EU Takes WTO Action Against China Over Patent Royalty Disputes in Technology

EU Challenges China's Approach to Royalties on Standard Essential Patents

The European Commission has taken a decisive step to safeguard the interests of European high-tech companies by requesting consultations at the World Trade Organization (WTO) on 20 January 2025.

The dispute centres on China’s practice of allowing its courts to set global royalty rates for Standard Essential Patents (SEPs) held by European firms, allegedly without patent holders’ consent.

SEPs are integral to technologies like 5G that underpin a broad spectrum of high-tech products, including mobile phones and IoT devices.

EU challenges China at WTO on royalties for EU high-tech sector

The European Commission has requested consultations at the World Trade Organization (WTO) aiming to remove unfair and illegal trade practices by China in the sphere of intellectual property.

European Commission - European Commission

The Core of the Dispute: Global Royalty Setting

The EU’s main grievance is the claim that Chinese courts are undermining the global intellectual property framework by unilaterally setting binding royalty rates for SEPs owned by European companies.

The European Commission argues that this practice effectively forces European telecom firms to accept lower royalty rates, granting Chinese manufacturers an unfair competitive advantage. These practices, the Commission asserts, violate the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

The EU highlights the broader implications of these actions. By enabling Chinese courts to exert jurisdiction over European patents, the practice disrupts the international patent ecosystem and diminishes the authority of European courts in overseeing intellectual property rights originating within the EU.

This approach is viewed as distorting global markets, potentially weakening incentives for innovation among European companies.

SEPs: Balancing Innovation and Accessibility

SEPs are unique intellectual property assets because they protect technologies essential for meeting industry standards. Their role in sectors like telecommunications is critical, as they allow different manufacturers to ensure compatibility between devices.

However, owning an SEP comes with a commitment to license the technology on Fair, Reasonable, and Non-Discriminatory (FRAND) terms.

The EU contends that China’s royalty-setting practices stray from FRAND principles by tilting the balance towards domestic manufacturers. European firms argue that the reduction in royalties risks underfunding further innovation, as these earnings often fuel research and development for next-generation technologies.

The EU’s case at the WTO aims to re-establish equilibrium, ensuring SEP owners receive fair compensation without compromising accessibility.

Potential Outcomes and Broader Implications

The EU’s request for consultations is the initial stage of the WTO’s dispute resolution process. Should the parties fail to reach an agreement within 60 days, the EU can escalate the issue by requesting the formation of a WTO panel to adjudicate the matter.

While the current focus is on SEPs within the telecom sector, the dispute has broader implications for international trade, innovation policy, and the governance of global intellectual property rights.