Arbitrators at the World Trade Organisation (WTO) have reversed part of a previous panel decision in April that had rejected claims by the European Union that China’s courts had blocked patent rights in the country.

In April a WTO panel rejected the EU’s 2022 complaint, which revolves around patent rules for 3G, 4G and 5G mobile technologies, while saying China did fail to comply with transparency obligations.

The EU appealed the case to the Multi-Party Appeal Arbitration Arrangement, which was set up to handle appeals after the WTO’s Appellate Body was closed in 2019 after the US repeatedly blocked judge appointments.

Patent rights

That body on Monday partially reversed the previous panel decision, and agreed with the EU’s claim that China’s courts barring patent holders from enforcing their patent rights outside of China through anti-suit injunctions was inconsistent with Trade-Related Aspects of Intellectual Property Rights rules around patent rights.

The arbitrators upheld the panel’s findings on four issues and reversed it on three issues, giving China 90 days to come into compliance with WTO rules.

The European Commission, acting on behalf of the bloc’s 27 members, said in its 2022 complaint that EU companies were being prevented from going to foreign courts to protect standard-essential patents (SEPs) used in technologies such as 3G, 4G and 5G.

While the Commission didn’t name specific companies, Sweden’s Ericsson and Finland’s Nokia are affected by the situation, as well as US firms and Japan’s Sharp.

Chinese courts set licence fees at around half the market rate previously agreed between western technology providers and Chinese smartphone manufacturers, the Commission said at the time. It said the situation deprives EU companies of revenues that can be invested in research and development.

Patent holders agree to participate in global technology standards, and in exchange are required to licence their patents to manufacturers for reasonable rates. If the parties involved can’t agree on a price, they go to a court to set the fee.

Licence fees

In August 2020 China’s Supreme People’s Court ruled Chinese courts can impose “anti-suit injunctions” that forbid a company from taking a case to a court outside the country.

Companies who do so can be fined 130,000 euros (£108,000) per day and the rulings of foreign courts are ignored, the Commission said, forcing companies to settle for the far lower rates set by Chinese courts.

After Ericsson lost a court case it said licensing revenues would fall by 100m to 150m euros a quarter. US technology R&D company InterDigital and EU research institutes such as Fraunhofer have also been affected.

“EU companies have a right to seek justice on fair terms when their technology is used illegally,” said the EU’s trade commissioner at the time, Valdis Dombrovskis.