31 Aug 2018 in Newsletter
If You Participate in Standards-Setting Orgs., Disclose Your IP Rights Early & Often, or Quit the Org.
By: Peter Schechter
In 2011, Rambus was cleared of allegations of improper conduct in connection with its participation in standards-setting organizations (SSO). There, Rambus owned patent applications relating to proposed technical standards under consideration, but there was not clear and convincing evidence that any claims of any pending applications were necessarily infringed by the proposed standards. Rambus withdrew from the SSO and then, after it no longer owed any duty of disclosure to the SSO, added claims covering the technical standards to the applications descended from those pending while Rambus was still a member of the SSO. While reasonable people can debate whether Rambus’ actions were legitimately fair, the Court of Appeals for the Federal Circuit (CAFC) decided that Rambus’ conduct constituted neither “implied waiver” nor inequitable conduct, in Hynix Semiconductor Inc. v. Rambus Inc., 645 F. 3d 1336 (Fed. Cir. 2011).
In view of Hynix, could a company participating in SSO activities be found to have impliedly waived its patent rights where the technical standard requiring infringement of its patents was not ever adopted? In Core Wireless Licensing S.a.r.l. v. Apple Inc., No. 2017-2102 (Fed. Cir. Aug. 16, 2018), the CAFC has answered “yes, it is possible.” This may be viewed as a surprising answer, given that Rambus’ conduct was arguably more devious, and successful, than the conduct of Nokia, the predecessor of Core Wireless Licensing. A participant in a standards-setting organization may waive its right to assert infringement claims against products that practice the standard, when it fails to timely disclose it IPRs covering the proposed technical standards during the standards-setting process. This type of “implied waiver” may occur irrespective of whether the IPRs are granted patents or pending applications, and even where the technical standard proposed by the “secret IPR holder” is not adopted.
In 1997 and 1998, Nokia was a member of the European Telecommunications Standards Institute (ETSI), a SSO in the telecommunications industry. A Nokia engineer invented in late 1997 an improved feature of GPRS wireless networks. Nokia submitted a proposal to ETSI to modify the GPRS standard in a way that required use of the invention, and Nokia simultaneously filed a Finnish patent application covering the same invention. Nokia’s proposed change was ultimately rejected in 1998 in favor of a provision that allowed, but did not require, use of Nokia’s GPRS invention. Four years later, Nokia disclosed the Finnish patent application and its associated U.S. patent application to ETSI.
ETSI had an IPR policy in effect in 1997 that required its members to “timely inform” ETSI of “essential” IPRs. The trial court decided that Nokia had not impliedly waived its patent rights because its GPRS proposal was rejected, and its patent claims were not allowed until 2002, shortly after which it disclosed the IPRs to ETSI. On appeal, the CAFC rejected both of these excuses. First, the very purpose of disclosure of IPRs to SSOs would be undermined if a member could wait to disclose its essential IPRs until after its proposed standard was adopted. Second, it would be contrary to the ETSI’s IPR policy to interpret it to cover only issued patents, to the exclusion of pending patent applications.
Would the CAFC have decided the case differently had Nokia waited until after the GPRS standard was adopted to add claims covering the standard to its already pending applications? The CAFC’s Hynix decision seems to suggest “yes,” that is, that Nokia’s conduct would not have been deemed to constitute “implied waiver” of its patent rights in that situation. Is this distinction good or smart or wise? The answer likely depends on whether you are the SSO member who holds the essential patent or the one who infringes it.
It must be noted that Core Wireless might still prevail in its infringement case against Apple. The CAFC explained that “in some circumstances courts have held that an equitable defense [such as implied waiver] will not be recognized if the offending party did not gain a benefit from its wrongdoing.” Because Nokia’s proposed GPRS standard was ultimately rejected by ETSI, it is at least possible that Nokia (and Core Wireless, Nokia’s successor-in-interest) did not gain any “unjust advantage.” The “optional versus mandatory” difference between the proposed and adopted GPRS standard might still have provided Nokia with some “undeserved competitive advantage.” The case was thus remanded to the trial court for appropriate proceedings and findings in the first instance on a topic not previously thought by the trial judge to be important.
What is the overarching lesson of the Hynix and Core Wireless cases, considered together? It is important to disclose IPRs as early as possible, including pending patent applications, to SSOs in which the company participates, if there is any chance that the company’s patents and applications contain any claims that might be “essential” to a standard being considered for adoption. Some companies may decide, however, that the ultimate cost of membership and participation in SSOs is outweighed by the value of a company’s intellectual property rights, and those companies should avoid membership and participation in the work of standards-setting organizations.