The Perils of Patenting the Industry Standard
So, you've secured financing, developed a radically new technology, and filed a confidential application for patent protection. Your engineers have even deftly persuaded your competitors to adopt this technology as the new industry-wide standard. Now, just when you thought that your company would be rolling in royalty payments, your patent attorneys tell you that you should have disclosed the patent application. Even worse, they say that it might now be impossible to enforce any resulting patent. How did this happen?
Estoppel by Unclean Hands
The legal term that is used for situations like these, where something prevents the assertion of an otherwise legal right, is "estoppel." When the estoppel arises out of the unfair activities of the party asserting its rights, then the law refers to as an "equitable estoppel."
The modern doctrine of equitable estoppel can be traced to the English kings who "estopped" the enforcement of decisions by the medieval courts of "common law" that were scattered throughout the realm. Eventually, this special power of judicial review was delegated to the King's chancellors, and the "chancery" courts became the new outlet for justice. Since chancery matters often arose out of the arcane and inflexible rules of the common law courts, a whole new set of legal principles and procedures was developed for these matters using broad notions of fairness, called "equity." These equitable principles eventually came to be known as a series of maxims, including "he who comes to equity must come with clean hands." Although the distinction between courts of law and equity has now largely disappeared in our modern legal system, judges in the U.S. have retained broad equitable powers to deny relief for parties with "unclean hands."
Equitable Estoppel in Patent Disputes
Unfortunately, there aren't many hard and fast rules for determining when a legal defense of unclean hands will succeed. However, courts have provided some general guidelines for applying the doctrine of equitable estoppel in patent disputes.
An equitable estoppel typically arises in these cases when a patent owner makes a misleading communication that it will not enforce its patent, and an infringer reasonably relies upon that communication to continue or expand its business. The communication itself can take almost any form, including conduct or silence, as long as it supports a reasonable inference that the patent will not be enforced. However, in order to show reliance, the infringer must have been lulled into a false sense of security with regard to continuing or expanding its operations. Consequently, silence alone is generally not enough to create an estoppel, unless the patent owner also has some other duty to disclose its patent position.
This duty of disclosure often comes into play during a company's participation in a standards-setting process. For example, the Internet Society's Internet Engineering Task Force ("IETF") has taken responsibility for setting the various technical standards that control the World Wide Web. Proposed standards are submitted by participants, published as Requests for Comments ("RFCs"), and then debated in various forums before they are formally adopted. Like many other standards-setting bodies, the IETF has a written policy (RFC 2026) requiring participants to disclose intellectual property rights that cover their contributions to the standards-setting process. Nonetheless, even without such a formal written policy requiring disclosure, there may still be a duty to disclose relevant intellectual property rights to a standards-setting organization in which your company participates.
The Misfortunes of Leon Stambler
Leon Stambler learned about equitable estoppel the hard way. In 1988, he had already settled claims against at least three other infringers when he tried to enforce his patent against Diebold, Inc. for a system of using a Personal Identification Numbers to activate automatic bank teller machines. Ten years before he filed his suit, Stambler had been on the American National Standards Institute's committee that was considering proposed standards in this area. Around that time, Stambler had also realized that the proposed standards infringed his patent, but he left the committee without notifying its members of the alleged infringement. In deciding this case, Judge Platt determined that Stambler had a duty to speak out, and that his silence could be reasonably interpreted as an indication that he had abandoned his patent claims. More specifically, "he could not remain silent while an entire industry implemented the proposed standard and then, when the standards were adopted, assert that his patent covered what manufactures believed to be an open and available standard." Stambler's claim was therefore barred by the doctrine of equitable estoppel.
Avoiding the Pitfalls of Equitable Estoppel
The avoidance of equitable estoppel in patent cases boils down to two very simple questions -- What to disclose, and when to disclose it?
For previously-published patent documents, the answers to these questions are obvious. If a standards-setting organization in which your company participates has a patent disclosure policy, then follow it. If it doesn't have a policy, or if the policy is unclear, then go ahead and disclose as much as possible about your company's portfolio of issued patents. For example, consider sending everyone on the relevant committee a copy of your relevant patents. It can't hurt, and it may even help them to appreciate the novelty of your company's technology.
When it comes to patent applications, however, things get a little more tricky. Patent applications are generally maintained in confidence by the Government for at least the first eighteen months after filing, or until they are ultimately granted. Furthermore, any informal publication of the application before that time allows third parties to initiate protest proceedings that can delay, or even prevent, the issuance of the patent.
On the other hand, recent changes to the patent laws now provide incentives for patent owners to publish their applications. Under certain circumstances, it is now possible to collect royalties for infringement starting from the time that the application is formally published by the U.S. Patent Office. In fact, patent applicants can even request early official publication of their applications at the time they are filed. However, there is one important catch to obtaining these "provisional remedies." That is, the infringer must receive actual notice of the published application before any royalties will start to accumulate.
So, what does all of this mean for patent applicants who may be involved in a standards-setting organization? First of all, if a standards-setting process in which your company participates is not open and transparent, then contact an attorney immediately. The consequences of conspiring with your competitors to limit competition can be much more serious than simply invalidating your patent rights. Second, it is still quite risky to provide anyone with a copy of a patent application before it has been granted. Ask your patent attorney about how much information can be disclosed about a pending application without jeopardizing your rights.
Third, if the rules of the standards-setting organization require you to disclose both patents and applications, then consider asking the Patent Office for expedited publication of the application before participating. The additional provisional remedies might be worth the risk of defending protest proceeding. And finally, even if the standards-setting organization does not require notification of members' pending patent applications, consider doing it anyway, but only after formal publication by the Patent Office. This is one situation where your unclean hands can cost a lot more than just a bad first impression.
* Bill is a patent attorney with the law firm of Thomas, Kayden, Horstemeyer & Risley LLC in Atlanta, Georgia, (and at www.tkhr.com) specializing in intellectual property matters. He can be reached via e-mail at Bill.Heinze@tkhr.com
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