WTO appeal Arbitrator finds China wrong to restrict intellectual property rights in dispute brought by EU

Yesterday, the WTO appeal Arbitrator agreed with the EU that WTO members must make operative the provisions of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) in their own national systems, and they must do so without frustrating the functioning of the systems of protection and enforcement of IP rights implemented by other WTO Members in their respective territories. This is an important win for EU based high tech companies whose research outcomes were undermined by the Chinese policies in questions. It ensures European companies can continue to defend their intellectual property in European courts. That will ensure European innovators get properly rewarded for the heavy investments they make in research and development.

The WTO appeal Arbitrator reversed several of the WTO panel’s findings in this case and concluded that China’s anti-suit injunction policy is inconsistent with the TRIPS Agreement. 

The WTO appeal Arbitrator found that China’s anti-suit injunction policy frustrates the exercise of the exclusive rights conferred to holders of standard essential patents (SEP) by other WTO Members under the TRIPS Agreement. In particular, the WTO appeal Arbitrator considered that China’s anti-suit injunction policy unduly restricts the SEP holder’s right to prevent third parties not having its consent from making, using, offering for sale, selling, or importing the patented product. 

Moreover, the WTO appeal Arbitrator found that the availability of anti-suit injunctions to Chinese SEP implementers under China’s anti-suit injunction policy alters the negotiating position of SEP holders in a fundamental way. As a result, China’s anti-suit injunction policy frustrates the SEP holder’s right to conclude licensing contracts for SEPs held both in China and outside China, contrary to China’s obligations under the TRIPS Agreement.

The WTO appeal Arbitrator also upheld the findings of the WTO panel that were appealed by China, namely that China has a policy of using anti-suit injunctions to restrict intellectual property rights enforcement in other countries and that China must be more transparent by publishing important court decisions and transmitting to the EU and other WTO members information on intellectual property matters, if so requested.

The European Commission will closely monitor China's implementation of and compliance with the WTO appeal arbitration Award recommendations.

Moreover, this dispute demonstrated once again the effectiveness of the Multi-party interim appeal arbitration arrangement (“MPIA”). The MPIA preserves, among its participants, a functioning WTO dispute settlement system despite the paralysis of the Appellate Body. This includes the right to obtain a final WTO ruling over a trade dispute and the right to seek appeal review of panel reports. In this case, in their ruling issued promptly within the 90-day timeframe, the MPIA arbitrators have reversed certain legal errors that the EU identified in the Panel report, while they also upheld certain of the Panel’s findings that were appealed by China. China is now under obligation to comply with this appeal arbitration award.  

Background

Case DS 611 involves standard essential patents, which are patents necessary for a product or technology to meet specific industry standards, such as those used in mobile communications.

The measures contested by the EU aim to give Chinese courts exclusive jurisdiction to set global royalty rates for standard essential patents without the patent owner's consent. Essentially, this means China is deciding the cost of patented technology, including technology patented by EU holders. The issue of setting global royalty rates is also part of ongoing consultations in case DS632, which focuses on China's worldwide licensing terms for standard essential patents. 

For more information

Appeal Arbitrator Award

WTO Case Site for DS611

Dispute Settlement in the EU

WTO Dispute Settlement