An estppel doctrine for patented standards

California Law Review

Volumn 97, Issue 1, 2009, Pages 1-50

  Merges, Robert P ^a   Kuhn, Jeffrey M ^b  

^a UNIVERSITY OF CALIFORNIA   (United States)

^b Weaver Austin Villeneuve and Sampson LLP ^*  (United States)

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[No Author keywords available]

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EID: 62249110899     PISSN: 00081221     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (221)

1. Adobe, Legal Notices for Developers, http://partners.adobe.com/public/ developer/support/topic-legal-notices.html (last visited Oct. 20, 2008).
2. See id.
3. See, e.g., Unisys and GIF, discussed infra Part II.
4. FTC File No. 051-0094 (Jan. 23, 2008), available at http://www.ftc.gov/os/caselist/0510094/index.shtm.
5. Analysis of Proposed Consent Order to Aid Public Comment, In re Negotiated Data Solutions LLC, FTC File No. 051-0094, available at http://www.ftc.gov/os/caselist/0510094/ 080122analysis.pdf.
6. Id.
7. Id.
8. Id.
9. Id.
10. Decision and Order, In re Negotiated Data Solutions LLC, FTC File No. 051-0094, available at http://www.ftc.gov/os/caselist/0510094/ 080122do.pdf.
11. See In re Negotiated Data Solutions, FTC File No. 051-0094 (Jan. 23, 2008) (Majoras, J., dissenting), available at http://www.ftc.gov/os/ caselist/0510094/080122majoras.pdf.
12. See Analysis of Proposed Consent Order to Aid Public Comment, supra note 5.
13. See In re Negotiated Data Solutions, FTC File No. 051-0094 (Majoras, J., dissenting), available at http://www.ftc.gov/os/caselist/ 0510094/080122majoras.pdf.
14. Id.
15. A unified standard may lead to lower prices for complementary products since, for example, it costs money to adapt a product (e.g., a particular video game) to work with a number of different platforms (e.g., different video game consoles). In addition, where complementary goods are network goods (e.g., "plug-ins" compatible with multiple operating systems, word processing programs, etc.), it "costs" consumers more when there are competing platforms because they cannot share content developed for non-compatible plug-ins. See generally CARL SHAPIRO & HAL R. VARIAN, INFORMATION RULES: A STRATEGIC GUIDE TO THE NETWORK ECONOMY(1999). On the other hand, competing platforms could keep platform owners from raising the prices of proprietary platforms, which is one reason why open standards (i.e., free platforms) are so valuable. See Robert P. Merges, Intellectual Property Rights and Technological Platforms (June 1,2008) (unpublished manuscript, on file with author).
16. This Article focuses on the software industry since the risks of strategic enforcement are clearest, but network effects based on standards adoption can arise in many contexts. Thus, standards estoppel may be applicable in other industries where standards play a key role and may be the subject of patents.
17. David Alban, Rambus v. Infineon: Patent Disclosures in Standard-Setting Organizations, 19 BERKELEY TECH. L.J. 309 (2004).
18. Mark A. Lemley, Intellectual Property Rights and Standard-Setting Organizations, 90 CALIF. L. REV. 1889, 1896 (2002).
19. The networks in which we are interested are known as "two way virtual networks." Networks may be classified as either one-way or two-way. Two-way networks include many transportation and telecommunication networks, where nodes are distinctly connected in both directions. In contrast, one-way networks, such as broadcasting and paging, have connections in only one direction. Nicholas Economides, The Economics of Networks, 14 INT'L J. INDUS. ORG. 673, 674-75 (1996). Another important distinction is between actual networks, such as telephones and fax machines, and virtual networks, such as computer software. See SHAPIRO & VARIAN, supra note 15; Mark A. Lemley & David McGowan, Legal Implications of Network Economic Effects, 86 CALIF. L. REV. 479, 488 (1998). Actual network goods, such as telephones, derive all of their value from their connection through the network. A telephone by itself, unconnected to a working phone line, is worthless. Virtual networks, such as software media players, have independent value as well as value that increases with network growth. A software media player is independently useful since it enables playing certain types of files, but its value increases as more people adopt it and develop extensions, plug-ins, themes, technical support documents, and other ways of adding value to it. See Economides, supra, at 675; see also Michael L. Katz & Carl Shapiro, Systems Competitions and Network Effects, 8 J. ECON. PERSP. 93, 94-95 (1994).
20. This added-value property implies that networks based upon open standards often have greater potential for growth than those based upon closed standards both because the cost of joining the network is low and because the potential for others to join the network is high. Likewise, networks based upon non-proprietary standards often have greater potential for growth than networks based upon proprietary standards because a community of supporters is often more reliable than a network with a single point of failure. However, the complexity of the underlying technology may be a countervailing effect. A relatively narrow technology, such as Ethernet, may be easier to develop in an open, non-proprietary way than an expansive and highly complex technology, such as an operating system. Thus, the open Ethernet standard is ubiquitous, but the proprietary Windows operating system maintains a clear market lead over open source rival Linux. See URS VON BURG, THE TRIUMPH OF ETHERNET 199-212 (2001).
21. Economides, supra note 19, at 678. The positive feedback networks enjoy leads to a new sort of economic effect, one that may be termed "demand-side economies of scale." See SHAPIRO & VARIAN, supra note 15, at 179; see also Michael L. Katz & Carl Shapiro, Network Externalities, Competition, and Compatibility, 75 AM. ECON. REV. 424 (1985) (describing the sources of and an economic model for network externalities).
