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First Anti-Suit Injunction Granted by Chinese Court: Conversant Was Enjoined from Enforcing German Injunction

DATE:2020-09-22      FROM:LexField

 Qishan Zhao, Zhe Lu

 

On August 28, 2020, the Intellectual Property Division of China's Supreme People's Court issued an injunction order in Huawei v. Conversant that before it renders its final judgment, Conversant shall not apply to enforce the Düsseldorf Regional Court’s injunction order in the German case between the two parties.

This is the first anti-suit injunction issued by a Chinese court in a SEP dispute.

The Chinese injunction order includes a penalty of RMB 1 million per day if Conversant violates the order.

 

Background

Conversant is a non-practicing entity (NPE) and acquired a patent portfolio of about 2,000 patents and patent applications (including SEPs), covering about 40 countries and regions, from Nokia in 2011. On July 24, 2017, Conversant brought an action against Huawei and ZTE before the High Court of Justice in London, alleging the two defendants of infringing its 4 UK patents and asking the court to determine global FRAND royalty rates for the above global patent portfolio[1]. 

 

On January 25, 2018, Huawei brought three actions before the Nanjing Intermediate People's Court,[2] applying for non-infringement declaration toward three Chinese SEPs owned by Conversant and a determination of FRAND terms (including royalty rates) for the Chinese market toward all Chinese SEPs owned by Conversant.  On September 16, 2019, the Nanjing court issued the first-instance judgment and dismissed Huawei’s request for a non-infringement declaration on the grounds that the asserted patents (ZL 00819208.1, ZL 200580038621.8 and ZL 200680014086.7) had all been invalidated.  Since 8 of the fifteen Chinese SEPs[3] held by Conversant had already been declared invalid in prior administrative proceedings, the court assessed the essentiality of the remaining 7 SEPs and decided that only one patent (ZL 200380102135.9) was essential to 4G technologies under relevant 3GPP standards.  The court thus ruled that Huawei and its Chinese affiliates only needed to pay royalties for the 4G mobile terminal products for that patent, with the rate of single-mode 4G mobile terminal products being 0.00225% and the rate of multi-mode products being 0.0018% in China[4].   Conversant appealed the first-instance judgment to the SPC IP Division[5] and the two parties are awaiting for the second-instance judgment.

 

On April 20, 2018, Conversant sued Huawei for patent infringement in three cases before the Düsseldorf Regional Court in Germany, involving patents EP1797659[6] , EP1173986 [7], and EP1878117 [8] (Conversant also sued ZTE in three other cases based on the same patents).  On August 27, 2020, the Düsseldorf court handed down the first-instance judgments in the actions involving EP1797659.  In the case against Huawei, the court found Huawei to be an unwilling licensee and thus rendered an injunction order prohibiting Huawei and its German affiliates from providing, selling, using or, for such purposes, importing or possessing relevant mobile devices, and prohibiting Huawei from supplying or delivering UMTS-compliant mobile phones and tablets to customers.  The court also ruled that Huawei shall reveal information about the infringing acts and sales, destroy and recall the infringing products, and bear the cost of litigation.[9]   Conversant can enforce the injunction on the condition that it provide a bond of 2.4 million euros.

 

Huawei applied for behavior preservation to the SPC IP Division at the same day the Düsseldorf Regional Court issued its decision, seeking an order prohibiting Conversant from enforcing the Düsseldorf decision before SPC IP Division issues its final judgment in the Chinese action.  Huawei also provided a bond of RMB 19.7 million for the application.  On August 28, the SPC IP Division issued a ruling granting Huawei’s application, which is the first anti-suit injunction that Chinese courts have issued in SEP cases that involve parallel proceedings in other jurisdictions.

