since a judgment in 2021 by the Supreme People’s Court of China in Guangdong OPPO Mobile Telecommunications v. Sharp Corp., Chinese courts have declared themselves ready to decide FRAND terms not just for China, but worldwide, at least where the parties negotiating the terms for an SEP license have not agreed to any other forum. So, the door is open for a Chinese court to set worldwide FRAND terms. 

Shortly after Philips v. OPPO, the English Court of Appeal decided another OPPO case, this one involving Nokia SEPs. The court concluded that it did not matter that London and Chongqing courts might adopt inconsistent judgments about FRAND terms: The court upheld a refusal to grant OPPO a stay of the English proceedings, while permitting litigation in China to proceed. Lord Justice Arnold added: “[t]he reality is that OPPO are not concerned to save time or legal costs, they just want the FRAND issues to be determined in the forum of their choice.” 

One lesson is that parties can avoid the risk of inconsistent FRAND judgments – between tribunals within a given country or across national borders – by agreeing to arbitrate. As Lord Justice Arnold noted in Nokia v. OPPO, opting for arbitration of FRAND issues would be “[t]he only sure way to avoid these problems.”  

A second lesson is the emphasis the English judges place on the property character of IP rights and the contrast that they draw between the “territorial nature” of such property rights and the standard-setting contractual/regulatory regime of SEPs and FRAND. We should ask ourselves what role China, a state-driven economy led by a communist party, sees its adjudicators performing in FRAND rate-setting disputes like the OPPO cases. 

A third and broader lesson from the OPPO cases is that the adjudication of FRAND disputes in Chinese courts – especially as other jurisdictions step back – gives China a powerful tool for surveilling and influencing global markets. China’s courts have earned a reputation for procedural acumen, but their judges and other personnel operate under Military-Civil Fusion (MCF) — national legal and political control that may compel them to share information with authorities. 

Patented technology, by definition, is already publicized. But ordinary IP disputes require disclosure to adjudicating tribunals of vast categories of technical, economic, management and legal information that is not publicized, sometimes including third-party information. Such disclosure is tolerable in the U.S., UK and like-minded countries, because our tribunals generally operate under reliably enforced rules against sharing such litigation-produced-information.

By contrast, China’s MCF may compel adjudicators and other personnel to share it. This means that all major players in globally significant technology markets should exercise caution: Disclosing information to a court in China may equate to giving it to the Chinese military and to Chinese government-selected-industrial-champions.  

As recent FBI disclosures about a spy pagoda in Washington remind us, we should get China’s physical hardware out of our critical infrastructure and out of range from our most sensitive defense facilities. It also makes sense for businesses from the U.S. and like-minded countries to keep our disputes out of Chinese tribunals, through which China may pursue an equally ambitious, yet more subtle, effort to surveil and influence the world’s technology markets. 

Dr. Thomas D. Grant is a fellow of the Lauterpacht Centre for International Law at the University of Cambridge. He served as senior adviser for strategic planning in the U.S. Department of State’s Bureau of International Security and Nonproliferation from 2019-21. F. Scott Kieff is the Fred C. Stevenson Research Professor of Law at George Washington University Law School. He served as a commissioner of the U.S. International Trade Commission from 2013-17. 

https://thehill.com/opinion/national-security/3577204-chinese-courts-are-deciding-key-patent-cases-the-us-and-allies-should-be-wary/