In its second legal challenge against the country in the last month, the European Union is taking China to the World Trade Organization (WTO) for reportedly limiting the power EU companies have to protect their patents in foreign courts, the European Commission announced Friday.

Particularly affected are the telecommunications companies, such as Ericsson and Nokia, which hold rights to key mobile phone technologies such as 5G.

The European Commission said that China restricts the EU companies "from protecting these rights when their patents are used illegally or without appropriate compensation by, for example, Chinese mobile phone manufacturers."

If patent holders go to courts outside China, they are often subject to substantial fines, pressuring them to settle license fees below market rates, the European Commission said.

A violation of the order can be sanctioned with a 130,000 euro ($147,540) daily fine.

"This Chinese policy is extremely damaging to innovation and growth in Europe, effectively depriving European technology companies of the possibility to exercise and enforce the rights that give them a technological edge," the European Commission said.

The dispute settlement consultations with China are the first step in WTO proceedings. If refused by Beijing or if they do not lead to a "satisfactory solution," the EU could take the case to an arbitration panel, which could then lead to retaliatory measures such as punitive tariffs on Chinese imports.

"EU companies have a right to seek justice on fair terms when their technology is used illegally. That is why we are launching WTO consultations," European Commission Vice President Valdis Dombrovskis said.

This is the second legal challenge launched by the EU at the WTO within less than a month. At the end of January, the EU opened a case against China for hindering trade with Lithuania in retaliation after Vilnius deepened its ties with Taiwan.