By John Paul, Brian Kacedon, Cecilia Sanabria, Anthony D. Del Monaco and Umber Aggarwal

Edited by John Paul, Brian Kacedon, Anthony Del Monaco, and Cecilia Sanabria

Abstract: A patentee did not lose the ability to bring a patent infringement lawsuit when it entered into a security interest agreement covering all of its intellectual property and the agreement was recorded at the USPTO

Background
Raffel, a manufacturer of electronic controls for the seating, bedding and industrial marketplaces, entered into an “Intellectual Property Security Agreement” with two different banks granting the banks a security interest in all of its intellectual property. The banks filed notices of their security interests with the USPTO. Shortly thereafter, Raffel sued Man Wah for patent infringement and other causes of actions. In response, Man Wah moved to dismiss Raffel’s patent infringement claims arguing that Raffel lacked the right to sue for infringement because the security agreements transferred title of Raffel’s intellectual property to the banks.

Trial Court’s Decision
Lenders take security interests in a debtor’s intellectual property and other assets to protect themselves if the debtor defaults on a loan. In some instances, the lender demands that the security agreement transfer the ownership in the intellectual property until the loan is repaid.

The trial court found the act of granting a security interest in intellectual property and recording that security interest at the USPTO did not transfer title of the patents from Raffel to the banks, and, therefore, Raffel retained the right to enforce the patents.

To have the ability or “standing” to sue for patent infringement, an entity must satisfy the requirements of the U.S. constitution as well as the patent statute. To have constitutional standing, a plaintiff must possess exclusionary rights in the patent such as the right to prevent others from making, using, selling, or offering to sell the patented invention. Statutory standing further requires that the plaintiff have “all substantial rights” to the asserted patents through being the original patentee, an assignee, or an exclusive licensee of all such rights.  If an entity has “exclusionary rights” in the patent but lacks “all substantial rights,” it typically must join the owner of the patent in any infringement suit.

Man Wah argued that Raffel’s grant of a security interest and the subsequent recording of that security interest transferred title to the banks and thus, deprived Raffel of “standing” to sue.  In support, Man Wah relied on a Supreme Court case from 1891, Waterman v. Mackenzie, which supported the principle that recording a security interest in patents was equivalent to transferring title.  The court noted, however, that Waterman was decided prior to the enactment of the Uniform Commercial Code (“UCC”) in 1952, which fundamentally changed the way a security interest is perfected. After the enactment of the UCC in 1952, transfer of title was unnecessary to perfect a security interest.

Man Wah asserted that state UCC laws provide only one way for a party to perfect security interests and are preempted by the Patent Act and Waterman when they conflict. Specifically, Man Wah argued that, under the Patent Act and Waterman, a security interest is created through transfer of the patent when it is recorded at the USPTO. Man Wah asserted that this preempts perfecting a security interest through the UCC which does not transfer title. The court rejected the preemption argument citing numerous cases showing the Patent Act does not address perfection in security interests, but only assignments of title, and, thus, does not preempt state regulation of security interests in patents.

In looking at the actual agreements with the banks, the court confirmed that “[n]othing in the Intellectual Property Security Agreements states that Raffel is assigning title of the patents to the banks; rather, the agreements specifically state that Raffel is granting a ‘security interest’ in its intellectual property.” Thus, Raffel never transferred title and maintained standing. The court, therefore, denied the motion to dismiss.

Strategy and Conclusion
A party receiving a security interest in a patent may record the security agreement with the USPTO to protect itself against and give notice to subsequent bona fide purchasers or mortgagees. Standard security agreements that do not include language assigning title of the patents, however, will not prevent a patentee from bringing a patent infringement lawsuit. This case demonstrates the value of drafting the security agreement in a way that does not transfer ownership of intellectual property to the lender while the loan is pending. 

The Raffel decision can be found here.

Editors and Authors
The editors and authors are attorneys at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP.

This article is for informational purposes and does not constitute legal advice.

