TQ Delta LLC v Zyxel Communications and Ors., EWHC

13 June 2018 - Case No. HP-2017-000045

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

A. Facts

The Claimant acquired patents which were declared as essential to the DSL standard under the so-called "ITU Recommen¬dations" (Standard Essential Patents, or SEPs) from a company called Aware Inc [1] . The ITU Recommendations require from the SEP holder to make its patents accessible to users on Fair, Reasonable and Non-Discriminatory (FRAND) terms and conditions [2] . The Defendants manufacture and sell various types of equipment complying with the DSL standard [2] .

The Claimant asserted claims against the Defendants before the UK High Court of Justice (Court) based on two SEPs it holds [3] . The proceedings involve, on the one hand, technical issues concerning the validity, essentiality and infringement of the SEPs in question and, on the other hand, the licensing of these SEPs on FRAND terms [3] With respect to the relationship between the 'technical trials' (that means the proceedings concerning the validity, essentiality and infringement of the SEPs in suit) and the 'non-technical trial' regarding to FRAND licensing see, TQ Delta LLC v Zyxel Communications, UK High Court of Justice, 21 November 2017, Case-No. HP-2017-000045, [2017] EWHC 3305 (Pat).

Prior to service of the statements of case, the Court ordered the Claimant to disclose licence agreements concluded with third parties covering the SEPs in suit (comparable agreements) [4] . The Claimant entered into licences with two companies (in the following referred to as "counterparty A" and "counterparty B") [5] and also possesses copies of licences previously granted by Aware Inc. to other SEP users [6] . Counterparty A and Aware Inc. argued that their licence agreements can only be disclosed on an "external eyes only" basis (that is only towards i.e. external counsels and independent experts), since they contain confidential information, such as party names, pricing terms and other commercial information [7] . Counterparty B did not object to the disclosure of its licence agreement to the Defendant (provided that this would take place on a confidential basis), but argued that any other confidential information provided to the Claimant in the course of negotiations for the licence can only be disclosed to "external eyes only" [8] .

The Claimant suggested that the parties to the proceedings enter into a co-called "Confidentiality Club Agreement". The agreement proposed by the Claimant differentiated between "Confidential Infor-mation" and "Highly Confidential Information" [9] . Whether information is designated as "Confidential" or "Highly Confidential" would be determined by the disclosing party [9] . Information designated as "Highly Confidential" would be subject to an "external eyes only" limitation [9] . This limitation would apply to both comparable licences granted by the Claimant and licences granted by Aware Inc. [10] . The Defendants did not agree with the Claimant’s proposal. Instead, they requested that two named individuals from the Defendant’s group should be given access to the comparable licences [9] .

The Court did not approve the establishment of an "external eyes only" mechanism as suggested by the Claimant [11] and ordered disclosure of the comparable licences. Nevertheless, the Court temporarily stayed that order to give the third parties affected (counterparties A and B and Aware Inc.) the opportunity to set it aside or vary it, before disclosure of the comparable licences is made [12] .

B. Court’s reasoning

In the Court’s eyes, it is "common practice" in patent cases for parties to reach Confidentiality Club Agreements [9] ; such agreements are "often essential", when disclosure of confidential information is required in court proceedings [13] . In cases involving intellectual property rights, a mechanism for disclosure limiting access to confidential documents to specific representatives of one of the parties is considered "commonplace" [13] . Furthermore, documents can be redacted to exclude confidential material which is irrelevant to the dispute [13] .

Looking particularly at "external eyes only" mechanisms, the Court takes the view that such mechanisms can be included in Confidentiality Club Agreements upon agreement of the parties (as it was the case in the matter Unwired Planet v Huawei [14] ) [15] . If no agreement can be reached on such a provision, parties can request the Court to restrict access to specified documents to "external eyes only" [6] .

The Court finds, however, that such a confidentiality regime can be applied only to exceptional cases [16] . An "external eyes only" mechanism enables one party to exclude access to any document that it chooses, placing the burden of seeking access to documents to the opposing party, despite the fact that the latter is prima facie entitled to such access [17] . In the Court’s view, the opposite should rather be the case: The party wishing to limit access to documents to "external eyes only" should be obliged to justify that limitation [18] .

According to the Court, when determining whether "external eyes only" restrictions should be ordered, the role which the affected documents are expected to play in the case must be considered [19] . Where the documents are of limited, if any, relevance to the proceedings and their disclosure could be unnecessarily damaging for the party asserting confidentiality, ordering an "external eyes only" limitation may be justified in specific cases [13] (insofar the Court adopts the notion expressed in the matter IPCom v HTC [20] ). Furthermore, the Court did not rule out that in certain exceptional cases an "external eyes only" mechanism might also be justified with respect to specific documents of "greater relevance", at least at an interim stage of the proceedings [21] .

When it comes to documents key to the case, the Court finds, however, that the "blanket exclusion" of access to such documents enabled through "external eyes only" mechanisms is not in line with the right to a fair hearing stipulated by Article 6 of the European Convention on Human Rights and the principles of natural justice . Such a regime is further incompatible with the obligation of lawyers to share all relevant information of which they are aware with their clients . If key documents were to be subject to an "external eyes only" restriction, the opposing party would be unable to discuss the respective documents with its legal representative, to attend parts of the trial and to see all of the reasons for the judgment .

Against this background, the Court held that in the present case, approving the establishment of an "ex-ternal eyes only" mechanism as suggested by the Claimant would "merely postpone the resolution of the dispute" . The Court had ordered the disclosure of the comparable licences, because they are, or are likely to be, key documents in the above sense . Since the Court may be asked to decide on a FRAND licence which must be reasonable and non-discriminatory, existing licence agreements entered into by the Claimant (and its pre¬decessor, Aware Inc.) may be highly relevant documents as comparators .

• [1] TQ Delta LLC v Zyxel Communications, UK High Court of Justice, 13 June 2018, Case-No. HP-2017-000045, [2018] EWHC 1515 (Ch), para. 2.
• [2] Ibid, para. 3.
• [3] Ibid, para. 1.
• [4] TQ Delta LLC v Zyxel Communications, UK High Court of Justice, 13 June 2018, Case-No. HP-2017-000045, [2018] EWHC 1515 (Ch), paras. 25 and 30.
• [5] Ibid, para. 25.
• [6] Ibid, para. 25.
• [7] Ibid, paras. 26 and 28.
• [8] Ibid, para. 27.
• [9] Ibid, para. 4.
• [10] Ibid, para. 22.
• [11] Ibid, paras. 34 et seqq.
• [12] Ibid, para. 35.
• [13] Ibid, para. 23.
• [14] Unwired Planet v Huawei, UK High Court of Justice, 5 April 2017, Case-No. HP-2014-000005, [2017] EWHC 711 (Pat).
• [15] TQ Delta LLC v Zyxel Communications, UK High Court of Justice, 13th June 2018, Case-No. HP-2017-000045, [2018] EWHC 1515 (Ch), para. 23.
• [16] Ibid, para. 21.
• [17] Ibid, paras. 21 and 34.
• [18] Ibid, para. 34.
• [19] Ibid, para. 15.
• [20] IPCom GmbH and Co KG v HTC Europe Co. Limited and ors, judgement dated 23 January 2013, Case No. HC11 C02064, [2013] EWHC 52 (Pat).
• [21] TQ Delta LLC v Zyxel Communications, UK High Court of Justice, 13 June 2018, Case-No. HP-2017-000045, [2018] EWHC 1515 (Ch), para. 23.