Wuhan D/B/A Chicago of China, Now Epicenter of Anti-Suit Injunctions
An innocuous 7:14 a.m., March 4, 2021, repost of a Changjiang Daily report on the official website of the Wuhan City Government (www.wuhan.gov.cn) recounted the story of how the Wuhan Intermediate Court rose from relative obscurity to fast fame in the laws of equity.
On September 23, 2020, the Wuhan Intermediate Court ordered InterDigital, Inc. of Wilmington, Delaware (“InterDigital”), to refrain from suing Xiaomi Telecommunications Technology Company Limited of Beijing, China (“Xiaomi”), in China or elsewhere. This anti-suit injunction was not the first that showcased Wuhan to the world of law and equity. On June 30, 2017, the Wuhan Intermediate Court (case no. (2015) E Wuhan Zhong Min Shang Wai Chu Zi 26) recognized and enforced a default judgment issued by the Superior Court of California, County of Los Angeles.
Backdrop to the September 23, 2020, Wuhan court order (case no. (2020) E 01 Zhi Min Chu 169, the “9/23/2020 order”) is InterDigital’s demand to Xiaomi to take a worldwide license of patents related to prevailing telecommunications standards. According to the 9/23/2020 order, InterDigital has not entered an appearance before the Wuhan Intermediate Court. Specifically, InterDigital is ordered to:
- withdraw petitions for preliminary injunctions against Xiaomi and its affiliates in Delhi District Court, India, over related 3G and 4G standard essential patents (“SEPs”);
- withdraw petitions for permanent injunctions against Xiaomi and its affiliates in the Delhi District Court, India, over related 3G and 4G SEPs;
- refrain from petitioning for preliminary and permanent injunctions against Xiaomi and its affiliates in China or elsewhere, during pendency of the instant action, over related 3G and 4G SEPs;
- refrain from enforcing granted (or about-to-be-granted) preliminary and permanent injunctions against Xiaomi and its affiliates in China or elsewhere, during pendency of the instant action, over related 3G and 4G SEPs;
- refrain from petitioning any court in China or elsewhere, during pendency of the instant action, to adjudicate SEP royalty rates or license fees issued over related 3G and 4G SEPs; and
- preserve the ten-million-yuan (RMB10,000,000) bond posted by Xiaomi in the instant action.
Should InterDigital violate the 9/23/2020 order, the Wuhan Intermediate Court will fine InterDigital one million yuan (RMB1,000,000) for every calendar day of violation.
Reasons For The Wuhan Anti-Suit Injunction: NPE! (Among Other Things…)
The Wuhan Intermediate Court found InterDigital to be a nonpracticing entity (NPE), specializing in patent licensing and litigation but disengaged from the manufacture and sale of standard essential patented products. InterDigital was found to have promised to license its SEPs under fair, reasonable and non-discriminatory (FRAND) principles. InterDigital and Xiaomi engaged in FRAND licensing discussions from May 2017 and up to June 2020. On June 9, 2020, Xiaomi filed the instant action in the Wuhan Intermediate Court, which was instituted because:
- There existed a contractual relationship between Xiaomi and InterDigital in view of their offers and counteroffers exchanged in licensing negotiations under FRAND principles;
- Xiaomi prayed to the court in the instant action to adjudicate based on FRAND principles as well, despite earlier breakdown of FRAND negotiations with InterDigital; and
- Jurisdiction and venue are proper, as Xiaomi is Chinese and its affiliate is domiciled in Wuhan, China.
On June 10, 2020, InterDigital sued Xiaomi in the Delhi District Court, India, for patent infringement and petitioned for preliminary and permanent injunctive relief. On August 4, 2020, Xiaomi asked the Wuhan Intermediate Court to issue an anti-suit injunction. InterDigital, however, continued to ignore service of process and refused to appear. The Wuhan Intermediate Court found InterDigital:
- in contempt and clearly having intended to counter the court’s jurisdiction by petitioning Indian courts for preliminary and permanent injunctive relief;
- allegedly having abused remedial procedures in SEP-licensing negotiations, as Indian court injunctions have substantial likelihood of conflicts with rulings in the instant action and adverse impact on ensuing enforcement;
- having petitioned in India for preliminary and permanent injunctive relief affecting the India operations of Xiaomi, whose harm is real and irreparable, that, if not halted, in time will further damage Xiaomi’s interests as a party;
- having no substantial damage to InterDigital SEPs should an anti-suit injunction be granted, as a NPE that does not manufacture standard-essential patented products.