By John Paul, Brian Kacedon, Cecilia Sanabria, Anthony D. Del Monaco and Amanda Stephenson         

Edited by John Paul, Brian Kacedon, Cecilia Sanabria, and Anthony D. Del Monaco

Abstract: When deciding if a party should be precluded from asserting assignor estoppel within two weeks of the close of fact discovery, a Massachusetts Court looked to Federal Rules of Civil Procedure 26 and 37 to decide if the defense was timely disclosed and, if not, whether the late disclosure was substantially justified or harmless. The court held that the defense was timely disclosed under Rule 26 and substantially justified and harmless under Rule 37.

Background
Abiomed sought a declaratory judgment that its “Impella” line of intravascular blood pumps did not infringe Maquet’s patent. (Abiomed initially filed declaratory judgment on multiple Maquet patents, but currently only one patent at issue remains.)

Maquet counterclaimed that Abiomed infringed its patent, and Abiomed responded by arguing that the asserted patent claims were invalid.
Maquet then argued that Abiomed was barred from a defense that the claims were invalid because of the assignor estoppel doctrine that prevents the assignor of a patent from asserting that the patent is invalid.

The parties had already filed motions for summary judgment on validity, where Maquet argued that Abiomed is precluded from challenging the validity of Maquet’s asserted claims.

Abiomed filed a separate motion to (1) preclude Maquet from asserting an assignor estoppel defense; (2) prevent Maquet from seeking additional discovery on its assignor estoppel theory; and (3) strike Maquet’s letter to the court concerning the theory. The court denied the motion.

The Abiomed Decision
The court explained that assignor estoppel is an equitable remedy prohibiting an assignor of a patent, such as an inventor or one in privity with an assignor, such as an inventor’s employer, from challenging the validity of a patent when the assignee asserts a patent infringement claim against the assignor or one in privity with the assignor.

Dr. Walid Abdoul-Hosn, a named inventor of the asserted patent, assigned the patent to Maquet while he worked at Maquet. Dr. Abdoul-Hosn left Maquet and began working for Abiomed in 2007, about a year after the patent was granted. Abiomed first sold the allegedly infringing article, the Impella, in the U.S. in 2008.

Maquet argued that Dr. Abdoul-Hosn was in privity with Abiomed because he helped design the infringing elements of the Impella, and therefore assignor estoppel should apply, preventing Abiomed from challenging the validity of the asserted patent. The dispute here, however, did not involve the merits of the assignor estoppel claim. Instead, the dispute centered on whether Maquet should be able to assert assignor estoppel under Rules 26 and 37 of the Federal Rules of Civil Procedure. The court held that Maquet did not violate Rule 26 and would not have been precluded under Rule 37, allowing them to assert assignor estoppel.

Rule 26 requires a party to disclose the name, contact information, and knowledgeable subjects of any witness likely to have discoverable information relating to its claims or defenses and to supplement the disclosures, as necessary.

Maquet disclosed Dr. Abdoul-Hosn on its initial and subsequent disclosures. Additionally, four days after Dr. Abdoul-Hosn’s deposition, Maquet informed Abiomed by email that it intended to assert assignor estoppel. On the last day of fact discovery, Maquet supplemented an interrogatory response to include its assertion of assignor estoppel. Therefore, the court held that Maquet did not violate Rule 26, timely disclosing Dr. Abdoul-Hosn and its assignor estoppel defense.

Even though the court held that Maquet did not violate Rule 26, it went on to opine on the merits of Rule 37.

Rule 37 states that a witness and/or the information that they were to provide can be precluded if a party violates Rule 26 unless the failure was substantially justified or harmless. In this case, the court held that even if Maquet’s notice under Rule 26 was late, it would have been substantially justified and harmless. It would have been substantially justified because Marquet learned of Dr. Abdoul-Hosn’s involvement in the research, design, development, and manufacture of the Impella during his deposition, just over two weeks from the close of fact discovery. It was harmless because Abiomed would not have suffered significant prejudice from the late disclosure.

Further, the court reasoned that Abiomed was not significantly prejudiced because fact and expert discovery was closed, Dr. Abdoul-Hosn had been deposed, Abiomed did not seek additional discovery related to assignor estoppel, and Maquet’s motion to compel additional discovery relating to assignor estoppel had been denied. Additionally, Abiomed was able to cite substantial evidence refuting that it was in privity with Dr. Abdoul-Hosn in its rebuttal to Marquet’s motion for summary judgment on validity, which included its assignor estoppel claim. Thus, the court held that even if Maquet had violated Rule 26, preclusion was not necessary under Rule 37.

