Judge Gilstrap recently entered an Order that rejected various defenses raised by Metaswitch based on the prior patent owner’s (Nortel) activities in standards organizations CableLabs, the Internet Engineering Task Force (“IETF”) and the International Telecommunication Union (“ITU”). The decision highlights the importance of considering the specific language of the standard setting intellectual property rights (“IPR”) policy and patent owner commitment at issue as well as the importance of showing that the standard incorporates the patented technology and is implemented in the accused infringing products.
For example, under the wording of the specific CableLabs IPR Agreement at issue, Judge Gilstrap ruled that (1) an entities’ commitment only applied to intellectual property (e.g., patents or applications) it owned at the time the entity made the commitment and did not apply to intellectual property that the entity later acquired and (2) a subsidiary’s intellectual property commitment did not obligate its parent entity. Thus, although one of Nortel’s subsidiary’s that owned no patents participated in the CableLabs standards process, Nortel could hold (and later sell) patents relevant to the CableLabs standard without those Nortel patents being subject to the royalty-free licensing obligation that CableLab’s otherwise required of participants.
Further, Judge Gilstrap ruled that the accused infringer failed to show one or more material parts of the alleged standard setting obligation, such as showing that (i) the standard setting document at issue was actually an adopted standard subject to an obligation (e.g., not an expired draft or request for comment), (ii) the patented technology was incorporated into the standard (e.g., the patent claims actually are “essential” to the standard), and (iii) the accused products actually implement the standard and patented technology. The latter requirement — e.g., show that the accused products implement the patented technology within the standard — can be particularly problematic, because accused infringer’s generally deny infringement (usually a first line of defense) and are reluctant to undermine that defense by arguing that the claims read onto their product in order to support a lower priority defense, such as the standard essential patent defenses raised here.
The decision also provides incremental insight into common equitable defenses raised in standard essential patent cases: laches, equitable estoppel, implied waiver, and implied license. In this case, the circumstances that lead to a failure to establish breach of an expressed standard setting commitment also doomed the equitable defenses as well. Perhaps this is not too surprising, because equity generally does not step-in when there is an adequate remedy at law–e.g., enforcement of a contractual obligation that sets the rights, obligations and expectations of the parties. This further bolsters the importance of the language used in the specific standard setting IPR policy and specific patent owner commitment at issue when determining rights and obligations under standard essential patents subject to a standard setting obligation.
In 2010, Genband acquired Nortel Network, Inc.’s (“Nortel”) Carrier VoIP and Application Solutions (“CVAS”) business, which included patents later asserted in this litigation. A Nortel subsidiary, Nortel Networks Cable Solutions, Inc. (“NNCSI”), had been active in the standard setting organization Cable Televsisions Laboratories, Inc. (“CableLabs”) that, among other things, was working on a PacketCable specification to set an IP protocol for transmitting telephone calls and other packet-based voice and video services over cable networks. Nortel had owned patents relevant to that technology; in contrast, Nortel’s subsidiary NNCSI did not own any patents, but did have personnel knowledgeable about the technology. Nortel itself also had participated in the activities of standard organizations IETF and ITU.
In January 2014, Genband filed a patent infringement suit alleging that Metaswitch’s telecommunication products infringe seven patents. In January 2016, the court held a jury trial that concluded with a jury verdict finding that all asserted patent claims were valid and infringed and awarding $8.1 million in damages. Judge Gilstrap initially entered final judgment of infringement based on the jury verdict, but later set aside that judgment pending a bench trial and decision on Metaswitch’s equitable defenses. His recent decision following that bench trial is the subject of this blog post.
Judge Gilstrap reviewed and rejected several defenses that Metaswitch raised based on alleged obligations arising from Nortel (prior patent owner) or Genband (current patent owner) participation in standard organizations CableLabs, IETF and ITU.
CableLabs-NNCSI IPR Agreement
Judge Gilstrap considered and rejected defenses raised by Metaswitch based on the terms of an IPR Agreement (PX272) that NNCSI and CableLabs executed in early 2000.
