Standard Essential Patents - TQ Delta, LLC v ZYXEL Communications Ltd

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Jane Lambert

Patents Court (Mr Justice Henry Carr) TQ Delta, LLC v ZYXEL Communications Ltd and another [2019] EWHC 562 (Pat) (11 March 2019)

This was a patent infringement action.  The patents in suit were European patent number EP1453268 for multicarrier communication with variable overhead rate and European patent number EP1792430 for CRC counter normalisation. The claimant alleged that these are standard-essential patents "SEPs") - that is to say, it is impossible to comply with ITU recommended telecommunications standards for the transmission of data without using those patents.

The Parties
The claimant describes itself as "a technology development and licensing company aimed at providing needed solutions for the communications industry and beyond." The homepage of its website adds that its technical investments span nearly two decades of contributions and innovation in the field of communications. its patented inventions and technologies are used in leading products and services worldwide spanning broadband communications, wireless communications, media delivery systems, and other communications technologies.

One of those technologies is DSL (digital subscriber line) which enables data to be transmitted over telephone lines. The Technology: DSL page of the claimant's website contains a prominent notice stating:

"All DSL services throughout the U.S., Europe and Asia rely on standards based on technologies developed by TQ Delta."

The claimant states that it acquired a patent portfolio from a company called Aware Inc. "a pioneer in the development of multicarrier communications technology and key participant in international standard bodies" in 2012 and that the claimant has continued to develop the technology and participate in settling standards.  The same web page lists a number of relevant patents and standards.

The Defendants are part of a worldwide group of companies held by a company in Taiwan which manufactures DSL equipment in China for use by consumers and telecoms companies around the world.

The Dispute
In FRAND 8 Oct 2017 I quoted the following passage from Mr Justice Birss's judgment in Unwired Planet International Ltd v Huawei Technologies Co. Ltd and another [2017] EWHC 711 (Pat) (5 April 2017):

"The point of FRAND in standard setting is fairly easy to understand. Standards exist so that different manufacturers can produce equipment which is interoperable with the result that the manufacturers compete with one another. So the phone makers compete in the market for phones and the public can select a phone from any supplier and be sure (for example) that if it is a 4G phone, it will work with any 4G network. As a society we want the best, most up to date technology to be incorporated into the latest standards and that will involve incorporating patented inventions. While the inventor must be entitled to a fair return for the use of their invention, in order for the standard to permit interoperability the inventor must not be able to prevent others from using the patented invention incorporated in the standard as long as implementers take an appropriate licence and pay a fair royalty. In this way a balance is struck, in the public interest, between the inventor and the implementers. The appropriate licence is one which is fair, reasonable and non-discriminatory. That way a standard can safely incorporate the invention claimed in a patent without giving the inventor or his successors in title unwarranted power over those who implement the standard. Thus the public interest is served because telecommunication standards can be set using the best and most up-to-date technical expedients available and the inventor’s private interest is served because the FRAND undertaking ensures they or their successors will obtain a fair reward for their invention."

This mechanism only works if the proprietor of a SEP is ready and willing to grant licences to those who wish to comply with the relevant standard on FRAND (fair, reasonable and non-discriminatory) terms and those who wish to comply with the standard are ready and willing to take a licence.  According to Mr Justice Henry Carr who tried the action:

"Each side complained bitterly about the conduct of the other. The usual allegations of “hold-out” and “hold-up” have been asserted, and there have been substantial disputes about the date (if any) for a trial to determine a reasonable and non-discriminatory (“RAND”) set of licence terms. None of those complaints or disputes have any relevance to this judgment, which concerns technical issues only."

"Hold-out" is where a company, that needs a licence, delays seeking one for as long as possible in order to avoid paying royalties for as long as possible. "Hold-up" is where the patentee delays granting a licence as long as possible in order to extract concessions from the licensee.

The Judgment
Mr Justice Henry Carr noted at paragraph [2] of his judgment:

"The case in respect of the  [EP1453268] Patent involves the application of settled principles of law to complex facts. The case in respect of the EP1792430 Patent is more unusual, in that TQ Delta accepted that once the problem addressed by the patent is known, the claimed solution is obvious. However, it contends that invention lay in perceiving the problem at the priority date."

The judge, therefore, divided his judgment into two parts.  Part A was concerned with the validity of the first of those patents, whether it has been infringed and whether it was a SEP.  Part B was concerned with the validity and infringement of the second patent.

Part A
The defendants challenged the validity 0f EP453268 on the grounds of obviousness over the prior art and its lack of technical contribution.

The judge characterized the obviousness challenge as "hindsight reasoning". The defendant's expert evidence on the point did not stand scrutiny.  He rejected that challenge.

His lordship observed that there was nothing in the European Patent Convention or the Patents Act 1977 that provides a ground of objection that the patent does not make a technical contribution to the art.  The defendants' argument was based on  "the 'problem and solution' approach adopted by the EPO to assessment of lack of inventive step necessarily involves isolating from the patent (in comparison with the prior art) some technical contribution or effect." In particular, they relied on paragraph [2.4.2] of the Technical Board of Appeal's decision in AgrEvo UK Ltd's application in T 939/92; [1996] EPOR 171:

"… it has for long been a generally accepted legal principle that the extent of the patent monopoly should correspond to and be justified by the technical contribution to the art (see T 409/91, OJ EPO , No. 3.3. and 3.4 of the reasons, and T 435/91, OJ EPO 1995, 188, reasons No. 2.2.1 and 2.2.2). Now, whereas in both the above decisions this general legal principle was applied in relation to the extent of the patent protection that was justified by reference to the requirements of Articles 83 and 84 EPC, the same legal principle also governs the decision that is required to be made under Article 56 EPC, for everything falling within a valid claim has to be inventive. If this is not the case, the claim must be amended so as to exclude obvious subject-matter in order to justify the monopoly. Moreover, in the Board's judgment, it follows from this same legal principle that the answer to the question what a skilled person would have done in the light of the state of the art depends in large measure on the technical result he had set out to achieve. In other words, the notional "person skilled in the art" is not to be assumed to seek to perform a particular act without some concrete technical reason: he must, rather, be assumed to act not out of idle curiosity but with some specific technical purpose in mind."