Strategy and Conclusion
To avoid allegations that the assignor estoppel defense has been waived it is recommended to assert the defense as soon as information indicates the defense is available.

Further Information
The Abiomed decision can be found here.

Editors and Authors
The authors are attorneys at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP.

This article is for informational purposes and does not constitute legal advice.
The views expressed do not necessarily reflect the views of LES or Finnegan.

By John Paul, Brian Kacedon, Anthony D. Del Monaco, Cecilia Sanabria, and Umber Aggarwal

Edited by John Paul, Brian Kacedon, Anthony D. Del Monaco, and Cecilia Sanabria

Abstract: Germany’s highest court clarified the obligations of owners of standard essential patents (SEPs) when licensing their patents. They are not always required to submit claim charts to alleged infringers to satisfy their notice obligation and can offer less favorable terms than previous licenses if circumstances with the accused infringers are different from those with previous licensees. They may also insist on a license that includes all patents infringed by the implementer and a worldwide portfolio license if the alleged infringer develops or manufactures the accused products in different geographical regions. Also, to preserve a Fair, Reasonable, and Non-Discriminatory (“FRAND”) defense, accused infringers must declare their willingness to agree to a license on FRAND terms “clearly and unequivocally,” and if no agreement between the parties is reached, the accused infringers must diligently provide information on alleged infringing use and an appropriate amount of security based on such use.

What Does SEP and FRAND Mean?
Standard setting organizations are industry groups that collaborate to make standards on technology enabling different entities to make different products that can work together in the same way. Different examples of technology covered by standards include USB and Bluetooth.

If a patent claims the technology required to practice the standard, that patent may be considered a standard essential patent (SEP). If a patent is designated as standard essential, the SEP owner typically must agree to license the SEP using fair, reasonable, and non‑discriminatory (FRAND) terms to help promulgate the technology. If the SEP owner does not offer a license under FRAND terms, an alleged infringer may claim a defense that it should not have to execute a license to practice the standard due to the unreasonable terms the SEP owner imposed.

   
Background of the Case
Sisvel accused Haier of infringing a SEP. Nearly a year later, Haier responded by requesting more information. And at a later date, Haier said it was willing to take a license if a German court found Haier infringed a valid patent.

The parties rejected each other’s license offers, and Sisvel sued Haier for patent infringement at the Regional Court of Düsseldorf. Haier invoked a FRAND defense based on Sisvel offering much higher license fees to Haier than it did to a previous licensee.

In 2015, the Court of Justice of the European Union, in Huawei v. ZTE, created a five‑step framework that governs enforcement of SEPs in all European Union countries. The framework establishes a series of obligations the SEP owner must meet to seek an injunction based on SEPs and obligations that the accused SEP infringer must meet to invoke the FRAND defense against the SEP owner’s injunctive relief claim:

Step 1: To enforce a SEP, the SEP owner must give notice of infringement.
Step 2: The accused infringer must then express its willingness to agree to a licensee agreement on FRAND terms.
Step 3: The SEP owner must offer a license on FRAND terms.
Step 4: The accused SEP infringer must respond diligently. If it does not accept the offer, it must present a counteroffer on FRAND terms.
Step 5: If the counteroffer is rejected, the accused infringer must provide information on their use and provide appropriate security calculated based on the provided information.

In Sisvel, the German Federal Court of Justice, the country’s highest court, further clarified how this framework is applied in German courts.

The Decisions of the Lower Court and Appeals Court
After determining that Haier infringed the patents, the Regional Court of Düsseldorf rejected Haier’s FRAND defense and granted Sisvel’s injunction, concluding that Haier failed to provide information on alleged infringing use and provide appropriate security after Haier’s counteroffer was rejected (steps 5 and 6). That court held that it was irrelevant whether Sisvel’s offers complied with FRAND because Haier still failed its obligations.

