An administrative law judge in the International Trade Commission recently held four U.S. patents unenforceable on the basis of implied waiver, where the patent owner deliberately delayed declaring the patents as standard-essential until years after the relevant standards were enacted. In his April 1, 2022, Final Initial Determination in Certain UMTS and LTE Cellular Communication Modules and Products Containing the Same, Inv. No. 337-TA-1240, ALJ David P. Shaw ruled that clear and convincing evidence established that Koninklijke Philips N.V. (“Philips”) intentionally waited to declare four asserted U.S. patents as standard-essential to the European Telecommunications Standards Institute (“ETSI”), a standard-setting organization (“SSO”), until six years after relevant standards had been enacted. Judge Shaw held that Philips thus breached its disclosure obligation to ETSI, rendering the patents unenforceable.
Judge Shaw’s ruling is the most recent example of courts addressing late-disclosed standard-essential patents (“SEPs”). Judge Shaw also discusses the growing body of case law on this issue. As such, his ruling is instructive.
A. Legal Standard (Implied Waiver)
The Federal Circuit has held that, even for an otherwise valid patent, “[a] member of an open standard setting organization may … have impliedly waived its right to assert infringement claims against standard-compliant products.” Hynix Semiconductor Inc. v. Rambus Inc., 645 F.3d 1336, 1347–48 (Fed. Cir. 2011) (quoting Qualcomm Inc. v. Broadcom Corp., 548 F.3d 1004, 1019 (Fed. Cir. 2008)); see also Core Wireless Licensing S.A.R.L. v. Apple Inc., 899 F.3d 1356, 1365 (Fed. Cir. 2018).
Implied waiver in the SSO disclosure context (e.g., ETSI) requires “clear and convincing evidence that: ‘(1) the patentee had a duty of disclosure to the standard setting organization, and (2) the patentee breached that duty.’” Conversant Wireless Licensing S.A.R.L. v. Apple, Inc., 2019 WL 4038419 (N.D. Cal. May 10, 2019) at *2 (citations, quotations omitted). Implied waiver is available only “‘where the patentee’s misconduct resulted in [an] unfair benefit’” or in cases of “‘egregious misconduct sufficient to justify the sanction of unenforceability of the patent at issue.’” Id. (citations, quotations omitted).
As discussed below, owners of intellectual property rights (“IPR”) have a duty to timely disclose those rights to an SSO; deliberate late disclosure breaches that duty.
B. ETSI Duty of Disclosure, Breach
ETSI Rule, Clause 4.1 highlights the responsibility of members participating in standard-setting committees to be forthcoming with ETSI. Clause 4.1 provides (emphasis added):
[1] Subject to Clause 4.2 below, each MEMBER shall use its reasonable endeavours, in particular during the development of a STANDARD or TECHNICAL SPECIFICATION where it participates, to inform ETSI of ESSENTIAL IPRs in a timely fashion.
[2] In particular, a MEMBER submitting a technical proposal for a STANDARD or TECHNICAL SPECIFICATION shall, on a bona fide basis, draw the attention of ETSI to any of that MEMBER’s IPR which might be ESSENTIAL if that proposal is adopted.
As the court in Apple Inc. v. Motorola Mobility, Inc., 886 F. Supp. 2d 1061, 1086-88 (W.D. Wisc. 2012), held, an IPR owner has a duty to disclose before the standard is adopted. See also, id. at 1085 (emphasis added) (“[M]embers of ETSI should disclose [IPR] that they know are relevant to potential standards while the standard is being discussed and before the standard is adopted.”), 1086 (emphasis original) (“By using the terms ‘might’ and ‘if,’ the policy clearly requires members to make efforts to disclose intellectual property rights [“IPR”] before a standard is adopted.”); see also Core Wireless at 1367-68 (“ETSI member’s duty to disclose a patent application on particular technology attaches at the time of the proposal…”; IPR owner had a “duty to disclose its IPR no later than [date standard was adopted].”).