22. SHAPIRO & VARIAN, supra note 15, at 116.
23. Id. at 117.
24. See id.
25. SHAPIRO & VARIAN, supra note 15, at 184.
26. Witness the difficulty, for example, in effecting the switch from IPv4 to IPv6. Carolyn Duffy Marsan, IPv6 Guru Predicts Last-Minute Switch to Protocol, NETWORK WORLD, Dec. 17, 2007, http://www.networkworld.com/news/2007/121707-how-feds-are-dropping-the-ball- side-l.html.
27. See, e.g., id.
28. SHAPIRO & VARIAN, supra note 15, at 136.
29. See id. at 108.
30. See Alban, supra note 17, at 309; Lemley, supra note 18, at 1889.
31. See, e.g., Lemley, supra note 18, at 1896.
32. See Stanley M. Besen & Joseph Farrell, Choosing How to Compete: Strategies and Tactics in Standardization, 8 J. ECON. PERSP. 117, 119-120 (1994) (explaining how firms may reasonably choose to compete for the "prize" of owning a proprietary standard or choose to agree on a standard and compete within, rather than between, technologies); see also Joseph Farrell & Garth Saloner, Coordination Through Committees and Markets, 19 RAND J. ECON. 235 (1988) (describing a combination of committee-based and unilateral action as the most efficient means of standard setting).
33. Robert P. Merges, Software and Patent Scope: A Report from the Middle Innings, 85 TEX. L. REV. 1627, 1674 (2007).
34. Adobe, Adobe Acrobat Family, http://www.adobe.com/products/acrobat/(last visited Aug. 28, 2008).
35. Wikipedia, DjVu, http://en.wikipedia.org/wiki/DjVu (last visited Sept. 7, 2008).
36. Wikipedia, FairPlay, http://en.wikipedia.org/wiki/FairPlay (last visited Sept, 7, 2008).
37. Wikipedia, MrSID, http://en.wikipedia.org/wiki/MrSID (last visited Sept. 7, 2008).
38. Wikipedia, Linux, http://en.wikipedia.org/wiki/Linux (last visited Sept. 7, 2008).
39. Guidancesoftware, EnCase Forensic, http://www.guidancesoftware.com/ products/ef-index.asp (last visited Sept. 7, 2008).
40. See Wikipedia, Hypertext Transfer Protocol (HTTP), http://en.wikipedia.org/wiki/HTTP (last visited Sept. 7, 2008).
41. See Wikipedia, HTML, http://en.wikipedia.org/wiki/HTML (last visited Sept. 7, 2008).
42. SHAPIRO & VARIAN, supra note 15, at 199.
43. Id. at 227-33; see also URS VON BURG, supra note 20 (discussing the victory of the open, non-proprietary Ethernet standard over IBM's Token Ring standard for network communication).
44. See Robert P. Merges, Intellectual Property Rights and Technological Platforms (June 1, 2008) (unpublished manuscript, on file with author).
45. See Robert P. Merges, A New Dynamism in the Public Domain, 71 U. CHI. L. REV. 183 (2004).
46. See infra Part II.C.
47. See id.
48. For example, SSOs typically require disclosure of relevant patents during the standard setting process. Participants usually must also promise to license any patents legitimately unknown during standard setting on reasonable and non-discriminatory terms.
49. See supra Part LA.
50. See, e.g., Dell Computer Corp., 121 F.T.C. 616, 626 (1996) (holding that the entire industry was faced with potential harm when Dell asserted a previously concealed standard against an ostensibly open standard).
51. See Wikipedia, Graphics Interchange Format (GIF), http://en.wikipedia.org/wiki/GIF (last visited Sept. 7, 2008) [hereinafter Wikipedia, GIF].
52. Id.
53. Id.
54. See Wikipedia, JPEG, http://en.wikipedia.org/wiki/JPEG (last visited Sept. 7, 2008).
55. Id.
56. Id.
57. Id. Forgent had not met with much success at the time it abandoned its attempts at enforcement, but the ultimate outcome of patent suits is often difficult to predict and may take years to develop. However, the expiration of Forgent's patent meant that injunctive relief was no longer an option. Patent infringement suits against standards often yield low damage awards because standards adopters typically do not profit directly from implementing a standard. However, an injunction against the use of a vital standard is a powerful bargaining tool because, due to lock-in, standards adopters have little choice but to pay for a license.
58. See, e.g., IBM Proposes a Patent Commons for Royalty-Free Open Source Software Development, COVER PAGES, Jan. 13, 2005, http://xml.coverpages.org/ni2005-01-13-a.html (discussing IBM's release of 500 patents to the open source community); Peter Galli, Sun License to Give Developers Patent-Use Rights, EWEEK.COM, Jan. 19, 2005, http://www.eweek.com/ article2/0,1895,1752675,00.asp (discussing Sun's grant of patent-use rights to the open source community); Microsoft and Novell Announce Broad Collaboration on Windows and Linux Interoperability and Support, MICROSOFT.COM, NOV. 2, 2006, http://www.microsoft.com/presspass/press/2006/nov06/ll-02MSNovellPR.mspx (discussing the newfound partnership between Microsoft and Novell as well as Microsoft's agreement to "not assert its patents against individual noncommercial open source developers").
59. See, e.g., Wikipedia, GIF, supra note 51.
60. See Dell Computer Corp., 121 F.T.C. 616 (1996).
61. For two other possible solutions see Merges, supra note 45, at 197, 201. One method is a "creative commons" type of solution, which uses contracts that follow the patent to explicitly set forth the terms of use, potentially including use by the public. Id. Another method is a statutory provision permitting sellers to waive current and future patent rights by affixing a "Patent Waived" notice to "items to be sold, or information to be published." Id.
