The U.S. International Trade Commission (ITC) recently released the public version of its decision in an investigation of whether Arista infringes Cisco patents, rejecting Arista’s defense and public interest arguments that the patents allegedly cover a de facto standard and are subject to a FRAND obligation. Arista’s defense was based on Cisco’s submission to IETF of a request for comments document (RFC 5517), which stated it was not a standard, along with a commitment by Cisco to license patents on FRAND terms IF (1) RFC 5517 was adopted as a standard AND (2) the patents are essential to practice such standard. The ITC rejected Arista’s de facto standard defense because, among other things, there was no evidence that RFC 5517 was adopted as an industry standard or that the patents-in-suit covered RFC 5517, both of which were preconditions under Cisco’s commitment to IETF before triggering a FRAND obligation.
In December 2015, Cisco Systems, Inc. (Cisco) filed a complaint alleging that certain network devices (switches) imported by Arista Networks, Inc. (Arista) infringed several Cisco patents directed to computer networks. Arista raised several equitable defenses based, in part, on allegations that Cisco submitted a request for comments document RFC 5517 to IETF and promoted RFC 5517 to the public generally as an “informal standard” for private virtual local area networks (PVLANs) for which Cisco would not assert its patents or would license on fair, reasonable and non-discriminatory (FRAND) terms based on Cisco’s IPR disclosures to IETF. Judge Shaw’s Initial Determination (PUBLIC) rejected this “de facto standard” defense, which was raised based on equitable theories of equitable estoppel, implied license, waiver, patent misuse and laches.
Judge Shaw rejected Arista’s equitable estoppel argument, which required Arista to “prove by a preponderance of the evidence that (1) Cisco, through misleading conduct, led Arista to reasonably believe that Cisco did not intend to enforce its patents against Arista; (2) Arista relied on that conduct; and (3) due to its reliance, Arista would be materially prejudiced if Cisco were permitted to proceed with its charge of infringement.” Judge Shaw found that, in generally considering estoppel, there was no misleading conduct by Cisco, because it had taken affirmative steps to assert its patents against others after learning of infringing activities and, in this case, Cisco sued Arista about seven months after learning of Arista’s infringement.
Judge Shaw also found that Cisco’s actions had not led Arista to believe that Cisco would not assert its patents, stating:
[T]he evidence fails to establish that encouraging adoption of a product in the industry creates any licensing obligation for patents related to that product. Evidence …. shows that RFC 5517 is not a standard and was never submitted to any standard setting organization for adoption. Specifically, each published version of RFC 5517 states that it is an informational submission and not standards-track. Moreover, Cisco’s intellectual property rights disclosure related to RFC 5517 states that a license would be required to practice any related patents unless (1) the technology were adopted as an IETF standard, and (2) the patents were necessary to the adoption of the standard. Inasmuch as neither of these conditions were satisfied, Arista could not reasonably believe based on RFC 5517 that Cisco intended to refrain from enforcing its intellectual property rights.
Judge Shaw also found there was no reasonable reliance by Arista to support an equitable estoppel defense. The basis for that finding is heavily redacted, leaving the conclusion that there “was no express or implied communication or relationship between Cisco and Arista that could have led Arista into a false sense of security, and any reliance under the circumstances would be unreasonable.”
Judge Shaw further found that Arista had not shown prejudice based on a “change of economic position.” Arista argued that it had made substantial investments in the products and developed a substantial user base. But Judge Shaw found there was no evidence that “Arista would have taken different actions had it known about Cisco’s patents, such as decreasing its expenditures.”
Judge Shaw rejected Arista’s implied license defense. He explained that the main difference between implied license and equitable estoppel is that “implied license looks for an affirmative grant of consent or permission to make, use, or sell: i.e., a license.” Thus, Arista was required to show that “Cisco engaged in language or conduct allowing Arista to properly infer that Cisco consented to the use of Cisco’s patents, and that Arista acted upon that consent.” But Arista made no such showing, as discussed above for the equitable estoppel defense.
For similar reasons, Judge Shaw rejected Arista’s waiver defense, which is the “intentional relinquishment or abandonment of a known right.” Judge Shaw explained the waiver defense in the standards setting context as follows:
To support a finding of implied waiver in the standard setting organization context, the accused must show by clear and convincing evidence 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. This can be shown by proving that the patentee breached a duty of disclosure to the standard setting organization. [citing Hynix Semiconductor Inc. v. Rambus, Inc., 645 F.3d 1336, 1348 (Fed. Cir. 2011)].
