HomeInsightsOrder for alternative service in a Hague Service Convention state unjustified and set aside

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In a recent ruling relating to a UK patent dispute about the grant of licences to use standard essential patents (SEPs) on terms that are fair, reasonable and non-discriminatory (FRAND), the Patents Court set aside an order permitting service of the UK proceedings by alternative means, on the ground that there were no exceptional or special circumstances to justify derogation from the Hague Service Convention (HSC).

Background

Godo (a Japanese company) had been involved in negotiations with the three companies in the Huawei Group (two incorporated in China and one in the UK) since February 2015, in relation to the grant of a licence in respect of some its SEPs. During the negotiations, each side had made offers of terms which they asserted to be FRAND. However, upon failing to agree a FRAND rate for the SEPs, Godo brought proceedings in January 2021 against the three Huawei companies in both Germany and the UK, alleging infringement of the German and UK designations of certain SEPs and seeking an injunction on the basis that the defendants were not willing licensees and as such were not entitled to enforce the claimant’s FRAND obligations or to the grant of a licence.

After the German and UK actions were commenced the two Chinese Huawei companies (the first and second defendants) commenced proceedings against the claimant in China seeking a determination of a FRAND royalty rate for Godo’s Chinese SEPs.

An order was made in the UK action on 22 February 2021, after a without notice hearing, permitting Godo to serve the UK proceedings on the two Chinese defendants out of the jurisdiction and also permitting Godo, in place of service pursuant to the provisions of the HSC, to serve those defendants in the UK by alternative means at the UK registered office address of the Huawei UK subsidiary (the third defendant) and the London offices of Huawei’s UK solicitors.

The first and second defendants applied to set aside the parts of the order that permitted service on them by alternative means.

The application to set aside the order

Nicholas Caddick QC (sitting as a Deputy High Court Judge) summarised the authorities on service by alternative means on a defendant in a country (such as China) that is a signatory to the HSC as follows:

  • Where the court gives permission to serve a claim form out of the jurisdiction, it also has power, by reason of CPR r.6.37(5)(b)(i) and r.6.15(1), to make an order permitting service by an alternative method or at an alternative address[1].
  • Such an order can only be made if the court is satisfied that there is “a good reason”. If there is a good reason, the most important aspect of the jurisdiction choice is to ensure that the defendant is adequately informed of the contents of the claim form and the nature of the claim[2].
  • Where a defendant is resident in a country that is party to a convention as regards service, then service in accordance with that convention is “the prime way of service” in that country[3]. Further, where a country has (like China) stated its objection under Art.10 of the HSC to service otherwise than through the authority that it has designated to deal with service under the HSC, an order for alternative service will only be made in “exceptional circumstances” (sometimes referred to as “special circumstances”)[4].
  • In determining whether exceptional circumstances exist, each case will turn on its own particular facts and involves balancing the various factors[5].
  • Mere delay or additional expense arising from having to serve in accordance with the HSC do not, without more, constitute exceptional circumstances[6]. However, delay might suffice when coupled with another factor or factors such as, for example, some form of litigation prejudice or where it is of such exceptional length as to be incompatible with the due administration of justice[7].
  • Some examples of the sort of factors which might help establish the existence of exceptional circumstances include, for example, the need for urgent interim injunctive relief or for relief under the Arbitration Act 1996[8].

Godo relied on several factors in its application to set aside, including:

  • the likely delay of a year or more if service had to be effected in accordance with the HSC;
  • the fact that any delay in service would extend the period during which the defendants were exploiting the claimant’s SEPs without making any payments to Godo;
  • the fact that the claim also sought protection of Godo’s rights by means of any injunction;
  • the defendants’ acts of “holding out” i.e. knowingly infringing Godo’s SEPs in the period during which the IPR Policy of the European Telecommunications Standards Institute requires SEP owners not to enforce their patent rights by seeking injunctive relief, by using the inventions whilst failing to agree a FRAND licence for their use;
  • the fact that the Chinese action would probably proceed more quickly than the English action and that, having obtained the Chinese court’s ruling on the FRAND issues before it, the defendants would obtain a Behaviour Preservation Order (BPO) or some other form of Order from the Chinese court that would operate to fetter the discretion of the English court;
  • the fact that the case involved claims of direct infringement by the first and second defendants as well as acts of infringement by the third defendant, meaning that the claims against the first and second defendants should not be delayed whilst the case against the third defendant continued;
  • the lack of prejudice suffered by the two Chinese defendants in the making of an order for alternative service; and
  • the “tactical gamesmanship” engaged in by the defendants in not agreeing to accept alternative service.

