Standard setting organizations (“SSOs”) are a common mechanism for innovators in a field to join together, vet proposals for a new or modified form of technology, and collaboratively form a blueprint or standard for the commercial development of such technology. Most SSOs have rules that require participants to agree to license any patent rights essential to practice the standard on so-called reasonable and non-discriminatory terms (“RAND” or, adding fair, FRAND terms). In this regard, SSOs and the patent licensing that follows SSO activity has been viewed as pro-competitive by the courts, which have recognized the economic benefits of such activity. However, where a patent owner refuses to license applicable patents, or is only willing to do so at an unreasonably high rate, it can block the standard-compliant technology, and in the words of one court, “hold-up” the industry.2
One instance where a patent hold-up can occur is when an SSO participant does not fully disclose its own patent rights relevant to practice the standard. What if an SSO participant discloses its existing patent rights, but then does not disclose any patent applications that it files after leaving the SSO? The Court of Appeals for the Federal Circuit addressed such a situation last year in Hynix v. Rambus case.3 With the Supreme Court recently declining to review the decision, this case article reviews the current state of the law governing the intersection of SSOs and patent rights.
Standard setting organizations can be important because they provide a public benefit from the adoption of standards in the marketplace. Federal courts have recognized that standards are important for many reasons:
“First, they facilitate the adoption and advancement of technology as well as the development of products that can interoperate with one another. Standards also lower costs by increasing product manufacturing volume, and they increase price competition by eliminating “switching costs” for consumers who desire to switch from products manufactured by one firm to those manufactured by another. They also lead to earlier adoption of new technology.”4
When a standard is successful, companies that produce products and services according to a standard may utilize the standard for a relatively long period of time. One reason is cost. As noted by one court, “Industry participants who have invested significant resources developing products and technologies that conform to the standards will find it prohibitively expensive to abandon their investment and switch to another standard.”5
An inherent corollary to the adoption of standards is the creation of “essential patents” – i.e. patents that must be practiced because they claim the technologies incorporated by the standard. Where essential patents are appropriately identified and fairly licensed (e.g., by way of a collective RAND-based patent pool or licensing arrangement) there can be significant pro-competitive benefits that have been recognized by the courts and U.S. Department of Justice.6 However, where a patent owner chooses to not participate in such licensing, an essential patent can obtain undue significance, and its owner market power. To protect against this, many SSOs have policies that require disclosure and licensing of such patents:
“In order to reduce the likelihood that owners of essential patents will abuse their market power, SDOs have adopted rules, policies, and procedures that control the disclosure and licensing of essential patents. These rules, policies, and procedures are known as intellectual property rights policies (“IPR policies”). IPR policies usually require owners of essential patents to commit to license those patents on fair, reasonable, and nondiscriminatory (“FRAND”) terms. These “FRAND commitments” are intended to prevent owners of essential patents from acquiring too much of the market power that would otherwise be inherent in owning an essential patent.”7
If an SSO participant does not disclose that patent, then the participant may be precluded from asserting the patent at a later date.8 However, sometimes even these disclosure and licensing policies will not protect against SSO participants who do not disclose all their prospective patent activities. One recent Federal Circuit case that addressed this issue is the Hynix v. Rambus case.
Hynix v. Rambus
In the 1990s, Rambus filed a series of patent applications related to dynamic random access memory (“DRAM”),9 including U.S. Patent Application Serial Number 07/510,898 (the “‘898 application”) on April 18, 1990.10 In February 1992, Rambus became a member of the Joint Electron Devices Engineering Council (“JEDEC”),11 a standard setting organization that develops standards to facilitate the compatibility of semiconductor components produced by different manufacturers. The members of JEDEC meet in committees to discuss proposed features to include in the standard, and then vote for which features to incorporate.
JEDEC policies “required members to disclose patents and patent applications ‘related to’ the standardization work of the committees.”12 In compliance with these policies, Rambus disclosed one patent, U.S. Patent No. 5,243,703 (the “‘703 patent”), which claims priority to the ‘898 application.13 During the period when Rambus was a member of JEDEC, the organization adopted SDRAM as a standard for computer memory technology.
Rambus resigned from JEDEC in June 1996, and thereafter prosecuted continuation applications from the ‘898 application, which it did not disclose to JEDEC.14 Rambus later asserted these patents against JEDEC members for manufacturing standard-complaint DRAM technology. The patents-in-suit had a substantially similar specification to the ‘703 patent, differing only in the claims.15 In Rambus’s patent infringement action against Hynix, the jury returned a verdict that Rambus’s patents were not invalid and that Hynix infringed the patents.16
Equitable Estoppel and Implied Waiver
On appeal, the Federal Circuit affirmed the district court’s conclusion that Rambus did not waive its right to assert its patents, and was not equitably estopped from litigating against standard-compliant DRAM technology.17 The court recognized that a participant in a standard setting organization may be equitably estopped or may have impliedly waived its right to assert infringement claims against standard-compliant products,18 but held that Rambus was not precluded by either legal doctrine.
