A Chinese company sues another Chinese company in the UK.

On October 21, 2024, local time, Lenovo filed an intellectual property lawsuit against ZTE in the High Court of Justice in the UK.

Lawsuits between communications giants often involve patent licensing disputes. However, Gulf Stream Economic Review believes that in the business world, conflicts of interest are inevitable. Yet, given the current international situation, it is advisable for Chinese enterprises to unite.

01

A Far-Fetched Lawsuit

On October 21, local time, Lenovo filed an intellectual property lawsuit against ZTE in the High Court of Justice in the UK. According to public information, six companies are involved as plaintiffs in this lawsuit: Lenovo Group Limited, Lenovo (USA) Inc., Lenovo Technologies (UK) Limited, Motorola Mobility LLC, Motorola Mobility UK Limited, and Lenovo Innovation Limited (Hong Kong). Six companies are involved as defendants: ZTE Corporation, ZTE (UK) Limited, Nubia Technology Co., Ltd., and three UK distributors: Gamegeek Limited, Livewire Telecom Limited, and EFones.Com Limited.

As of now, details about the patents involved and the claims in this case have not been disclosed, and Lenovo has not issued a public statement regarding this matter.

On October 30, ZTE responded officially: "It is difficult for us to understand why Lenovo chose to go all the way to the UK for this lawsuit, but we respect their decision. This lawsuit will not change ZTE's determination to protect its legitimate rights and interests." It is reported that ZTE and Lenovo have been in negotiations regarding patent licensing for several years.

In fact, it's not just ZTE; this matter seems a bit unusual:

First, Lenovo bypassed China's judicial system directly. Currently, China has established a diversified intellectual property protection system. For example, in the patent dispute between Huawei and Xiaomi a few years ago, Huawei did not sue Xiaomi for infringement but instead initiated an administrative ruling on major patent infringement disputes with Xiaomi at the National Intellectual Property Administration. Within just six months, the two sides reached a global cross-licensing agreement for patents, which was both convenient and fast.

With such high efficiency, why didn't Lenovo use it?

Moreover, the Chinese government, courts, and industry organizations are actively leading the "global licensing rule governance and jurisdictional competition." Why did Lenovo choose to sue in the UK instead of China? Is this a sign of distrust?

So, is Lenovo familiar with the UK courts and trying to gain more benefits?

Not really. The UK is not familiar with either Lenovo or ZTE. Public information shows that in August this year, Lenovo's revenue in the Chinese market accounted for 22% of its total revenue, while the combined revenue from Europe, the Middle East, and Africa accounted for only 25%. In 2023, Lenovo's mobile phone shipments in the UK accounted for only 1.5% of its total shipments. Similarly, ZTE's revenue in the Chinese market accounted for 68.9% of its total revenue, while that from Europe, America, and Oceania combined was only 14.2%. The UK is not a major market for ZTE, and its revenue share has been minimal in recent years.

Moreover, UK judges cannot consider the realities of China at all. The reason is simple: both companies are completely Chinese, and most of their businesses are domestic. How can a UK court thousands of miles away understand the true situation of the Chinese communications market and make an objective and fair ruling?

More critically, there is a significant imbalance in the number of standard-essential patents held by both parties. Ideally, the plaintiff should have more patents, and the defendant should have fewer. However, the opposite is true here. No matter it's 4G or 5G technology, Lenovo has a significant gap in patent holdings compared to ZTE. For example, in terms of the number of valid standard-essential patent families for 4G, Lenovo has less than one-seventh of ZTE's.

In summary, although Lenovo's lawsuit against ZTE in the UK appears to be an internal dispute within Chinese enterprises, the choice to sue in the UK instead of China is puzzling.

02

A Bold Move

However, upon deeper inspection, Lenovo's decision to sue in the UK must have been well-considered.

This involves the UK courts' position in ruling on global FRAND (Fair, Reasonable, and Non-Discriminatory) rates and the advantages of UK law in handling Standard-Essential Patent (SEP) disputes.

First, the UK courts have a "unique" preference for FRAND rulings: They are enthusiastic about setting global licensing rates. Whether or not an injunction is issued depends on compliance with court rulings. Over time, FRAND rulings by the High Court of Justice and the Commercial Court in London have influenced global precedents.

For example, in the Lenovo v. IDCC case, the Court of Appeal of England and Wales (EWCA) made a second-instance judgment in July this year, requiring Lenovo to pay InterDigital a royalty of $0.225 per cell for its 3G/4G/5G patents. The total amount of this global patent royalty is closer to Lenovo's offered price of $80 million than InterDigital's claim of $337 million. Note that the former is just a fraction of the latter.

In other words, InterDigital has no choice but to accept this fraction. More seriously, once the rate is decided, it becomes global, and it would be futile for InterDigital to seek redress in the US Supreme Court. Additionally, if InterDigital refuses, the UK court may issue an injunction.

In another case, the 2024 Lenovo v. Ericsson lawsuit, Lenovo requested a preliminary injunction from the UK court, asking it to issue an injunction against Ericsson for alleged patent infringement. The key point is:

Unless Ericsson agrees not to enforce its injunction in other jurisdictions before a global FRAND rate is decided in the UK or signs a temporary license agreement before that ruling.

Obviously, Lenovo's intention is to force Ericsson to withdraw its preliminary injunctions in Brazil and Colombia through the UK courts.

Secondly, the legal environment of the UK courts is favorable to global electronics enterprises like Lenovo. On the one hand, the UK courts rarely issue injunctions and provide stable rulings on FRAND rates, making them attractive to companies that heavily rely on others' SEPs.

Based on the above two points, in recent years, Lenovo has had conflicts with multiple SEP patent holders such as IDCC and Ericsson in various courts in the UK, the US, Germany, and other countries, and has made the UK courts a key location for resolving SEP patent disputes. This seems to have a flavor of "forcing" the involved companies to accept the UK courts' rulings on global rates.

Business wars are inevitable, especially in the fiercely competitive communications field. However, Gulf Stream Economic Review would like to point out:

Win-win cooperation is a consensus, and mutual support leads to mutual success. Facing the most developed country in the world, finding solutions or even new paths is not a task that can be accomplished by a single enterprise. Instead, it requires Chinese enterprises to unite and move forward together.

Reference:

Shangguan News: Lenovo sues ZTE in the UK! Latest response