UK Court grants SEP injunction: TQ Delta v ZyXEL

On 11 March 2019 Mr Justice Henry Carr handed down a judgment in the case of TQ Delta v ZyXEL finding that one standards-essential patent was valid, essential and infringed. A second patent lacked inventive step. 

However, the valid patent was due to expire in a few months - on 25th June 2019. The Defendants argued that the grant of an injunction at this late stage in the patent's life would be disproportionate and secondly, if rejected, the injunction should be stayed or there should be a carve-out to permit ZyXEL to supply certain orders. 

On 18 March Carr J heard the parties submissions on the relief and gave an oral judgment with a written, more reasoned decision to follow. This was published on 29 March.

One might expect that with a SEP a few months away from expiry at the date of judgment, and with a RAND trial to follow, the Court would be reluctant to grant an injunction.  However, the circumstances of this case persuaded the Judge to grant an injunction, refuse a stay and refuse the carve out requested.

Hold-out

The Court accepted that ZyXEL's behaviour was one of “hold-out”. They had not paid any royalties to TQ Delta (or any other patent holder) in respect of any standards essential patent. Of the two patents from TQ Delta’s portfolio which had been litigated in this jurisdiction, infringement of one had been established, and had been continuing for many years.  Despite some earlier indication which had suggested that ZyXEL would accept a licence on the terms held by the court to be RAND, when pushed on this they refused to agree to submit to the outcome of the RAND determination. 

To agree to ZyXEL's requests to refuse or stay injunctive relief would permit them to benefit from their hold-out strategy and take advantage of the RAND obligation without having agreed to be bound by a determination. Therefore the Court refused and also saw no reason to carve out the supply of certain orders.

This is clear sign that the courts consider the obligations in FRAND or RAND negotiations to be two-sided. The SEP holder must comply with its obligations to offer licences on FRAND or RAND terms, but the court will expect the potential licensee to negotiate and act as a willing licensee would. Refusal to do so in order to continue a strategy of hold-out will mean that the court will come down hard on the infringer if the SEP owner is successful.

An earlier decision in this case also demonstrates that the English Court is keen to manage these cases in a way which reduces costs.

Warning against costs in FRAND/RAND trials

Earlier, on 19 February 2019, Mr Justice Henry Carr handed down a judgment in TQ Delta v Zyxel concerning a dispute between the parties about setting a RAND trial date. The judgment was unexpectedly lengthy for a procedural application of this sort.

Carr J began by criticising the parties' approach to the application. He admonished them for failing to agree procedural points, and for spending considerable time and cost in preparing for an application to determine the trial date (something which would normally be decided by court staff rather than a judge). By setting out his reasoning on this application in detail, Carr J hoped to discourage applications of this type and complexity in the future.

The real dispute on the application was not when the trial should be held, but how long the trial should be listed for. Longer trials tend to get listed later, because the court's diary has filled up, so defendants wishing to delay trial will argue that it needs a longer timeslot.

Initially TQ Delta's pleaded case concerned the analysis of comparable licenses. ZyXEL opted for an "economic benefit" or "top-down" approach. TQ Delta was critical of ZyXEL's approach, and served evidence setting out why it was flawed. TQ Delta suggested an alternative approach which, it argued, would give a more accurate result. Mr Justice Arnold ruled that if TQ Delta wished to pursue this alternative "top down" approach as a "cross-check" against its comparable licensing approach, it needed to set it out in pleadings. Carr J gave TQ Delta permission to amend.

ZyXEL' argued that if TQ Delta also intended to advance a top down case, the time estimate for the trial would need to be extended. ZyXEL wanted six days to cross-examine the experts on essentiality. Counsel for TQ Delta referred Carr J to Unwired Planet v Huawei, where it was considered that any differences and disagreements between the experts on essentiality were broadly immaterial, and were unlikely to make a substantial difference to the result. Carr J agreed that this issue is not one which needed to be fought out at trial, and directed that the experts should instead meet on a without prejudice basis to agree which patents are or are not essential.

Carr J also rejected as "excessive" ZyXEL's estimate of 4 days for cross-examination of financial experts, 2-3 days for cross-examination of factual witnesses and 4 days for speeches. He decided to allow no more than 10 days for the RAND trial.

As Mr Justice Birss had previously indicated that he was available to hear the trial in September 2019 (during the vacation), ZyXEL raised the point that they would lose their counsel if the trial went ahead at this time. Carr J was unsympathetic, indicating that a great number of counsel have the requisite expertise to present the parties' cases at a RAND trial. He noted that ZyXEL had failed to provide any suitable dates before April 2020 and to postpone the RAND trial until then would be prejudicial to TQ Delta. He therefore ordered that the trial take place in September, the specific date to be decided by Birss J.

As we have pointed out in a previous analysis of how Unwired Planet v Huawei will affect global FRAND licensing, previous portfolio determination cases taken too long and cost too much to be useful to most parties. We argued that if national courts were to be an attractive alternative to FRAND arbitration, they needed to take steps to accelerate the process.

In making this judgment, Carr J has indicated that the English Court is indeed taking steps to streamline the process.

Whether the FRAND case will proceed in the light of the injunction which has now been granted remains to be seen, but the message is clearly that the English Court will not permit defendants in SEP cases to drag out the litigation procedure as a method to extend "hold-out".