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The Supreme People’s Court of China Granted The Anti-suit Injunctions in SEP Disputes for The First Time

23

OCT

2020

On August 28, 2020, the Supreme People’s Court of China (SPC) granted anti-suit injunctions involving three Chinese standard essential patents (SEPs) owned by Conversant. The three patents protect LTE and UMTS technology, which Conversant acquired from Nokia in 2014.

According to the Court’s decisions, Conversant shall not enforce the German decision it won against Huawei (and its affiliates in either China or Germany, briefly “Huawei”) in Dusseldorf, Federal Republic of Germany on August 27, until the SPC has made final judgments on the disputes between Huawei and Conversant, in which Huawei claimed non-infringement of the three SEPs owned by Conversant and determination of the license conditions and rate.

History

Conversant is a Non-Practicing-Entity (NPE) and sued Huawei in July 2017 before the High Court of London, claiming that the two defendants had infringed on its four British patents, and further requested, among others, the Court to determine a global FREND-based license fee.

  1. Cases before the Chinese Courts

In January 2018, Huawei filed three lawsuits with the Nanjing Intermediate People’s Court claiming that it did not infringe on three Chinese SEPs ZL200580038621.8, ZL00804203.9, ZL200680014086.7 of Conversant, and requested the court to determine the FRAND-based license conditions, including the license rate, for all of the Chinese SEPs owned by Conversant and exploited by Huawei in connection with 2G, 3G and 4G.

On September 16, 2019, the Nanjing Intermediate People’s Court made the first-instance decisions (Nos. (2018) Su 01 Minchu 232, 233 and 234), rejecting the non-infringement claims and determining a license rate of 0.00225% for single-mode 4G mobile terminal devices, and 0.0018% for multimode 2G/3G/4G mobile terminal devices. The Court further held that Huawei only need to pay license fees for the mobile terminal devices incorporating the technology of Chinese Patent No. ZL200380102135.9.

Conversant was not satisfied with the first instance decisions and appealed to the SPC. At present, the cases are before the SPC for further examination.

  1. Cases before the Dusseldorf District Court

After the three Chinese cases were filed before the Nanjing Intermediate People’s Court, in April 2018, Conversant filed three patent infringement lawsuits against Huawei with the Dusseldorf District Court, Germany, based on European patents EP1,797,659, EP1,173,986 and EP1,878,117 (corresponding to ZL200580038621.8, ZL00804203.9, ZL200680014086.7, respectively).

On August 27, 2020, the Dusseldorf District Court made the first instance decisions,

1) finding infringement of Conversant's EP ‘659 by Huawei (case ID: 4b O 30/18), prohibiting Huawei in Germany from providing, selling, using or holding relevant mobile terminals, ordering Huawei to provide information on infringement and sales behaviors, to destroy and recall infringing products, and to bear relevant litigation costs, determining a license rate of about 18.3 times of that determined by the Chinese Court;

2) finding infringement of Conversant’s EP ‘986 by Huawei (case ID: 4b O 48/18), but solely ordering Huawei to pay damages since EP ‘986 had expired in the course of the proceedings;

The case concerning EP ‘177 (case ID: 4b O 49/18) is suspended and waiting for the outcome of the opposition proceedings before the European Patent Office (EPO).

  1. Anti-suit injunctions by the SPC

On the day when the Dusseldorf District Court made the decisions, Huawei applied to the SPC for behavior preservation, requesting the court to order Conversant not to apply for enforcement of the German decision granting an injunction (“German decision”) until the SPC has made final judgments on the disputes. Huawei provided RMB 19.7 million as a security. On August 28, the SPC made the decisions approving Huawei's application for behavior preservation, meaning that the SPC granted its first anti-suit injunction on a cross jurisdictional parallel litigation involving SEPs.

Factors considered by the SPC

According to Article 100 of the Civil Procedure Law, for cases in which enforcement of a judgment may be difficult or other damages may be caused by the behavior of one of the parties or for other reasons, the People's Court may, on the application of the other party, order the one party to perform certain behavior or prohibit it from performing certain behavior; if the People's Court takes preservation measures, it may order the applicant to provide security; after accepting the application, the people's court must make a decision within 48 hours if the situation is urgent; if it decides that a preservation measure should be taken, the later shall come into force immediately.

The anti-suit injunction prohibits Conversant from application for enforcement of the German decision made by the Dusseldorf District Court. As mentioned before, the SPC approved the applications for preservation and granted anti-suit injunctions after considering the following five factors.

