Introduction  

The Federal Circuit recently affirmed a case finding two patents unenforceable because a patent owner did not comply with the patent policy of a standard-setting organization.  

As industry standards become more pervasive and commonplace, patent owners have increasingly asserted their patent rights against standards-compliant products. As a result, many standard-setting organizations have evolved complex policies regarding patents and other intellectual property rights and their role within the standard-setting process. Historically, relatively few cases have addressed the validity and effect of these patent policies and their possible use in a patent infringement lawsuit. Several recent defendants in telecommunications patent cases have invoked the patent policies of a standard-setting organization as a partial or complete defense to charges of patent infringement. While most of these cases have settled short of a final decision, the Federal Circuit recently addressed one such dispute in Qualcomm Inc. v. Broadcom Corp., Case No. 2007-1545, 2008-1162 (Fed. Cir. Dec. 1, 2008). There, the Federal Circuit held that two patents were unenforceable because they were not properly disclosed to the standards-setting organization.  

The Qualcomm Decision

In Qualcomm, the Federal Circuit addressed a dispute between Qualcomm and Broadcom relating to the H.264 video standard. That standard, also known as MPEG-4 part 10, allows for the more efficient and robust transmission of video information. Qualcomm accused Broadcom, a manufacturer of H.264 products, of infringing two Qualcomm patents. The standard-setting organization responsible for the H.264 codec, the Joint Video Team (JVT), had a written patent policy. The Federal Circuit interpreted the written policy to impose an obligation for participants in JVT to use their best efforts to disclose patents associated with standardization proposals. Additionally, the Federal Circuit also found a duty to disclose relevant patents prior to the final approval of a proposed standard. This duty arose from the membership requirements of the two bodies that made up JVT. The Federal Circuit also affirmed a finding by the district court that found an implicit duty of disclosure based on how JVT participants treated the patent policies.  

The Federal Circuit then discussed the scope of the disclosure duty and held that it extended to patents that “reasonably might be necessary” to practice the H.264 standard. This is the same standard it previously applied in Rambus Inc. v. Infineon Technologies AG, 318 F.3d 1081, 1100-01 (Fed. Cir. 2003). On appeal, the Federal Circuit did not conduct an independent analysis of whether the asserted patent claims reasonably might be necessary to practice the H.264 standard, nor did it perform a claim construction. Instead, it affirmed a district court factual finding that the “reasonably might be necessary” standard was met. Importantly, much of the district court’s finding was based on Qualcomm’s own internal analysis and litigation arguments that the patents were essential to practice the H.264 standard, even though the same district court found Qualcomm’s analysis and arguments to be incorrect and Broadcom’s products did not infringe the asserted patents.  

Having found Qualcomm breached its duty to disclose the asserted patents to the JVT, the Federal Circuit then addressed the proper remedy. The district court ruled that the patents were unenforceable under a theory of implied wavier. The Federal Circuit affirmed that ruling, relying on the district court’s finding that “Qualcomm intentionally organized a plan to shield said patents from consideration by the JVT, planning to demand license fees from those seeking to produce H.264-compliant products.” Slip Op. at 28. Importantly, the Federal Circuit did not require Broadcom to prove any form of detrimental reliance, as may be necessary under other legal theories such as equitable estoppel.  

The Federal Circuit also limited the scope of the unenforceability ruling to apply only to H.264 compliant products. The district court had ruled that the patents were unenforceable against the world; however, the Federal Circuit held that such a remedy was too broad. Instead, it tied the scope of the unenforceability ruling to Qualcomm’s misconduct—namely, a failure to disclose the patents as part of H.264 standardization. Accordingly, the Federal Circuit remanded the case for the district court to limit the scope of the unenforceability ruling to H.264 compliant products.  

The Qualcomm Decision and Its Impact on Conduct at Standard- Setting Organizations

This recent decision by the Federal Circuit in Qualcomm further enforces and validates patent disclosure policies of standard-setting organizations. It does this in two important ways: First, it validates finding patents unenforceable for failure to disclose them to a standard-setting organization based on a theory of implied waiver. As explained in the Qualcomm decision, a patent owner implicitly waives its ability to assert a patent against a standard when  

  • the patent owner participates in the standardization;
  • there is an obligation to disclose information to support and advance the purposes of the standard setting organization;
  • the patent owner knows of that disclosure obligation;
  • the patent owner deliberately does not disclose relevant patents as part of a plan to later seek license fees after adoption of the standard.

As articulated by the Qualcomm decision, implied waiver does not require detrimental reliance or contractual privity between standards participants to find patents unenforceable. Additionally, the obligation to disclose relevant patents can arise either formally in the patent policies of the standard-setting organization, or informally though the course of conduct of standardization participants. These rulings make it more likely for litigants to successfully assert defenses based on standardization misconduct.  

Consequently, participants in a standards organization should clearly understand the organization’s patent policies and make sure that same understanding is shared by all participants. While Qualcomm submitted testimony and argument against an implicit disclosure obligation, the district court instead relied on the testimony of other participants to find an implicit disclosure obligation. Within most standards organizations, like JVT, there is a broad range of participants with many different interests. Some of those participants have very different expectations about the role of patents and other intellectual property than participants who own potentially relevant patents. Accordingly, some participants may understand implicit disclosure obligations very differently than others.  

Second, the Qualcomm decision avoids any formal analysis of the asserted patent claims and the standard to determine if the patents should have been disclosed. The principle evidence used to support a finding that the asserted patents should have been disclosed was Qualcomm’s internal analysis and litigation arguments. Ironically, the district court heavily relied on Qualcomm’s claims that the asserted patents were essential to the H.264 patent to find an obligation to disclose the patents, but simultaneously rejected those claims and ruled that the H.264 standard did not infringe the asserted patents.  

Consequently, participants in the standard-setting process should assume that a court will find a patent “reasonably might be necessary” to practice a standard if the patent owner ever internally or publicly claims that a patent is necessary to practice a standard. A recent Delaware Superior Court used a substantially similar analysis in Rembrandt Technologies, L.P. v. Harris Corp., C.A. No. 07C-09-059-JRS (Del. Sup. Ct. Oct. 31, 2008). There, the Delaware Superior Court relied solely on the patentee’s claim from litigation against third parties that a patent was necessary to practice a standard to trigger RAND licensing obligations. Consequently, standardization participants should ensure that their declarations to standard-setting organizations are consistent with internal and public claims regarding patent essentiality.