Implied Waiver in the United States

In the United States, a further complication regarding disclosures and the enforceability of SEPs resulted from a recent Federal Circuit case on “implied waiver.” The implied waiver theory, first pronounced by the Federal Circuit in its rulings in Qualcomm and Hynix, posits that in cases where the conduct of the SEP owner is patently inconsistent with the exercise by the latter of its IPRs as to induce a reasonable belief that such rights have been relinquished, then the SEP owner implicitly waives the exercise of those rights. According to Qualcomm25 and Hynix,26 such conduct can be shown where the SEP owner is under a duty to disclose its SEPs to the relevant SDO, and such duty is breached.27

A recent ruling regarding implied waiver for failure to disclose SEPs is the Federal Circuit’s decision in Core Wireless.28 The case arose from a peculiar set of facts. The patents in suit were SEPs reading on an optional feature of the ETSI 2G GSM-GPRS standard, were originally owned by Nokia, and subsequently transferred to Core Wireless, a non-practicing entity . The specific SEPs were disclosed by Nokia four years after the formal release of the 2G standard.29 At trial, the defendant’s expert provided brief testimony about the meaning of the ETSI IPR Policy regarding disclosures and concluded that Nokia had breached the Policy because Nokia should have disclosed to ETSI its patent applications before the formal release date of the standard. The plaintiff cross-examined the expert but provided no rebuttal expert testimony on the meaning of the ETSI IPR Policy.

In Core Wireless, the Federal Circuit reiterated its findings in Qualcomm and Hynix, that when an SEP owner is under a duty to disclose its SEPs, yet it fails to do so, the right to enforce the SEPs in question may be implicitly waived.30 However, according to the court, the doctrine of implied waiver is to be applied only where the patentee’s misconduct resulted in an inequitable benefit, that is, a benefit that would not have accrued “but for” the alleged misconduct (materiality requirement).31 An exception to this rule was recognized by the Federal Circuit in Therasense32—a case of deceptive non-disclosure of information to the patent office—in cases of affirmative egregious misconduct.33 Hence, for an SEP to be rendered unenforceable, according to the implied waiver doctrine, one of the following two requirements must be fulfilled: (a) the failure to disclose the SEP resulted in an unfair advantage for the SEP owner that would not have accrued but for the alleged misconduct (materiality requirement), or (b) the failure to disclose reveals bad faith to a degree amounting to egregious misconduct.34

On remand, however, the District Court for the Northern District of California seemed to dilute the materiality requirement in Core Wireless by pronouncing an SEP unenforceable where non-disclosure can “potentially” result in such unfair advantage.35 The Federal Circuit is expected to render judgment in the subsequent appeal of this matter in the near future.36

The implied waiver doctrine, with its draconian penalty of unenforceability for non-disclosure or untimely disclosure of SEPs, creates strong incentives for SEP holders to avoid under-disclosing. The fact that delayed disclosure can render the patent unenforceable will certainly provide an impetus for SEP holders to disclose early in standards development where the uncertainties regarding essentiality are most acute. Hence, the implied waiver doctrine is a further factor directing SEP owners toward disclosing IPRs well beyond what’s actually essential.

What is even more problematic, however, is that this turn of events in the enforceability of SEPs resulted from a misinterpretation of the ETSI IPR Policy. In particular, the Federal Circuit relied on an expert who testified that it was a breach of the ETSI IPR Policy not to disclose a patent application before the formal release date of a standard, even where a subsequent disclosure and FRAND declaration were forthcoming. His opinion was that “ESSENTIAL IPRs” or “IPR which might be ESSENTIAL” could refer to patent applications, not just patents. However, the ETSI IPR Policy is clear that “ESSENTIAL IPRs” are IPRs that must be infringed and that “IPR which might be ESSENTIAL” refers to IPR that might be infringed. As a general rule, while patents can be infringed, patent applications cannot. And while the obligation to disclose essential patents in a “timely” manner may introduce a question about whether their earlier patent applications ought to be disclosed in certain circumstances, such a question ought to be answered according to French rules of contract interpretation, taking into account the policy objectives of the ETSI IPR Policy and industry practice. Indeed, it is notable that amici in the Core Wireless case referred to how the vast majority of disclosures to ETSI, including the defendant’s own, would be in breach of the ETSI IPR Policy under the Federal Circuit’s ruling. It seems highly unlikely that the ETSI community as a whole would be in breach of the ETSI IPR Policy, or that their almost uniform disclosure practices would “imply” a collective waiver of their IPR rights.

