A series of antitrust cases has arisen over the last ten years in the context of standard setting, where a party who participates in a standard-setting process has a patent that is infringed by the standard but does not disclose that patent until after the standard is adopted in the marketplace. This activity, referred to as a “patent ambush,” has been the subject of a number of Federal Trade Commission actions and private litigations in which an alleged infringer attacks the enforceability of the patent at issue and claims the patent owner violated the antitrust laws via the nondisclosure. Companies participating in standard-setting organizations (SSOs) that require disclosure of relevant patents should be cognizant that any nondisclosure, even if not done deceptively, may lead to the loss of patent enforceability. Deceptive nondisclosure may additionally lead to antitrust liability.
A ruling out of a federal court in California last week in the case of ActivIdentity Corp. v. Intercede Group PLC illustrates this risk. ActivIdentity is a member of an SSO that developed a standard for remote application management of smart cards. ActivIdentity also holds a patent that covers technologies for remotely updating smart cards under the SSO’s standard. It sued Intercede for infringing its patent by using the standard. Intercede then filed patent unenforceability and antitrust counterclaims, alleging that ActiveIdentity had an obligation to disclose its patent before the SSO developed standards that the patent might read on, and that ActivIdentity failed to make that required disclosure.
The court cited the Federal Circuit’s 2008 decision in Qualcomm Inc. v. Broadcom Corp. and explained that “[a] claim for unenforceability can be based on a patent owner’s waiver due to failure to disclose its patent rights to an SSO.” Importantly, the court noted that the nondisclosure need not be fraudulent. The court also cited the D.C. Circuit’s 2008 decision in F.T.C. v. Rambus for the rule that a monopolization claim based on failure to disclose to an SSO must allege that the failure to disclose was deceptive and that but for the nondisclosure the SSO would have developed a different standard. The court found that Intercede had alleged sufficient facts on these elements to sustain its counterclaims. (ActivIdentity Corp. v. Intercede Group PLC, No. 08-4577, slip op. (N.D. Cal. Sept. 11, 2009))