In what was identified as a case of 'hold-out' by an implementer of technology seeking to postpone for as long as possible any payment of royalties whilst infringing a standard essential patent (SEP), the Patents Court has granted an injunction against ZyXEL in TQ Delta v ZyXEL. The case demonstrates that, in the balance to be struck between the interests of patent holders and implementers as set out by the Court of Appeal in Unwired Planet v Huawei (discussed in our October 2918 edition), in order to avoid an injunction, an implementer will need to engage constructively in any FRAND negotiation.
In March 2019, Henry Carr J found that one patent ('the 268 Patent') relating to Digital Subscriber Line ('DSL') technology relied upon by TQ Delta was valid, essential to the operation of the ADSL2 and VDSL2 standards, and infringed by ZyXEL. The ZyXEL group of companies manufactures DSL equipment in China and sells it worldwide for use by consumers and telecoms companies.
A review of the correspondence between the parties indicated that ZyXEL had 'blown hot and cold' as to whether it was a 'willing licensee', i.e., whether it would accept a licence on whatever terms the Court determined to be FRAND, in particular on a global basis. ZyXEL's case was that, as the 268 Patent was due to expire in June 2019, it did not seek any licence before one was settled by the Court. Further, it argued that the grant of an injunction, in those circumstances, would be disproportionate. The Court disagreed; such an approach would allow ZyXEL to avoid an injunction and, if they did not like the terms of the licence determined by the Court, to refuse to enter into a licence on those terms. This, the Court said, would unjustly deprive the patentee of injunctive relief and amount, in effect, to the Court imposing a compulsory licence in circumstances where the implementer had elected not to enforce the FRAND undertaking.
The Court also refused to stay implementation of the injunction for one month, or to carve out from the injunction to allow ZyXEL to fulfil certain orders.
Clearly, in this case, the Court concluded that ZyXEL was not a willing licensee, as demonstrated by what TQ Delta described as its 'gaming' of the system. As well as 'blowing hot and cold' on whether it would take a licence in this case, ZyXEL had not paid any royalties in respect of any of the 775 SEPs used under the standard (to TQ Delta or any other patent owner). A similar approach, i.e., the grant of an injunction before determination of any FRAND licence, may not be taken in other cases, given the discretionary nature of injunctive relief.