Legal Constraints On Corporate Participation In Standards Setting Do s and Don ts By Eric D. Kirsch 1

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1 Legal Constraints On Corporate Participation In Standards Setting Do s and Don ts By Eric D. Kirsch 1 Rambus, Inc. v. Infineon Technologies AG, 318 F.3d 1081 (Fed.Cir. 2003), is the latest development in how standards participation can affect a participant s patent rights, particularly in a patent infringement suit. This paper will discuss the facts, holding and rationale of the Rambus case, along with some of the issues it raises. I. The Facts Of The Rambus v. Infineon Case Rambus is a technology company that develops memory-based technologies, such as random access memory. Rambus does not manufacture memory products that embody these technologies, but licenses its technology to other companies. Rambus, 318 F.3d at In April of 1990, Rambus filed U.S. Patent Application No. 07/510,898 ( the 898 application ), concerning Dynamic Random Access Memory, or DRAM. Id. The U.S. Patent and Trademark Office ( the PTO ) informed Rambus that the 898 application covered 11 different inventions and therefore issued an eleven-way restriction requirement. 2 Rambus then filed numerous divisional and continuation applications based on the 898 application, resulting in the issuance of over 30 patents. Id. In December of 1991, Rambus first attended a meeting of the Joint Electron Devices Engineering Council ( JEDEC ), a body that sets standards for a variety of electronic devices, including random access memory, known as RAM. Rambus at JEDEC is the semiconductor engineering standardization body of the Electronic Industries Alliance [ EIA ], a trade association that represents all areas of the electronics industry. Rambus joined JEDEC a few days later and joined JEDEC s JC-42.3 Committee in February of JEDEC s JC-42.3 Committee was responsible for promulgating the SDRAM 3 standard. JEDEC adopted the SDRAM standard in Id. In September of 1993, Rambus disclosed one of its patents to JEDEC, U.S. Patent No. 5,243,703 ( the 703 patent ), which was a divisional 4 of the original 898 patent application. Id. 1 2 Eric D. Kirsch is a partner at Cooper & Dunham LLP, specializing in intellectual property litigation. According to 35 U.S.C. 120 and 37 CFR 1.142, if two or more independent inventions are claimed in a single patent application, the Patent and Trademark Office will require the applicant to elect an invention to which the claims will be restricted. This is known as a restriction requirement. 3 SDRAM stands for Synchronous Dynamic Random Access Memory, commonly found in computers, printers and peripheral devices. SDRAM offers higher speed read and write cycles to and from the CPU by synchronizing to the CPU s clock speed. 4 A divisional application is a continuing patent application based on a parent application that has the same specification except that the claims differ, usually because of a restriction requirement. Herbert F. Schwartz, Patent Law & Practice 21 (1995).

