TQ Delta v Zyxel Communications - [2019] EWHC 745 (Pat)

18 March 2019 - Case No. HP-2017-000045

http://caselaw.4ipcouncil.com/english-court-decisions/england-and-wales-high-court/tq-delta-v-zyxel-communications

A. Facts

The Claimant, TQ Delta LLC, holds patents which have been declared as essential to the practice of certain xDSL standards under the ITU Recommendations (Standard Essential Patents, or SEPs). The ITU Recommendations require from the SEP holder to make its patents accessible to users on Reasonable and Non-Discriminatory (RAND) terms and conditions.

The Defendants, Zyxel Communications Ltd. and Zyxel Communications A/S, manufacture and sell various types of equipment complying with the DSL standard.

In 2013, the Claimant approached the Defendants, seeking to license its SEPs. Since it failed to reach agreement, the Claimant issued infringement proceedings against the Defendants in the United States. Subsequently, the Claimant brought an infringement action against the Defendants before the UK High Court of Justice (Court) based on two SEPs it holds, asking inter alia for injunctive relief. These proceedings involved, on the one hand, technical issues concerning the validity, essentiality and infringement of the patents in suit (technical trial) and, on the other hand, the licensing of these patents on RAND terms (RAND trial).

The Defendants did not make any payments to the Claimant [1] . During the course of the proceedings, the Defendants also refused to confirm that they would take a (global or UK) licence on whatever terms the Court determined to be RAND [2] .

The Court proceeded in both the technical and RAND trial in parallel [3] . On 11 March 2019, the Court delivered its judgement in the technical trial: it found that one of the patents in suit was valid, essential and infringed, whereas the other patent in suit was invalid but would have been essential and infringed had it been valid [4] . The patent that was found valid, essential and infringed expires on 25 June 2019 [5] . The RAND trial is listed for September 2019.

On 18 March 2019, the Court considered the form of order arising from the technical trial [6] . The Court granted an immediate injunction against the Defendants. It refused to stay the injunction or order a carve-out of the injunction allowing the Defendants to process certain existing clients’ orders referring to infringing products. Finally, the Court also refused to grant the Defendants permission to appeal in this case [7] .

B. Court’s reasoning

When considering whether an injunction should be granted in the present case, the Court placed particular emphasis on the Defendants’ conduct. The Court held that there were no grounds to deny an injunction, since the Defendants engaged in ‘hold-out’: they have been infringing one of the two patents in suit for many years without paying any royalties to the Claimant and have also refused to submit to the outcome of an appropriate RAND determination by the Court [8] .

In the Court’s eyes, denying an injunction in these circumstances would be ‘unjust’ [9] , because it ‘would enable ZyXEL [the Defendants] to benefit from their strategy of hold-out’, since they ‘would avoid an injunction, and if the terms of a [F]RAND licence are not as they wish, could refuse to enter into a licence on the terms deemed appropriate by the Court’ [9] . Moreover, depriving the Claimant of injunctive relief would, ‘in effect, amount to a compulsory licence by the court’ which according to the Court would be ‘wrong in principle’ [10] . Against this background, the Court rejected the Defendants’ submission that the grant of an injunction would be disproportionate due to the fact that the patent in suit would expire a few months after the Court’s decision.

Besides that, the Court found that there were no grounds either for staying the injunction for one month, as the Defendants requested, or for granting a carve-out of the injunction to allow the Defendants to fulfil certain existing clients’ orders [11] . The Defendants had not produced sufficient evidence allowing an assessment of any disadvantages potentially arising from the immediate enforcement of the injunction [12] .

Furthermore, the Court refused to grant the Defendants permission to appeal from the grant of an injunction. The Court considered that it would be ‘wrong’ to grant permission, since the Court of Appeal had already set forth the correct general principles in its recent decision in the matter Unwired Planet v Huawei [13] . What is more, in the Court’s view, an appeal would not have any prospects of success; the decision to grant an injunction is an exercise of discretion, from which it is, in general, difficult to appeal. In addition, the Court’s decision was well founded, since refusing an injunction ‘would amount to a compulsory licence of the patentee's exclusive rights and deprive it of meaningful protection in circumstances where the Defendants have elected not to enforce the [F]RAND undertaking’ [14] .

• [1] TQ Delta v Zyxel Communications, UK High Court of Justice, judgment dated 18 March 2019, para. 6.
• [2] Ibid, para. 10.
• [3] See TQ Delta v Zyxel Communications, UK High Court of Justice, judgment dated 21 November 2017, [2017] EWHC 3305 (Pat). Summary available at www.4ipcouncil.com.
• [4] See TQ Delta v Zyxel Communications, UK High Court of Justice, judgment dated 11 March 2019, [2019] EWHC 562 (ChD).
• [5] TQ Delta v Zyxel Communications, UK High Court of Justice, judgment dated 18 March 2019, para. 2.
• [6] During the course of the RAND trial, the Court had rendered interim rulings concerning particularly the treatment of potentially confidential information in the proceedings; see TQ Delta v Zyxel Communications, UK High Court of Justice, judgment dated 13 June 2018, [2018] EWHC 1515 (Ch); judgement dated 28 September 2018, [2018] EWHC 2577 (Pat) and judgment dated 11 October 2018, [2018] EWHC 2677 (Pat). Summaries of the above judgments are available at www.4ipcouncil.com.
• [7] TQ Delta v Zyxel Communications, UK High Court of Justice, judgment dated 18 March 2019, para. 19.
• [8] Ibid, para. 12.
• [9] Ibid, para. 13.
• [10] Ibid, para. 14.
• [11] Ibid, para. 15.
• [12] Ibid, paras. 16 et seqq.
• [13] Unwired Planet v Huawei, UK Court of Appeal, judgement dated 23 October 2018, Case No. A3/2017/1784, [2018] EWCA Civ 2244, paras. 53 and 54. Summary available at www.4ipcouncil.com.
• [14] TQ Delta v Zyxel Communications, UK High Court of Justice, judgment dated 18 March 2019, para. 22.