Sunday, May 29, 2016

In a decision strengthening the rights of defendants accused of infringement by non-practicing entities (NPEs), the US Court of Appeals for the Federal Circuit applied equitable estoppel to dismiss a suit based on the actions of an NPE’s predecessor-in-interest. The Federal Circuit found that the predecessor-in-interest’s business relationship with the defendant estopped the assignee NPE from pursuing its suit. High Point SARL v. Sprint Nextel Corp., Case No. 15-1298 (Fed. Cir., Apr. 5, 2016) (Reyna, J).

The patents-in-suit cover code division multiple access (CDMA) protocols, a method of sharing cell phone base stations among multiple users that saw widespread adoption across the United States. AT&T originally developed the patents. In 1996, AT&T spun off Lucent as a separate company and included the patents in that transaction. In 2000, Lucent spun off another company, Avaya, again including the patents. Eight years later, Avaya sold the patents to High Point.

The defendant, Sprint, had been working on CDMA networks since at least 1995, when it met with AT&T, among others, to discuss building an interoperable CDMA network for many different companies’ devices. In 1998 and 2000, Sprint, Lucent and Nortel had further discussions about building an interoperable network and entered into a series of cross-licensing agreements to develop their CDMA networks. Over time, as the networks expanded, these cross-licenses expired or failed to fully cover the networks. Nevertheless, Sprint continued building out its network using unlicensed telecom equipment from Samsung, Nortel and Motorola. As early as 2001, Sprint began using unlicensed equipment from Samsung in Puerto Rico, with other instances of unlicensed equipment being used in 2004 and 2008. At the end of 2008, High Point sued Sprint on the patents based on these unlicensed expansions.

Sprint raised the defense of equitable estoppel, which requires proof of three elements: misleading conduct by the patentee, reliance by the accused infringer, and prejudice to the accused infringer. Sprint’s argument was based on the discussions about building interoperable networks and the cross-licenses, combined with Avaya’s failure to sue on the patents-in-suit despite the seven years of alleged infringement. High Point countered that much of Sprint’s unlicensed equipment from Samsung and Motorola was never subject to a license or an interoperability agreement, so those discussions should be considered irrelevant. After the district court sided with Sprint, High Point appealed.

The Federal Circuit affirmed, noting that the combination of interoperability discussions and licensing, in addition to the years of silence on the alleged infringement, constituted misleading conduct upon which Sprint was entitled to rely. The Court further found that Sprint experienced both economic and evidentiary prejudice as a result of this reliance. The economic prejudice came from Sprint’s investment of billions of dollars in building its network, and the evidentiary prejudice arose from fading or lost information about the patents’ inventors.