 

Factors SPC IP Division Considers in Granting an Anti-Suit Injunction

The main legal basis for the anti-suit injunction granted by SPC IP Division is Article 100 of China’s Civil Procedures Law providing for behavior preservation:

 

“When the enforcement of a judgment may be difficult or other damages may be caused due to the conduct of one party or for other reasons, the People's Court may, upon the application of the other party, rule to preserve its property, order it to perform certain acts or prohibit it from performing certain acts; if the other party does not make an application, the People's Court may also rule to take preservation measures when necessary.  The People's Court, in adopting protective measures, may order the applicant to provide security, and may reject the application if the applicant fails to provide the security.  Upon accepting the application, the People's Court must make a ruling within 48 hours if the situation is urgent; if it rules that protective measures should be taken, it shall immediately begin the enforcement.”

 

The Civil Procedures Law does not provide for specifics regarding behavior preservation against the enforcement of a foreign court judgment as Huawei applied for.  The SPC IP Division identified and analyzed 5 factors in deciding whether to grant such a behavior-preservation application (i.e. an anti-suit injunction).

 

1. Influence of Enforcement of Foreign Court Decisions on Chinese Proceedings

The SPC IP Division held that in determining whether to grant an anti-suit injunction, the court should first examine whether the enforcement of a foreign court decision would have a substantial effect on the trial, adjudication and enforcement of the parallel proceedings in China.  The court may issue an anti-suit injunction if it finds that the respondent’s relevant behavior might hinder the trial of the parallel litigation in China or make it difficult to enforce the relevant Chinese judgments.  In this case, the SPC IP Division held that: (1) the parties in the Düsseldorf judgment and the Chinese cases were basically the same; (2) the issues partially overlapped in the two cases notwithstanding some differences; and (3) in terms of results, if Conversant applied to and was allowed to enforce the injunction decision by the Düsseldorf Regional Court, the three SEP cases now being heard by the SPC IP Division would be interfered and its second-instance proceedings would even become meaningless.

 

2. Necessity of an Anti-Suit Injunction

The SPC IP Division held that the examination of the necessity of issuing an anti-suit injunction should focus on whether there would be any irreparable harm to be suffered by the applicant or difficulty in enforcing Chinese court’s decision in the absence of an anti-suit injunction.  In principle, a Chinese court should issue an anti-suit injunction only when it is truly necessary.  In this case, the SPC IP Division held that if Conversant filed an application and managed to enforce the injunction in Germany, Huawei would either have to withdraw from the German market or be forced to accept the license terms Conversant offered, which were 18.3 times the royalty rate as determined by the Chinese court in the first instance.  Huawei would thus be forced to give up remedies it might have under Chinese laws and suffer irreparable harm.  Therefore, an anti-suit injunction was necessary and urgent in this particular case.

 

3. Balance of Interests between the Two Parties

The SPC IP Division held that in determining whether to grant an anti-suit injunction, the court should also consider the balance of interests of both parties and weigh the harms the applicant might suffer in the absence of an anti-suit injunction and the harms the respondent might suffer as a result of an anti-suit injunction.  In this case, the court held that Huawei would be forced to withdraw from the German market or to accept Conversant’s license offer and give up remedies it might have under Chinese laws in the absence of an anti-suit injunction.  However, if an anti-suit injunction was imposed, the court held, the damages that Conversant might suffer would be limited to a stay of enforcement of the Düsseldorf court’s decision, which was not the final judgment.  Moreover, Conversant’s other rights and interests in the German litigation would not be affected by the stay, and since Conversant’s central demand was monetary compensation, the loss it might suffer from such a stay would be limited.  In the meantime, Conversant’s interests could be adequately remedied by the bond Huawei provided for the anti-suit injunction.

 

4. Harm to Public Interests

The SPC IP Division held that in determining whether to grant an anti-suit injunction, the court should further consider whether the public interests would be disserved by the injunction.  In this case, the court found no adverse impact on the public interests from the anti-suit injunction.