62. See Dell Computer Corp., 121 F.T.C. 616; Robert Pitofsky, Chairman, Fed. Trade Comm'n, Prepared Remarks for the Antitrust, Technology and Intellectual Property Conference (Mar. 2, 2001), available at http://www.ftc.gov/speeches/pitofsky/ipf301.shtm ("The complaint alleged that the 'bait-and-switch tactics' adopted by Dell threatened to retard the development and adoption of standards in this particular matter and to discourage in the future efficient standard-setting efforts.").
63. Pitofsky, supra note 62.
64. Id.
65. Id.
66. Id.
67. Patent law defenses do not typically require proof of market power, restraint of trade, and other complex economic inquiries that are difficult for many patent defendants to establish. Moreover, the DOJ and FTC Guidelines primarily contemplate ex ante disclosure and licensing rules at SSOs to mitigate the holdup problem. But these mechanisms do not account for cases in which the patentee makes promises to the industry outside the SSO context, cases in which those agreements are insufficient or absent, or cases in which the patentee uses a snake-in-the-grass strategy (discussed in the next Part). See U.S. DEP'T OF JUSTICE & FED. TRADE COMM'N, ANTITRUST ENFORCEMENT AND INTELLECTUAL PROPERTY RIGHTS: PROMOTING INNOVATION AND COMPETITION ch. 2 (2007), available at http://www.usdoj.gov/atr/public/hearings/ip/222655.pdf.
68. Rambus, Inc., Docket No. 9302, (Fed. Trade Comm'n Feb. 2, 2007) (final order), http://www.ftc.gov/os/adjpro/d9302/070205finalorder.pdf; Rambus, Inc., Docket No. 9302, (Fed. Trade Comm'n Feb. 2, 2007) (opinion of the Commission on remedy) http://www.ftc.gov/os/adjpro/d9302/070205opinion.pdf (limiting the patent royalty rates Rambus may charge licensees).
69. See sources cited supra note 68.
70. See id.
71. See id.
72. See id.
73. See, e.g., W. Stephen Smith & Jenny M. Maier, Overview of FTC's Rambus Decision, MORRISON & FOERSTER: LEGAL UPDATES & NEWS, Aug. 2006, http://www.mofo.com/news/updates/files/update02229.html; Jeny M. Maier, FTC Compels Rambus to License Patented Technology and Limits Royalty Rates, MORRISON & FOERSTER: LEGAL UPDATES & NEWS, Feb. 2007, http://www.mofo.com/news/updates/files/update02322. html (explaining the royalty structure dictated by the FTC decision); Alden F. Abbott & Theodore A. Gebhard, Standard-Setting Disclosure Policies: Evaluating Antitrust Concerns in Light of Rambus, 16 ANTITRUST 29 (2002); Janice M. Mueller, Patent Misuse Through the Capture of Industry Standards, 17 BERKELEY TECH. L.J. 623 (2002); Nicos L. Tsilas, Toward Greater Clarity and Consistency in Patent Disclosure Policies in a Post-Rambus World, 17 HARV. J.L. & TECH. 475 (2004); Peter David G. Sabido, Defending Against Patent Infringement Suits in Standard-Setting Organizations: Rambus Inc. v. Infineon Technologies AG, 13 FED. CIR. B.J. 635 (2004). But see Joseph Kattan, The IP/Antitrust Intersection: Promoting Competition and Innovation, 16 ANTITRUST 22, 27 (2002) (arguing that In re Independent Service Organizations Litigation (ISO), 203 F.3d 1322 (Fed. Cir. 2000) may afford a significant defense to those wishing to challenge single-firm standard-setting conduct on antitrust grounds).
74. Rambus, Inc. v. FTC, 522 F.3d 456 (D.C. Cir. 2008).
75. Despite being generally unsuited as a mechanism by which to police patent law, antitrust law is still relevant to standards estoppel. For further explanation, see infra Part III.B.2.a.
76. See Lemley, supra note 18; infra Part III.B.
77. The traditional rule in contract law is to award specific performance where money damages are difficult to calculate for a breach of contract. In this sense, standards estoppels can be seen as a form of quasi-contractual specific performance, giving standards adopters the open standard they initially bargained for.
78. This situation could also arise when a successor acquires patents from a previous owner and suddenly adopts a strategy different than that of the previous owner.
79. See supra Part II. This example, originally discussed supra, will be further detailed in Part III.B.3.
80. Nancy Gohring, Nokia, Qualcomm Squabble Over CDMA License, INFOWORLD, Apr. 20, 2006, http://www.infoworld.com/article/06/04/20/ 77592-HNpatentsquabble-l.htral; Kevin J. O'Brien, The Nokia-Qualcomm Disconnect, INT'L HERALD TRIB., Apr. 8, 2007, http://www.iht.com/articles/2007/04/08/technology/wireless.php; Peter Sayer, Qualcomm Files More Suits Against Nokia, WASH. POST, Apr. 3, 2007, http://www.washingtonpost.com/wp-dyn/content/article/2007/04/03/ AR2007040300892.html.
81. Sayer, supra note 80.
82. Id.
83. Katie Fehrenbacher, Timeline: Qualcomm, Nokia Duel, GIGAOM.COM, Apr. 4, 2007, http://gigaom.com/2007/04/04/ timeline-of-the-qualcomm-nokia-duel/.
84. Id.
85. James Niccolai, Sun, Microsoft Settle Java Lawsuit, NETWORK WORLD, Jan. 23, 2001, http://www.networkworld.com/ news/2001/0123msjava.html.
