TQ Delta, LLC v ZYXEL Communications - A Postscript

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Jane Lambert

On Monday I discussed Mr Justice Henry Carr's judgment in TQ Delta, LLC v ZYXEL Communications Ltd and Another [2019] EWHC 562 (Pat) (11 March 2019) and mentioned the injunction he granted in  TQ Delta LLC v Zyxel Communications Ltd and another [2019] EWHC 745 (Pat) (18 March 2019) (see Standard Essential Patents - TQ Delta, LLC v ZYXEL Communications Ltd  22 July 2019). Since then.  Since then, there have been two further hearings in the proceedings: one before Mr Justice Birss on 17 April ( TQ Delta, LLC v Zyxel Communications UK Ltd and another No 3 [2019] EWHC 1089 (Pat) (17 April 2019)) and the other before Mr Recorder Campbell QC on 19 June 2010 (see TQ Delta, LLC v Zyxel Communications UK Ltd and another [2019] EWHC 1597 (Pat) (19 June 2019)).

History of the Litigation
In his judgment, Mr Justice Birss noted that the action had begun in 2017 and that a technical trial and a non-technical trial had been ordered at the case management conference. The technical trial would deal with the validity, essentiality and infringement of particular patents and the non-technical trial with the terms of any licence that might be required.  The question in dispute was whether those terms were reasonable and non-discriminatory ("RAND").

In their defence, the defendants said that there was a real issue between the parties regarding the scope and effect of a RAND licence. They also said they would take a licence on RAND terms under any of the patents that were found to be valid and infringed.

The technical trial was the one that I discussed on Monday in which Mr Justice Henry Carr found  European patent number EP1453268 to be valid and infringed but  European patent number EP1792430 to be invalid.  As EP1453268 was about to expire the defendants withdrew their offer to take a licence under that patent. As I noted in Monday's case note, Mr Justice Henry Carr granted the claimant an injunction. The defendants asked Mr Justice Henry Carr for permission to appeal but he refused to grant it. They applied to the Court of Appeal but Lord Justice Floyd also rejected their application.

The claimant issued fresh proceedings in respect of two other patents that the defendants attempted to strike out as an abuse of process.  Mr Justice Birss refused that application. 

The defendants waived their right to a RAND licence in respect of any UK standard essential patents and applied to vacate the RAND terms trial.  Mr Justice Birss refused that application.

The application before Mr Recorder Campbell was for permission to call an additional expert which was refused and to substitute one financial expert for another which was granted.

The Reason for the Injunction
At paragraph [12] of his judgment of the 18 March 2019, Mr Justice Henry Carr said:

"On the evidence before me, I accept that this is a case of "hold-out" by ZyXEL. They have 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 have now been litigated in this jurisdiction, infringement of the '268 Patent has been established, and has been continuing for many years. ZyXEL have blown hot and cold as to whether they will accept whatever licence is considered by the Court to be RAND. They have refused to "agree to submit to the outcome of an appropriate [RAND] determination" and yet have claimed the benefit of the RAND undertaking; c.f. Unwired Planet at [54] (supra)."

Probably none of that would have mattered had the defendants not withdrawn their offer to take a licence on RAND terms.   The defendants argued that it would be disproportionate to grant an injunction that had only three  months to run in the light of such cases as Coventry and others v Lawrence and another  [2015] 4 Costs LO 507, [2015] HRLR 16, [2015] 1 WLR 3485, [2015] UKSC 50, [2015] WLR(D) 332.  Mr Justice Henry Carr rejected that submission.  In his view, refusing an injunction would enable the defendants to benefit from their strategy of hold-out, including their refusal to submit to the outcome of an appropriate RAND determination, whilst still seeking to benefit from the RAND undertaking. As I noted in my previous case note, that would have been unjust and wrong in principle.  

The defendants then asked the judge for a stay of one month or exceptions to the injunction to allow them to fulfil outstanding orders.  The judge observed that the prima facie position was that he should not do so unless there were solid reasons for granting a stay.  In the absence of any evidence to support either a stay or the requested exceptions, he saw no reason to grant their request.

Permission to appeal

The defendants sought permission to appeal against the judgment and the granting of an injunction.  Their grounds of appeal against the judgment were that the judge had misunderstood the significance of one of the terms used in the specification and that he should have found that the patent was invalid for want of inventive step.  The judge rejected both submissions on the ground that they were not supported by the expert evidence.  As for the injunction, it was an exercise of judicial discretion. As I noted above, his decision seems to have been upheld by Lord Justice Floyd.

