IP & The Future of Diplomatic Relations
By Lindsey Dahms-NolanPublished March 1, 2019
In the last decade, the US has entered a number of bilateral agreements with nations in Asia over the status of its companies’ intellectual property (IP) rights. However, fear of China’s continued economic growth has resulted in decades of antagonistic economic policy that implicates the role of IP in America’s diplomatic strategy in Asia. Recent patent litigation between the Chinese electronic mogul Huawei and South Korean tech conglomerate Samsung highlight both important developments in Asian IP law, as well as the salience of protectionism in the American legal approach to Chinese economic development.
In 2016, Huawei filed two lawsuits against Samsung over patent licensing agreements: the first was filed in the Northern California District Court, and the second was filed in the Shenzhen Court in China the following day. In January of this year, the Shenzhen Court reached a decision in favor of Huawei. The court found that Samsung had infringed on two of Huawei’s standard essential patents (SEPs) in the production of its latest phones, both of which patents were essential to the 4G/LTE standard. The court also found that Samsung had violated reasonable standards for negotiation in its approach to licensing negotiations with Huawei. Huawei offered a patent portfolio to Samsung, and Samsung counter-offered a portfolio of similar strength at three times the price. The court then decided to issue an injunction against Samsung to block the manufacturing and distribution of the products in question.
While neither Samsung nor Huawei are strangers to patent litigation, this case highlighted key differences between the Chinese and American court systems in the realm of IP law. American courts are often subject to bureaucratic excess, as the judiciary is vulnerable to lobbying groups that amass funds to circumvent normal proceedings. Less than five percent of American patent cases make it to trial. The vast majority of cases are quietly settled out of court and not subjected to further scrutiny. In China, the Shenzhen court faces an uphill battle in its quest to cement the international legitimacy of its rulings. In this particular case, the Shenzhen court used 3GPP Technical Standards, a global standard of portfolio evaluation that measures relative market strength and essentiality of a patent. This differs from the Northern California District Court, which has previously evaluated patent portfolios with a patent-counting method. Rather than evaluate the value of particular patents, the Northern California court evaluates the number of patents a company holds.
The California court has yet to reach a decision over Huawei’s infringement claims, but made their position on the decision in Shenzhen clear when judge William Orrick blocked the injunction in April. Orrick claimed “the Chinese injunctions could render meaningless the proceedings here, and the risk of harm to Samsung’s operations in China in the interim is great.” On face, Orrick’s decision to block the injunction appears reasonable, but context is necessary. It is crucial to acknowledge the history of American IP law, the role of Samsung within the larger U.S.-South Korean diplomatic relationship, and the American attitude toward Chinese corporations at the legal level. Within the U.S., IP law is commonly used as a weapon. In 2012, $20 billion was spent on patent lawsuits in the tech industry alone. The same year, both Apple and Google spent more on patents and patent-related lawsuits than on research and development. When it comes to enforcing IP law, American corporations are far more likely to wield it against competitors than Chinese companies.
Furthermore, the American government has made clear its fears of Chinese companies, particularly those in the telecom sector. Earlier this year, Congress moved to ban Huawei from entering government contracts and encouraged American telecom giant AT&T to cease sales of Huawei phones in the U.S. over espionage concerns. And yet, Huawei is winning settlements as it continues to challenge Samsung, Apple, and other tech giants in court. Regardless of the outcomes of these disputes, one thing is clear: the history of animosity between Chinese and American corporations bleeds into the court system.
Given this context, the question becomes one of whether or not the court in Shenzhen and the Northern California District court will be able to reach a consensus. As it stands, IP law is weaponized by both corporations and governments. The U.S. has routinely blocked injunctions from Chinese courts to protect its national interests. This strategy was evident in a 2004 case in which the U.S. blocked injunctions against Cisco over infringement of Huawei’s patents. There is also a clear lack of international cooperation, as different courts reflect the interests and cultural values of the nations that they exist in.
The only way forward in the development of IP law will not be a global court system, but the use of global standards in interpretation. In this particular disagreement between Huawei and Samsung, the Shenzhen Court used a global standard that had previously been used in Europe and other nations’ IP courts. The Huawei/Samsung dispute also demonstrates the need for international dialogue over IP. This dialogue should be brought about by corporations that wish to lead the way in demanding the advancement of global legal coordination. It is only when corporations like Huawei bring suits that question the limits of IP rights and how they should be enforced that courts will ever have the opportunity to make sweeping change.