2 The written description of the 703 patent is substantially similar to the 898 patent application. At the same time, a JEDEC member disclosed a Rambus WIPO 5 patent application to JEDEC, which is also based on the 898 patent application. Rambus at Rambus last attended a JEDEC meeting in December of 1995, and officially withdrew from JEDEC by a letter dated June 17, Approximately 6 months later, JEDEC officially began working on the DDR-SDRAM 6 standard, although some of the groundwork for the DDR- SDRAM standard had been discussed before Rambus s withdrawal. Id. JEDEC adopted the DDR-SDRAM standard in II. Proceedings In The District Court On August 8, 2000, Rambus filed a complaint in the U.S. District Court for the Eastern District of Virginia, averring that Infineon infringed two of its patents. In October of 2000, Rambus amended its complaint, asserting two additional patents against Infineon. Each of Rambus s four patents-in-suit are continuations or divisionals of the 898 patent application and were filed between February of 1997 and February of Infineon, a manufacturer of SDRAM and DDR-SDRAM, as well as a member of JEDEC, counterclaimed for fraud under Virginia state law. 7 Rambus, 318 F.3d at Specifically, Infineon averred that Rambus committed fraud by not disclosing to JEDEC its patents and patent applications related to the SDRAM and DDR-SDRAM standards. After construing the asserted claims of Rambus s patents-in-suit, the District Court granted Infineon s motion for judgment as a matter of law ( JMOL ) 8 of non-infringement, while Infineon s fraud counterclaims were tried to a jury. Id. The jury returned a two count fraud verdict in favor of Infineon, finding that Rambus committed fraud by not disclosing patents and patent applications during both the SDRAM and DDR-SDRAM standards setting process. Id. The Court denied Rambus s JMOL motion concerning the SDRAM fraud verdict, but granted Rambus s JMOL motion concerning the DDR-SDRAM fraud verdict. The District Court reasoned that the fraud verdict relating to Rambus s DDR-SDRAM standards activities was unsupportable because Rambus left JEDEC before work officially began on the DDR- SDRAM standard. Id. The Court also granted Infineon s motion for over $7 million in attorney s fees. Rambus appealed the District Court s denial of its JMOL motion relating to the SDRAM standard and the award of attorney s fees; Infineon appealed the JMOL of no fraud with respect to Rambus s DDR-SDRAM standards activities. 5 WIPO stands for the World Intellectual Property Organization. 6 DDR-SDRAM stands for Double Data Rate SDRAM. DDR-SDRAM doubles the data rate between SDRAM and a CPU by transferring data on the both rising and falling edge of each clock cycle. 7 Infineon also asserted antitrust and RICO counterclaims against Rambus, but these counterclaims were disposed of before trial in Rambus s favor. 8 According to Federal Rule of Civil Procedure 50(a), [i]f during a trial by jury a party has been fully heard on an issue and there is no legally sufficient evidentiary basis for a reasonable jury to find for that party on that issue, the court may determine the issue against that party. Fed.R.Civ.P. 50(a). 2

3 III. The Federal Circuit s Analysis The Federal Circuit reviewed the JMOL of no fraud with respect to Rambus s DDR- SDRAM standards activities and the denial of Rambus s JMOL motion concerning Rambus s SDRAM standards activities. Because these matters were submitted to a jury, the Federal Circuit sought to determine if the jury s factual findings are not supported by substantial evidence or if the legal conclusions implied from the jury s verdict cannot in law be supported by those findings. Rambus at 1086 (quoting Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1454 (Fed.Cir. 1998)(en banc) and Havird Oil Co. v. Marathon Oil Co., 149 F.3d 283, 289 (4 th Cir. 1998)). The Federal Circuit started its analysis with the elements of fraud according to Virginia state law, which must be demonstrated by clear and convincing evidence. Those elements are: (1) a false representation (or omission in the face of a duty to disclose), (2) of a material fact, (3) made intentionally and knowingly, (4) with the intent to mislead, (5) with reasonable reliance by the misled party, and (6) resulting in damages to the misled party. Id. at 1096 (citing ITT Hartford Group, Inc. v. Va. Fin. Assocs., Inc., 520 S.E.2d 355, 361 (Va. 1999) and Bank of Montreal v. Signet Bank, 193 F.3d 818, 826 (4 th Cir. 1999)). A. The Duty To Disclose The Federal Circuit s analysis began with the first element of fraud under Virginia law: whether Rambus owed a duty of disclosure to Infineon, and if so, the scope of that duty. According to EIA s general counsel John Kelly, JEDEC s patent policy was set forth in three EIA/JEDEC manuals: (1) EIA s Style Manual for Standards and Publications of EIA, TIA, and JEDEC dated August of 1990 ( Engineering Publication-7-A or EP-7-A ), (2) EIA s Manual for Committee, Subcommittee, and Working Group Chairmen and Secretaries dated October of 1981 ( EP-3-F ), and (3) JEDEC s Manual of Organization and Procedure dated October of 1993 ( JEP 21-I ). 9 According to Section 9.3 of JEP 21-I entitled, Reference to Patented Products in EIA Standards, EIA and JEDEC standards... that require the use of patented items should be considered with great care.... [C]ommittees should ensure that no program of standardization shall refer to a product on which there is a known patent unless all the relevant technical information covered by the patent is known Although the Federal Circuit referred to these three manuals as containing EIA/JEDEC s patent policy, they went on to only quote and discuss JEP 21-I and Appendix E to JEP 21-I. 3