Applies Only To Patents Owned At Time IPR Agreement Was Executed
Judge Gilstrap found that the license grant within the CableLabs-NNCSI IPR Agreement applied only to patents that NNCSI owned at the time the agreement was executed, and did not apply to any of the patents-in-suit. Section 1.h of the IPR Agreement defined the “Licensed Technology” to include “Licensed Claims … included in any version of the Published Specification.” Section 1.e of the IPR Agreement defined “Licensed Claims” to be “the claims of all patents and patent applications … entitled to an earliest priority date prior to December 31, 1999, as to which CableLabs or Vendor-Author [i.e., NNCSI] or its current Affiliates, as the case may be, has the right to grant licenses ….” Section 4.a of the IPR Agreement set forth a royalty-free license grant, which Judge Gilstrap found to cover Licensed Claims that NNCSI owned at the time it executed the agreement based on the wording of the Section 1.e definition of Licensed Claim (shown above) and Section 4.a, which states as follows:
[Section 4.a] Grant of License. With respect to any Licensed Technology owned by Vendor-Author or CableLabs (or as to which CableLabs or Vendor-Author or its current Affiliates, as the case may be, has the right to grant licenses of the scope granted herein) that is incorporated into any version of a Published Specification, Vendor-Author and CableLabs grant to each other and to each other Participant, and to all of their Affiliates, subject to the terms and conditions of this Agreement, a nonexclusive, fully-paid, royalty-free, non- transferable, non-sublicensable (except for a limited right to sublicense end-users to use the interface portions of Licensed Products, subject to the limitations set forth herein, and as provided for in Section 4(b)), worldwide, perpetual license under its Licensed Claims, along with all Licensed Know-how included in any version of the Published Specification (subject to the right to withdraw under Section 6(b)), to make, have made, use, reproduce, market, import, offer to sell and sell, and to otherwise distribute the interface portions of Licensed Products, provided that such license shall not extend to features of a product which are not required to comply with the Specification. In the event this license is terminated, end-user licenses in effect at the time of such termination shall remain in full force.
Judge Gilstrap found that Patent Claims acquired after the agreement was entered were not part of the Section 4.a license grant, but were addressed in other sections of the IPR Agreement, such as Section 4.c “Grant of Future-Acquired Rights,” and section 4.d “Rights to Newly Developed IPR”, which state as follows:
[Section 4.c] Grant of Future-Acquired Rights. Section 3(a) of the form of License Agreement
provides for a license from sublicensees to CableLabs of any patent claims of sublicensees
that may be in any version of the Published Specification. CableLabs grants to each Participant a non-exclusive, non-transferable, worldwide, perpetual, fully-paid, royalty-free sublicense to any such patent claims it may be granted by sublicensees pursuant to Section 3 of the License Agreement.
[Section 4.d] Rights to Newly-Developed IPR. Unless otherwise agreed to in writing, VendorAuthor agrees that if it is asked to develop new technology related to the Specification and it actually submits such new technology, or it jointly develops such new technology with CableLabs or any of the Participants in the course of drafting and reviewing the proposed Specification, Vendor-Author agrees to assign such new technology, effective upon any withdrawal from this joint development process pursuant to Section 6(b) hereof, jointly to itself and such joint development Participants or CableLabs, as the case may be, and such new technology shall be licensed pursuat to Section 4(a) hereof; provided, however, that prior to such withdrawal CableLabs and the Vendor-Author shall identify to the other in writing the technology as to which they assert joint ownership rights. All derivative works created by the Vendor-Author that embody technology created solely or owned by such Vendor-Author shall be owned exclusively by such Vendor-Author.
Does Not Apply To Parent Entities
Judge Gilstrap found that the CableLabs-NNCSI IPR Agreement applied only to patents that NNCSI and its subsidiary’s owned, but did not apply to patents owner by Nortel or other parent entities. The is because the Section 4a license grant applied only to patents owned by NNCSI “or its current Affiliates,” and Section 1.b of the IPR Agreement defined “Affiliate” as follows:
[Section 1.b] “Affiliate” is an entity which directly or indirectly is controlled by another entity. Control for the purposes of this Agreement shall mean beneficial ownership of more than fifty percent of the voting stock or equity in an entity.
Judge Gilstrap, therefore, construed “Affiliate” as being “limited to an entity ‘controlled by another entity’ and does not include an entity that controls another entity” and “[t]hus, an ‘Affiliate’ includes only subsidiary entities as opposed to parent entities.”
Judge Gilstrap also rejected an “alter ego” argument that would have bound Nortel to its subsidiary NNCSI’s IPR Agreement obligation. He ruled that such an argument typically is made to bind a parent company to a judgment against a subsidiary, but there is no such judgment here. The alter ego argument could not be used to re-write the terms of the IPR Agreement to encompass NNCSI’s parent Nortel.
