EU accuses China of ‘power grab’ over smartphone technology licensing

Legal challenge at WTO alleges patent infringements are costing European manufacturers billions of euros

The EU is taking China to the World Trade Organization for alleged patent infringements that are costing companies billions of euros, as part of what officials in Brussels claim is a “power grab” by Beijing to set smartphone technology licensing rates.

Businesses, including Sweden's Ericsson, Finland's Nokia and Sharp of Japan, have lost money after China's supreme court banned them from protecting their patents by securing licensing deals in foreign courts, the European Commission said.

Chinese courts set licence fees at around half the market rate previously agreed between western technology providers and manufacturers such as Oppo, Xiaomi, ZTE and Huawei, it added.

Standards

“It is part of a global power grab by the Chinese government by legal means,” said a European Commission official. “It is a means to push Europe out.”

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Smartphone makers have agreed global standards for telecommunications networks. In return, technology manufacturers must license their patents to others. If they cannot agree on a price, they go to court to set it. Chinese courts generally set prices at half the level of those in the west, meaning their companies pay less for the technology from overseas providers.

In August, 2020, China’s Supreme People’s Court decided that Chinese courts can impose “anti-suit injunctions”, which forbid a company taking a case to a court outside the country. Those that do are liable for a €130,000 daily fine and the judgments of courts elsewhere are ignored.

The policy of driving down licence costs has been backed by the People’s Congress, China’s national assembly, although it has not been put into legislation, the commission alleged.

After Ericsson lost a court case, it said licensing revenues would fall by €100 million–€150 million a quarter. US technology R&D company InterDigital and EU research institutes such as the Fraunhofer network in Germany, which also license new technologies, have also suffered. Companies reinvested licensing fees in research, the commission said.

Valdis Dombrovskis, EU trade commissioner, said: “We must protect the EU’s vibrant high-tech industry, an engine for innovation that ensures our leading role in developing future innovative technologies. EU companies have a right to seek justice on fair terms when their technology is used illegally. That is why we are launching WTO consultations today.”

The EU believes China’s actions are inconsistent with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (Trips).

Injunctions

Liren Chen, president and chief executive of InterDigital, said: “Too often in recent years, anti-suit injunctions have been abused by certain Chinese companies that are opposed to a level playing field for intellectual property disputes related to technologies such as 4G and 5G.

“Brussels’ lead will safeguard the billions of euros that innovators invest in R&D in Europe and worldwide every year and we hope that other stakeholders follow this lead in enacting measures to protect innovation.”

Huawei declined to comment. The Chinese foreign ministry, ZTE and Oppo did not respond to requests for comment.

The US and Japan have also expressed concerns and are expected to join the EU’s request for consultations. China has 60 days to respond after which Brussels could ask for a dispute settlement panel to rule on the matter.

It is the second case the commission has launched against Beijing at the WTO in a month, after China blocked all imports from Lithuania in a dispute over its relationship with Taiwan.

Copyright The Financial Times Limited 2022