RAND case struck down by the Court of Appeal — bold moves win the day for implementer ZyXEL

The appeal judgment in ZyXEL v TQ Delta [2019] EWCA Civ 1277 tells a tale of tactics and legal agility. After completely waiving any right to rely on RAND undertakings,  ZyXEL have tested the bounds of the developing English law.

When a defendant has lost a patent trial, when would they decide that submitting to an injunction is better than taking a licence?

This claim was about enforcement of a number of TQDelta's patents relating to the ITU-T's DSL telecoms standards. 

Since the patents in suit had been declared essential to the ITU-T standards, they were encumbered by a RAND undertaking — that is, an undertaking made by TQDelta that it would grant a licence to the patents on Reasonable and Non-Discriminatory terms.  

At first instance

Following what has become standard practice in these cases, TQDelta sought an injunction for infringement, but only if ZyXEL refused to take a licence. ZyXEL in turn relied on the RAND undertaking to avoid any injunction. Trials were scheduled to deal with technical matters (patent infringement and validity) first; and RAND matters (such as the valuation for patent damages, and licence terms and valuation) afterwards.  Following the decisions in the High Court and the Court of Appeal in the long-running dispute between Unwired Planet and Huawei, it was likely that a RAND licence determination would be considered from a global perspective, not just based on the UK portfolio.

In March 2019 however, Mr Justice Henry Carr found in the English High Court that two of the patents were essential and infringed, but only one of these two was valid — and that had a mere three months of life left before it would expire. Unless ZyXEL took a licence, an injunction of 3 months would therefore follow in addition to financial damages for past infringement.

Developments and manoeuvers

Both ZyXEL and TQDelta reacted to this decision in very different ways.

ZyXEL now faced a very different balance of risk. Before the technical trial, the claim against them had been a more serious threat because it included another patent with a longer lifetime. ZyXEL had been facing a choice between (on the one hand) entering into a licence agreement to access the UK market, or (on the other hand) being bound by an injunction that would have prevented them from accessing the UK market. But now, the injunction was quite short; and the findings of past infringement could be dealt with easily by paying damages.

ZyXEL therefore decided in March 2019 that they did not want a licence any more. They said so, writing a witness statement and offering an undertaking with the following waiver:

“ZyXEL hereby and irrevocably waive any and all rights they might have to seek to enforce TQDelta's RAND obligations to licence TQDelta's UK-designated DSL SEPs in the United Kingdom”

This was a dramatic tactic. By making this waiver, ZyXEL threw away the right which would hold off the injunction. Instead, they would submit to the three-month injunction and pay damages for past infringement of the infringed patent.

Meanwhile, in response to this change of tack TQDelta reacted in two ways to keep their RAND claim alive. First, they issued a new claim for infringement of two further DSL-related patents. Second, they sought to amend their original claim, requesting additional relief in respect of RAND issues. This included for example seeking declarations that ZyXEL were not willing licensees to TQDelta's portfolio of patents, and that TQDelta was not obliged to offer any licence to ZyXEL. 

The dispute and the appeal

So the question arose: if ZyXEL did not rely on RAND as a defence, was a trial even necessary?  ZyXEL thought not, and applied to strike out the RAND part of TQDelta's claim, and so to cancel the RAND trial. In response, TQDelta said that there was still a live dispute between the parties, meaning that a RAND trial was necessary.

At first instance, Mr Justice Birss agreed with TQ Delta. He said that the real point, and the only point, was whether the waiver was workable. And he had reservations about what ZyXEL's undertaking actually meant, highlighting several downstream problems. He observed that TQDelta had claimed for declaratory relief, which was not dealt with by the waiver. On this basis, and observing that "there is a real and lively dispute as to RAND terms. That dispute has not gone away", he allowed the RAND trial to proceed. 

ZyXEL appealed, with expedition.  They said that his conclusions were not open to the Judge, and that he was wrong in law about the uncertainty as to scope and effect of the waiver. The right result, they said, was that RAND fell away entirely. 

And to draw a line under the damages claim, shortly before the appeal hearing, ZyXEL asked TQDelta how much they thought the claim was worth — and then paid them in full on request, in the sum of nearly US$1.2 Million.

The rationale and the principles

Lord Justice Floyd allowed the appeal (and Lord Justice Lewison agreed), cancelling the RAND trial.

Floyd LJ started with the Court of Appeal's decision in Unwired Planet, the current leading case on issues of standards-portfolio patent licensing in the UK. He extracted seven guiding principles from the ruling, which (condensed) are as follows.  

i) UK patents have territorial scope for the UK only, so any injunction that flows from them is also limited to the UK.

ii) The (F)RAND undertaking is designed to allow free access to standards technology even…

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