Patents: EU takes dispute with China over high-tech license fees to WTO

The EU is opening a new front in the multi-level dispute over standard essential patents (SEPs). According to the EU Commission, it has requested consultations with the World Trade Organization (WTO) in order to prevent "unfair and illegal trade practices by China" in this sensitive area of intellectual property rights protection. The accusation: Beijing has given national courts the power to set globally binding license fees for SEPs from EU companies "without the patent holder having to obtain its consent". This puts innovative European tech companies under pressure to lower their fees worldwide. At the same time, Chinese manufacturers would gain "more favorable access to these European technologies".

SEPs play an important role for mobile technologies such as 5G, Wi-Fi and NFC, audio and video compression, data formats such as JPEG and the interoperability of audio and video applications. A patent war has been waged for many years, particularly in the mobile communications sector, which has now also spilled over into the automotive industry. The Commission now sees European mobile communications equipment suppliers such as Ericsson and Nokia or patent exploiters such as Conversant Wireless falling further behind if their protected technologies are used by Chinese competitors such as Huawei, ZTE or Xiaomi without appropriate financial compensation.

According to the Brussels-based government institution, Chinese legal practice also inappropriately encroaches on the jurisdiction of the EU courts for European patent issues. It is convinced that such an approach is incompatible with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). As China has not proposed a satisfactory negotiated solution, the EU is forced to initiate the first step of a dispute settlement procedure at the WTO. European high-tech industries – especially in the telecommunications sector – must be able to "effectively exercise their patent rights and protect their investments in innovation".

Second SEP procedure already underway

If the consultations do not lead to an appropriate solution within 60 days, the EU can enter the litigation phase. The WTO would then have to set up a quasi-judicial panel to decide the case. The submission is closely linked to another: Back in 2022, the EU initiated proceedings against China at the WTO to have issues in the SEP area clarified. In this case, it also accuses Beijing of restricting the legal protection of EU companies in disputes over SEPs: those affected are also not allowed to turn to a foreign court to enforce their patent claims. The WTO panel set up in this case (case reference: DS 611) is expected to present a report before the end of this quarter.

SEPs are essential for the production of goods such as cell phones that are intended to meet certain international standards. The owners of standard-essential patents are therefore generally obliged to grant a license to an interested party on "fair, reasonable and non-discriminatory terms" (FRAND). However, it is often disputed what these conditions are and who has to license a protected technology. Such disputes often end up in court. In the EU, the Commission wants to use a controversial regulation to resolve problems that often arise when licensing such elementary legal claims. For example, an SEP register is to be set up. Key patents entered in this register would be subject to an examination to determine whether they are really decisive for a standard. Fixed fee rates are also planned.

(mki)