86. Id.
87. Id.
88. Id.
89. John Markoff, Microsoft Adding to Java and to Sun Rift, N.Y. TIMES, Mar. 11, 1998, http://query.nytimes.com/gst/fullpage.html?res= 9807EFD71330F932A25750C0A96E958260; see also Niccolai, supra note 85.
90. Markoff, supra note 89.
91. Id.
92. Scarlet Pruitt, Sun, Microsoft Make a Billion Dollar Deal, PC WORLD, Apr. 2, 2004, http://www.pcworld.com/article/id,1 15510-page,l/article.html. Microsoft and Sun eventually entered into a complex settlement agreement dealing that included this issue, as well as many others. Id.
93. Markoff, supra note 89.
94. See Robert P. Merges, Locke for the Masses: Property Rights and the Products of Collective Creativity, 36 HOFSTRA L. REV. (forthcoming Oct. 2008) ("Idea" section). The problem of collective creativity is also an important component in discussions of the need for intellectual property protection of traditional medicines, folklore, crafts, and other deeply rooted products of communal wisdom. See, e.g., MICHAEL F. BROWN, WHO OWNS NATIVE CULTURE? (2003).
95. JAMES BOYLE, SHAMANS, SOFTWARE AND SPLEENS: LAW AND THE CONSTRUCTION OF THE INFORMATION SOCIETY, 51-60 (1996).
96. See id.
97. In patent law, for example, '"each joint inventor must generally contribute to the conception'" of at least one claim. ROBERT PATRICK MERGES & JOHN FITZGERALD DUFFY, PATENT LAW AND POLICY 1274 (3rd ed. 2002) (quoting Ethicon, Inc. v. U.S. Surgical Corp., 135 F.3d 1456, 1460 (Fed. Cir. 1998)). Although this test includes as co-inventors contributors whose work would not be independently patentable, it excludes from co-inventorship contributors who functioned only as a "pair of hands" or assisted in reduction to practice but not conception. Id. at 1287. In copyright law, joint authorship yields to each contributor "undivided ownership in the entire work." 1 MELVILLE B. NIMMER & DAVID NIMMER, NIMMER ON COPYRIGHT § 6.03 (2008). Joint authorship requires "joint laboring in furtherance of a preconcerted common design" with at least "a significant contribution" that is "something more than the minimal copyright standard of 'distinguishable variation.'" Id. (citing Picture Music, Inc. v. Bourne, Inc., 314 F. Supp. 640 (S.D.N.Y. 1970), aff'd on other grounds, 457 F.2d 1213 (2d. Cir. 1972)).
98. See generally Robert P. Merges, The Law and Economics of Employee Inventions, 13 HARV.J.L. & TECH. 1(1999).
99. Cryptography, for example, is an ever changing field that absorbs new advances from computer science, mathematics, and information theory. Implementing protocols in a way that is actually secure rather than only appearing to be so is difficult even for experienced computer scientists. Peter Gutmann, Lessons Learned in Implementing and Deploying Crypto Software, Proceedings of the 11th USENIX Security Symposium (Aug. 5-9, 2002), available at http://www.usenix.org/publications/library/proceedings/sec02/full- papers/gutmann/gutmann.pdf.
100. To take one example, Pidgin is a popular open source program that implements a variety of instant messaging protocols. It does very little that proprietary instant messaging programs do not do except aggregation of many protocols into a single program. However, as can be seen from the various documents on the Pidgin developer's webpage, there is a lot left to do even with a thriving community of developers. Pidgin Support & Development, http://developer.pidgin.im/ (last visited Aug. 28,2008).
101. In this Part, the proposed doctrine is explained in terms of the labor theory of philosopher John Locke. See John Locke, Second Treatise on Government §§ 27, 36 (1689), reprinted in Locke: Two Treatises of Government (Student Ed., 1988) (Peter Laslett, ed.), at 287-288, 292-293). In this instance as in many others, however, the Lockean normative framework overlaps quite substantially with a utilitarian or incentives account. In other words, the doctrine we espouse is not only normatively correct (in a Lockean sense), but leads to more effective incentives (in a utilitarian sense).
102. Lotus Dev. Corp. v. Borland Int'l Inc., 49 F.3d 807 (1st Cir. 1995), aff'd, 516 U.S. 233 (1996) (4-4 decision) (per curiam).
103. Id. at 821.
104. See, e.g., Joseph William Singer, The Reliance Interest in Property, 40 STAN. L. REV. 611 (1988); see also Tom Allen, Compensation for Property Under the European Convention on Human Rights, 28 MICH. J. INT'L L. 287 (2007); Krystilyn Corbett, The Rise of Private Property Rights in the Broadcast Spectrum, 46 DUKE L.J. 611, 635-639 (1996); Kent Greenfield, The Place of Workers in Corporate Law, 39 B.C. L. REV. 283 (1998); Peter Lee, The Evolution of Intellectual Infrastructure, 83 WASH. L. REV. 39, 69-75 (2008); Nathalie D. Martin, Noneconomic Interests in Bankruptcy: Standing on the Outside Looking in, 59 OHIO ST. L.J. 429 (1998); Kary L. Moss, The Privatizing of Public Wealth, 23 FORDHAM URB. L.J. 101 (1995); Jeremy Paul, The Hidden Structure of Takings Law, 64 S. CALIF. L. REV. 1393, 1429 (1991); Joseph William Singer, Real Conflicts, 69 B.U. L. REV. 1 (1989).
