Curbing the Abuse of Anti-Suit Injunctions with Alternative Dispute Resolution: Two Views
Two articles on anti-suit injunctions (ASI) were recently published by Sisvel and a distinguished cast of co-authors. These articles will be highly useful for any IP professional seeking to learn what anti-suit injunctions are, how they are being used--and abused--why alternative dispute resolution (ADR) techniques like arbitration and mediation are better options, and how standard-setting organizations (SSOs), Competition Authorities, and the courts can encourage licensors and implementors to pursue ADR rather than ASIs.
The first article, entitled “Anti-suit injunctions are a race to the bottom – and arbitration is the answer”, was published in IAM in February 2022 and was co-authored by Sisvel founder Roberto Dini, Jing He, and Mario Franzosi.
The second article appeared in the March issue of les Nouvelles, and was entitled “The Phenomenon Of Anti-Suit Injunctions And Extraterritorial Implications”. This article was an extract by Sisvel’s Valentina Piola of a webinar discussion organized by LES Italia on the theme “Anti-suit injunctions under different national laws - Italy, Germany, UK and US”, which was held on September 29, 2021. The webinar was moderated by Roberto Dini, and featured Mario Franzosi, Sir Robin Jacob, Judge Paul R. Michel, Judge Randall Rader, Cordula Schumacher, and Valentina Piola, who summarized the discussion for the article.
IAM Article: Anti-Suit Injunctions are a race to the bottom – and arbitration is the answer
The IAM article boldly defines the problem in the first paragraph:
The race for jurisdictional supremacy in the field of SEP litigation is nothing new. However, the recent take-up of anti-suit injunctions (ASIs) by some courts has the potential to lead to a spiraling race to the bottom in the context of global SEP dispute resolution, ultimately resulting in a litigation gridlock. The urgency of the situation is reflected in the European Union’s initiation of a formal WTO process in July 2021 seeking more information from China regarding its use of ASIs.
Closing out the introduction, the authors presage what they propose as the best solution --international alternative dispute resolution (ADR)--pointing out that the Court of Justice of the European Union recognized the role that independent third parties could play in resolving SEP disputes in the 2015 Huawei v ZTE.
The ASI phenomenon
The authors next review how ASIs are being used in patent litigation, with a key starting point being Unwired Planet v Huawei, in which the UK Supreme Court determined the value of a FRAND royalty to be paid for a global SEP license. After the Unwired Planet decision, the authors argue, Chinese courts, in particular, extended the decision far beyond the intent of the UK court:
The UK court held that if the plaintiff was unwilling to take a global license on the basis of the court ruling, it would issue an injunction covering the United Kingdom and the United Kingdom alone. This contrasts with the practices of Chinese courts, which take on cases as contract disputes,without considering any underlying patent infringement matters, and subsequently deploy ASIs, which have the effect of interfering with foreign judgments or companies over which they do not have jurisdiction.
As the authors observe, “This has raised big questions about sovereignty and also sparked discussions about which courts can define FRAND royalty rates.”
The article then reviews the key factors considered by the Chinese courts when they issued ASIs in Huawei v Conversant, Xiaomi v InterDigital, and Samsung v Ericsson, which included:
● the possible impact of the enforcement of foreign court decisions on parallel litigation in China;
● whether it was necessary to issue an ASI;
● whether the damage to the applicant if an ASI was not issued exceeded the damage to the respondent if an ASI was issued (i.e., the balance of interests);
● whether issuing the ASI would damage public interest; and
● whether issuing the ASI complied with the doctrine of comity.
In particular, the authors take issue with the Chinese court’s analysis of public interest, stating:
It is regrettable that the courts in China seem to have an incomplete analysis of public interest...Insufficiently rewarding innovators who have incorporated their patented technologies into industry standards is contrary to the goal of fostering innovation and making new and safer products available. This is the real public interest, which is also the stated purpose of China’s Patent Law.
Reactions of national courts in Europe
The authors then described the responses to these ASI’s in Europe, first observing that “restraining a party from applying a foreign judgment in a foreign territory raises serious doubts about lawfulness, as it purports to bind courts in other countries. In this context, ASIs do not appear to take into account territorial sovereignty (a fundamental principle of any legal system).”
