Disclosure and Security for Costs - Godo Kaisha IP Bridge 1 v Huawei Technologies Co., Ltd

Jane Lambert

 

Patents Court (Mr Justice Mellor) Godo Kaisha IP Bridge 1 v Huawei Technologies Co., Ltd and others [2021] EWHC 2826 (Pat) (22 Oct 2021)

In Disclosure - Anan Kasei Co. Ltd v Neo Chemicals & Oxides (Europe) Ltd I discussed a case in which Mr Justice Mellor refused to relax restrictions on highly confidential material that had been disclosed for external eyes only ("EEO").  EEO essentially means a party's solicitors and counsel but not the party itself.  In Godo Kaisha IP Bridge 1 v Huawei Technologies Co., Ltd and others [2021] EWHC 2826 (Pat) (22 Oct 2021), the same judge reached an opposite decision even though he applied the same guidelines.

The application for the relaxation of EEO restrictions was one of two applications by Huawei Technologies (UK) Ltd. ("HTUK"), a wholly-owned subsidiary of the Chinese telecommunications equipment giant, Huawei Technologies Co. Ltd. The other application was for an order for the claimant, Godo Kaisha IP Bridge 1 ("Bridge"), to lodge security for HTUK's costs. 

The applications were made at a case management conference ("CMC") in FRAND proceedings.  FRAND proceedings are usually the last of a series of actions to resolve a dispute in which a patentee claims injunctions to restrain users of standard-essential patents known as "implementors" from infringing those patents unless the implementors accept a licence to use the patents on fair, reasonable and non-discriminatory ("FRAND") terms.  In the earlier proceedings, which are usually called "technical trials". the court determines whether the patents are valid, whether they have been infringed and whether they are essential to the technical standard.   In the FRAND proceedings, the court determines the terms of the licence.  In setting those terms, the court will take account of licences that are said to be comparable to the licence that the patentee and implementor will need.

In these proceedings, Bridge held a number of patents known as the "Nozomi portfolio" that were said to be essential to a standard with which HTUK and other companies in the Huawei group needed to comply.  In its particulars of claim in the FRAND proceedings, Bridge relied on three licences referred to as "A", "B" and "C".  Bridge had offered to disclose those licences to HTUK's counsel and solicitors on an EEO basis only.  The reason for the restriction is that the parties with which Bridge had made the agreements for licences "A" and "C" objected to the disclosure of the licences to HTUK or any other company in the Huawei group.  The counterparty to licence "C" objected strenuously to the disclosure of the instrument to Huawei.  The counterparty to licence "A" registered its objection but left it to the court to decide.  

As in Anan Kasei, Mr Justice Mellor referred to para [39] of Lord Justice Floyd's judgment in Oneplus v Mitsubishi [2020] EWCA Civ 1562 which I quoted in full in my article on Anan Kasei.  He also referred to para [34] of Mr Justice Henry Carr's judgment in TQ Delta v Zyxel [2018] EWHC 1515 (Ch), [2018] FSR 34:

"I have concluded that disclosure of the licence agreements should not be limited to external eyes only, but that the third parties should be given the opportunity to vary or set aside that order before disclosure is made. In my view, the onus must be on those who wish to limit access to key documents to external eyes only to justify that limitation, rather than on the party who is, prima facie, entitled to see the documents, to justify its entitlement to access."

The counterparty to licence "C" argued that Huawei's very experienced lawyers would be able to plead and run Huawei's case perfectly adequately without any input from personnel at Huawei. The judge described that submission as "untenable" at para [13] of his judgment. He concluded that notwithstanding the sensitivity of the document which he entirely accepted a limited number of personnel at Huawei should have access to comparable licence C so that (a) Huawei could plead fully and properly in its FRAND statement of case to the allegations relying on that document and (b) Huawei's legal and experts teams would be able to progress Huawei's case down to the conclusion of the last trial provided that adequate protection could be put in place.

In respect of the disclosure of other confidential documentation, Huawei had four persons in a "Confidential Between Parties Information" designation. Two of these four were currently involved in licensing negotiations and two were not and had no intention of being so involved in the future. His lordship excluded the two persons who were currently involved in licensing negotiations on behalf of Huawei, at least until after a sensitive fact no longer applied. Even though those two might have been best placed to comment on comparable licence C, the judge was sure that the two who would have access would be able to provide satisfactory input and instructions.