105. Formally, standards estoppel would appear to create something more akin to a privilege or defense-a legal protective mechanism that kicks in when someone else asserts a right against the favored or privileged class. There is a property-like aspect to this defense, however, because it arises outside a formal contractual relationship. The main point here, however, is not taxonomic; it is that whatever label one uses for it, the right to defend against an assertion of patent infringement inures to those who have invested resources in the adoption of a standard, in the good faith belief that those investments have been encouraged and invited by the patent owner's pledge to maintain an open standard.
106. The invitation by the standard owner is crucial here. It is what makes the standards case different from cases where users or consumers digitally "remix" established works without encouragement or invitation by owners of those works. Remixers in this setting have no plausible right to remix. See Robert P. Merges, Locke Remixed ;-), 40 U.C. DAVIS L. REV. 1259 (2007). Many such owners of established works also voluntarily waive their rights to build user interest in their works-a situation that is closely akin to standards owners encouraging standard adoption. It is thus reasonable that something like the standards estoppel doctrine espoused here would be appropriate if an owner of established works changed his or her mind after users have expended effort in making remixes.
107. To be sure, there is much more to Lockean labor theory than this crude formula. Briefly, Locke also limits property rights over assets, even where labor has been expended to secure or transform those assets. See, e.g., John Locke, Second Treatise of Government, §§31 (no one should appropriate more than he or she can use effectively-the spoilage or "waste" proviso), 33 (no one should appropriate resources unless "enough, and as good" is left for others after the appropriation-the sufficiency proviso), and John Locke, First Treatise on Government § 42, reprinted in Laslett, supra note 101, at 170 (destitute people have a claim on resources even after an appropriator labors on them-the "charity" proviso). Various readers of Locke describe his limitations and "provisos" differently, but all agree that Locke is no absolutist when it comes to property claims. See, e.g., A. JOHN SIMMONS, THE LOCKEAN THEORY OF RIGHTS (1992); JEREMY WALDRON, THE RIGHT TO PRIVATE PROPERTY (1988). For present purposes, two points will suffice: (1) Locke is a big believer in contract as well as property (which is why he can defend an employee's or "servant's" lack of property rights when he or she labors on a thing owned by an employer), and so it is no stretch to say that a Lockean theorist would recognize that the invitation to adopters to add labor to a standard over which property is expressly disclaimed puts adopters on a very different footing than an employee working on assets owned by an employer; and (2) because the labor of adopters results only in a negative right (a privilege or immunity from suit by a patent owner), the labor in no significant way limits the rights of others, and hence does not run counter to any of the Lockean provisos.
108. See, e.g., Mark A. Lemley, Ten Things To Do About Patent Holdup of Standards (and One Not To), 48 B.C. L. REV. 149 (2007). Professor Lemley argues that SSOs should require members to agree to license their patent rights for patents that are essential to a new standard on reasonable and nondiscriminatory terms prior to the standard's formulation using clear license agreements. Further, members should agree to a cap on the total royalty charged for a standard between all the members, impose penalty defaults for nondisclosure of vital patents, and innovative means of determining royalty rates. These suggestions require antitrust law to allow SSOs to discuss price. Outside of the SSO context, the PTO should limit abuse of continuation practice, while courts should limit findings of willfulness and calculate reasonable royalty rates and damages in a way that accounts for the fact that many patents may read on a single standard. In contrast, antitrust law may be an inappropriate tool to solve patent holdup because of the deference courts often show to patent law as well as the evidentiary difficulties in proving an antitrust violation. See Janice M. Mueller, Patenting Industry Standards, 34 J. MARSHALL L. REV. 897 (2001) (arguing that firms that conceal patents in the standard-setting process should be subject to compulsory licensing).
109. For the most part, these pledges are self-evident; they often take the form of notices on websites or widely disseminated press releases. Timothy Wu in a recent paper observes that in the world of online content, our legal system appears to be moving toward an unorthodox property system, in which content is presumed open and free for use unless and until its owner provides explicit notice. Wu calls this system "an 'opt-in' system ... that is in property terms a rare species of ex post notice right." Tim Wu, Tolerated Use 1 (Columbia Law Sch. Center for Law and Econ. Studies, Working Paper No. 333, 2008), available at http://papers.ssrn.com/sol3/papers.cfm? abstract-id=l 132247.
110. A similar quid pro quo often occurs in the copyright context in the form of open source software. See, e.g., Jacobsen v. Katzer, 535 F.3d 1373, 1379 (Fed. Cir. 2008) ("There are substantial benefits, including economic benefits, to the creation and distribution of copyrighted works under public licenses that range far beyond traditional license royalties.").
111. See supra Part II.A.
112. It is possible to make a blanket representation to all members of the public which may be construed as a binding offer. This offer is accepted, resulting in a contract, by specified acts or statements on the part of recipients. The standards context does not lend itself to this conventional contractual analysis, however. There is no single act required on the part of "offerees" who adopt a standard. Instead, adopters create a reliance interest in a standard collectively, over time. This reliance interest is one reason that the user interest whose protection we describe in this Article is best characterized as a property (or perhaps quasi-property) interest rather than a creature of contract law.
113. See supra PartsI.A&I.B.
114. Stating the estoppels rule this way makes clear that it is intended to go beyond situations where an implied license would normally exist. The pledge of openness, in other words, need not rise to the level of a unilateral offer under contract law, nor need it be directed at specific parties or occur in the context of a contractual or semi-contractual relationship.
115. From the perspective of legal theory, this proposal can be seen two ways. It might be described as a looser form of the concept of contractual privity-what might be thought of as "network privity." Or it could be conceived as a form of quasi-property right held by standards adopters that is "good against the world," i.e., against any entity that later tries to break the pledge of openness with respect to the patents covering the adopted standard. We favor the latter characterization, for reasons explained throughout this Article.
