China uses new legal weapon to fight intellectual property theft claims
In four major cases since 2020, Chinese courts have granted so-called anti-prosecution injunctions preventing foreign companies from taking legal action anywhere in the world to protect their trade secrets.
Three of the decisions were in favor of Chinese telecommunications companies: Huawei Technologies Co., Xiaomi Inc. and BBK Electronics. The fourth supported South Korean Samsung Electronics Corp. in a dispute with Swedish telecommunications giant Ericsson AB.
In the Xiaomi case, the Beijing-based company obtained an anti-lawsuit injunction against InterDigital Inc., a Delaware company that holds patents on wireless and digital technology used in smartphones.
Xiaomi, the world’s largest smartphone maker, has sold millions of handsets using InterDigital patents since 2013, in line with industry practice that allows companies to do so while license fees are being negotiated.
When talks broke down after seven years, InterDigital decided last year to sue Xiaomi for patent infringement, but found itself beaten with fists.
At Xiaomi’s request, a Chinese court in Wuhan issued an injunction prohibiting InterDigital from pursuing its case against Xiaomi, in China or elsewhere. If InterDigital persisted, the Chinese court said, it would face fines equivalent to around $ 1 million per week.
For trade lawyers and others who have meddled with Chinese companies over intellectual property, the InterDigital case is the latest sign of how China despises corporate patents, copyrights and trade secrets. foreigners. They say the situation has not improved in key areas despite Beijing’s promises, including promises made in the 2020 US-China trade deal.
âChina’s growth and development strategy depends on intellectual property theft and forced technology transfer,â said Charles Boustany, former Republican congressman from Louisiana and member of the Commission on the Theft of Intellectual Property, a independent advocacy group.
The Chinese Embassy in the United States did not respond to requests for comment. In the past, China has said it has taken many concrete steps to improve its intellectual property protection environment, including amending its patent and copyright laws in response to the signed Phase 1 trade agreement. with the United States.
In the US and UK, anti-suit injunctions are typically issued by courts to prevent identical cases from happening simultaneously in multiple jurisdictions. In a well-known case, a Washington state federal district court issued an anti-prosecution injunction preventing Motorola Inc. from bringing a parallel lawsuit against Microsoft Corp. in Germany.
Chinese injunctions go even further by banning all legal action around the world, according to lawyers and others who follow Chinese courts. Chinese courts have also asserted jurisdiction over patent licensing fees globally, which lawyers say is a departure from standard practice in the West.
“What the Chinese are doing is using this legal tool, the anti-prosecution injunction, so that the Chinese courts – really the Chinese government – and no one else decides on the value of intellectual property.” said Brian Pomper, partner at Akin Gump. , and an expert in international trade and intellectual property litigation.
The US Trade Representative addressed the issue in an April report, saying “worrying developments such as broad anti-prosecution injunctions issued by Chinese courts have emerged.”
American companies have long complained about the theft of intellectual property by Chinese companies. When the Trump administration launched the U.S.-China trade war in 2018, it used a report of China’s intellectual property theft as the initial legal justification for the tariffs. He estimated that the theft or underpayment caused damage to US businesses of about $ 50 billion a year.
As part of the US trade deal, Beijing has increased financial penalties for violations and made it easier for foreign companies to file complaints directly with the Chinese government.
Lawsuits filed by US companies against Chinese companies for theft of intellectual property have declined significantly in recent years, but legal analysts say this is not a sign of progress. On the contrary, they say: the companies have either concluded that they will lose in court or do not want to risk retaliation from China.
China’s emerging use of the anti-prosecution injunction is an example of how China’s global ambitions are affecting even its courts, said Jorge Contreras, University of Utah law professor and authority. in matters of anti-prosecution injunctions.
“It’s a frightening prospect for these international companies absolutely,” Contreras said. “It’s totally the Wild West.”
A case has arisen between Chinese cellphone brand Oppo, a unit of BBK Electronics, and Japanese firm Sharp Corp., majority-owned by Taiwan-based Foxconn Technology.
Sharp sued Oppo in Japan for infringing some of its patents for the technology behind wireless LANs in January 2020.
Oppo filed a lawsuit in a Chinese court in Shenzhen, which ruled that it had jurisdiction and said it would determine the price Oppo would have to pay for using Sharp’s patents.
When Sharp fought back in Japanese and German courts, the Shenzhen court in December issued an anti-prosecution injunction and said it would penalize Sharp about $ 1 million a week if he did not drop his lawsuits. .
The German court in Munich opposed this and sought to block the anti-suit injunction with an anti-anti-suit injunction.
The case is ongoing, but the Supreme People’s Court of China has praised the case in a report highlighting important intellectual property cases, citing it as an example of how China is in the process of to move from a âfollower of the rules on property rightsâ to a leader in the field.
China’s Supreme People’s Court last year issued an anti-prosecution injunction in a dispute between Huawei and Conversant Wireless Licensing (now MOSAID Technologies Inc.), which holds U.S. and international wireless patents, barring Conversant from bringing a lawsuit. legal action in Germany. The companies settled with undisclosed terms.
In this case, Ericsson held the patents that Samsung negotiated for the use. Samsung sued Ericsson in Wuhan court, which issued an anti-prosecution injunction against Ericsson with a weekly fine of $ 1 million. The companies were satisfied with undisclosed conditions.
The InterDigital case was the first use of an anti-suit injunction against a US company.
In court records, Xiaomi did not dispute that it was using InterDigital’s technology, instead claiming that InterDigital was demanding too much money.
âGoing to court is one way, but not the preferred way, to resolve intellectual property disputes and, in this case, litigation was ongoing in several jurisdictions,â said Paul Lin, vice president of global business development and intellectual property strategy at Xiaomi.
At Xiaomi’s request, the Wuhan court issued a comprehensive injunction against InterDigital and said it would fix the royalty rate. A spokesperson for Xiaomi said the Chinese court has the expertise and the ability to quickly deal with the case.
William Merritt, then Managing Director of InterDigital, had a different point of view. âAs we’ve seen on so many fronts, Chinese manufacturers want to play by their own rules,â Merritt said shortly after Chinese courts slapped his company with the injunction.
InterDigital has taken the Indian and German courts to overturn Wuhan’s decision. InterDigital has never taken its case to a US court because Xiaomi does not have a significant presence here.
Indian and German courts have sided with InterDigital. InterDigital and Xiaomi reached a deal in August, dropping all legal actions in exchange for undisclosed license terms.
InterDigital and Xiaomi both released statements expressing satisfaction with the resolution and said they could not comment on the terms. Derek Soderberg, an analyst at Colliers Securities who covers InterDigital, was skeptical of the optimistic valuations.
âStrong weaponry is certainly a possibility,â Soderberg said. “I think the Chinese are using the Wuhan court as a way to try to invalidate patents and push these intellectual property companies to sign a less favorable deal.”
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