On appeal, the Higher Regional Court of Düsseldorf reversed, finding that Haier’s FRAND defense had merit. It disagreed with the lower court’s decision to not assess whether Sisvel’s license proposals were FRAND-compliant (step 3). In performing this analysis, the appellate court held that Sisvel’s offers were discriminatory since it offered Hisense, one of Haier’s competitors, a significantly lower royalty rate (80% less) without providing a reasonable and objective explanation for this disproportionate treatment. The appeals court ruling interpreted the Huawei framework consecutively — finding that the obligations of a certain step of the negotiation process only applied when the obligations of the previous steps were adequately completed. In the view of the appeals court, Sisvel never satisfied its obligation to offer a FRAND-compliant license offer (step 3) so Haier was never obligated to provide information and security (step 5).

The Decision by the German Federal Court of Justice
The German Federal Court of Justice reversed the appeals court, finding that Haier failed its obligations at an earlier stage in the negotiations because it delayed negotiations and did not clearly express a willingness to take a license with FRAND terms (step 2). Specifically, the high court found that Haier merely presented an initial “hope” to have formal negotiations and, in later correspondence, only showed a conditional willingness to take a license on FRAND terms if a German court found the patent claims valid and that Haier infringed those patent claims.

The high court also found that patent owners do not need to submit claim charts to satisfy their notice requirement, so Sisvel’s identification of the SEP and Haier’s alleged infringement was sufficient to meet Sisvel’s initial obligations (step 1).

The high court also reversed the appeals court’s holding that Sisvel offered a license with discriminatory terms because the appeals court did not consider the fact that the Chinese government placed political pressure on Sisvel to give Hisense a lower royalty rate. This fact made the circumstances of Hisense and Haier different and justified Sisvel offering different license terms for Hisense and Haier.

The high court commented on three other aspects of SEP licensing:

• A SEP owner may require a license to cover all SEPs implemented in the infringing products.
• A SEP owner may require a worldwide license if a potential licensee that only develops products for a specific geography is not disadvantaged. For example, if an alleged infringer does not manufacture or distribute a product in a certain geographical area, then the SEP owner cannot require the alleged infringer to pay licensing fees for patents in the worldwide portfolio that cover that geographical area.
• A SEP owner’s claim for damages involving SEP licensing issues can exceed the amount of the expected FRAND license fee. In other words, a non-compliant licensee’s liability is not limited to the standard fair and reasonable royalty.

Strategy and Conclusion
In Germany, SEP owners have certain rights and obligations when licensing their patents:

(1) They must give notice of infringement but do not necessarily have to submit claim charts to infringers to satisfy this notice obligation.
(2) They must offer FRAND terms but they can offer less favorable terms than previous licenses if circumstances with the accused infringer are different from those with previous licensees.
(3) They may insist the license include all patents infringed by the implementor.
(4) They may further insist on worldwide portfolio licenses for patents the implementor needs for the legal manufacturer or legal distribution in various geographical locations the implementor operates in.

Furthermore, to preserve a FRAND defense, accused infringers must declare their willingness to agree to a licensee on FRAND terms “clearly and unequivocally.” If no agreement between the parties is reached, accused infringers must diligently provide information on alleged infringing use and appropriate amount of security based on such use.

The Sisvel decision can be found here.

Editors and Authors
The editors and authors are attorneys at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP.

This article is for informational purposes and does not constitute legal advice.
The views expressed do not necessarily reflect the views of LES or Finnegan.

By John Paul, Brian Kacedon, and Hala Mourad

High Point purchased patents relating to CDMA communications network technology from Avaya, a spin-off of Lucent Technologies, which spun off of AT&T. Within three days of acquiring the patents, High Point began sending demand letters asserting infringement, including to Sprint and its corporate affiliates. Sprint had worked with Lucent and AT&T to build a communications network for years through licensed and unlicensed activity. 
High Point filed a patent infringement suit against Sprint, accusing Sprint of violating licensing agreements entered into with High Point’s predecessors and alleging that Sprint’s network operated through a combination of licensed and unlicensed equipment in an infringing manner. The United States Court of Appeals for the Federal Circuit affirmed the district court’s determination that High Point’s lawsuit was barred by equitable estoppel, a doctrine in patent law that bars a patentee’s lawsuit where it would be unfair to allow the lawsuit to proceed. The Federal Circuit agreed.

Background
In the early 1990s, AT&T’s Bell Labs (“AT&T”) developed patents relating to standards for CDMA communications networks around the world. AT&T spun off and assigned the patents to Lucent Technologies (“Lucent”), and Lucent spun off and assigned the patents to Avaya, Inc. (“Avaya”). 