  1. Possible impact on the Chinese litigations if enforcing the German decision

The SPC first examined whether the respondent's application for enforcement of the parallel German decision would have a substantial impact on the adjudication and enforcement of judgements in China. If it may hinder the adjudication of the cases before the Court or cause difficulty to enforcement of Chinese judgements, the court may grant a preservation measure prohibiting certain behavior of the respondent. Here the SPC considered three elements:

  1. Relevance of the parties in the Chinese and foreign procedures: the parties involved in the patent infringement case before the Dusseldorf District Court are basically the same as those in the Chinese cases;
  2. Relevance of the subject matters in the Chinese and foreign procedures: although there are some differences in the nature of the disputes between the German case and the Chinese cases, the subject matters are overlapping partly;
  3. Effects of possible behaviors before the German court: once Conversant applies for enforcement of the German decision before the Dusseldorf District Court and the application is permitted, it will interfere with the adjudication of the three cases before the SPC, and may even lead to adjudication of the cases before the SPC meaningless.

The SPC deemed that enforcement of the German decision before the Dusseldorf District Court will bring substantial negative impact on the adjudication of the three cases before it.

  1. Necessity of taking behavior preservation measure

In principle, a preservation measure prohibiting certain behavior can only be taken when it is necessary, that is, whether the legal rights or interests of the applicant would be irreparable damaged or the judgments of the cases would be difficult to enforce.

In this case, the court held that once Conversant files an application for enforcing the German decision and the later is permitted, Huawei will either have to withdraw from the German market or be forced to accept Conversant's licensing rate, which is 18.3 times the license rate determined by the Chinese Court in the first instance, and lose the opportunity to obtain legal relief before the SPC. In either case, Huawei will suffer irreparable damages.

  1. Balance of the interests of both parties

The SPC also tried to strike a balance between both parties’ interests. It weighed the damages to the applicant by not taking a preservation measure and that to the respondent by taking a preservation measure. In this case, if no preservation measure is taken, Huawei may suffer irreparable damages as discussed above. For Conversant, a preservation measure will suspend the enforcement of the German decision before the Dusseldorf District Court, which is not final. The suspension will not affect other litigation rights of Conversant in Germany and its claim to obtain monetary compensation. In addition, Huawei has provided corresponding security for the preservation application, which can protect the interests of Conversant. This element is therefore on Huawei’s side.

  1. Influence on the public interests

The Chinese cases as well as the parallel German cases involve only the interests of Huawei and Conversant. The anti-suit injunctions are directed to the possible behavior of applying for enforcement of the German decision by Conversant before the final judgments of the SPC are made. Therefore, no public interests will be affected.

  1. Comity of nations

The following elements are important when considering the doctrine of comity: the date of acceptance of the cases, the appropriateness of jurisdiction, and the influence on the adjudication of the parallel cases in a foreign court.

Huawei instituted the three cases before the Nanjing Intermediate People’s Court in January 2018, before Conversant’ complaints were accepted by the Dusseldorf District Court in April 2018. In addition, a delay in applying for enforcement of the German decision will not affect further proceedings in Germany, nor mitigate its legal force.

Penalty for violating the anti-suit injunctions

The SPC granted the anti-suit injunctions without hearing arguments form Conversant. Conversant can request review within five days of receiving the anti-suit injunctions. Conversant will face a 1 million RMB per day penalty if it applies for enforcement of the German decision

Conclusion

Since the anti-suit injunctions were granted so swiftly, the SPC obviously didn’t take into consideration whether an appeal against the German decision will be filed by Huawei.

Further, although solely one case involves the Chinese patent ZL200580038621.8 corresponding to EP 1,797,659, which is the basis for the Dusseldorf District Court to make its injunction, the license rate covers all three Chinese patents. It’s meaningful to grant anti-suit injunctions to the three cases.

Forum shopping, global license rate, anti-suit injunction, the disputes in connection with SEPs involve many and more complicated issues. It is not purely the jurisdiction of one court in one country any more, but a race of litigation around the world. A global license rate granted in countries such as the United Kingdom and Germany furthers this scenario. This is the first time a Chinese court has employed the mechanism of anti-suit injunction by setting up a five-factor test. The cases announce the entrance of the SPC into the play field and show its endeavor to solve SEP related disputes from a global perspective.

About the Firm

CCPIT Patent & Trademark Law Office
Address 10/F, Ocean Plaza, 158 Fuxingmennei Street, Beijing 100031, China
Tel 86-10-66412345
Fax 86-10-66415678
Email mail@ccpit-patent.com.cn
Link www.ccpit-patent.com.cn

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