Judge Gilstrap further found that there was no fraud or similar injustice sufficient to pierce the corporate veil and extend the IPR Agreement to Nortel. CableLabs knew that Nortel itself “was not the signatory to the Agreement and that the signatory (NNCSI) did not own a patent portfolio.” This structure was fair, because Nortel’s would not benefit from its products being licensed had it signed the agreement and CableLabs still benefited from the engineering technical contribution of NNCSI:
3. The Agreement contains fair and mutual consideration, i.e., Nortel Networks Limited gave up the right to have its products licensed in exchange for avoiding having the claims of its patents automatically licensed to others. In fact, CableLabs benefited from NNCSI’s participation by, among other things, having the helpful input of its engineers in the standards-making process; that is why it was willing to enter into the deal.
A CableLabs witness also testified that there was no fraud and that other entities could do–and had done–the same thing (i.e., use subsidiary entities to sign the IPR agreement without obligating the parent). Further, NNCSI had correspondence with CableLabs confirming that NNCSI was the only Nortel entity that participated in the PacketCable project.
Further, Judge Gilstrap found that defendant Metaswitch itself knew or should have known that NNCSI was the only Nortel entity that signed the CableLabs IPR Agreement. For example, CableLabs published a list of the signatories to the CableLabs IPR Agreement on its website. NNCSI was the only Nortel entity identified on that list both before and after Metaswitch signed the IPR Agreement. A Metaswitch witness testified that he knew that Nortel had many entities and he could have looked at CableLabs’ website to see which Nortel entities had entered the IPR Agreement. Thus, Judge Gilstrap found that Metaswitch “provides no evidence from which it was reasonable for Metaswitch to conclude that any Nortel entities other than NNCSI signed the CableLabs IPR Agreement.” And he further found that Metaswitch knew or should have known that the CableLabs IPR Agreement did not impose obligations on parent entities–i.e., that NNCSI’s execution of the IPR Agreement imposed no obligations on NNCSI’s parent entity Nortel, which had owned patents at issue in this lawsuit.
IETF Statement on Patent Licensing by Nortel
Metaswitch asserted it was entitled to a license under three asserted patents based on Nortel’s May 2000 Statement on Patent Licensing (DX417) submitted to IETF, which states in relevant part:
This letter affirms Nortel Networks Limited (Nortel Networks) position with respect to patents that are necessary to IETF standards or specifications. Individuals employed by Nortel Networks are involved in various working groups of the IETF. As a backdrop to any and all such activities, and in accordance with RFC 2026, Nortel Networks provides the following general statement:
Nortel Networks may seek patent rights on technology described in a document which Nortel Networks contributes for use in IETF standards discussions or standards track specifications. If such patented technology is essential for the implementation, use, and distribution, of an IETF standard, Nortel Networks is willing to make available nonexclusive licenses on fair, reasonable, and non-discriminatory terms and conditions, to such patent rights it owns, solely to the extent such technology is essential to comply with such IETF standard.
Judge Gilstrap ruled that, to be entitled to a FRAND license based on Nortel’s IETF Statement, Metaswitch must show the following:
- Nortel contributed a document for use in IETF standards discussions or standards track specifications describing technology for which Nortel had or later obtained patent rights;
- the relevant patent claim “is essential for the implementation, use, and distribution of an IETF standard;” and
- Metaswitch’s accused products comply with the IETF standard.
Judge Gilstrap found that Metaswitch had not satisfied any of those three requirements.
- Metaswitch had not shown that Nortel contributed a document to IETF describing the patented technology. Judge Gilstrap ruled that “[t]he license grant is tightly linked to Nortel Networks Limited’s contribution to the standard.” But Metaswitch “did not introduce any document that Nortel contributed and did not offer witness testimony about any such document,” much less show that the patented technology was described in such a document.
- Metaswitch failed to show that the patent claims were essential to an IETF standard. Rather, Metaswitch was reading patent claims onto an expired IETF “Internet Draft” and IETF RFC 3725 (best practices in particular VoIP technology), neither of which were an IETF standard.
- Metaswitch failed to show that its accused infringing products comply with an IETF standard (even assuming the “Internet Draft” and RFC were standards). Metaswitch’s corporate representative testified he was not claiming that Metaswitches products practice the alleged standards, and its expert witness was silent on the issue or merely said that the Metaswitch technology was “very similar to” the alleged standards.
ITU Q.12xx Series Recommendations IPR Statements by Nortel
Judge Gilstrap found that Metaswitch had not shown it was entitled to a FRAND license under ITU Q.12xx Series Recommendations based on standard check-box forms of General Patent Statement and Licensing Declaration submitted by Nortel in November 1999 (DX423) or October 2007 (DX424) (collectively, “ITU Declarations”), which declarations stated in relevant part:
[November 1999 (DX423)] In case part(s) or all of any proposals contained in contributions submitted by the organization above [Nortel Networks Corporation] are included in ITU-T Recommendation(s) and the include part(s) contain items that have been patented or for which patent applications have been filed and whose use would be required to implement ITU-T Recommendation(s), the above Patent Holder hereby declares … The Patent Holder is prepared to grant — on the basis of reciprocity for the relevant ITU-T Recommendation(s) — a license to an unrestricted number of applicants on a worldwide, non-discriminatory basis and on reasonable terms and conditions.