The learned judge required the two who were not involved in licensing negotiations (both of whom were legally qualified) to undertake to counterparty C that they would not, for a period of 5 years, participate in or advise upon any present, ongoing or future licensing negotiations involving Counterparty C or its subsidiaries or affiliates on the one hand and the Huawei Defendants, or their subsidiaries or affiliates on the other. Such undertaking would be until further order of the court in case it would be appropriate at a later stage of the litigation to relax that undertaking.

The judge also required the documents in question to be provided to the two individuals on a read-only basis under the supervision of Huawei's solicitors, so that neither individual would retain a physical copy nor be able to hold an electronic copy in a device's memory (other than in temporary memory during the supervised access) for later unsupervised access.

His lordship contemplated similar restrictions on the disclosure of comparable licence "A" but the situation differed in several material respects.  He decided to re-designate comparable licence "A" as 'Confidential Between Parties Information'.  Comparable licences "A" and "B" could thus be disclosed to all four individuals at Huawei who had been nominated in that designation, and who had given the required undertakings.

Thomson Reuters' Glossary defines "Security for Costs" as:

"An order which requires a party (often the claimant) to pay money into court, or provide a bond or guarantee, as security for their opponent's costs of litigation. It is available for specific situations set out in the Civil Procedure Rules and statute, subject to the court's discretion."

Rule 25.13 (1) of the Civil Procedure Rules provides:

"The court may make an order for security for costs under rule 25.12 if –
(a) it is satisfied, having regard to all the circumstances of the case, that it is just to make such an order; and
(b) (i) one or more of the conditions in paragraph (2) applies."

Those conditions include:

"(a) the claimant is –
(i) resident out of the jurisdiction; but
(ii) not resident in a State bound by the 2005 Hague Convention, as defined in section 1 (3) of the Civil Jurisdiction and Judgments Act 1982,"

and 

"(c) the claimant is a company or other body (whether incorporated inside or outside Great Britain) and there is reason to believe that it will be unable to pay the defendant’s costs if ordered to do so;"

HTUK applied for security for costs on both grounds.

There was no dispute that CPR 25.13 (2) (a) applied.  Bridge was a Japanese private limited company whose balance sheet and profit and loss accounts were confidential. The Japanese courts would enforce an order for costs where all appeals had been exhausted but the procedure for enforcing such an order would be slow.  As to CPR 25.13 (2) (c) Huawei's costs in its dispute with Bridge which could require at least 3 technical trials and one FRAND trial could be over £8.1 million.   To allay concerns over its ability to pay, Bridge offered to hold the Nozomi portfolio (the value of which greatly exceeded that sum) on trust. The terms of that trust were confidential but Bridge undertook, as trustee of the trust, to pay any costs order made against it in favour of HTUK, including any orders for payments of costs on account, when they fell due for payment unless the English Court were to order a stay of enforcement or otherwise stay the award of any payment of costs. The judge found that such an undertaking would be enforceable in Japan against the portfolio.

The declaration of trust and undertaking addressed CPR 25.13 (2) (a) but not CPR 25.13 (2) (c). Huawei invited the judge to consider the position in late 2023 when the result of all three trials would be known and IPB could face a potential costs liability of the £8m figure.  Mr Justice Mellor rejected that possibility on the basis that it would never arise.  Bridge would either win the technical trials or it would lose them.  Were it to lose any of the technical trials it would have to pay an interim order for costs.  If it failed to do so it would not be allowed to continue unless and until it had paid what was due.  It would have to win at least one technical trial in order to reach a FRAND trial. In FRAND trials there is really an overall winner. Huawei made a number of submissions on Bridge's ability to pay a lesser sum which his lordship discussed in a confidential annexe. The upshot waa was that the learned judge was not persuaded by any of Huawei's arguments that there was a realistic risk that the trust would not exist or have insufficient resources to enable Bridge to pay Huawei's costs when those costs orders would fall to be made.

Although both applications were decided in the context of a patent action the issues arise in all areas of civil litigation.  Anyone wishing to discuss them may call me on +44 (0)20 7404 5252 during office hours or send me a message on my contact form.