Request for Consultations by the European Union

Dear Ambassador，

My authorities have instructed me to request consultations with the Government of the People's Republic  of China("China")pursuant  to  Article  1  and  4  of the  Understanding  on  Rules  and Procedures  Governing  the  Settlement  of  Disputes("DSU"),Article  64.1  of  the  Agreement  on Trade-Related Aspects of Intellectual Property Rights("TRIPS Agreement"),and Article XXII:1 of the General Agreement on Tariffs and Trade  1994("GATT  1994")with regard to  a measure adversely affecting the protection and enforcement of intellectual property rights and with regard to  China's  compliance  with  its  obligations  under  Article  63.3,second  sentence,of  the  TRIPS Agreement.

1.THE  MEASURE  AT  ISSUE  ADVERSELY  AFFECTING  THE  PROTECTION  AND ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS

According to China's law, Chinese courts have the authority to determine, without the consent of both  parties, worldwide  licensing   conditions,and  in  particular  royalty  rates, for  portfolios   of standard  essential  patents(SEPs)which  include  non-Chinese  SEPs. In  accordance  with  China's law, a legally effective decision determining such conditions is binding on both parties and is enforceable in China including with respect to the non-Chinese SEPs.

Chinese  courts  have  interpreted  and  applied  the  law  in  this  manner. On  28  November  2023, China's Chongqing First Intermediate People's Court took a decision against the objections of the patent owner setting worldwide licensing conditions, including royalty rates, for SEPs. The Court set the rates Chinese phone manufacturer OPPO has to pay worldwide for using Nokia's patented technology  in  2G,3G,4G  and  5G  "smart  terminal  products", such  as  mobile  phones. Based  on China's law, other courts can take decisions setting licensing conditions without the consent of both parties, notably the patent owner, for worldwide licences covering non-Chinese SEPs, which are binding on both parties and enforceable in China. There are substantiated indications that other courts accepted similar requests to decide worldwide licensing conditions.

Having regard to the above, the measure at issue in this consultations' request comports the legal instruments  giving  Chinese  courts  the  authority  to  take, without  the  consent  of  both  parties, decisions  setting  the  conditions  for  worldwide  licences  for  SEPs, which  are  binding  on  both parties  and  enforceable  in  China, including  with  respect  to  non-Chinese   SEPs. This  measure appears to curtail the ability of the parties, SEP owners and implementers, to enforce their rights and  ensure the respect  of obligations  with respect to non-Chinese  SEPs  in  the  courts  of the jurisdictions where the non-Chinese patents were granted and curtails the ability of the courts of the jurisdictions where the non-Chinese patents were granted to adjudicate actions relating to those patents in the respective jurisdictions.

The legal instruments through which China imposes and administers this measure, include the following, operating separately or in combination:
-Article 5,6 and 7 of the  Civil Code of the People's Republic of China;

-Article  24(3)of  the  Interpretation  of  the  Supreme  People's   Court  on  Several  Issues Concerning the Application of Law in the Trial of Patent Infringement Disputes (II);3
-any unpublished act or decision through which China imposes and administers these acts; and
-any  amendments, supplements, extensions, replacement  acts  or  decisions, renewal  acts  or decision, related acts or decisions, or implementing acts or decisions.

Legal basis for the complaint in respect of China's measure
The  measure  described  above  appears  to  be  inconsistent  with  China's  obligations  under  the covered  agreements, in particular  its  obligations under the  following provisions  of the  TRIPS Agreement:

1.Article 4bis of the Paris Convention, as incorporated into the TRIPS Agreement by virtue of Article  2.1  of the  TRIPS  Agreement, because  China's  measure  has  as  its  effect  to restrict the possibility for the parties subject to a decision to start or continue proceedings before the courts of another Member, and thus for the courts and other authorities of that other Member to decide questions relating to the registration or validity of a patent issued  in its jurisdiction.

2.Article 28.1 of the TRIPS Agreement, both alone and in conjunction with Article 4bis of the Paris Convention, as incorporated into the TRIPS Agreement by virtue of Article 2.1 of the TRIPS Agreement, because China's measure has as its effect to restrict the possibility for parties subject to a decision, notably the patent owner, to start or continue proceedings before the courts of another Member to decide questions relating to the making, using, offering for sale, selling, or importing the product that is the  subject matter of a patent out with China, and for the courts and other authorities of that other Member to decide questions relating to the registration or validity of a patent issued in its jurisdiction.

3.Article 28.2 of the TRIPS Agreement, both alone and in conjunction with Article 4bis of the Paris Convention, as incorporated into the TRIPS Agreement by virtue of Article 2.1 of the TRIPS Agreement, because China's measure has as its effect to restrict the possibility for  the  parties  subject  to  a  decision, notably  the  patent  owner, to  start  or  continue proceedings  before  the  courts  of  another  Member  to  decide  questions  in  relation  to licensing contracts, and for the courts and other authorities of that other Member to decide questions relating to the registration or validity of a patent issued in its jurisdiction, in relation to a licensing contract.

4.Article  1.1,first  sentence, of the TRIPS Agreement,in conjunction with Article 28.1 of the TRIPS Agreement, because China's measure has as its effect to restrict the exercise by a patent owner of its exclusive right to prevent third parties not having the owner's consent from making, using, offering  for  sale, selling, or importing the product that is the  subject matter of a patent within the territory of other Members.

5.Article  1.1,first  sentence, of the TRIPS Agreement, in conjunction with Article 28.2 of the TRIPS Agreement,because China's measure has as its effect to restrict the right of the owner of a non-Chinese SEP to freely negotiate and agree on FRAND contractual licence terms for the use of the SEP within the territory of the Member that has granted that patent.

6.Article  1.1,first  sentence, of the  TRIPS  Agreement, in  conjunction  with  Article  44  of the TRIPS Agreement, because China's measure has as its effect to restrict the possibility for a patent owner to request judicial authorities of other Members to order a party to desist from an infringement.

2.CHINA's COMPLIANCE WITH ITS OBLIGATIONS UNDER ARTICLE 63.3,SECOND SENTENCE,OF THE TRIPSAGREEMENT

On 20 December 2023,the European Union sent an official request for information pursuant to Article 63.3,second sentence, of the TRIPS Agreement requesting China to supply the Chongqing First Intermediate People's Court Civil Judgment in OPPO v Nokia of 22 November 2023,which it stated it had reason to believe affected its rights under the TRIPS Agreement. That specific judicial decision was in the area of intellectual property rights as it concerned the conditions for a patent  licence, including  royalty  rates. China's  response  appears  to  be  inconsistent  with  its obligations under Article 63.3,second sentence, of the TRIPS Agreement.

The  measure  maintained  by  China  restricting  the  protection  and  enforcement  of  intellectual property rights, and China's lack of compliance with its obligations under Article 63.3,second sentence, of the  TRIPS  Agreement  appear  to  nullify  or  impair  the  benefits  accruing  to  the European Union directly or indirectly under the covered agreements.

The European Union reserves the right to raise additional measures and claims, including under other provisions of the covered agreements, regarding the above matters during the course of the consultations and in any future request for panel proceedings.
The European Union looks forward to receiving China's reply to this request and to finding a mutually convenient date for the consultations.

Yours sincerely,

JoaoAguiar  Machado Ambassadbr
Permanent Reppesentative to theWTO