[Guest post] The Wuhan Submarine surfaces at Christmas in global Ericsson/Samsung SEP battle

Katfriend Richard Vary informs readers of an interesting development in global Standard Essential Patents (SEP) disputes -- the rise of the "Wuhan Submarine" -- and very recent use of this tactic in the ongoing SEP battle between Ericsson and Nokia. Over to Richard:

Ericsson and Samsung are re-negotiating a cross-licence of standards-essential patents. Samsung had an interesting Christmas present for Ericsson: an ex-parte anti-suit injunction from Wuhan, China on Christmas morning. Ericsson replied on Monday 28th with an Anti-Anti Suit Injunction (AASI) in the form of a Temporary Restraining Order from Marshall, Texas, and on New Year’s day it added eight patents to its US action. A full hearing of the Anti-Anti Suit injunction is scheduled for 7 January.

Building a submarine

The standard operating handbook for FRAND (Fair Reasonable and Non-Discriminatory) defence acquired a new chapter last year: the “Wuhan Submarine”. For many years the Italian torpedo has reigned supreme as the most discussed defensive tactic: a process of asking the slower Italian courts to rule on infringement of patents from faster European countries, thereby preventing an infringement action on those patents. It was more discussed than used. Other implementers adopted UK pre-emptive strikes, seeking invalidation or a declaration of non-essentiality. Nokia used such a tactic against Interdigital and IPCom. HTC deployed a similar approach against Nokia, adding expedition to get to trial in the UK before Germany (see subsequent order here, at para 38). More recently, the West Coast of the US has become a good location for a first strike, with HTC, then Apple, and most recently Continental, using it against Nokia.

But the downside of all such public pre-emptive actions is that they cause negotiations to come to a halt, and kick off a long period of expensive litigation before talks might resume. Wuhan’s willingness to accept FRAND actions, and grant anti-suit injunctions (ASI) without notice and in secret gives it an edge over previous tactics: as a submarine jurisdiction, it can remain hidden until needed. When the submarine surfaces, the torpedo has already struck.

As a defensive tactic, the Wuhan submarine seems to have arisen mostly in 2020. Mark Cohen reported in China IPR over the Christmas break that China’s IP judiciary started to discuss ASI’s in conferences in mid-January 2020, noting that Chinese Civil Procedure rules (Article IX, Sec. 100) regarding “action preservation” would encompass anti-suit injunctions, and recommending that ASI’s should be issued by the Chinese courts. The first ASI issued by a Wuhan court was in the Xiaomi v. Interdigital case, to be met by an Anti-anti-suit injunction (AASI) from the Delhi High Court in India. 

 

Litigants in SEP disputes must have their ears out for news from Wuhan

Launch against Ericsson

Shortly before Christmas, Ericsson had filed and served a FRAND action against Samsung in the Eastern District of Texas. It seems that Samsung also filed an action seeking imposition of a Global FRAND licence against Ericsson in Wuhan. There is some uncertainty about which filed first: actions in Wuhan are not public in the same way that they are in the US. But before disclosing the existence of the Wuhan action, Samsung also sought an ex-parte ASI from Wuhan against Ericsson’s Texas action.

Whilst the Wuhan court might be an expected jurisdiction for a Chinese handset maker, it is not such an obvious choice for a dispute between Ericsson and Samsung. Samsung has filed the action through a local subsidiary, established in 2011 for the sale of handsets in the area. But China is no longer the market for cellular devices that it once was for Samsung: it apparently now sells more devices in Poland than in China. It remains the number one seller in the US, however.

Douglas Clark has noted a view amongst Chinese courts that the UK’s Unwired Planet decision has opened the door for national courts to determine FRAND. Whilst it may be the case that Chinese courts hold this view, it is an unfortunate misunderstanding of the UK Supreme Court’s decision. It is one thing to calculate global FRAND as part of a decision whether to grant a national injunction on a national patent, or in resolving a contractual dispute properly before that court, as the UK Supreme Court did. But in the absence of such a jurisdictional hook, it is not clear why any one national court would have jurisdiction to set FRAND internationally. It seems Samsung itself has previously taken the position that Chinese courts are not the right place to determine international FRAND for its own portfolio.

On Christmas morning, the Wuhan Court issued a broad antisuit injunction preventing Ericsson from taking steps in its US action or seeking injunctive relief on its 4G and 5G patents. The Wuhan court’s reasoning appears to depend on the Wuhan case being first filed. Interestingly, the Wuhan court’s order against Ericsson purports to be effective immediately, i.e. even before service. In the Xiaomi case, the order required InterDigital to withdraw or stay the applications in India only upon service of the ASI order. However the penalty clause is toned down to be an open end “in accordance with civil procedure laws” rather than the RMB 1 million daily fine imposed in the Xiaomi case.

Ericsson reacts

Ericsson reacted quickly: on Monday 28th December they filed for and obtained an AASI in the form of a broad temporary restraining order and an anti-interference injunction. It is not specific to the injunction issued in Wuhan: it covers any action that might prevent Ericsson asserting its U.S. patents against Samsung. Ericsson also asked for and obtained an indemnity in case the Wuhan Court fines Ericsson for participating in its US case or asserting its United States patent rights for the amount of the fine. Because this was ex parte, there is to be a follow up inter partes hearing on 7 January.

On 1 January Ericsson added eight patents to its US action. Samsung also filed its reply to the AASI, attaching a declaration by former Federal Circuit Judge Randall Rader. Judge Rader argues that in his experience from having visited some Chinese courts, the process in China will be transparent and fair. Judge Gilstrap will have to consider these arguments tomorrow, Thursday 7 January.

Whatever happens this week, two learning points emerge. First, it appears that a Wuhan submarine will be, for now, a standard procedural step in FRAND disputes, closely followed by anti-anti-suit injunctions elsewhere. Secondly, drafting a patent license agreement to end on 31 December is a great way to spoil a holiday.