The Wuhan Intermediate Court, having considered the need to balance the interests of the parties and the public interest, issued the anti-suit injunction against InterDigital. Potential harm to InterDigital is balanced by the bond posted by Xiaomi. As Xiaomi products are sold worldwide, the Wuhan Intermediate Court also held that it had authority to adjudicate global FRAND rates for a worldwide license with InterDigital.
InterDigital finally appeared in Wuhan to oppose the 9/23/2020 order. On December 4, 2020, the Wuhan Intermediate Court rejected InterDigital’s motion for reconsideration.
If India Isn’t Enough, Try Germany.
As InterDigital moved for the Wuhan Intermediate Court to reconsider the 9/23/2020 order, it moved for an anti-suit injunction in India (case no. 8772/2020 in CS(COMM) 295/2020). The Delhi High Court granted InterDigital’s motion.
In October 2020, InterDigital petitioned the Munich Regional Court (case no. 7 O 14276/29) for preliminary injunctive relief against Xiaomi from enforcing the 9/23/2020 order in Germany. Xiaomi opposed, but the Munich Regional Court granted the preliminary injunction in November 2020. Xiaomi is barred from enforcing the 9/23/2020 order against InterDigital in Germany.
Give Me a Lever Long Enough And a Fulcrum On Which To Place It, And I Shall Move The World!
The 9/23/2020 order put Wuhan on the map for lawyers and companies looking for an edge in cross-border disputes. Wuhan was not the only Chinese court in the brave new world of anti-suit injunctions. Huawei tried its luck against another NPE, Conversant Wireless Licensing S.à.r.l., in the Nanjing Intermediate Court, and then onto the Chinese Supreme Court. In case no. 2019 Zui Gao Fa Zhi Min Zhong 732, 733, 734, Huawei petitioned the Chinese Supreme Court for an anti-suit injunction enjoining Conversant from enforcing a Dusseldorf Regional Court judgment (case no. Huawei 4b O 30/18) for SEP infringement, which was granted on August 27, 2020.
On September 16, 2019, Huawei got what it wanted from the Nanjing Intermediate Court regarding global licensing demands from Conversant, including demands from British patent litigation claims filed in the High Court in July 2017. Regarding facts surrounding the Huawei-Conversant licensing negotiations, the Nanjing Court (cases no. (2018) Su 01 Min Chu 232, 233, 234) confirmed that:
- Conversant had eleven (11) Chinese SEPs.
- Scope of licensing negotiations was limited to smartphones, tablets and feature phones.
- Conversant had little or no patent litigation success worldwide.
- Conversant had not proffered effective evidence under Chinese law to prove its patents were SEPs.
With respect to FRAND royalties owed, the Nanjing Intermediate Court held that no royalties were owed for the single-mode 2G and 3G products at issue. For single-mode 4G products, the Nanjing Court held the FRAND royalty rate at 0.00225 percent. For multi-mode 2G/3G/4G products, the FRAND royalty rate was 0.0018 percent. Conversant appealed (cases no. (2019) Zui Gao Fa Zhi Min Zhong No. 732, 733, 734).
Conversant had better luck in German courts though. Conversant sued Huawei and its German affiliates for SEP infringement in Dusseldorf Regional Court. On August 27, 2020, the Dusseldorf Court held that Huawei infringed, and issued an injunction ordering Huawei to cease all infringing acts. The Dusseldorf Court found Conversant’s licensing offer for multi-mode 2G/3G/4G products was FRAND, even though it was 18.3 times the FRAND rate handed down by the Nanjing Intermediate Court. Huawei petitioned the Chinese Supreme Court, and sought to enjoin Conversant from enforcing the Dusseldorf Court ruling. In support of its petition, Huawei posted bond, in the amount of RMB 19.7 million.