It is very doubtful that, had Core Wireless provided expert rebuttal testimony, the Federal Circuit would have reached its conclusion regarding members’ obligations under the ETSI IPR Policy. The Federal Circuit relied heavily on this lack of evidence, and it may be that future litigants who provide expert evidence on the meaning of the ETSI IPR Policy, and its interpretation under French law, can correct this aspect of the Core Wireless case.

Or perhaps not.  In a recent International Trade Commission final, initial determination,[7] ALJ Shaw found the patents to be unenforceable because the patent owner (Philips) “did not declare these three asserted patent to ETSI as ‘essential’ to the standard for over six years” despite the inventors being involved in the working groups that developed the standard on which the asserted patents read. (at 276).  Given that multiple other bases ALJ Shaw for no violation, the Commission in its final decision “took” no position on implied waver,[8] and as a result it is highly unlikely that question of enforceability will be heard on appeal.

[C] The Philips v. Asus Case in the Netherlands

In the EU, although SEPs have been intensely litigated over the past decade, the issue of disclosures of essential patents has come up only in rare occasions. For the most part, national courts in the EU deal with SEP-infringement cases within the framework elaborated by the Court of Justice of the EU (CJEU) in its seminal 2015 Huawei v. ZTE ruling, whereby the Court held that a claim for injunctive relief for an SEP does not, in principle, infringe Article 102 TFEU provided that the SEP owner (a) properly notifies the standard user of its infringement of SEPs, and (b) makes a licensing offer on FRAND terms and conditions in accordance with the undertaking given to ETSI.37 Moreover, the infringer cannot raise an antitrust defense to a claim for injunctive relief, unless himself has (a) indicated, without delay, its willingness to agree to a license on FRAND terms, and (b) in case of disagreement over the SEP-owner’s initial offer, submitted a counteroffer on FRAND terms.

That said, disclosures of essential patents were extensively discussed by the Court of Appeal of The Hague in the Netherlands in its Philips v. Asus judgment whereby the court rejected the notion that failure to (timely) disclose SEPs, where a FRAND commitment is ultimately provided, can give rise to an antitrust defense under Article 102 TFEU or, in the alternative, to a bar to SEP enforceability.38 To begin with, the court emphasized that the purpose of the ETSI IPRs policy is not to allow ETSI members to develop, to the extent possible, royalty-free standards—or at the very least, standards that entail minimal licensing costs. Rather, under Article 3 ETSI IPR policy the aim of standardization at ETSI is to incorporate the best available technical solutions to ETSI standards.39 Hence, the court rebuffed the argument of the defendant that improper disclosure of SEPs to ETSI deprived its members of the opportunity to include patent-free technologies into the particular standard—in this case, the 3G-UMTS and 4G-LTE standards. According to the court, there is convincing evidence that ETSI and 3GPP working group members do not, in principle, deal with patent and licensing issues in their meetings and discussions.40 Hence, disclosures play little, if any, part in actual standards development at ETSI and 3GPP.41

Moreover, the court stressed that the main purpose of the disclosure provision in ETSI IPRs policy (Article 4.1) is to trigger the discloser’s licensing obligations, and in particular its obligation to submit a FRAND declaration.42 The court further found that the main impetus for disclosures of specific IPRs (beyond a general blanket declaration of ownership of SEPs) is for ETSI to identify cases whereby particular SEPs will not be made available for licensing, or not available for licensing on FRAND terms, in which case ETSI technical committees would have to design around the unavailable SEPs.43 Conclusively, the court held that the argument that “but for” the untimely affirmative FRAND declaration on the part of the plaintiff ETSI would have chosen a different technology instead was unsubstantiated in fact and unconvincing, given ETSI’s stated purpose of developing standards based on the best available technologies.44

Evidently, the Court of Appeal of The Hague reached an inconsistent conclusion to the one of the U.S. Federal Circuit in Core Wireless. It can be argued that Philips v. Asus is better grounded on standardization realities within ETSI and 3GPP and takes a more careful look at the ETSI IPRs policy and its underlying goals. In particular, Philips v. Asus stresses that, even if essentiality disclosures are untimely, there is no harm to standard users, provided, of course, that the SEP owner has submitted and fulfilled a commitment to be prepared to grant licenses on FRAND terms and conditions. The Federal Circuit still has an opportunity to course-correct on this point in the latest appeal in the Core Wireless saga, should it conclude that there is insufficient evidence that (a) the failure to disclose the SEP resulted in an unfair advantage for the SEP owner that would not have accrued but for the alleged misconduct, or (b) the failure to disclose reveals bad faith to a degree amounting to egregious misconduct.