China wields new legal weapon to fight claims of intellectual property theft

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China’s so-called anti-suit injunction has kept US companies from fighting back

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Chinese tech giants have caught on to a new legal strategy to fight claims Intellectual Property Theft, there is growing concern in America that BeijingPromises to strictly enforce patent and copyright laws will be undermined by Chinese courts.

In four major cases since 2020, Chinese courts granted so-called anti-suit injunctions, preventing foreign companies from taking legal action anywhere in the world to protect their trade secrets.

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Three decisions were in favor of Chinese telecom companies-Huawei Technologies Co., Xiaomi Inc., and BBK Electronics. Fourth Supported South KoreaSamsung’s Samsung Electronics Corp. is in dispute with Swedish telecom giant Ericsson AB.

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In Xiaomi In the case, the Beijing-based company was granted an anti-suit injunction against InterDigital Inc., a Delaware Firm holding a patent on wireless and digital technology used in smartphones.

Xiaomi, the world’s largest smartphone maker, has sold millions of handsets using interdigital patents since 2013 as part of an industry practice that allows companies to do so while negotiating license fees.

When talks broke down after seven years, InterDigital decided to sue Xiaomi for patent infringement last year—but found itself beaten to the punch.

At Xiaomi’s request, a Chinese court in Wuhan barred InterDigital from pursuing its case against Xiaomi in China or elsewhere. If InterDigital persisted, the Chinese court said, it would face a fine equivalent to about $1 million per week.

For business lawyers and others engaging with Chinese companies over intellectual property, the interdigital case is the latest sign of how China disregards foreign companies’ patents, copyrights and trade secrets. They say the situation has not improved significantly despite promises from Beijing, including those made in the 2020 US-China trade deal.

“China’s growth and development strategy has relied on IP piracy and forced technology transfer,” said Charles Boustany, a former Louisiana Republican congressman and member of the Commission on Intellectual Property Theft, an independent advocacy group.

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Chinese Embassy in we Did not respond to requests for comment. In the past, China has said it has taken a number of concrete steps to improve its environment to protect intellectual property, including changes to patent and copyright laws in response to a phase one trade agreement with the US.

In the US and UK, anti-suit injunctions are usually issued by courts to prevent similar cases from playing out in multiple legal venues at once. In a famous case, a federal-district court in Washington state issued an anti-suit injunction motorola Inc. to bring parallel lawsuit against Microsoft Corp. Germany.

According to lawyers and others tracking Chinese courts, the Chinese injunction takes it a step further by preventing legal action on a global scale. Chinese courts assert jurisdiction over patent license fees globally, lawyers say it is a break from standard practice in the West.

Brian Pomper, partner at Akin Gump, said, “What the Chinese are doing is using this legal tool, an anti-suit injunction, so that it can be handled by the Chinese courts—actually the Chinese government—and no one else decides what intellectual property is.” How valuable is that.” , and an expert on international trade and IP disputes.

The US Trade Representative addressed the matter in an April report, saying “worrying developments have emerged, such as the sweeping anti-suit injunctions issued by Chinese courts.”

American companies have long complained of intellectual property theft by Chinese companies. When the Trump administration launched the US-China trade war in 2018, it used a report on the theft of China’s intellectual property as an initial legal justification for the tariffs. It was estimated that US companies were losing about $50 billion annually from theft or underpayment.

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As part of the US trade deal, Beijing increased financial penalties for violations and made it easier for foreign companies to file complaints directly with the Chinese government.

Court filings by US companies against Chinese enterprises for IP theft have dropped dramatically in recent years, but legal analysts say this is not a sign of progress. Quite the contrary, he says: the companies have either concluded that they will lose in court, or do not want to risk retaliation from China.

China’s emerging use of anti-suit injunctions is an example of how China’s global ambitions affect its courts as well, said Jorge Contreras, a professor of law at the University of Utah and the leading authority on anti-suit injunctions.

“It is an absolutely scary prospect for these international companies,” Mr. Contreras said. “It’s totally the Wild West.”

A case was played out between Chinese mobile phone brand Oppo, a unit of BBK Electronics, and Japan’s Sharp Corp, which is majority-owned by Taiwan-based Foxconn Technology.

Sharp sued Oppo in Japan in January 2020 for infringing on some of its patents for the technology behind wireless local area networks.

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Oppo countered in a Chinese court in Shenzhen, which took jurisdiction and said it would determine the price Oppo should pay for using Sharp’s patent.

When Sharp fought back in Japanese and German courts, in December a Shenzhen court issued an anti-suit injunction, saying she would fine her about $1 million per week if she didn’t drop her lawsuits.

The German court in Munich protested and sought to block the anti-suit injunction with an anti-suit injunction.

The case is ongoing, but China’s Supreme People’s Court praised the case in a report highlighting important intellectual property matters, citing it as an example of how China has gone from being an “adherent to property rights rules” in the region. Transforming into a leader.

China’s Supreme People’s Court last year issued an anti-suit injunction in a dispute between Huawei and Conversant Wireless Licensing (now MOSAID Technologies Inc.), which holds US and international wireless patents, which allowed Convergent to face a lawsuit in Germany. stopped following. The companies settled with undisclosed terms.

In the case, Ericsson owned the patent that Samsung was negotiating to use. Samsung sued Ericsson in a Wuhan court, which issued an anti-suit injunction against Ericsson with a $1 million weekly fine. The companies settled for undisclosed terms.

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The InterDigital case was the first use of an anti-suit injunction against a US company.

In the court filing, Xiaomi did not dispute that it used InterDigital’s technology, arguing instead that InterDigital was demanding too much money.

“Going to court to resolve IP disputes is one way – although not the preferred method – and the matter is under litigation,” said Paul Lin, vice president of global business development and IP strategy at Xiaomi.

At Xiaomi’s request, the Wuhan Court issued a global injunction against InterDigital, saying it would set the royalty rate. A spokesperson for Xiaomi said that the Chinese court has the expertise and ability to move quickly in the case.

William Merritt, the then chief executive of InterDigital, had a different view. “As we’ve seen on many fronts, Chinese manufacturers want to play by their own rules,” Merritt said shortly after Chinese courts slapped his company with an injunction.

InterDigital was seeking to overturn Wuhan’s decision in the courts of both India and Germany. InterDigital never took its case to a US court as Xiaomi doesn’t have a significant presence here.

Both the Indian and German courts sided with Interdigital. InterDigital and Xiaomi reached a settlement in August, abandoning all their legal actions in exchange for undisclosed licensing terms.

InterDigital and Xiaomi both issued statements expressing satisfaction over the resolution, and said they could not comment on terms. Derek Soderbergh, an analyst at Colliers Securities covering InterDigital, was skeptical about the upbeat assessment.

“Stronger weapons are certainly a possibility,” Soderbergh said. “I think the Chinese are using the Wuhan court to invalidate the patent and push these IP companies to sign less favorable deals.”


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