Alleged Abuse of Process
Relying on Henderson v Henderson (1843) 3 Hare 100, Johnson v. Gore Wood & Co,  [2000] UKHL 65, [2002] 2 AC 1, [2001] BCC 820, [2001] PNLR 18, [2001] 2 WLR 72, [2001] CPLR 49, [2001] 1 BCLC 313, [2001] 1 All ER 481, Aldi Stores Ltd v WSP Group Plc and others  [2008] BLR 1, [2008] CP Rep 10, [2008] CILL 2549, [2007] EWCA Civ 1260, [2008] 1 WLR 748, (2008) 24 Const LJ 334, [2008] PNLR 14, 115 Con LR 49, [2008] WLR 748 and Stuart v Goldberg and others [2008] CP Rep 18, [2008] EWCA Civ 2, [2008] WLR 823, [2008] 1 WLR 823, the defendants argued that when a given subject matter becomes the subject of litigation, it is incumbent on a claimant to bring forward the whole of its case so the case can be managed properly, taking everything into account. The litigation had been managed on the basis of two patents going to trial and the non-technical trial set after that. If other patents were now in issue the litigation could or should have been managed differently, and the defendants would have made different decisions about the litigation. The defendants pointed out that the product sued upon in the 2019 action are the same products which were sued upon in the 2017 action.

The claimant denied that bringing the new claims was an abuse of process.  It had made clear at the start that it had a large portfolio of patents, that it had chosen two representative patents in order not to overburden the court and that it had reserved the right to bring new proceedings if the circumstances allowed. Each patent is an independent intellectual property right that had been infringed at different times and in different ways.  One of those patents had not even been granted when the 2017 action began so it would have been impossible to include it in the original claim.  The new proceedings had been precipitated by the defendants' refusal to take a RAND licence.

Mr Justice Birsss agreed with the claimant.  H said at paragraph [26]:

"[26] Furthermore, in my judgment, it is quite plain that the claimant is right to say that what has actually happened is entirely down to a very significant change in position by the defendants in this case, after the defendants lost the technical trial.
[27] It is true that it has been accepted both by the claimant and court that the defendants were able to do what it has done, but that does not alter the fact that it is a shift. It is different from the defendant's pleaded case. On the defendant's pleaded case prior to losing the technical trial, it said that the non-technical trial should decide that what was RAND was a UK portfolio licence. If that aspect of the defendant's case had succeeded, there would have been no need for these further patent trials at all, because a UK portfolio licence would have covered those patents.
[28] However, by the radical change of position, which was not now simply to say it will not take a global RAND licence, but to say it will not take any RAND licence at all. That is a change and it is that which drives the need from the claimant's point of view to bring further proceedings on the other patents."

He added at [30]:   

"I will just say this. If at the defendants' behest the court at the outset had required the claimant to sue on every patent, which I must say strikes me as being disproportionate, it is by no means clear that it would have scheduled the non-technical trial after the end of all of those patent claims. That would be a purely scheduling matter."

At paragraph [32] he rejected the suggestion that the 2019 action, as a claim for patent infringement, was an abuse and ordered it to go ahead.

Whether there should be a Non-Technical Trial

The defendants argued that there was no need for a non-technical trial on the terms of the RAND licence as they had waived their right to enforce the claimant's undertaking to grant such licences o far as the UK was concerned.  The claimant argued that there were still issues in dispute between the claimant's group and the defendants' group in other countries and that a RAND licence could not be restricted to the UK. Mr Justice Birss decided to allow the non-technical trial to go ahead,  The trial would also inquire into the damages due to the claimant for the infringement of EP1453268, the liability of customers of the defendants and whether those custimers could enforce the undertaking to grant licences on RAND terms notwithstanding the defendants' waiver.

Mr Justice Henry Carr

Shortly after my last case note had appeared I received an email from the Secretary of the Intellectual Property Bar Association stating that Mr Justice Henry Carr had died on 19 July 2019 (see Death in Service: Mr Justice Henry James Carr Courts and Tribunals Judiciary). I was very sad to receive that news because I got to know Sir Henry better than most judges even though I had never appeared before him as a judge or against him when he was at the Bar.  The reason that I knew him well is that we both had an interest in computer law in its early days and we were both in some of the early computer law cases. The nearest we came to appearing against each other was a debate on IP litigation outside London. The debate took place in the Manchester Club and was organized by the Licensing Executives Society and the Society for Computers and Law. It took place in 1987 after the publication of the Oulton report.  Richard Sutton of Dibb Lupton (as DLA was then called) seconded me but I have to say that most Manchester solicitors and patent attorneys sided with Henry. We finished our evening with a fine dinner at the Yang Sing. I send my sincere commiserations to Lady Carr and all his many friends and relations.

Further Information 

Anyone wishing to discuss this case or patents generally should call me on 020 7404 5252 during office hours or send me a message through my contact page.