Samsung Electronics is asking a federal judge in California to stop Huawei from enforcing an SEP injunction it won in China earlier this year. In doing so, the Korean company has given an indication of when that order might actually come into effect - and revealed the significant business disruption that it could entail inside and outside of China.
The Shenzhen Intermediate People’s Court announced an injunction against Samsung on 11th January. It found that two patents asserted by Huawei were infringed, essential to the 4G standard and that Samsung had violated FRAND principles by “maliciously delaying talks”. The two cases were filed on 25th May 2016. One day earlier, Huawei had sued Samsung over some of the same SEP families in the Northern District of California. That is where Samsung is now trying to put the brakes on the Shenzhen injunction.
In a motion filed last week, Samsung asked Judge William Orrick to issue an anti-suit injunction ordering Huawei not to enforce its Chinese court order. The Chinese patents-in-suit, Samsung claims, are part of the worldwide portfolios involved in the California contractual dispute between the two parties; they are also counterparts to patents asserted by Huawei against Samsung in the US. Enforcing the Chinese court order would violate US antitrust law forbidding “hold up”, breach Huawei’s FRAND obligations, and “threaten a major disruption to US commerce”, says the brief.
Indeed, the motion reveals that the clock is ticking for Samsung, and that it is faced with a significant business disruption whose ramifications will go far beyond China. The Chinese courts, it notes, have moved much faster than their counterparts in the US. While the Shenzhen order has been stayed pending Samsung’s appeal to the Guangdong Higher People’s Court, the company estimates that the decision could be affirmed, and the injunction enforced, “within months”.
Huawei helped speed the Shenzhen cases along by not requesting any damages, just a finding of infringement and injunctions. But the business impact of a ban on manufacture, sales and shipping of key devices would far outstrip the dollar value of a damage award in China. “China is the second largest production hub for Samsung’s major smartphones,” the Korean company told the California court. The hit to its supply chain caused by an injunction would cause a “critical business risk” that extends far beyond the China market.
Samsung quotes Huawei global head of IP Jason Ding as outlining the Chinese company’s basic strategy in comments he made at the 2016 China Competition Policy Forum:
Perhaps judges are quite reluctant to hear injunction cases because of its staggering impact on the market. . . Even if injunction order were to be enforced, does Huawei really want to kick Samsung out of China? Is it possible? Of course not. . . .At the end of the day, your purpose is to get the royalties in return, while using legal action as a bargaining chip.
Indeed, Samsung admits that if the injunction is enforced, it will “likely have no choice but to accept the onerous terms from which Huawei has refused to waver”, and even abandon its counterclaims against the company in US courts.
Motorola v. Microsoft and Ericsson v TCL provide examples of past SEP cases where US courts have issued anti-suit injunctions halting foreign legal actions. In addition, Vringo failed to convince a US judge to block ZTE from pursuing an antitrust suit in Shenzhen during the two parties’ global licensing dispute.
Seeking to have a US court adjudicate FRAND terms first might make a lot of sense from the perspective of a defendant like Samsung. But the request to block the Chinese injunction might not go across very well in China. Authorities in the country have in the past reacted with indignation when, in their view, US courts have not accorded appropriate comity to Chinese court decisions in IP cases. But Samsung, at this point, may have such a target on its back in the Chinese market that it feels it has little to lose there.