[October 2007 (DX424)] In case part(s) or all of any proposals contained in Contributions submitted by the Patent Holder above [Nortel Networks Limited] are included in ITU-T/ITU-R Recommendation(s) and the included part(s) contain items that have been patented or for which patent applications have been filed and whose use would be required to implement ITU-T/ITU-R Recommendation(s), the above Patent Holder hereby declares … The Patent Holder is prepared to grant a license to an unrestricted number of applicants on a worldwide, non-discriminatory basis and on reasonable terms and conditions to make, ,use and sell implementations of the relevant ITU-T/ITU-R Recommendation. …. Patent Holder’s willingness to license is conditioned on reciprocity for the above ITU-T/ITU-R Recommendation. [underline in original]
Judge Gilstrap ruled that, to prevail, Metaswitch must show the following:
- At least part of a Nortel contribution was included in the ITU Recommendation;
- An asserted Nortel patent claim covers that included part;
- Use of that asserted patent claim “would be required to implement” the ITU Recommendation;
- Metaswitch’s accused products practice that same ITU Recommendation; and
- Metaswitch committed to license its own patent claims essential to the same ITU Recommendation under reasonable terms and conditions (given the reciprocity condition).
Judge Gilstrap found that Metaswitch had not established three of those five requirements.
- Metaswitch failed to show that Nortel contributed its technology to the ITU Recommendation. Metaswitch had not shown that Nortel contributed “any technology contribution … let alone a contribution that included the patented technology.”
- Metaswitch failed to show that its accused products comply with the ITU Recommendation. Metaswitch presented no evidence other than a corporate representative’s testimony that the products “supported ITU Q.1204 Recommendation” but “he did not know whether Metaswitch’s products complied with that standard.”
- Metaswitch failed to show that the patent claim was essential to the ITU Recommendations. Metaswitch’s expert gave a conclusory statement that the patent claim “is also essential to that standard” and testified only that the patented technology “may be described on those two pages [of the standard]–not that the ITU documents require implementation of those descriptions.” Patent owner Genband’s expert also had testified that the claim could not be essential because it included a limitation not found in the standard.
Laches Defense Rejected
Judge Gilstrap rejected Metaswitch’s laches defense, which required weighing two factors that Metaswitch must establish by a preonderance of the evidence:
- The patentee’s delay in bringing suit was unreasonable and inexcusable; and
- The alleged infringer suffered material prejudice attributable to the delay.
Judge Gilstrap ruled that Metaswitch had not shown that the delay in filing suit was unreasonable and inexcusable or that the delay caused Metaswitch avoidable and material economic or evidentiary prejudice.
First, even though Nortel and Genband cummulatively delayed six years before bringing suit, giving rise to a presumption of laches, that presumption was rebutted given “the minimal amount of Metaswitch’s infringing activity, Nortel’s bankruptcy, and Genband’s negotiations with Metaswitch.”
Second, Metaswitch had not shown any economic harm from the delay “other than damages it would owe to Genband as a result of the allegedly infringing activity.” And Metaswitch “has not detailed what specific evidence it was unable to obtain that it could have obtained had the lawsuit been filed earlier.”
Implied Waiver Defense Rejected
Judge Gilstrap rejected Metaswitch’s implied waiver defense, which was based on an alleged failure to disclose patents to a standard setting organization. Metaswitch summarized its implied waiver defense as follows:
Where an accused infringer proves by clear and convincing evidence that the patentee had a duty to inform a standard setting organization of its asserted patents based on the written policies of the standard setting organization, knew about its duty at the time the standard setting organization was adopting a particular industry standard, failed to meet that duty, and failed to inform the standard setting organization of the asserted patents, knowing that they reasonably might be necessary to practice the adopted standard, the patentee impliedly waives its right to enforce its patents against products practicing the resulting standard. See Qualcomm Inc. v. Broadcom Corp., 548 F.3d 1004, 1019-22 (Fed. Cir. 2008).
Judge Gilstrap ruled that Metaswitch failed to show violation of any specific duties to disclose specifically set forth by the standard setting organization’s at issue:
- CableLabs IPR Agreement: Metaswitch “failed to identify any particular provision or language establishing a duty for NNCSI to disclose”; and, as discussed, neither Nortel nor Genband had an obligation to license the patents under the CableLabs IPR Agreement.