Around 1995, Sprint Nextel Corp. (“Sprint”) decided to build a nationwide CDMA network. To do so, Sprint contracted with Nortel, Motorola, and other vendors to supply equipment for the network. In 1996 and 1997, Sprint executed supply agreements with Nortel and Motorola, respectively, for equipment for the CDMA infrastructure. 

In 1996 and 1999, AT&T (and later Lucent) also agreed to supply Sprint with equipment. The supply agreements with AT&T and Lucent included limited licenses for several patents, including the patents that High Point ultimately purchased from Avaya. Later, Sprint signed a Memorandum of Understanding with Lucent to develop multi-vendor interoperability within Sprint’s CDMA network. That same year, Lucent entered a similar licensing arrangement with Nortel, which was later cross-licensed to Sprint. Avaya did not discuss licensing the patents after Lucent assigned them. 

Initially, the zones in Sprint’s network were covered by a patent license, either by the license in the Lucent-Sprint supply agreement, or by a cross-license that originated from an agreement with Lucent and Nortel (which applied to Sprint’s use of Nortel equipment). But as the network grew, Sprint began to purchase and use unlicensed equipment. 
In March 2008, Avaya sold the CDMA patents to High Point. Within three days of acquiring the CDMA patents, High Point began sending demand letters asserting infringement, including to Sprint and its affiliates. High Point filed a patent infringement suit against Sprint for violating its licensing agreements and infringing its CDMA patents. 

A Kansas district court entered summary judgment in favor of Sprint, finding that Sprint suffered economic and evidentiary prejudice because Lucent and Avaya remained silent as to any patent rights while Sprint actively tried to establish its CDMA network through the sale, purchase, and licensing of network equipment. High Point appealed.

The High Point Decision
Sprint and the other defendants argued that High Point’s predecessors, including AT&T, Lucent, and Avaya, communicated through their actions and silence that Sprint would not be disturbed in establishing a CDMA network with equipment from multiple vendors. They also argued that High Point’s predecessors could have sued much earlier, but chose not to. Instead of suing, High Point’s predecessors expressly agreed to help Sprint integrate the equipment from other vendors. The defendants argued they relied on the conduct of High Point’s predecessors in investing in interoperable CDMA infrastructure and foregoing the pursuit of non-infringing alternatives, and would now be prejudiced economically if High Point was permitted to continue with the suit. 

High Point argued that preventing it from asserting the CDMA patents because the previous patent owners failed to do so for several years is an extraordinary remedy that should not apply without a statement of intent not to do so given the complexity of the business transactions involved and the sophistication of the parties. High Point also argued that under the various licensing agreements, it was prevented from asserting infringement until more recently. 

The Federal Circuit held that that the district court ruled appropriately to preclude High Point from prosecuting its lawsuit against the defendants. The court first outlined the three elements required to establish whether High Point’s lawsuit should be barred by equitable estoppel: (1) the patentee, through misleading conduct (or silence), leads the alleged infringer to reasonably infer that the patentee does not intend to enforce its patent against the alleged infringer; (2) the alleged infringer relies on that conduct; and (3) the alleged infringer will be materially prejudiced if the patentee is allowed to proceed with its claim.
The Federal Circuit concluded that the misleading conduct of High Point’s predecessors caused Sprint to reasonably infer that they would not assert the CDMA patents while Sprint purchased unlicensed equipment to build its network. The court noted that the conduct of High Point’s predecessors included both silence and active conduct. The court noted that High Point’s predecessors repeatedly did nothing to assert their patent rights when the patent licenses were not in effect. The court also dismissed High Point’s argument that bad faith must be present to establish intent, particularly in view of the active participation of High Point’s predecessors in building Sprint’s CDMA network. The Federal Circuit also agreed with the district court’s determination that the defendants detrimentally relied on the conduct of High Point’s predecessors and that the defendants were prejudiced by the delay.

Accordingly, the Federal Circuit affirmed the district court’s ruling. 

Strategy and Conclusion
This case illustrates how the relationships and course of conduct between prior owners of patents and practicing entities can affect the ability of a subsequent owner to assert the patents against those practicing entities, and how it can be difficult for purchasers of patents to know and evaluate how their rights to assert the patents against practicing entities are affected by such relationships and course of conduct between the prior owners and those entities against which the patents may be asserted.