116. This is another reason why standards estoppel as we envision it is different from a conventional contract formed by an offer made to the general public. A conventional contract offer can, like any offer, be revoked prior to acceptance. In the standards context, this would allow changes in the terms of a public notice (on a website, for example), announcing that the patents formerly rendered free and open will henceforth not be free and open. Such changes would, under standard contract law, eliminate the protection of openness from subsequent adopters of a standard. Under our doctrine, however, subsequent adopters could ignore this public notice, assuming the standard in question had become solidly established before the patentee tried to change its policy on openness. Prior to this point, i.e., before the standard has become well established, it would seem that conventional contract principles might sensibly be applied. But after this point-after the collective effort of multiple adopters has firmly established the patented technology as a standard-our doctrine disallows the patentee to change course. Instead, the collective reliance interest we describe militates against the normal freedom of action permitted to a patentee. A change in the "offer" from a patentee has no effect beyond this point, which is why standards estoppel as we envision it is something other than a noVel species of implied contract. The collective effort that makes a standard calls into being something other than a series of individual quasi-contract rights: it creates something more akin to a property interest that vests in all adopters, present and future.
117. See supra Parts LA & LB. Technological development requires that standards be as trustworthy as possible. The industry, through SSOs and the efforts of individual companies, works hard to ensure open standards. Insofar as it is possible while retaining incentives to innovate, patent law should foster, not hinder, efforts to retain open standards.
118. See supra Part LB.
119. See MGM Studios, Inc. v. Grokster, Ltd., 545 U.S. 913 (2005) (adopting a similar mode of analysis to find contributory copyright infringement).
120. See, e.g., sources cited supra note 68.
121. See, e.g., Walker Process Equipment, Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172 (1965) (holding that Part 2 of the Sherman Act allows claims for monopolization or attempted monopolization based on enforcement of a patent obtained by knowingly and deliberately concealing from the Patent Office prior art that the applicant knew would have resulted in a denial of its application).
122. See, e.g., source cited supra note 73.
123. See, e.g., id.
124. It should be stressed that this situation could develop without active anticompetitive intent, since a firm that knows of the standard but has no bad intent (i.e., no explicit bad faith) could simply change its strategy later or assign its patents to another firm with a more aggressive patent strategy.
125. See 547 U.S. 388, 391 (2006). The essence of eBay is what might be called disproportionate leverage. A patent of modest intrinsic value can come to have very substantial value due to heavy up-front investments that cannot be recouped without use of the patented technology. Standards estoppel, like the injunction analysis in eBay, insures that patent law does not inadvertently reward disproportionate leverage obtained for reasons other than the intrinsic merits of the patented technology.
126. Id. at 391.
127. Paice, L.L.C. v. Toyota Motor Corp., No. 2:04-CV-211-DF, 2006 U.S. Dist. LEXIS 61600 (E.D. Tex. Aug. 16, 2006).
128. eBay, 547 U.S. at 391.
129. See, e.g., text accompanying supra note 7 (discussing National's original deal to license its Ethernet technology for a one-time fee of $1,000 for any adopter).
130. Paice, 2006 U.S. Dist. LEXIS 61600, at *4.
131. See supra Part I.B.
132. See Paice, 2006 U.S. Dist. LEXIS 61600.
133. eBay, 547 U.S. at 391.
134. See supra Part I. A.
135. Id.
136. 41 (Fed. Cir. 1999).
137. Patentees are entitled to lost profits as a measure of damages if lost profits can be proven to a reasonable certainty, but damages should be "in no event less than a reasonable royalty." 35 U.S.C. § 284 (2000). However, the nature of most standards (i.e., broadly adopted but limited in scope) suggests that lost profits will usually be an inappropriate measure of damages as well as nearly impossible to calculate. Moreover, courts should take care when calculating reasonable royalty to avoid overcompensating patentees given the potentially far-reaching effects on the industry. See, e.g., Mark Lemley, Distinguishing Lost Profits from Reasonable Royalties 2 (Stan. Pub. Law & Legal Theory Working Paper Series, Paper No. 1133173), available at http://papers.ssrn.com/sol3/papers.cfm?abstract-id=1133173 (arguing "that courts have distorted the reasonable royalty measure in various ways, adding 'kickers' to increase damages, artificially raising the reasonable royalty rate, or importing inapposite concepts like the 'entire market value rule' in an effort to compensate patent owners whose real remedy probably should have been in the lost profits category").
138. See supra Part III.B.l.
139. Id.
140. Id.
141. The ability to proceed in a declaratory judgment action is no longer a very high bar. Medimmune, Inc. v. Genentech, Inc., 546 U.S. 1169 (2006).
142. For example, Sun is the guardian of the Java programming language, while Adobe has promulgated its PDF standard.
143. A normal standard-setting processes will usually provide notice sufficient to meet the requirements of standards estoppel. Standard-setting is usually a lengthy process involving many actors and by nature involves publicizing the standard.
144. For example, the early computer industry could have adopted IBM's token ring, the open Ethernet standard, or possibly several other technologies as a networking protocol, but it settled on the Ethernet protocol. URS VON BURG, supra note 20.
145. Just as the choice of precisely what volume constitutes a liter is largely arbitrary though driven by some practical considerations, certain standards in the software industry, such as transfer protocols, are composed of many arbitrary decisions. For these standards, the primary value is not in a technological advance but rather than everyone agrees.
146. See supra Part II.
147. See supra Part III.B.2.
148. See eBay v. MercExchange, 547 U.S. 388 (2006).
149. The topic of laches will be discussed in more depth in Part IV.B,
150. Standards estoppels can be seen, then, as creating a right that "runs with the patent," or more properly with adoption of a patented technology, and is not dependent on a relationship with a particular patent owner. In this respect patent ownership becomes an in rem right.