One reaction has been “a race to sue counterparties in courts deemed friendly, notwithstanding the universal principle of national sovereignty.” The Court of Appeal of England and Wales in Vestel v Access Advance addressed such forum shopping, finding that, unlike the over-reaching Chinese courts, they didn’t have jurisdiction to set a global FRAND rate absent an underlying action for patent infringement.
Relying upon both Sisvel v Haier and InterDigital v Xiaomi, the authors posit that “a patent implementer who applies for an ASI, or intends to, cannot be regarded as sufficiently willing to take a license within the meaning of the case-law of the Court of Justice of the European Union and the German Federal Supreme Court.”
Regarding the specific issue of ASIs, the authors state:
To put an end to the spiral of ASIs, anti-anti-suit injunction and anti-anti-anti-suit injunctions, the Munich Regional Court went a step further, holding the implementer liable in attempting to escape its obligation to pay royalties. The court was explicit: the implementer could try to acquire an ASI, but the patent owner could then go back to the Munich court, which would grant it an injunction. This reasoning demonstrates that a FRAND royalty cannot be proactively negotiated using ASIs, while trying to rebalance the situation between patent owner and implementer.
Arbitration – an efficient tool for solving FRAND disputes and avoid delaying tactics
Having detailed the problems associated with ASIs, the authors turned their attention to the best alternative, which they state are international arbitration bodies that deliver the following advantages:
● Arbitration reduces the costs of litigation.
● Arbitration enables parties to choose arbitrators with the necessary legal, technical, and economic expertise to fairly resolve SEP/FRAND disputes.
● Arbitration can more easily cover entire SEP portfolios because, unlike court proceedings, the territoriality principle does not prevent arbitration tribunals from considering patent cases from various jurisdictions.
● Finally, arbitral awards can be enforced across international borders under the regime of the New York Convention.
Despite these advantages, the authors recognize that “arbitration as an alternative to court disputes has so far yielded mixed results.” To promote arbitration, the authors recommend that all associated organizations and authorities should promote arbitration. For example, they call on standards-setting organizations (SSOs) to encourage arbitration among their members by requesting a declaration of willingness to arbitrate.
They advocate that competition authorities should “recognize that a lack of agreement on the FRAND royalty rate means that there is a competitive obligation among both patentees and implementers to arbitrate.” Finally, the authors recommend that “national judges called to decide on SEP matters could use their procedures to powerful effect to encourage people to arbitrate as a sign of good faith and willingness in FRAND disputes.”
In conclusion, the authors observe that “ASIs are emerging as a tool used by national courts to defend the interest of their industries and perhaps could also be seen as constituting state aid or even an unfair trade practice, in violation of international trade treaties such as the WTO and emerging multilateral agreements.” Then, they preset a dire warning.
Failing to reward innovators for their extensive R&D investments and to recognize the benefits that their patented technologies bring to society may discourage them from investing in new research. To the detriment of technological progress, they may decide to avoid participating in the standardization process and revert to proprietary, closed solutions or trade secrets as means of protection. Such a broken standard and patent ecosystem could well have all sorts of unintended consequences, producing an even worse scenario for all those involved.
LES NOUVELLES Article: The origins of Anti-Suit Injunctions phenomenon
The second article plows much of the same ground, but with a more detailed focus, starting with the origins of the anti-suit injunction, revealing ASIs to be just another form of hold out, and concluding again that the best solution for patent disputes are alternative dispute resolution techniques like arbitration and mediation.
The article again identifies Unwired Planet as the decision that launched the ASI phenomenon, though the panel quickly clarified how the Chinese Courts have overextended the decision far beyond where the UK Court intended. To recount, in Unwired Planet the UK Supreme Court found that setting a global license for the entire portfolio was the best solution when dealing with a large international SEP portfolio. However, unlike several Chinese ASI cases, Unwired started as a patent infringement action, which clearly gave the court jurisdiction over the parties. And, as mentioned previously, the Unwired Court didn’t interfere with the judicial power of other jurisdictions; rather, the defendant could either accept the worldwide royalty pricing or be subject to a UK injunction.