Further Information
The High Point opinion can be found here. 

Editors and Authors
The editors and authors are attorneys at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP.

John Paul john.paul@finnegan.com
Brian Kacedon brian.kacedon@finnegan.com
Robert Wells robert.wells@finnegan.com
Robert MacKichan robert.mackichan@finnegan.com
Hala Mourad hala.mourad@finnegan.com

This article is for informational purposes and does not constitute legal advice.
The views expressed do not necessarily reflect the views of LES or Finnegan.

Few high tech developments have impacted our personal and professional operations over the past decade more than digitalization of content. From music and photos to business files and banking, plenty of questions continue to arise about overall management of digital content.

Experts in the field recently participated in an interactive panel discussion at the Licensing Executives (U.S.A. and Canada) Winter Meeting in Silicon Valley to provide perspective on the issue. The panel was moderated by Dave Green of Microsoft, who was joined by panelists Jeff Jampol of JAM Inc., Kelly Jo MacArthur of the MacArthur Group LLC., David Reeder, Vice President, GREENLIGHT, and Lisa Oratz of Perkins Coie.

Jeff Jampol of JAM, Inc. which manages artists like the Doors and Janis Joplin, kicked off the lively discussion by noting a few fundamental shifts in media creation over the past decade: creative content, both personal and professional, are now stored and accessible primarily in the form of digital content. Creations, work documents, movies, songs, photos and games - the very essence of our lives exists in a medium that only requires copying and distribution to be enjoyed.

However, as Mr. Jampol quickly pointed out that just because the creative content is easy to access and use does not in itself reduce such media to a commodity. Managing these creations is different than licensing technology or software.  "We're not talking about widgets here. These artists aren't just artists - they're vendors and brands.  And it's our job to be their brand managers," he said.

But with YouTube, FaceBook and the plethora of other ways to connect with consumers directly, what's a licensor and brand manager to do?  How do they control the ease of access to this content, or should they control it? Are rights owners now throwing in the towel on rights? 

The short answer is no.  They're not giving up on rights, but there is a need to change the game.  Some catching up is required in this area where the law in lagging significantly behind where technology and consumers are, and even further behind where they're headed. The panelists agreed that convenience is the name of the game, and things are moving faster than ever before. Moderator Dave Green noted that consumers are demanding that their favorite content be available how they want to experience, and not merely how the rights owners think it should be distributed.

And while consumers and their needs produce a rapidly changing environment, David Reeder articulated a simple philosophy that hasn't changed, even if the delivery methods have: there is still a radical disconnect between the value that owners ascribe to their works, and what consumers perceive.  And the value proposition for intermediaries: labels, studios, managers, is being even further muddled as artists connect directly with fans. It seems both sides are empowered to interact directly with no agreements and no traditional brand protections. 

Consumers and artists are taking advantage of these opportunities to engage each other, and this empowerment is changing business models and challenging the status quo.  Record companies were highlighted as an example of an industry struggling to stay relevant.  They've been left behind as new business models have been created to work around the establishment they've worked so hard to build. A key example is how consumers have shifted from having to own content to now simply having access to it.   People seem far less interested in owning CDs and DVDs than they are in having access to the wide world of entertainment whenever and wherever they are.  And the possibilities around monetizing access are huge for those who can (and want to) adapt.  Apps were highlighted as an example of how those willing to embrace the change can pioneer new licensing models, even as pricing models come down. 

As the panel put bets on the next big thing, it was obvious that subscription models are at the top of the list -- but subscriptions with intelligence.  How can you sort through the millions of options out there?  As consumers try to wade through everything available to them, filters may be the wave of the future.  Finding what we want and accessing it how we want will likely shape the next wave of developments in digital content.  Kelly Jo MacArthur pointed out that we're already seeing the beginning of this with different data plans for mobiles asking how much one wants to pay for how much access?  Along with access, the amount of information consumers are willing to share about themselves and their preferences will shape the next wave of developments.

To read summaries on other high tech panels from the LES (USA & Canada) Winter Meeting, visit www.lesusacanada.org.