Here, Judge Shaw cited an admission from Philips’s Licensing Program Leader, that Philips’s licensing program for its 3G patents had “been dormant waiting for a significant market to develop,” calling it “the type of opportunistic delay that is forbidden by ETSI’s policy, and amounts to ‘patent ambush,’ which ETSI specifically addressed as a key problem.” He found that Philips’s “waiting for a significant market to develop” was evidence it failed to engage in “reasonable endeavors” or a “bona fide” effort to declare its IPR.
Judge Shaw cited testimony from two Philips witnesses that Philips waited years to declare IPR and made no effort to do so until after the standard was enacted. He found these admissions showed Philips’s strategic decision to delay, quoting the Federal Circuit in Qualcomm, recognizing that IPR owners failing to disclose IPRs prior to adoption of a standard, were “in a position to ‘hold up’ industry participants from implementing the standard” (at 1010, citation, quotation omitted).
C. ETSI Rules, Guide on Declaring IPR
ETSI IPR declarations form a binding contract with technology implementers, that are third-party beneficiaries. See Apple at 1083, 1085, 1088. One of ETSI’s primary objectives is “investment in the preparation, adoption and application of standards could be wasted as a result of an ESSENTIAL IPR for a STANDARD or TECHNICAL SPECIFICATION being unavailable.” See ETSI Directives, Annex 6, Clause 3.1. As Apple makes plain, IPR owners must inform ETSI, its members, and technology implementers, promptly of the existence of IPR to allow ETSI’s policy makers to decide intelligently whether to use technology that may be subject to patent protection, or to use a solution that avoids potential patent disputes and costs.
Judge Shaw found that language in ETSI’s prescribed form for declaring IPR—“IPR(s) disclosed in the attached IPR Information Statement Annex may be or may become ESSENTIAL”—evidenced that IPR owners are expected to declare before the standard is enacted (before technology becomes “Essential”), to give sufficient notice to the relevant parties to consider alternatives. That patent applications also must be disclosed, was more evidence that IPR owners must inform ETSI before a patent issues.
The importance of timely disclosure is further emphasized in ETSI Directives § 2.1.1 (emphases added). Members participating in Technical Bodies must “respond at the earliest possible time to the Call for IPRs” at the beginning of each meeting. The Call for IPR “is performed to foster the disclosure of Essential IPRs in a timely fashion” and to encourage members to make “detailed disclosures” “as soon as feasible.”
D. Involvement of Inventors in Standard-Setting Technical Committees
Here, evidence showed that the inventors were actively involved in 3GPP standard-setting groups (where IPR calls were made) prior to enactment of the standards at issue. One inventor was a long-time member or team leader of Philips’s 3GPP standardization project, “which was aiming to contribute to 3GPP standardization activities.” This inventor sent a message to his standard-setting group proposing a standard related to “power scaling,” the same day Philips filed the application for one of the asserted patents, related to “power scaling.”
ETSI’s Directives provide that steps take to identify SEP “focus on the activities and knowledge of the ETSI Member’s representatives who are active in a particular ETSI matter”; “reasonable endeavours” in disclosing SEP “should be measured in terms of the knowledge of representatives of an ETSI Member who are actively involved in the work of the body developing that ETSI deliverable.” (§ 4.6.3.5). Judge Shaw found, per the ETSI Guide, that Philips had an obligation to disclose its IPR when it made a “formal submission of a technical solution” and “participate[d] in or contribute[d], directly or indirectly, to the work of” a “Technical Body.” Citing ETSI’s Rules, Judge Shaw held, “Submitting a technical proposal to 3GPP and filing a patent application on the same day, yet waiting for years after that to inform ETSI, is evidence of ‘[i]ntentional nondisclosure.’”
Additionally, two of the inventors attended a working group meeting as Philips’s representatives, where a change to the standard was proposed, later adopted. Philips argued that the language in the change request was covered by claims of two patents. A proposal to change the standard to add language Philips argued was covered by claims of a third patent was discussed in another working group meeting.