According to the court, to support a finding of implied waiver in the context of a standard setting organization, the defendant must show that “[the patentee’s] conduct was so inconsistent with an intent to enforce its rights as to induce a reasonable belief that such right has been relinquished.”19 To support a finding of equitable estoppel, the defendant must show that “[the patentee], through misleading conduct, led the alleged infringer to reasonably infer that the patentee does not intend to enforce its patents against the alleged infringer.”20 Conduct supporting implied waiver and equitable estoppel can be shown where “(1) the patentee had a duty of disclosure to the standard setting organization, and (2) the patentee breached that duty.”21
The Federal Circuit held that “participation in JEDEC imposed a duty to disclose pending applications and issued patents ‘with claims that a competitor or other JEDEC member reasonably would construe to cover the standardized technology.’”22 However, the court also held that Rambus did not breach the duty of disclosure,23 based on two principal findings: (1) the continuation applications which led to the patents-in-suit were filed after Rambus left JEDEC in 1996, and (2) the pending applications (i.e. the applications pending during Rambus’s JEDEC tenure) did not have claims that read on the SDRAM standard:
“This court unequivocally held that the claims pending or issued during Rambus’s JEDEC tenure were not necessary to practice the standard because ‘substantial evidence does not support the finding that these applications had claims that read on the SDRAM standard.’…The phrase ‘these applications’ did not refer to the patents-at-issue, but to Rambus’s pending and issued patents during its tenure in the standard setting organization. Thus, there is no inconsistency in alleging that the claims pending during Rambus’s participation in JEDEC were not reasonably necessary to practice the standards, but that the claims prosecuted after Rambus’s exit from JEDEC were.”24
In short, the court refused to penalize Rambus for influencing the adoption of a standard by an SSO, subsequently leaving the SSO, and then filing continuation patent applications without disclosing such later filed applications to the SSO.
After the Federal Circuit’s ruling, Hynix filed a petition to the Supreme Court challenging the Federal Circuit decision under the principles of equity recognized in Miller v. Brass Co., 104 U.S. 350 (1882) and Woodbridge v. United States, 263, U.S. 50 (1923).
Supreme Court Petition: Woodbridge and Miller
In its petition to the Supreme Court, Hynix argued that the Miller and Woodbridge cases make clear that, under the patent laws, “profits must result from innovation, not from examining the innovation of others and then adjusting and effectively backdating patent claims.”25 Hynix noted that these cases “strongly suggest that the patentee has no right to manipulate the cooperative efforts of industry SSOs to reap awards based on the innovation of others.”26
In Woodbridge, the Supreme Court held that an inventor who deliberately and unlawfully delays the beginning of the term of his monopoly forfeits his rights as an inventor.27 After the Patent Office agreed to allow the patentee’s claims, the patentee requested that the papers be filed in the secret archives of the office, presumably under a statute that allowed the patent to be held in secret for a period of one year.28 After the papers were filed in the secret archives, nothing was done for almost ten years, when the patentee finally requested that the Patent Office issue the patent.29 The patentee himself admitted that the reason for his delay in requesting the issue of the patent was that this would “enable him to avail himself of the value of the patent” by “deferring the issue of the patent to a time when it could be brought into practical use.”30 The Supreme Court appeared to decide the case on the basis that the inventor himself disclosed that he was “deliberately delaying the issue of his patent.”31 The Court noted that an inventor “may forfeit his rights” by “an attempt to withhold the benefit of his improvement from the public until a similar or the same improvement should have been made and introduced by others.”32
In Miller, the patentee attempted to file a reissue fifteen years after the original patent had issued on the grounds that the claims in the reissue were left out of the original patent by inadvertence and mistake. The Supreme Court did not accept the patentee’s explanation for the omission, noting that “[t]he pretence in this case that there was an inadvertence and oversight which had escaped the notice of the patentee for fifteen years is too bald for human credence.”33 The Court further noted that “[i]t will not do for the patentee to wait until other inventors have produce new forms of improvement, and then, with the new light thus acquired, under pretence of inadvertence and mistake, apply for such an enlargement of his claim as to make it embrace these new forms.”34 Due to the unreasonable delay in Miller, the Supreme Court based its decision on the rule of laches; however, the Court’s reasoning in the case was consistent with a finding of implied waiver.35
In its opposition to Hynix’s petition to the Supreme Court, Rambus argued that the Court’s holding in both the Woodbridge and Miller cases was based on the fact that “the patent holder had engaged in fraud before the Patent Office.36 Rambus noted though that “[u]nlike in Miller and Woodbridge, the basis for the challenge here is not that Rambus misled the PTO or even that Rambus’s conduct violated a federal patent statute.”37 Instead, Hynix only contended that Rambus violated the disclosure obligations to JEDEC, a private organization. However, the Federal Circuit had rejected this theory as inconsistent with the facts. Instead, “the Federal Circuit reaffirmed the conclusion that Rambus had concealed no information subject to a disclosure duty.”38 Rambus argued that for this reason, the case was different from the situations in both the Miller and Woodbridge cases.
On February 21, 2012, the Supreme Court denied Hynix’s petition.39 Accordingly, the import of the Miller and Woodbridge cases on an SSO participant who leaves an SSO and obtains additional patent rights that were not disclosed to the SSO remains uncertain.40
International Trade Commission Investigation
In a recent International Trade Commission investigation, the Respondents41 also argued that Rambus should be precluded from enforcing its patents under equitable estoppel and waiver. In the initial determination, the ALJ rejected the Respondents’ argument in light of the Federal Circuit’s holding in the Hynix v. Rambus case. The ALJ noted that “this defense has already been considered and rejected by the Federal Circuit” and the “Respondents have failed to present any new evidence that would change the analysis.” Certain Semiconductor Chips and Products Containing Same, Inv. No. 337-TA-753, 2012 WL 927056, at *128-130 (March 2, 2012). In rejecting the Respondents’ defense, the ALJ did not address the principles of equity raised in the Miller and Woodbridge cases. Id.
Since the Supreme Court declined to review the Hynix v. Rambus case, it appears that patent owners have some room in deciding whether to disclose post-SSO patent applications to the SSO. However, the decision (or oversight) to not disclose relevant post-SSO patent filings to the SSO is not without risk of a challenge to the enforceability of any patents issuing from such post-SSO activity, particularly if the facts align with those in the Miller or Woodbridge cases. Prudent patent owners should consider those risks when filing patent applications relating to their company’s prior SSO activities.