- IETF: Metaswitch relied on IETF’s 2005 policy that “applies to individual contributors to an IETF standard, and sets a ‘reasonably and personally known’ standard for disclosure.” But Metaswitch “failed to offer any evidence that a contributor employed by Nortel breached their obligation.”
- ITU: Metaswitch relied on ITU’s 2012 policy that “only requires a participant to disclose patents it knows are standards essential” and “only requires ‘good faith and on a best effort basis’ with ‘no requirement for patent searches.” But Metaswitch “failed to allege that any specific Nortel participant knew that the asserted patents were essential to an ITU standard.”
Equitable Estoppel Defense Rejected
Judge Gilstrap rejected Metaswitch’s equitable estoppel defense. Judge Gilstrap identified three factors that the accused infringer must establish by a preponderance of the evidence for an equitable estoppel defense:
- The patentee, through misleading conduct, leads the alleged infringer to reasonably infer that the patentee does not intend to enforce its patent against the alleged infringer;
- The alleged infringer relies on that conduct; and
- The alleged infringer will be materially prejudiced if the patentee is allowed to proceed with its claim.
Judge Gilstrap also stated that, in the standards-context, there is no equitable estoppel if there is no duty to disclose patents or a breach of such a duty, stating:
In the context of standard setting organizations, there is no equitable estoppel if there was not a duty to disclose the patent to the organization or if there was no breach of an existing duty to disclose the patent. Hynix Semiconductor Inc. v. Rambus Inc., 645 F.3d 1336, 1348 (Fed. Cir. 2011).
Judge Gilstrap ruled that Metaswitch failed to show that Nortel breached any duty to disclose regarding CableLabs, IETF or ITU. Further, Judge Gilstrap ruled that Metaswitch had not shown any reliance on actions or inactions by the patent owners regarding the patents-in-suit, “because [Metaswitch] did not even have knowledge of the asserted patents during the relevant time frames.” Although Metaswitch became aware of one patent in 2008, its corporate representative testified that “Metaswitch never did any analysis of that patent.” Finally, as discussed above with respect to laches, Metaswitch did not demonstrate that it suffered prejudice.
Implied License Defense Rejected
Judge Gilstrap explained the primary difference between an implied license defense and an equitable estoppel defense is that an implied license requires “an affirmative grant of consent or permission to make, use, or sell (i.e., a license),” but equitable estoppel “focuses on ‘misleading’ conduct suggesting that the patentee will not enforce patent rights.” He described a five part test for the implied license defense as follows, which he later indicated requires proof by clear and convincing evidence:
- There was an existing relationship between the patentee and infringer;
- within that relationship the patentee transferred a right to use the patented invention to the infringer;
- the rights was transferred for valuable consideration;
- the patentee has now denied the existence of the right; and
- the patentee’s statements and conduct created the impression that it consented to the accused infringer making, using, or selling the patented invention.
Judge Gilstrap ruled that Metaswitch failed to establish an implied license defense for several reasons:
- No evidence that Metaswitch and Nortel or Genband had a relationship;
- No evidence that Nortel or Genband transferred rights to use the patented invention to Metaswitch;
- Failed to establish that Nortel or Genband’s conduct gave an impression they consented to Metaswitch’s use of the invention (as explained in equitable estoppel analysis, neither communicated to Metaswitch and Metaswitch was not aware of the patents).
Judge Gilstrap further concluded that the lack of any express obligation to license the patents undermines any implied license:
The fact that Nortel and Genband did not have obligation to license under express provisions of the SSO agreements undermines any finding of an implied license in this context.
Permanent Injunction Denied
Judge Gilstrap denied Genband’s request for a permanent injunction, ruling that Genband failed to establish the requisite irreparable harm for two reasons.
First, Genband failed to show a causal nexus between Metaswitch’s infringement and harm to Genband. Judge Gilstrap summarized Genband’s evidence on this point as follows, without further explanation as to why such evidence was insufficient:
During the bench trial, Genband presented the following regarding the causal nexus, which falls into three general categories: (1) a self-generated “win-loss” report; (2) demonstratives purporting to correlate dates of Metaswitch press releases with an alleged decline in Genband’s market share; and (3) statements from Metaswitch marketing materials and opinion testimony from [an expert].
Genband’s presentation of evidence does not satisfy its burden to show causal nexus.
Second, Genband’s delay in filing suit over six years after Metaswitch announced its products and Genband’s failure to seek a preliminary injunction indicates that Genband is not irreparaly harmed by Metaswitch’s infringement.