That case had been considered and to some extent adopted by the Court of Appeal in Dr Reddy's Laboratories (UK) Ltd v Eli Lilly & Company Ltd. [2009] EWCA Civ 1362, [2010] RPC 9, (2010) 33(2) IPD 33007 and Generics [UK] Ltd (t/a Mylan) v Yeda Research and Development Co Ltd and another [2013] WLR(D) 316, [2013] EWCA Civ 925, [2013] Bus LR 1329, [2014] RPC 4.  At paragraph [151] of his judgment, the learned judge identified the following principles from Lord Justice Floyd's judgment in Yeda:

“i) Article 56 of the EPC is in part based on the underlying principle that the scope of the patent monopoly must be justified by the patentee's contribution to the art;
ii) If the alleged contribution is a technical effect which is not common to substantially everything covered by a claim, it cannot be used to formulate the question for the purposes of judging obviousness;
iii) In such circumstances the claim must either be restricted to the subject matter which makes good the technical contribution, or a different technical solution common to the whole claim must be found;
iv) A selection from the prior art which is purely arbitrary and cannot be justified by some useful technical property is likely to be held to be obvious because it does not make a real technical advance;”

The defendants argued that the inventive concept of the patent in suit had been disclosed in the prior art and that the precise method of implementing the inventive concept was irrelevant.  The judge rejected the defendants' arguments as to the nature of the inventive concept and the irrelevance of its implementation.  In his view, EP453268 offered a different technical solution to that identified in the prior art.  Moreover, much of the evidence in support of the defendants' submission on lack of technical contribution was the same as the obviousness attack and that had already been rejected.

At paragraph [181] of his judgment, Mr Justice Henry Carr noted that the parties had agreed that the infringement of the patent in suit depended on whether the patent was essential to the operation of the relevant standards.  He found at least one requirement of the standard that could only be met by working the patent.  He concluded that that was sufficient for a finding of infringement.  It followed that EP453268 was a SEP.

Part B
EP1792430 concerns cyclic redundancy checksums (“CRCs”), which are used to detect errors in a received bitstream. The judge discussed the prior art, the patent specification including claims 1 and 10 and the applicable standard.

After construing claim 1, he concluded at [218] that if the patent is valid then it is infringed as it is essential to the relevant standards.

The claimant's argument that the invention lay not in the solution (which was conceded to be obvious) but in the identification of the problem.  It relied on paragraph [35] of Lord Justice Jacob's judgment in Actavis UK Ltd v Novartis AG [2010] FSR 18, [2010] EWCA Civ 82:

"Moreover the [problem/solution approach] does not really cope well with cases where the invention involves perceiving that there is a problem, or in appreciating that a known problem, perhaps “put up with” for years, can be solved. Take for instance the “Anywayup Cup” case, Haberman v Jackel International [1999] FSR 683. The invention was a baby's drinker cup fitted with a known kind of valve to prevent it leaking. Babies drinker cups had been known for years. Parents all over the world had put up with the fact that if they were dropped they leaked. No-one had thought to solve the problem. So when the patentee had the technically trivial idea of putting in a valve, there was an immediate success. The invention was held non-obvious, a conclusion with which most parents would agree. Yet fitting reasoning to uphold the patent into a PSA approach would not really work. For by identifying the problem as leakage and suggesting it can be solved, one is halfway to the answer – put in a valve.”

Haberman was a case where a problem had been known for some time but nobody had addressed it.  Although none of the counsel could think of a case where the solution was clear but the inventive step lay in the perception of the problem, the judge was prepared to recognize that such a situation was possible. The defendants argued that the problem was how to comply with the applicable standard. The judge agreed with them and concluded that the problem was obvious as a result of the publication of the standard.

It followed that EP1792430 was invalid for lack of inventive step and therefore it could not be a SEP.

The Remedy
The parties came back before Mr Justice Henry Carr on 18 March 2019 to argue the terms of the final order.  Even though the patent that had been held to have been valid and infringed was due to expire very soon, the judge injuncted the defendants from infringing that patent.  The claimant had invited the defendants to take a licence as long ago as 2013 but they had refused.  During that time they had paid nothing to the claimant.  Explaining his reasons at paragraph [14] of TQ Delta LLC v Zyxel Communications Ltd and another (No 2) [2019] EWHC 745 (Pat) (18 March 2019, the judge said "that to deprive the patentee of injunctive relief in these circumstances would be unjust. It would, in effect, amount to a compulsory licence by the court in circumstances where the Defendants have elected not to enforce the RAND undertaking in respect of the '268 patent. This, in my judgment, would be wrong in principle."

Comment
Two interesting points of law were discussed in this case.  One was whether a patent could be refused or revoked for want of an inventive step if the invention does not contribute a technical solution. The other was whether the identification of a problem to a known solution could be an invention. The case also adds a little bit more to the growing jurisprudence on SEPs and prospective licensees' readiness to take licences for SEPs on FRAND or RAND terms.  Anyone wishing to discuss this case, SEPs or FRAND generally may call me on 020 7404 5252 during office hours or send me a message through my contact page. 

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