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TQ Delta LLC v. Zyxel Communications Inc.

United States District Court, D. Delaware

June 12, 2018

TQ DELTA, LLC, Plaintiff,
v.
ZYXEL COMMUNICATIONS, INC and ZYXEL COMMUNICATIONS CORPORATION, Defendants.

          Brian E. Farnan, Michael J. Farnan, FARNAN LLP, Wilmington, DE; Peter J. McAndrews, Thomas J. Wimbuscus, Paul W. McAndrews, Anna M. Targowska, James P. Murphy (argued), MCANDREWS, HELD & MALLOY, Chicago, IL, Attorneys for Plaintiff

          Kenneth L. Dorsney, MORRIS JAMES LLP, Wilmington, DE; Yitai Hu, Brianna Ford, ALSTON & BIRD LLP, East Palo Alto, CA; Elizabeth H. Rader (argued), Celine Liu, ALSTON & BIRD LLP, Washington, DC. Attorney for Defendants

          MEMORANDUM OPINION

          ANDREWS, U.S. DISTRICT JUDGE

         Presently before the Court is Defendants' Motion for Expedited Consideration of a Preliminary Injunction (D.I. 390) and related briefing (D.I. 391, 412, 423). The Court heard oral argument on December 19, 2017. (D.I. 458 ("Tr.")).

         I. BACKGROUND

         Plaintiffs predecessor, Aware, Inc., helped to develop the DSL standards.[1] (D.I. 391 at 4). In 2012, Aware signed and provided Patent Declarations to the International Telecommunications Union for each relevant DSL standard. (D.I. 28-1, Exh. A). In doing so, Aware committed to grant other parties patent licenses on RAND[2] terms "to make, use and sell implementations of the specified ITU DSL standards."[3] (D.I. 391 at 4-5).

         In June 2013, Plaintiff wrote to Defendants[4] regarding its patent portfolio. (D.I. 1 at ¶ 12; D.I. 19 at 46, ¶ 8). Defendants wrote back, expressing interest in a license. (D.I. 1 at ¶¶ 12-17; D.I. 19 at ¶¶ 12-14, 16). The parties never came to an agreement. Defendants allege that the "parties discussed terms for an NDA to allow for informed license negotiations but did not finalize terms of that NDA before [Plaintiff] filed this action." (D.I. 391 at 5 (citing D.I. 1 at ¶¶ 12-17; D.I. 19 at ¶¶ 12-14, 16)). Plaintiff alleges that it "attempted to negotiate in good faith with [Defendants], but [Defendants] did not reciprocate." (D.I. 412 at 1 (citing D.I. 1 at ¶¶ 12-19)).

         In December 2013, Plaintiff filed this patent infringement suit, asserting its portfolio of DSL patents against Defendants. (D.I. 1). Defendants subsequently filed a counterclaim, alleging that Plaintiff breached its obligations to the ITU by failing to conclude a RAND license with Defendants for patents which Plaintiff believes are standard-essential, and instead suing Defendants, seeking a permanent injunction. (D.I. 19; D.I. 391 at 3-4).

         In 2017, Plaintiff filed suit in the High Court of Justice in London, England, against ZyXEL UK and ZyXEL Communications A/S (incorporated in Denmark) for infringement of two European patents. (D.I. 394-1). One of these two patents, EU 1, 792, 430, "is the European counterpart to claims in the Family 5 patents asserted in this action." (D.I. 391 at 6). The other does not correspond to a patent asserted in this action. (D.I. 394-1 at ¶ 3). Plaintiff also seeks a declaration that the terms of an offer it made to the UK and Danish companies on May 26, 2016 are FRAND. (D.I. 391 at 6).[5]

         Before Plaintiff filed the UK action, the High Court of Justice issued its main judgment in Unwired Planet International Ltd. v. Huawei Technology Co. Ltd., 2017 EWHC 711 (Pat.) 5 Apr. 2017. (D.I. 391 at 5). The decision provided that there is only one royalty rate that qualifies as FRAND for any given set of standard-essential patents and products, and a patent holder does not breach FRAND obligations by offering a license at higher than FRAND rates unless the rate is "significantly" above the true FRAND rate.[6] (Id.). Defendants characterize the decision as "groundbreaking, " and accuse Plaintiff of forum shopping. (D.I. 391 at 5; D.I. 423 at 6; Tr. 3:25-4:4).

         Now, Defendants move for Expedited Consideration of a Preliminary Injunction. (D.I. 390). Defendants ask the Court to enjoin Plaintiff from pursuing the UK action. (D.I. 391 at 1).

         II. LEGAL STANDARD

         The Third Circuit Court of Appeals has established a test for determining whether an anti-suit injunction should be entered to restrain the advancement of a foreign parallel proceeding. In General Electric Co. v. Deutz [AG], the Third Circuit adopted the restrictive approach, advising the district courts that it would "rarely permit[ ] injunctions against foreign proceedings." [270 F.3d 144');">270 F.3d 144, 160-61 (3d Cir. 2001).] Under this restrictive approach, domestic and foreign parallel proceedings may ordinarily proceed simultaneously, "at least until one has reached the stage where its ruling becomes res judicata." [Id. at 157.] District courts may appropriately enjoin "foreign parallel proceedings only to protect jurisdiction or an important public policy." [Id. at 161.] These exceptions to the ordinary rule against issuing anti-suit injunctions are to be interpreted narrowly. [See Stonington Partners, Inc. v. Lernout & Hauspie Speech Prods. N.V., 3\O F.3d 118, 127 (3d Cir. 2002).] Vexatiousness, harassment, or inconvenience to the parties are usually insufficient grounds upon which a court may enjoin a foreign parallel proceeding. [See Deutz, 270 F.3d at 161.] Likewise, duplication of issues in the two suits is insufficient to justify an anti-suit injunction. [Stonington, 310 F.3d at 127 (discussing Compagnie dex Bauxites de Guinea v. Ins. Co. of N. Am., 651 F.2d 877, 887 (3d Cir. 1981)).]

         While there has been scant litigation clarifying how the Third Circuit expects district courts to apply the restrictive test set forth in Deutz, its decisions have reflected its serious concern for comity, its respect for the sovereignty of other courts, and its faith in the ability of other courts to handle parallel proceedings in a fair and just manner without interference. [Deutz, 170 F.3d at 160-61.] Its emphasis on comity is especially significant in the international context. [See Id. at 160 ("Although [comity] is a consideration in federal and state litigation, it assumes even more significance in international proceedings.").] As the Court noted in Deutz, "the proper exercise of comity demonstrates confidence in the foreign court's ability to adjudicate a dispute fairly and efficiently .... Failure to accord such deference invites similar disrespect for our judicial proceedings. Reciprocity and cooperation are worthy goals of comity." [Id. at 161 (summarizing the Sixth Circuit's discussion of comity in Gau Shan Co. v. Bankers Trust Co.,956 F.2d 1349, 1355 (6th Cir. 1992)).] The Third Circuit's adoption of the restrictive approach and its emphasis on comity suggests its desire to avoid sending foreign courts the '"the message, intended or not, that the issuing court has so little confidence in the foreign court's ability to adjudicate a given dispute fairly and ...


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