151. See generally infra Part IV. A.
152. See Carborundum Co. v. Molten Metal Equip. Innovations, Inc., 72 F.3d 872, 878 (Fed. Cir. 1995).
153. ONALD S. CHISUM, CHISUM ON PATENTS § 19.05[2][a][ii] (2007).
154. Id.
155. See generally Alice Haemmerli, Insecurity Interests: Where Intellectual Property and Commercial Law Collide, 96 COLUM. L. REV. 1645, 1701 n.282 (1996) (describing patent recordation statute as a "notice" rule as opposed to "race-notice" rule).
156. Sanofi, S.A. v. Med-Tech Veterinarian Prods., Inc., 565 F. Supp. 931, 940 (D.N.J. 1983).
157. See Peter S. Menell, Bankruptcy Treatment of Intellectual Property Assets: An Economic Analysis, 22 BERKELEY TECH. L.J. 733 (2007).
158. Id. at769.
159. See Elizabeth Montalbano, Novell Won't Pursue Unix Copyrights, PCWORLD.COM, Aug. 15, 2007, http://www.pcworld.corn/article/id,135959-c,unix/article.html.
160. Menell, supra note 157, at 754.
161. Id.
162. Id.
163. See 11 U.S.C. §§ 507(a)(1), 507(a)(8), 523(a)(1), 523(a)(5) (2000 & Supp. V 2007). In a similar vein, student loans are dischargeable only for "undue hardship," although they are classified as non-priority debts. See id. § 523(a)(8) (Supp. V 2007).
164. For a related analysis of a specific patent non-assertion pledge, see Bryan James Mechell, Understanding Patent Non-Assertion Agreements: The Enforceability of Microsoft's Open Specification Promise, 36 AIPLA Q.J. 179, 199 (2008) (describing limitations of conventional equitable estoppels and laches doctrines).
165. However, unlike actual adverse possession, standards estoppel does not convey ownership of the core right at issue (i.e., the right to exclude) to the infringer of that right. See, e.g., Amie N. Broder, Student Note, Comparing Apples to APPLs: Importing the Doctrine of Adverse Possession in Real Property to Patent Law, 2 NYU J.L. & LIBERTY 557 (2007) (arguing that in certain situations, infringers should actually acquire the patent infringed).
166. Since material reliance is also a requirement for laches and will be covered in Part IV.B.3, infra, here we focus on the first two elements of equitable estoppel.
167. B. Braun Med., Inc. v. Abbott Labs., 124 F.3d 1419 (Fed. Cir. 1997).
168. 20, 1043 (Fed Cir. 1992).
169. Id.
170. Id. at 1044.
171. Id. at 1043.
172. Id. at 1043-44.
173. Id. at 1042-43.
174. Id. at 1043.
175. Stickle v. Heublein, Inc., 716 F.2d 1550, 1559 (Fed. Cir. 1983); see generally Qualcomm, Inc. v. Broadcom Corp., No. 2007-1545 (Fed. Cir. Dec. 1, 2008), available at http://www.cafc.uscourts.gov/opinions/07-1545.pdf (implied waiver doctrine prevents patentee from enforcing patents that were not disclosed during standard setting proceedings, a version of the snake-in-the-grass strategy described in this Article).
176. Wang Labs., Inc. v. Mitsubishi Elecs. Am., Inc., 103 F.3d 1571, 1580 (Fed. Cir. 1997). The Wang case was decided under conventional equitable estoppel principles, but it is important to point out that the doctrine espoused in this Article goes further. The facts in Wang show a direct relationship between patentee Wang and standards adopter Mitsubishi, together with very substantial reliance investments by Mitsubishi; the doctrine of standards estoppel described in this Article would apply even where no direct contractual relationship exists, and even where the reliance of the standards adopter is less substantial than that in Wang.
177. Rambus, Inc. v. Infineon Techs. AG, 318 F.3d 1081, 1084 (Fed. Cir. 2003), cert. denied, 540 U.S. 874 (2003).
178. Id.
179. Intirtool, Ltd. v. Texar Corp., 369 F.3d 1289, 1297 (Fed. Cir. 2004) (citing A.C. Aukerman Co. v. R.L. Chaides Construction Co., 960 F.2d 1020, 1028 (Fed. Cir. 1992)).
180. Ecolab, Inc. v. Envirochem, Inc., 264 F.3d 1358, 1371 (Fed. Cir. 2001).
181. State Contracting & Eng'g Corp. v. Condotte Am., Inc., 346 F.3d 1057, 1065 (Fed. Cir. 2003).
182. See, e.g., Vaupel Textilimaschinen KG v. Meccanica Euro Italia S.P.A., 944 F.2d 870, 877 (Fed. Cir. 1991) (holding that the patentee's delay was excusable because the patent owner was engaged in reissue proceedings in which the infringer participated).
183. One recent development in laches case law that parallels how standards estoppel should function was the subject of Serdarevic v. Advanced Med. Optics, Inc., 532 F. 3d 1352 (Fed. Cir. 2008). Under Serdarevic, the time period for laches is not reset upon reexamination of a patent if reexamination does not change the possibility of plaintiffs claim. Similarly, if a patentee could conceivably sue standards adopters before reexamination, then reexamination should not reset the time period for standards estoppel. In both cases, the claims could conceivably be amended to eliminate the cause of action during reexamination. However, in the absence of evidence of a change in a potential claim, reexamination should not have any bearing on equitable bars to remedies for infringement. Of course, this development does not help in situations where the patentee had no claim against the standard before reexamination but then amended the claims in order to relate to the standard. However, the bar against broadening claims in reexamination offers some protection here. Such activity on the part of patentee would also likely fall into the category of bad faith acquisition, discussed in Part III.B.2.b, supra.