In respect of the delay arguments, the judge concluded that it was not possible to say when service in accordance with the HSC would be effected in this case and that there were dangers in relying on evidence based on past experience as every case would turn on its own facts. Accordingly, the best that could be said was that service was likely to take up to 12 months but there was some prospect that it could take less than that and, whilst it was possible that service could take longer, this was less likely to be the case. In any event, in this case the first and second defendants offered to accept alternative service if service had not been effected on them under the HSC within 11 months of April 2021. The judge concluded that this length of delay was not of such exceptional length as to be incompatible with the due administration of justice. As such, some other factor or combination of factors had to be present in this case, which taken together with a delay of up to 11 months, gave rise to exceptional circumstances.

The judge considered that the extended period when the claimant was not receiving renumeration for its SEPs was fairly normal rather than exceptional in litigation of this type where a defendant was based in an HSC state. Moreover, the claim against the third defendant could be progressed in the meantime and the parties had negotiated to see if a licence could be agreed for 6 years before proceedings were brought, suggesting that the prejudice suffered by the claimant was not particularly serious or exceptional. The judge made the same points in relation to the claimant’s argument regarding the injunction sought.

Because each side had put forward offers of licence terms they said were FRAND and that issue would have to be resolved in the German and/or English proceedings, the judge was not able to say at this stage whether or not the defendants were guilty of “holding out”.

In light of the lack of expert evidence as to the nature and effect of a BPO or the basis on which it was granted, the judge was not in a position to determine how real a possibility it was that the Chinese court would make a BPO or what effect such order would have. The judge was not inclined to interfere with the jurisdictional issues that often arise in cases where there are related proceedings in more than one country by departing from the normal rules that apply to service under a convention entered into by the relevant countries.

Whilst the judge agreed that it would be more convenient if all parties to the UK proceedings were before the English court now so that the claims against them could be progressed together, he concluded that the fact that one defendant could be easily served as it was in the jurisdiction while service on other defendants based in HSC countries was delayed was a fairly normal situation in commercial and IP litigation. Furthermore, the judge was not convinced the action against the third defendant would have proceeded very far during the period of delay in service on the other defendants so, once the first and second defendants had been served, the proceedings should be capable of case management to minimise further delays.

The judge agreed with the claimant that he could not see any particular prejudice to the first and second defendants in making an order for alternative service, and also could not see why, if the defendants would accept alternative service after 11 months, they could not do so now. However, whilst this may be tactical gamesmanship on the part of the defendants, it was one they were entitled to play. Abiding by the process for service which was agreed under the HSC was a matter of international comity which requires exceptional circumstances to derogate from.

Having assessed each of the factors identified by the claimant, the judge concluded that, whether taken in isolation or collectively, they did not amount to the sort of exceptional circumstances that were required in order to justify a departure from service in accordance with the HSC.

Commentary

Despite a possible delay of a year or more, and the multiple knock-on effects that such a delay was likely to cause, this was not regarded as a sufficient reason to depart from the HSC rules regarding service. This decision suggests that the court will need to see evidence that the circumstances of a particular case are completely out of the ordinary in the context of commercial/IP litigation to be in a position to grant an order for service other than pursuant to the HSC. Claimants should be mindful of the high bar to be overcome when considering litigating against companies in HSC states and build additional time into the projected litigation timetable for service via the HSC procedure.

Ruling referred to is Godo Kaisha IP Bridge (Godo) v Huawei Technologies Co., Limited & Ors [2021] EWHC 1261 (Pat)

[1] Celgard LLC v Shenzhen Senior Technology Material Co Ltd [2020] EWHC 2072 (Ch) at [115] and GHS Global Hospitality Limited v Beale [2021] EWHC 488 (Ch) at [10]

[2] Celgard at [116]

[3] Deutsche Bank AG v Sebastian Holdings Inc. [2014] EWHC 112 (Comm) at [27]

[4] Société Generale v Goldas Kuyumculuk Sanayi Ithalat Ihracat AS [2017] EWHC 667 at [49(9)(b)] and Marashen v Kenvett [2017] EWHC 1706 (Ch) at [57] and M v N [2021] EWHC 360 (Comm) at [8(iv)]

[5] GHS at [12]

[6] Société at [49(9)(a)]]

[7] Marashen at [57] and Celgard at [119]

[8] M v N at [9] and [10]