Updated: Feb 8, 2020
On Thursday this week Huawei filed a 1 billion dollar patent infringement law suit against telecoms giant Verizon. At the center of the dispute are 230 Huawei patents used by Verizon, for which the two companies were unable to agree licensing terms.
According to reports in the Financial Times, Huawei had engaged Verizon in negotiations six times in 2019, prior to its decision to file the suit in the US district courts - eastern and western districts of Texas.
This suit by a large Chinese technology investor in the United States, is juxtaposed against the backdrop of the so -called, brewing U.S.-China Trade War.
Tension with Regulators
Huawei appears to have had some prickly relations with various U.S. regulatory institutions in recent years. Interestingly at the end of 2019, it had a court appeal against the US telecommunications regulator, the FCC and has also been involved in a dispute with the U.S Government regarding the 2018 National Defense Authorisation Act. This piece of legislation effectively prohibits US government contractors from sourcing Huawei telecommunication products. Huawei is also facing US Courts at time when U.S - China trade and diplomatic relations are strained.
No U.S.A - China BIT
Unfortunately for Huawei, it does not have any recourse to international investment arbitration, to fight its IP and Investment grievances. No U.S. - China Bilateral Investment Treaty exists, upon which Huawei could conceivably make a claim against U.S. government measures, which lead to infringement of its intellectual property rights and breach of the standards of fair and equitable treatment. International Investment Agreements (IIAs) or Bilateral Investment Treaties (BITS) are treaties for the reciprocal encouragement and protection of investments/investors in the countries that are parties to an agreement. They provide foreign investors with an opportunity to lodge investment claims before international tribunals, (under ICSID or UNCITRAL rules etc.) if they perceive that government measures or government agencies have adversely impacted their investments in a host state. So, how is this related to the Huawei - Verizon dispute? Are government measures involved in Huawei's predicament? The company's difficulties with the FCC and the 2018 National Defense Authorisation Act could be interpreted in this way. However BITs and IIAs also contain essential security interest clauses that allow countries to restrict investors on the basis of national security. Currently, there is no US-China BIT, but there is discussion of the so called Phase I trade deal, which addresses such issues in a manner hearkening back to the era of home state diplomatic protection for investments. Despite not having a BIT with China, investments approaching the magnitude and type that Huawei has in the US, would normally be reviewed for national security conflicts by the Committee on Foreign Investment in the United States.
In 2016, the U.S.- China Economic and Security Review Commission published a Staff Report on Policy Considerations for Negotiating a possible U.S. - China Bilateral Investment Treaty. Given the recent tense trade relations of these two economic partners, it is unlikely that there will be any meaningful developments toward a BIT, in the near future. Concerns about intellectual property protection for U.S. investors in China are seen as major stumbling blocks for any U.S. - China BIT. The U.S. - China Economic Review 2016 staff report highlights the U.S. government's perception that there exists,
"serious problems with intellectual property rights enforcement in China, including in the area of trade secrets; the Chinese government’s wide-ranging use of industrial policies favoring state-owned enterprises and domestic national champions in many sectors; troubling agricultural policies that block U.S. market access; numerous continuing restrictions on services market access; and inadequate transparency."
The report also raises concerns about Chinese government policies that disadvantage U.S. investors and their IP rights. However the current IP dispute over 230 Huawei patents before U.S. district courts along with the FCC suit , demonstrate that IP infringement and FET problems associated with foreign investments are complex. The strides made in high-tech industries by players in India, China and further a-field mean that claimants are not always from the traditional IP owning economies and respondents are not always from traditional IP importing economies.
Whatever the outcome of Huawei's suit before U.S. districts courts and its claims against U.S. government measures, which it perceives as impinging on its IP assets and investments, there still is no U.S. - China BIT under which it could seek investor-state dispute settlement (ISDS) relief, should it receive an adverse decision from U.S. courts. The mere existence of a piece of legislation such as the 2018 National Defense Authorisation Act makes it extremely unlikely that the near future will see a U.S.-China BIT with all of the normal protections for investments and investors, available under standard BITs. The Phase 1 trade deal approach currently being discussed, appears to favour the old-fashioned approach of home state diplomatic protection negotiations, for resolving investor diffculties.