Judge Shaw found that although the inventors attended working group meetings as part of Philips’s standardization “project,” Philips did not declare the asserted patents to ETSI as “essential” for over six years, even though it had the necessary information for timely disclosures.
Section 2 of the ETSI Guide, “Importance of timely disclosure of Essential IPRs,” identifies the main problems which may arise from late disclosure of IPR, including: “Licenses for Patents which have been disclosed late and which are available, but not on [FRAND] terms, i.e., the company is unwilling to make a ‘FRAND’ undertaking/licensing declaration.”
Notes accompanying Section 2 identify what ETSI means by “Intentional Delay” in disclosing potentially essential IPR (emphasis added):
“Intentional Delay” has arisen when it can be demonstrated that an ETSI Member has deliberately withheld IPR disclosures significantly beyond what would be expected from normal considerations of “Timeliness.”
… In complying with the requirements of timeliness under Clause 4.1 [ ], Members are recommended to make IPR disclosures at the earliest possible time following their becoming aware of IPRs which are, or are likely to become, Essential.
“Intentional Delay,” where proven, should be treated as a breach of the IPR Policy ….
E. Inequitable Benefit
Judge Shaw found Philips had obtained an inequitable benefit in breaching its ETSI disclosure obligation, quoting the holding in Conversant:
Nokia’s failure to disclose its IPR deprived ETSI members the opportunity to make a fully informed decision as to the technical solution for the GPRS standard… Dr. Michael Walker, former Chairman of the Board of ETSI, testified that ETSI members are incentivized to choose technical solutions that are free of licensing costs. [] Dr. Walker’s testimony suggests that, had Nokia disclosed its IPR, there was a reasonable possibility that the ‘151 patent would not have been incorporated into the GPRS standard.
Nokia’s failure to disclose its IPR allowed Nokia and Conversant to inequitably benefit from that misconduct.
Conversant at *6-*7 (citations, quotations omitted; emphasis added); see also Broadcom Corp. v. Qualcomm, 501 F.3d 297, 314 (3d Cir. 2007) (“That value [of a patent] become significantly enhanced, however, after the patent is incorporated in a standard.”); Conversant at *6 (declaring patents as standard essential “increase[ed] [Philips’s] leverage by bolstering its patent portfolio”).
Citing Conversant, Judge Shaw found that, had Philips disclosed its “essential” IPR while the relevant standards were under consideration (rather than six years after the fact) there was a reasonable possibility that Philips’s IPR would not have been incorporated as Philips had alleged into the relevant standard. Philips’s deliberate non-disclosure thus demonstrated inequitable benefit.
F. ETSI General Declaration
Judge Shaw rejected Philips’s argument that its one-page “general declaration” satisfied its Clause 4.1 disclosure requirement. Per ETSI Directives, use of a General IPR licensing declaration “does not take away the obligation for members to declare essential patents to ETSI.” Members making general declarations were required to “as soon as feasible, provide (or refine) detailed disclosures.”
ETSI’s licensing obligation (Clause 6.1) requires an SEP owner to give “an irrevocable undertaking in writing that it is ‘prepared to grant’ a license on FRAND terms…” The commitment must be (1) “irrevocable” and (2) transferable to any subsequent IPR owner. Here, Philips’s “general declaration” said neither, not even referring to IPR that “may be essential” to a standard. As Judge Shaw noted, Philips’s argument that its “general declaration” plus FRAND agreement overcame its obligation to declare specific patents to specific standards, was rejected in Apple.
G. Conclusion
Judge Shaw’s ruling in Certain UMTS and LTE Cellular Communication Modules, together with the Apple, Conversant, Core Wireless and Qualcomm decisions discussed therein, highlights the risk to patent owners who seek to leverage their potentially standard-essential IPR by waiting until after the standard is adopted to disclose that IPR to the SSO, here ETSI. IPR owners behaving in this fashion, hoping to gain an advantage in licensing negotiations, may instead find their patents ruled unenforceable.