In contrast, several Chinese cases seem to have rewarded forum shopping for courts deemed friendly in defining royalty rates. These cases were initiated without an underlying action for patent infringement, bringing jurisdiction into question, and the ASI preventing legal action in other jurisdictions was clear interference with the judicial power of other jurisdictions.
For this reason, some US courts have ignored Chinese injunctions. In one case, Samsung v. Ericsson, Judge Rodney Gilstrap of the Federal District Court of Texas “affirmed that the use of ASIs is to be considered an interference with the administration of justice in other countries and with regard to companies over which there is no jurisdiction.” The judge ignored the Chinese injunction, in turn issuing an "Anti-Interference Order”.
Note that after the court ignored the ASI, the parties settled on appeal. In this fashion, the court acted as a facilitator in getting the parties to negotiate, which is always the preferred method of setting a royalty rate.
ASIs as a delaying tactic
The panelists then positioned ASIs as another form of hold-out that “generates a distortion of the market that damages the entire innovation ecosystem.” In particular, ASIs are damaging because they deny patent holders access to the courts and the ability to prosecute unauthorized users of their patented technologies. Holdout also discourages and penalizes willing licensees by increasing their production costs as compared to competitors who hold out.
Once again the concept of public interest was take into consideration. Chinese courts, the panel argued, set low rates because they “believe it is in the interest of the market to keep the cost of innovation and technology as low as possible.” Then they counter that “public interest isn’t just about having a low price; public interest is to have an improvement in our daily lives through increasingly improved and sophisticated products. In order to achieve this, huge investments in R&D are required.”
Noting the increasing prominence of Chinese manufacturers, the panelists observed that “ASIs are therefore emerging as a tool used by some national courts, and in particular Chinese courts, to defend the interests of their own industries. They can even be seen as state aid or an unfair trade practice that are not allowed by international trade treaties such as the WTO.“
Fortunately, the authors observe, there is room for optimism. For example, in Sisvel v. Haier, the court ruled that the alleged licensee must act proactively to reach an agreement with the patent holder within a reasonable time. In Interdigital vs Xiaomi, the Regional Court of Munich ruled that requesting an ASI evidences a reluctance to negotiate in good faith. This positions the party as an unwilling licensee that loses the right to a FRAND defense and may be subject to an injunction. As observed by the authors, “If other courts were to adopt this strategy, this would have a strong disciplinary effect on many counterfeiters, who would be much more cautious before requesting an ASI.
ADR to solve FRAND disputes and avoid delaying tactics
Having detailed the various problems with ASIs, the panelists proposed arbitration and meditation, collectively called Alternative Dispute Resolution (ADR), as the solution. Panelists agreed that ADR delivers faster decisions at much lower cost, and the ability to consider large patent portfolios in different jurisdictions. In addition, they don’t set a legal precedent -- they only bind the parties who can resolve the dispute confidentially without creating any conflict between different national jurisdictions.
The panelists also identified some drawbacks of ADR, though most have workarounds. For example, arbitration can’t invalidate patents. though it can delegate the task of assessing the validity of SEPs to an international patent authority such as the EPO. In fact, in a recent pilot study, the EPO has expressed its opinion on the essentiality of patents.
Despite the advantages presented, the panelist agreed that ADR has yielded limited results as alternatives to judicial disputes before national courts. As in the other article, they urged Standard Setting Organizations (SSOs), Competition Authorities, the courts, and other government institutions to promote ADR.
The article identifies one very positive step that was taken by the Digital Video Broadcasting (DVB), an international SSO, that recently published a Memorandum of Understanding encouraging members to settle license disputes through arbitration. The panelists called on Competition Authorities to request arbitration from the SSOs, and for courts to construe the refusal to arbitrate as a sign of unwillingness.
Despite the promising steps, the panel concluded that “For the well-being of the entire innovation ecosystem, it’s important that licensing agreements are primarily concluded without resorting to litigation. However, at present, arbitration cannot be imposed and therefore the consent of the parties or a contractual clause is required. So, to date, the choice of arbitration remains unfortunately rather limited.”
For additional information, please read the full articles:
Anti-suit injunctions are a race to the bottom – and arbitration is the answer (pdf)
The Phenomenon Of Anti-Suit Injunctions And Extraterritorial Implications (pdf)