TQ Delta LlC v Zyxel Communications Ltd & Anor

An injunction for infringement of a standards-essential patent is not disproportionate merely because the patent is shortly due to expire. Where an implementer has pursued a strategy of hold-out, claimed the benefit of a FRAND undertaking, and refused to submit to the outcome of an appropriate FRAND determination, withholding injunctive relief may amount in substance to a compulsory licence.

A stay or carve-out requires solid evidential justification. General inconvenience to customers, unsupported by customer evidence or disclosed contractual terms, is insufficient.

TQ Delta established at trial that its ‘268 patent was valid, essential and infringed. Its ‘430 patent was held obvious in light of ADSL2. The ‘268 patent was due to expire on 25 June 2019.

The judgment concerned the appropriate form of relief, including whether an injunction would be disproportionate, whether it should be stayed or subject to a carve-out for pending orders, permission to appeal, and costs. The central issue was whether ZyXEL’s conduct in relation to a FRAND licence justified withholding or delaying injunctive relief.

1. Injunction. The court rejected the submission that an injunction was disproportionate because only a short period of the patent term remained. ZyXEL had not paid royalties, had changed its position on whether it would accept a licence on terms determined to be RAND, and had refused to submit to an appropriate RAND determination while seeking the benefit of the RAND undertaking. This was conduct amounting to hold-out.

2. Following the general principles identified by the Court of Appeal in Unwired Planet v Huawei [2018] EWCA Civ 2344, both implementers and standards-essential patent owners require protection. Depriving TQ Delta of an injunction in these circumstances would effectively create a compulsory licence where ZyXEL had elected not to enforce the RAND undertaking. That would be wrong in principle.

3. Stay and carve-out. The prima facie position was that no stay should be granted absent solid reasons. A one-month stay had no evidential basis. The evidence supporting a carve-out concerned three orders, but there was no evidence from the customers, and the relevant contracts had not been disclosed. The evidence was inadequate to establish sufficient prejudice, so both requests were refused.

4. Permission to appeal. Permission was refused. The technical grounds had no realistic prospect of success. The injunction issue involved an exercise of discretion, and the applicable general principles had already been identified by the Court of Appeal.

5. Costs. Applying the approach summarised in Hospira v Novartis, the court assessed the overall winner, the discrete issue on which the winner had lost, and whether a costs order was just. TQ Delta succeeded overall but bore the costs of validity of the ‘430 patent. ZyXEL was ordered to pay 68% of TQ Delta’s technical-trial costs, with payment on account assessed at 60%.