In this case, Cisco’s IPR disclosure “explicitly states that a licensing obligation arose only if the technology were adopted as a standard, which never occurred.” Thus, “[a]ny reliance Arista placed on the assumption that PVLAN technology was an industry standard subject to SSO obligations was not reasonable.”
Judge Shaw rejected Arista’s patent misuse argument, which requires a showing that the patent owner “impermissibly broade[ned] the physical or temporal scope of the patent grant and has done so in a manner that has anticompetitive effects.” Arista argued that Cisco had done so here “by asserting its patents against Arista without offering” a FRAND license. But Judge Shaw found that the evidentiary record shows that “Cisco has no obligation to license its patent on FRAND terms, because it made no such contractual undertaking.”
Judge Shaw rejected Arista’s laches defense, which required Arista to prove that: “(1) Cisco delayed in bringing an infringement lawsuit for an unreasonable and inexcusable length of time from when it knew or reasonably should have known of its infringement claim against the accused infringer [Arista]; and (2) the delay caused material prejudice to the defendant [Arista].” A six year delay raises a presumption of laches, which can be rebutted by showing the delay was reasonable or the defendant was not prejudiced. The delay period starts when the patent owner has actual or constructive knowledge of the defendant’s infringement.
In this case, Cisco sued Arista within seven months of learning of the infringement. Further, as with equitable estoppel, Arista had now shown material prejudice by any delay.
Full Commission Decision
The full Commission decided to review Judge Shaw’s Initial Determination, and requested that the parties provide comments on several areas, including those concerning Arista’s de facto standard defenses:
10. Please discuss whether the “materially prejudiced” requirement has been satisfied here for purposes of laches and equitable estoppel. …
16. With respect to the public interest factors, please discuss the facts in the record pertaining to the following: (1) whether RFC 5517 is a de facto industry standard; (2) whether the ‘592 and ‘145 patents are essential to an industry standard; (3) whether licensing obligations apply to RFC 5517; (4) whether Cisco complied with any licensing obligations with respect to an industry standard; and (5) whether patent hold-up and/or patent hold-out have been demonstrated in the record of this investigation. See Respondent Arista’s Public Interest Submission Under 210.50(a) at 4-5 (march 17, 2016). Provide an analysis as to how these issues relate to the statutory public interest factors of Section 337(d) and (f), 19 U.S.C. § 1337(d), (f).
17. For purposes of the analysis of the statutory public interest factors, describe in detail the specific course of conduct on the part of Cisco, or other factors, that would support a finding that F/RAND commitments have arisen with respect to the ‘592 and ‘145 patents here. How does the RFC 5517 document factor into the analysis since it specifically states that what is described with respect tot he ‘592 and ‘145 patents is not a standard? Arista argues that Cisco “never offered Arista a chance to license this de facto standard used by Cisco’s other networking competitors.” Respondent Arista’s Public Interest Submission Under 201.50(a) at 5. Describe in detail any attempts that Arista made to license the ‘592 an ‘145 patents from Cisco. Please describe Cisco’s response to these attempts.
The Commission reviewed Arista’s de facto standard defenses under its public interest analysis–i..e, whether the public interest precludes granting exclusionary relief– which de facto standard defense was the only public interest that Arista raised. Arista admitted that RFC 5517 “is not a de jure standard,” but argued Cisco’s actions regarding RFC 5517 “should be found to be a de facto standard and that the PVLAN patents are essential.”
The Commission noted Cisco testimony indicating that “the intent of RFC 5517 was not to have others adopt PVLAN, but if they did, that they could see how the technology should behave.” Further, although Cisco’s competitors have PVLAN functionality, there is “no evidence that they adopted or relied on RFC 5517 or the PVLAN patents” and competitors “are not required to practice the PVLAN patents or RFC 5517 because they are not part of a formal standard.” Thus, “[t]he mere fact that others in the industry offer PVLAN functionality, without more, does not demonstrate that they practice RFC 5517, the PVLAN patents, or that PVLAN is a de facto standard.” RFC 5517 is not a de facto standard “without further action by Cisco to encourage others to adopt RFC 5517 or evidence that the industry has adopted RFC 5517 as a standard.”
The Commission also found that there was no evidence that patent hold-up has occurred or “is likely to occur”, stating:
In particular, there is nothing on the record demonstrating the existence of an industry standard or that Cisco had an obligation to offer licenses with respect to the PVLAN patents on a fair, reasonable and non-discriminatory basis. Consequently, there are no public interest concerns barring the issuance of a remedy in this investigation.
In context, the statement indicates that, for patent holdup to occur in the standard-setting context, both a standard and FRAND obligation must exist, but are not all that is required to establish holdup.