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Hold-out leads to shut-out in latest FRAND ruling

David Knight
03/04/2019

Locations

United Kingdom

The recent case of TQ Delta LLC v ZyXEL Communications Ltd [2019] EWHC 745 (Pat) has again explored the issue of injunctions for standard essential patents in the UK.

The recent case of TQ Delta LLC v ZyXEL Communications Ltd [2019] EWHC 745 (Pat) has again explored the issue of injunctions for standard essential patents.  (For previous blogs on this issue see: The behaviour expected of an SEP owner; the latest from Unwired Planet v Huawei; A FRAND approach to a FRAND injunction; and The best of FRANDs? - the Court of Appeal rules in Unwired Planet v Huawei.)

In this case TQ Delta sued ZyXEL under two standard essential patents.  The trial was split in two: a "technical trial" to decide on infringement and validity; and a later "FRAND or RAND trial" to determine  licence terms .  (The technology in this case related to DSL broadband technologies, the standards for which are the ITU recommendations.  The ITU references RAND obligations rather than FRAND obligations.   Hence this case refers to RAND obligations, but the lessons are equally applicable to FRAND obligations.) 

At the technical trial in this case, one patent was held valid and infringed, the other was invalid.  The former had, however, only three months before it expired, and therefore would expire before the RAND trial.  In such circumstances ZyXEL argued that it would be disproportionate for an injunction to be granted; alternatively if an injunction was granted it should be stayed or there should be a carve out to enable ZyXEL to supply certain orders.  The judge, Mr Justice Henry Carr, disagreed. 

 

Injunction

As regards the injunction, the judge held that ZyXEL had “held out”, i.e. postponed for as long as possible any payment while infringing standards essential patents.  He took into account that ZyXEL had vacillated on whether it would undertake to take a RAND licence in the event that one or both of the patents were held valid and infringed.

Initially ZyXEL had stated that if either patent were held valid and infringed they would take “a licence on RAND terms (such terms to be agreed or in default of agreement set by the Court)”.  After multiple exchanges of correspondence ZyXEL stated that they were only prepared to take a licence for the UK only. They clearly had in mind the decision of Birss J in Unwired Planet v Huawei that a FRAND licence could be a worldwide licence and did not want to find themselves bounced into a worldwide licence (see our first blog referred to above)  This, they argued, should be sufficient to avoid an injunction in the UK.  The judge disagreed stating that:

"It would enable ZyXEL 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.  ZyXEL would avoid an injunction, and if the terms of a RAND licence are not as they wish, could refuse to enter into a licence on the terms deemed appropriate by the Court."

In effect he held that ZyXEL should either submit to the court’s determination of the RAND licence terms (which may or may not be UK or worldwide) or run the risk of an injunction.  ZyXEL having run that risk, an injunction would be ordered. 

Stay or carve out 

As to ZyXEL's request for a stay of, or carve out from, the injunction, the judge could see no basis for ZyXEL's request for a stay of one month during which they could "do whatever they wish".  ZyXEL sought the carve out to avoid inconvenience to customers if three pending orders could not be satisfied; however, in the absence of any adequate evidence as to the alleged inconvenience that request also failed. 

An injunction was granted to TQ Delta to restrain ZyXEL's infringing activities and to shut-out ZyXEL from the UK market. 

Comment 

This case again underlines two points.  First, that the English courts will, if the facts support it, find a FRAND or RAND licence should be a worldwide licence.  Secondly, that the accused infringer is expected to behave constructively and reasonably - if they "hold out" they should not expect the discretion of the court to be exercised in their favour when it comes to discretionary issues such as whether or not an injunction should be ordered.

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