Posted: July 31st, 2019
TQ Delta, LLC v ZyXEL Communications UK Ltd & others  EWCA Civ 1277
The Court of Appeal has ruled that a non-technical RAND trial to determine what licence terms are reasonable and non-discriminatory (RAND) with regard to a portfolio of standard essential DSL technology patents should not go ahead. This overturned a High Court judgment of Birss J on 17 April 2019 that the trial should go ahead and that ZyXEL could not waive its right to enforce TQ Delta’s obligations to licence its UK-designated DSL SEPs on RAND terms in the UK.
TQ Delta commenced proceedings for patent infringement against two of its DSL SEPs in July 2017. In the judgment of the technical trial of 11 March 2019, Henry Carr J ruled that one of the patents in suit was valid and infringed but the other was invalid. Both were found to be essential to the relevant standards (in the case of DSL technology, the Recommendations of the ITU-T). However, the valid patent was due to expire only 3 months after judgment. It followed that unless ZyXEL agreed to license the valid and infringed patent from TQ Delta, a 3-month injunction and relief for past damages would be ordered.
ZyXEL subsequently waived their right to enforce TQ Delta’s obligations to offer a RAND licence, opting to be instead subject to the injunction and to pay damages for past infringement. TQ Delta responded by filing a new claim for infringement of two different DSL patents and requesting declaratory relief to state that ZyXEL were not willing licensees to TQ Delta’s patents and/or that TQ Delta was not obliged to offer a licence to them on RAND terms or otherwise.
After the judgment of the technical trial, ZyXEL applied to strike out the claim form and the amended particulars of claim in relation to the declaratory relief sought by TQ Delta in relation to RAND terms. In his April judgment, Birss J decided that a dispute still existed as to the applicable RAND terms and that ZyXEL’s waiver had not changed that fact. The waiver did not affect the fact that there was still a live dispute.
The main concern the High Court had was whether the waiver and associated undertakings were workable. In this regard, it cited a collection of potential downstream problems and concluded that an attempt to limit the waiver to the UK was wrong as RAND operated on a global basis. Accordingly, the non-technical RAND trial should go ahead and TQ Delta should be allowed to amend its pleadings to seek the declaratory relief. ZyXEL appealed.
Court of Appeal Judgment
In its judgment, the Court of Appeal used the Unwired Planet v Huawei Court of Appeal judgment as a starting point – listing seven guiding principles from that decision.
The High Court’s decision seemed to rest on the principle (espoused in Unwired Planet and as restated by Floyd LJ in the Court of Appeal in the present case) that: “Depending on the facts, a global licence may be FRAND, and a purely national licence may not be FRAND, because it may be wholly impractical to negotiate licences on a country-by-country basis. What is FRAND in any individual case depends on what a willing licensor and willing licensee would agree in those circumstances”.
Floyd LJ interpreted the application of this principle differently to how the High Court had interpreted it, finding that whether or not the facts supported a global licence, ZyXEL’s waiver operated with regard to all RAND issues. In doing so, he stated: “I can see no basis whatsoever for saying that such a waiver should be treated as ineffective or invalid. To say that the waiver is ineffective is equivalent to saying that the proceedings must go on as if ZyXEL were still relying on the RAND undertaking to resist the grant of the injunction in the UK, when ZyXEL are prepared to give an irrevocable undertaking not to do so”.
TQ Delta argued that the declaration it sought would have effect as res judicata in proceedings in foreign jurisdictions were TQ Delta to seek to obtain injunctive relief elsewhere.
Floyd LJ rejected this line of argument observing that he had not seen evidence of any ongoing RAND dispute between the parties anywhere in the world. He likened granting such relief to be “jurisdictional imperialism” in “foist[ing] this court’s view… on an unknown foreign jurisdiction”. Furthermore, he stated that if the broader ZyXEL group were to be bound by a global RAND determination then the other entities within the group needed to be party to this case.
He went on to note that the potential high cost of a RAND trial, its usefulness in the context of this case and the court’s limited resources meant that proceeding with such a trial could not be justified. Accordingly, he found that the claim for a declaration in the terms sought by TQ Delta had no real prospect of success and ZyXEL’s appeal should be allowed.
A copy of the decision can be read here.
Headnote: Marcus Riby-Smith, Marks & Clerk Law LLP