Judges: Mayer, Lourie, Prost (author)

[Appealed from S.D. Cal., Senior Judge Brewster]

In Qualcomm Inc. v. Broadcom Corp., Nos. 07-1545, 08-1162 (Fed. Cir. Dec. 1, 2008), the Federal Circuit affirmed the district court’s determinations that Qualcomm Incorporated (“Qualcomm”) breached its duty to disclose asserted U.S. Patent Nos. 5,452,104 (“the ’104 patent”) and 5,576,767 (“the ’767 patent”) to a standards-setting organization (“SSO”) in which it had participated, and that Qualcomm’s breach of its duty to the SSO and its misconduct in concealing its participation in the SSO up until the final days of trial made the case “exceptional” under 35 U.S.C. § 285. The Federal Circuit, however, vacated the district court’s holding that Qualcomm’s breach rendered the asserted patents unenforceable against the world and remanded with instructions to limit the scope of the unenforceability judgment to products that comply with the particular standard developed by the SSO.

Qualcomm claimed that the ’104 and ’767 patents covered the H.264 video compression standard developed by the Joint Video Team (“JVT”) SSO and that Broadcom Corporation (“Broadcom”) infringed Qualcomm’s patents by making products compliant with the standard. Under the policies of the JVT and its parent SSO, participants had certain obligations with respect to the disclosure of IP rights related to the standard. Up until the final days of trial, Qualcomm maintained that the disclosure obligations did not apply to Qualcomm because it had not participated in the JVT prior to the adoption of H.264. During trial, however, it came out that, although Qualcomm never made a technical proposal to the JVT, Qualcomm had indeed participated in the JVT prior to adoption. Qualcomm and certain of its attorneys were sanctioned for concealing documents and misrepresenting facts related to its participation in the JVT.

The district court found that the ’104 and ’767 patents were not invalid, but also not infringed by Broadcom. Based on the evidence of Qualcomm’s participation in the JVT, the district court further found that Qualcomm had breached its duty to disclose the ’104 and ’767 patents to the JVT. As a remedy, the district court ordered the ’104 and ’767 patents (and related patents) unenforceable against the world. Based on Qualcomm’s “bad faith participation” in the JVT and its litigation misconduct in failing to disclose its participation in the JVT, the district court awarded Broadcom its attorneys’ fees under 35 U.S.C. § 285.

On appeal, the Federal Circuit found that the “threshold dispute” was whether the JVT’s policies imposed any disclosure duty on participants, like Qualcomm, who did not submit a technical proposal to the JVT. The Court first examined whether written JVT policies imposed any such disclosure obligations. The Federal Circuit disagreed with the district court, which had found that the written policies did not impose such a duty. The Court instead agreed with Broadcom that the JVT’s written policies required participants to use “best efforts” to disclose their IP rights, regardless of whether they submitted a technical proposal. The Court further found that the written policies of the JVT’s parent organization required all participants to identify patents “embodied fully or partly” in a standard under consideration.

Moreover, to the extent the written policies were ambiguous, the Court agreed with the district court’s determination that participants had treated the JVT policies as imposing a duty to disclose on all participants. Therefore, even if the SSO’s written policies were themselves ambiguous, “[the] conclusion as to the disclosure obligations of JVT participants would nonetheless be the same . . . because the language of the [written] policies coupled with the district court’s unassailable findings and conclusions as to the JVT participants’ understanding of the policies further establishes that the policies imposed disclosure duties on participants (apart from the submission of technical proposals).” Slip op. at 16.

Having concluded that Qualcomm owed a duty of disclosure to the JVT, the Court next examined the scope of that duty. The written JVT disclosure policies referred to IP “associated with” any standardization proposal or “affecting the use” of JVT work. Following the reasoning in Rambus Inc. v. Infineon Technologies AG, 318 F.3d 1081, 1096 (Fed. Cir. 2003), the Federal Circuit agreed with the district court that the JVT policy was properly construed as requiring participants to disclose patents that “reasonably might be necessary” to practice the standard. The Court, however, rejected Qualcomm’s attempt to characterize the Rambus standard to mean that “it must be reasonably clear at the time that the patent or application would actually be necessary to practice the standard.” Slip op. at 19 (quoting Appellant’s Reply Br. 20). Instead, the Court clarified that the Rambus standard is an objective one, and applies “when a reasonable competitor would not expect to practice the . . . standard without a license under the undisclosed claims.” Id. at 20.

The Court next addressed the question of whether Qualcomm breached its duty to the JVT. The Court noted that it was undisputed that Qualcomm did not disclose the ’104 and ’767 patents to the JVT prior to the release of the standard. Qualcomm argued that the finding of noninfringement with respect to Broadcom’s H.264-compliant products precluded any finding that the patents “reasonably might be necessary” to practice the standard. The Court, however, found this argument to be impossible to reconcile with Qualcomm’s complaint accusing Broadcom’s products of infringing solely because they practiced the standard. The Court further noted that Qualcomm admitted that it had not presented evidence that it made any efforts to disclose patents associated with the H.264 standard prior to its release, “much less best efforts” as required by the JVT policies. The Court concluded that the district court did not err in finding that Qualcomm breached its disclosure duty by failing to disclose the ’104 and ’767 patents to the JVT prior to the release of the H.264 standard.

Turning to the consequences of Qualcomm’s breach, the Court agreed with Qualcomm that its JVT misconduct did not amount to “true waiver,” i.e., the intentional relinquishment of a known right. “[R]ather than establishing that Qualcomm intentionally relinquished its rights, the district court’s findings demonstrate that Qualcomm intentionally organized a plan to shield its patents from consideration by the JVT, intending to later obtain royalties from H.264-compliant products.” Id. at 24. However, the Court found that, under these circumstances, it was within the district court’s authority, sitting as a court of equity, to determine that Qualcomm’s silence in the face of its disclosure obligations fell within the doctrine of implied waiver.

The Court rejected Qualcomm’s argument that, because waiver was pled as an affirmative defense, it could not result in a judgment of unenforceability. Analogizing Qualcomm’s litigation misconduct to postissuance patent misuse, the Court held that “a district court may in appropriate circumstances order patents unenforceable as a result of silence in the face of an SSO disclosure duty, as long as the scope of the district court’s unenforceability remedy is properly limited in relation to the underlying breach.” Id. at 35. In this case, the Court found that the district court’s remedy—rendering the patents unenforceable against the world—was not limited to Qualcomm’s misconduct before the JVT. Based on the district court’s findings, the Court found that “the broadest permissible unenforceability remedy in the circumstances of the present case would be to render the ’104 and ’767 Patents [and related patents] unenforceable against all H.264-compliant products . . . .” Id. at 36. Accordingly, the Court vacated the district court’s unenforceability judgment and remanded with instructions to limit the unenforceability remedy to H.264-compliant products.

Finally, the Court rejected Qualcomm’s argument that the case could not be found to be exceptional under 35 U.S.C. § 285 based on Qualcomm’s bad-faith business conduct prior to litigation. Although the Court found Qualcomm’s litigation misconduct alone sufficient to support the district court’s exceptional case determination, “in the circumstances of the present case it was not error for the district court to additionally consider the related JVT misconduct, which was an important predicate to understanding and evaluating the litigation misconduct.” Id. at 38.