184. quot;In patent cases, when applied, laches bars only pre-filing damages; it will not bar post-filing damages or injunctive relief." Lucent Techs. Inc. v. Gateway, Inc., 470 F. Supp. 2d 1187, 1190 (S.D. Cal. 2007) (citing Aukerman, 960 F.2d at 1040).
185. Id. at 1190 (citing Aukerman, 960 F.2d at 1040). But if the last infringing activity was before the laches period began, the plaintiff is entitled to no damages and is essentially barred from making their claim.
186. Aukerman, 960 F.2d at 1040-41 (citing George J. Meyer Mfg. v. Miller Mfg., 24 F.2d 505, 507 (7th Cir. 1928); Naxon Telesign Corp. v. Bunker Ramo Corp., 686 F.2d 1258, 1264 (7th Cir. 1982)).
187. Id.
188. Id. (quoting Menendez v. Holt, 128 U.S. 514, 523-24 (1888)).
189. See supra note 57 and accompanying text.
190. Aukerman, 960 F.2d at 1040.
191. Wanlass v. Gen. Elec. Co., 148 F.3d 1334, 1337 (Fed. Cir. 1998).
192. F. Supp. 2d 1156 (N.D. Cal. 2004).
193. See id. at 1161.
194. Id. at 1161.
195. Id.
196. Id.
197. Id.
198. Id. (citing Wanlass v. Gen. Elec. Co., 148 F.3d 1334, 1336 (Fed. Cir. 1998)).
199. Id. (quoting Wanlass v. Fedders Corp., 145 F.3d 1461, 1465 (Fed. Cir. 1998) (substitution in original)).
200. CHISUM, supra note 153, §1905[2][a][iii] (quoting Meyers v. Asics Corp., 974 F.2d 1304, 1307 (Fed. Cir. 1992)).
201. Laches may impose some duty on the patentee to police the market for infringement, but the precise extent of this duty is unclear. See generally Aaron B. Rabinowitz, Keep Your Eye on Your Ball: Patent Holders' Evolving Duty to Patrol the Marketplace for Infringement, 5 Nw. J. TECH. & INTELL. PROP. 192 (2007) (arguing that the Federal Circuit's case law on the level of policing required under laches is inconsistent and proposing a new formulation of the duty to police). In any case, the duty to police under laches is insufficient to protect standards adopters against the strategic tactics discussed in this Article.
202. State Contracting & Eng'g Corp. v. Condotte Am., Inc., 346 F.3d 1057, 1066 (Fed. Cir. 2003) (quoting Hemstreet v. Comp. Entry Sys. Corp., 972 F.2d 1290, 1294 (Fed. Cir. 1992) and citing Gasser Chair Co. v. Infanti Chair Mfg. Corp., 60 F.3d 770, 775 (Fed. Cir. 1995)).
203. Id. (citing A.C. Aukerman Co. v. R.L. Chaides Construction Co., 960 F.2d 1020, 1033 (Fed. Cir. 1992)).
204. Laitram Corp. v. Rexnord, Inc., 15 U.S.P.Q.2d 1161, 1164 (E.D. Wis. 1990), rev'don other grounds, 939 F.2d 1533 (Fed. Cir. 1991).
205. Id.
206. See Meyers v. Brooks Shoe, Inc., 912 F.2d 1459, 1463 (Fed. Cir. 1990).
207. See Maxwell v. J. Baker, Inc., 875 F. Supp. 1371, 1390 (D. Minn. 1995), aff'd in part, rev'd in part, vacated in part & remanded, 86 F.3d 1098 (Fed. Cir. 1996), cert, denied, 520 U.S. 1115(1997).
208. See text accompanying n.177 in CHISUM, supra note 153, § 19.05[2][c][ii].
209. In re Mahurkar, 831 F. Supp. 1354, 1379 (N.D. I11. 1993), aff'd, 71 F.3d 1573 (Fed. Cir. 1995).
210. Id. at 1380.
211. See, e.g., Ecolab, Inc. v. Envirochem, Inc., 264 F.3d 1358, 1371-72 (Fed. Cir. 2001) (granting summary judgment against laches and estoppel defenses was not an abuse of discretion where plaintiff filed suit two years after an accused infringer sent plaintiff a notice of possible infringement). The district court found that the delay in filing suit in the case had produced no economic prejudice, and the infringer's expenses in introducing the new, infringing product were "merely business decisions to capitalize on a market opportunity." Id.
212. JOSEPH M PERILLO, CORBIN ON CONTRACTS: DAMAGES § 56.1 (rev. ed. 2005).
213. S. 388 (2006).
214. Id. See also Part III.B.3.a.
215. See Dennison Mfg. Co. v. Panduit Corp., 475 U.S. 809 (1986).
216. See Grain Processing Corp. v. Am. Maize-Prods. Co., 185 F.3d 1341 (Fed. Cir. 1999).
217. Joe Wilcox, Microsoft's Patent Disputes with Alcatel-Lucent, AT&T Make Waves, EWEEK.COM, Feb. 23, 2007, http://www.eweek. eom/article2/0,1895,2098063,00.asp.
218. Id.
219. Id.
220. Id.
221. Lucent Tech, Inc. v. Gateway, Inc., Nos. 2007-1546, 2007-1580, 2008 WL 4349236 (Fed. Cir. Sept. 25, 2008).