 

5. Conformity to Principle of International Comity

The last factor that the SPC IP Division considered is whether an anti-suit injunction would be in line with the principle of international comity.  In this regard, SPC IP Division held that the following factors should be examined: the temporal order by which the cases were filed, whether courts have the appropriate jurisdiction, and whether the impact an anti-suit injunction would have on the trial and adjudication of foreign cases is proportionate.  In this case, the SPC IP Division held that (1) the Chinese cases were filed earlier than the German cases and (2) the impact of the anti-suit injunction on the German case was proportionate since the consequence was limited to the stay of enforcement of the first-instance injunction order, while the German court’s subsequent proceedings would not be affected and legal effect of the German judgment would not be diminished.

 

Consequence of Refusal to Comply with an Anti-Suit Injunction

Moreover, given the emergency, the SPC IP Division, according to Article 100 of the Civil Procedures Law, issued the anti-suit injunction within 48 hours, without a prior hearing and with an immediate enforcement of it.  Conversant may apply for a reconsideration of the anti-suit injunction, but its enforcement would not be stayed during the reconsideration.  Also, according to subparagraph 6, paragraph 1 of Article 111 (regarding consequences of refusal to comply with an effective court judgment or ruling) and paragraph 1 of Article 115 (regarding fines between RMB 50,000 and 1,000,000 that may be imposed on legal entities), the court ruled that if Conversant did not comply with the anti-suit injunction, it would be fined RMB 1 million for each day of incompliance.  Chinese courts rarely set a penalty for refusal to comply with behavior preservation orders.  This is also the first time for the SPC to rule that fines under the first paragraph of Article 115 of Civil Procedures Law can be accrued on a daily basis.


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[1] After Conversant filed the patent infringement case against Huawei and ZTE before the High Court of Justice in London, Huawei and ZTE challenged the court’s jurisdiction to determine the global royalty rates for the patent portfolio in dispute.  On April 16, 2018, the High Court of Justice dismissed the challenge of jurisdiction, which was appealed by Huawei and ZTE afterwards.  On January 30, 2019, the Court of Appeal dismissed the appeal.  Then the case was appealed to the UK Supreme Court, and on August 26, 2020, UK Supreme Court dismissed the appeals.

[2] The Nanjing Intermediate Court accepted the cases at the date of filing and the docket numbers of the three cases are respectively (2018) Su 01 Min Chu No. 232, (2018) Su 01 Min Chu No. 233, and (2018) Su 01 Min Chu No. 234.

[3] The 15 patents fall into 10 families, of which 11 patents in 10 families were held by Conversant before Huawei filed the cases before Nanjing Intermediate Court, and another four patents in four families were transferred to Conversant amid the court proceeding and then added into the trial with consent of both parties.

[4] For details of the judgment, see Lu Zhe, Zhao Qishan, Huawei v. Conversant: Setting the FRAND Rates for SEPs in Chinese Market, http://www.lexfieldlaw.com/?c=n&a=Publication_detail&myid=8&id=118, last visited on September 16, 2020.

[5] The SPC IP Division accepted the three appeals on November 18, 2019. The docket numbers are respectively (2019) Zui Gao Fa Zhi Min Zhong No.732, (2019) Zui Gao Fa Zhi Min Zhong No.733, and (2019) Zui Gao Fa Zhi Min Zhong No.734.

[6] The docket number of the German case against Huawei is 4b O30/18.  The Chinese patent of the same family, ZL 200580038621.8, has been declared invalid in administrative invalidation proceedings and the relevant administrative litigation proceeding is now in the first trail.

[7] The docket number of the German case against Huawei is 4b O 48/18.  The Chinese patent of the same family, ZL 00804203.9, has been declared valid in administrative invalidation proceedings but was held as non-essential to relevant standard by Nanjing Intermediate Court.

[8] The docket number of the German case against Huawei is 4b O 49/18.  The Chinese patent of the same family, ZL200680014086.7, has been declared invalid in administrative invalidation proceedings.

[9] In addition, Düsseldorf Regional Court also rendered first-instance decisions in the cases involving EP1173986 where the defendants were found to have infringed the disputed patent but no injunctive relief was granted due to the expiration of the patent.

 


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