Patent trial over RAND not necessary after waiver

Out-Law News | 19 Jul 2019 | 9:38 am | 4 min. read

Businesses using technology protected by standard-essential patents (SEPs) can elect not to take global licensing terms offered by patent holders at any stage, a London court has confirmed.

The Court of Appeal ruled on Thursday to prevent a dispute concerning the licensing terms for SEPs from proceeding to trial on the basis that the trial was redundant.

The court reached that conclusion after a prospective SEP licensee waived its rights to license the patents on reasonable and non-discriminatory (RAND) terms. The company subsequently committed to paying the patent holder damages for historic patent infringement.

The patent holder presented a range of arguments as to why the case should nevertheless continue to trial, but the Court of Appeal, in overturning an earlier High Court ruling, rejected each of them.

A SEP is a 'patent essential to a standard': it is impossible for implementers to make products that comply with that standard without using the patented technology. To join standard-setting initiatives, businesses generally offer undertakings to standard-setting organisations that they will license use of the SEPs that emerge from their R&D reading on to the new standards to third parties on RAND, or fair, reasonable and non-discriminatory (FRAND), terms depending on the standard-setting initiative.

The case before the Court of Appeal concerned two SEPs owned by a patent assertion entity called TQ Delta (TQD). The company said its patents, which apply to 'Digital Subscriber Line' (DSL) broadband technology, relate to standards set by a telecoms standards body within the International Telecommunications Union (ITU-T). According to the ruling, ITU-T policy requires standard-essential patent holders to commit to granting licences to use their patented technology on a worldwide, non-discriminatory basis and on reasonable terms.

TQD pursued an injunction against two ZyXEL companies from the UK and Denmark after the businesses failed to reach an agreement on the terms on which TQD's patents portfolio should be licensed. ZyXEL maintained that TQD were not willing to license on RAND terms; in particular that the royalty rate demanded was too high, and that the licence should be restricted to the UK.

A previous High Court ruling earlier this year established that one of TQD's patents was invalid while the other was valid and had been infringed by ZyXEL. The ZyXEL companies were injuncted for a period of three months until that patent expired. The High Court ruled in April that a trial beginning in September should commence to determine, among other things, what licensing terms were RAND for TQD's SEPs.

The High Court rejected ZyXEL's bid to strike out the case before trial even though the two ZyXEL companies committed to "irrevocably waive" any rights they had to enforce TQD's RAND obligations in the UK.

The Court of Appeal has now ruled that the High Court was wrong to do so. The Court of Appeal considered foremost UK case law on SEP licensing established by the High Court in 2017 when reaching its decision. In that ruling, the High Court held that Unwired Planet was entitled to seek to license its SEPs on a worldwide basis only, rejecting Huawei's argument that it was entitled to pursue a UK-only licence. That finding was relevant as CJEU case law previously established that SEP holders can run foul of competition rules by pursuing an injunction against SEP implementers that have shown themselves to be willing licensees.

The Court of Appeal has now confirmed, though, that the scope of the licensing terms on offer for SEPs did not affect ZyXEL's right to walk away from TQD's licensing offer.

In his leading judgment, Lord Justice Floyd said: "I accept that it may not be open to ZyXEL selectively to claim the right to be granted a RAND licence. If the licence is a unitary, portfolio, worldwide, group to group licence, it is arguable that ZyXEL must take it as a whole or not at all. They cannot claim it for the UK only, or for certain patents or for certain companies in the group. That follows from the proposition that it is arguable that the RAND licence is a unitary, worldwide licence, and ZyXEL have no right to a country by country, company by company licence because such a licence is not RAND. It does not follow from the above that ZyXEL are somehow prevented from saying to TQD and the court that they no longer rely on any licence to which it is entitled to resist the grant of relief for infringement of the UK patents. That is what the waiver does, however."

"It waives any and all rights ZyXEL might have to seek to enforce TQD's RAND obligation to licence TQD's UK-designated DSL SEPs in the United Kingdom. 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," he said.

TQD had argued that it was necessary for the RAND trial to proceed, despite ZyXEL's waiver. Its main argument was that the outcome of the trial would assist it in future foreign litigation concerning the enforcement of its patent rights.

However, the Court of Appeal dismissed that argument. Lord Justice Floyd said: "It would be an exercise in jurisdictional imperialism to foist this court's view as to whether ZyXEL were unwilling licensees, or holding-out on an unknown foreign jurisdiction. Far less can it be said that it is in the interests of justice for it to do so."

The court also gave weight to the cost arguments against proceeding to trial and said that it was entirely open to ZyXEL to walk away from a licensing agreement with TQD.

"The circumstances which made it commercially possible for these specific ZyXEL companies to waive their right to enforce the RAND obligation in the UK are not likely to be commonplace," Lord Justice Floyd said. "The patent on which they have lost happened to have only three months to run, and they have formed their view of the risks associated with being found to infringe any other TQD patents. Companies participating in international telecommunications are unlikely, routinely, to be in the same position."

Pinsent Masons, the law firm behind Out-Law, acted for ZyXEL in the case.