The Chinese Supreme Court found that enforcement of Dusseldorf Court’s ruling will interfere with the pending three cases no. (2019) Zui Gao Fa Zhi Min Zhong No. 732, 733, 734, with the likelihood of rendering the respective hearing and ensuing judgment meaningless. The Supreme Court balanced the interests of the parties, and found Conversant’s core interest to have been monetary compensation. Huawei, however, will suffer irreparable damage, as it will be forced out of the German market entirely or otherwise forced to give up all judicial remedies in Chinese courts. Weighing the parties’ interests, enjoining enforcement of the Dusseldorf Court ruling will cause limited damage to Conversant. Furthermore, no public interest will be harmed.
The Chinese Supreme Court also considered the issue of international comity. The Nanjing Intermediate Court instituted proceedings in the first instance in January 2018, whereas the Dusseldorf Regional Court instituted in April 2018. Enjoining enforcement of the Dusseldorf Court ruling will not affect ensuing trial of the German proceedings nor respective validity. Therefore, enforcement of Dusseldorf Court ruling was enjoined, prior to final judgment of cases no. (2019) Zui Gao Fa Zhi Min Zhong No. 732, 733, 734.
Is Wuhan An Anomaly, Or The New Norm?
Competition is fierce in the courts, as it is in the marketplace. Companies (and lawyers representing them) looking for every advantage they could get in law and equity have turned to anti-suit injunctions to one-up the competition. Origins of anti-suit injunctions may have been grounded in antiquated courts of equity, motivated to prevent royal subjects from crossing the river to another kingdom to try their luck over the same claims in a different court. In today’s high-tech markets, separated by borders and jurisdictions, anti-suit injunctive relief makes its way back, marauding every major marketplace where smartphones and electronics are on sale:
- In 696 F.3d 872 (9th Cir. 2012), the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s preliminary injunction to enjoin Motorola from enforcing a patent injunction it had obtained against Microsoft Xbox and Windows products in Germany.
- In case no. 14‑cv‑00341 (consolidated with 15‑cv‑02370), Chinese smartphone maker TCL petitioned the U.S. District Court for the Central District of California for an anti-suit injunction against Ericsson, which was granted on June 29, 2015. Following entry of the anti-suit injunction and until final judgment, both Ericsson and TCL were enjoined from initiating any litigation anywhere in the world regarding infringement, validity, enforceability, or essentiality of any 2G, 3G, and 4G Ericsson SEPs.
- In case no. 16‑cv‑02787, Samsung petitioned the U.S. District Court for the Northern District of California to enjoin Huawei from enforcing Chinese court judgments over 4G SEPs against Samsung smartphones, which was granted on April 13, 2018.
- In 2019, German autoparts fab Continental AG petitioned the U.S. District Court for the Northern District of California (case no. 19‑cv‑02520) for an anti-suit injunction against Nokia over 3G and 4G SEPs, which the Munich Regional Court (case no. 21 O 9333/19) rejected. The Munich Higher Regional Court affirmed.
The Great World War: Anti-Suit Injunctions.
Wuhan’s sudden rise in notoriety is due to the fact that China is new to multijurisdictional battles of anti-suit injunctions. Some may not be able to find the city on the map, but violating its anti-suit injunction comes at a cost of one million yuan for each day of violation. Barring appeal, parties are stuck with the anti-suit injunction. Unless courts come together and agree to a Lugano Convention–style mutual recognition of FRAND judgments, anti-suit injunctions will be around for a while. As such, forum shopping will be the prevailing practice. NPE parties will look to sue first in courts with historically high damages awards for patent infringement. Companies will look to move for anti-suit injunctions in courts that historically favored low FRAND rates in SEP cases. NPE parties will favor courts that are precedentially adverse to anti-suit injunctions from foreign countries. These considerations will lead to in-depth academic exercises over each court’s laws and cases on standard essentiality, licensing royalty, patent damages, contractual obligations under FRAND principles, requirements for injunctive relief, international comity, and conflicts of laws. Students of jurisprudence and practitioners will be exceptionally exuberant looking at such complexities crossing national borders and bodies of law. For NPEs looking to license, and companies looking to defend, “complicated” will be the name of the game for many, many winters to come.