How Does the European Commission Reconcile its Draft SEP Regulation with the Commission’s WTO Complaint Against China?

After my post on the FRAND determination provisions of the European Commission’s draft Regulation on standards-essential patents (“SEPs”), I received several messages asking about my assertion that the provisions are in conflict with the European Commission WTO complaint regarding China’s use of anti-suit injunctions (“ASIs”). Here is a deeper look at that issue.

The essence of the Commission’s complaint against China is that China is improperly restricting access to non-Chinese courts by its policy and practice of issuing ASIs in FRAND determination cases. The thrust of some of the questions I’ve received is the suggestion that there is no conflict between the WTO Complaint and the draft Regulation because the FRAND determination provisions restrict access to European courts, but not foreign courts -- an action in a foreign court is not prohibited but will simply result in the FRAND determination in the EUIPO being potentially terminated.

This suggestion is wrong for two reasons.

First, the draft Regulation would indeed restrict access to foreign courts. Article 48 provides that in the event a party brings or has brought a proceeding in a foreign court the other party may seek termination, and that Article 47(3) and Article 47(4) apply to that termination. Those Articles provide that only the non-culpable party receives the notice of termination. Thus, if the patent holder initiates an infringement action in a foreign court, the implementer can seek termination of any FRAND determination the patent holder files in the EUIPO while the foreign court litigation is pending, including through all appeals. Upon such termination only the implementer gets notice of termination. (See Article 48(2), Article 47(4)). Since the patent holder does not get such notice, it cannot furnish notice and thus cannot bring an action in any EU Court. (See Article 58(4)). Thus, as a penalty for bringing an action in a foreign court, the patent holder loses its rights to bring an action in an EU Court for as long as the foreign action is pending.

This is exactly what ASIs do in China: penalize patent holders that bring an action in foreign courts. China is not directly controlling the jurisdiction of the foreign courts; it is restricting the conduct of patent holders before those courts by threat of punitive action. That in the case of the Chinese ASIs it is a potential monetary fine and in the case of the European draft Regulation it is loss of rights to enforce EU patents is a distinction without a difference.

Second, that the draft Regulation directly restricts patent holders’ access to national courts of the Member States and the Unified Patent Court makes it at least as likely to be a violation of the TRIPS Agreement as China’s use of ASIs to restrict patent holders’ access to foreign courts. TRIPS unquestionably applies to the patent remedies available within a WTO Member’s own jurisdiction as well as potentially applying to restrictions on seeking remedies in foreign courts.

In any event, the draft Regulation restricts patent rights in courts both inside and outside of the EU. China’s ASIs restrict patent rights only in foreign courts. Both schemes justify the restrictions based on an alleged desire for efficient resolution of FRAND disputes. The EU’s substantive brief in the WTO matter will likely be due in the next several weeks. If the draft Regulation proceeds without changes, we shall see how if at all the Commission distinguishes it from the conduct of which it is complaining.