4 JEDEC Manual of Organization and Procedure No. 21-I at 15 (October 1993). In addition, Section 9.3 of JEP 21-I includes a 1993 revision expressly adding pending patent[s] to this section. Rambus at Section of JEP 21-I, entitled Committee Responsibility Concerning Intellectual Property goes on to say that - The Chairperson... must... call attention to the obligation of all participants to inform the meeting of any knowledge they may have of any patents, or pending patents, that might be involved in the work they are undertaking. Appendix E (Legal Guidelines Summary) provides copies of viewgraphs that should be used at the beginning of the meeting to satisfy this requirement. Id. (emphasis added). According to the JEDEC Patent Policy Summary set forth in Appendix E of JEP 21-I : Standards that call for use of a patented item or process may not be considered by a JEDEC committee unless all of the relevant technical information covered by the patent or pending patent is known to the committee, subcommittee or working group. Id. (emphasis added). Members of the JC-42.3 Committee, the group responsible for drafting the SDRAM and DDR-SDRAM standards, were shown Appendix E viewgraphs in accordance with section at each committee meeting. Appendix E also prohibited the inclusion of patented subject matter into a JEDEC standard unless all information covered by the patent or pending patent was known and the patentee agreed to license the technology under reasonable terms. Id. Given these statements, the Court found Rambus owed JEDEC a duty of disclosure. The Court next determined the scope and content of the duty Rambus owed JEDEC. Here the Court grappled with whether the scope of the disclosure duty was determined by Section 9.3.1, which required participants to disclose patents or patent applications that might be involved in the work they are undertaking, or determined by Appendix E, that required participants to disclose patents or patent applications that call for the use of a patented item or process. Id. at The Federal Circuit reasoned that - [a]ccepting, as the jury also must have, Infineon s argument that the 703 patent is unrelated to the JEDEC standard but that undisclosed patents and applications (with the same written description and drawings) are related to the standard, whether a patent or application is related to the standard necessarily must depend on the claims of the patent or application. 4

5 The Court also noted that Infineon provides no evidence that the policy required (or that JEDEC members understood the policy to require) disclosure of patents and applications not necessary to practice the standard. Rambus at The Court therefore concluded that, [o]n this record, a reasonable jury could find only that the duty to disclose a patent or application arises when a license under its claims reasonably might be required to practice the standard, and that therefore Rambus s duty to disclose extended only to claims in patents or applications that reasonably might be necessary to practice the standard. Id. In other words, Rambus s disclosure duty was claim-specific and standard-specific. Accordingly, Rambus was under a duty to disclose patent or patent application claims that a competitor or JEDEC member reasonably would construe to cover the standardized technology, without a formal infringement analysis. 318 F.3d at Alternatively stated, there must be some reasonable expectation that a license is needed to implement the standard. Id. at The Court reasoned that to hold otherwise would render the JEDEC disclosure duty unbounded. Id. The Court next discussed when Rambus s disclosure duty arose. This inquiry was important to whether Rambus committed fraud with respect to the DDR-SDRAM standard. 10 Infineon argued that the duty arose when SDRAM participants, including Rambus, first began discussing the basic features of the DDR-SDRAM standard. Therefore, according to Infineon, even though Rambus resigned from JEDEC before work officially commenced on the DDR- SDRAM standard, Rambus should have disclosed its patents and patent applications relating to the DDR-SDRAM standard while it was still a member of JEDEC. Id. As the Federal Circuit noted however, the JC-42.3 Committee chairman, Gordon Kelley, testified that the disclosure duty arose at formal balloting of a proposed standard. Rambus at The Court reiterated that because Rambus s disclosure duty was claim-specific and standard-specific, Rambus had no duty to disclose claims concerning the DDR-SDRAM standard because work had not formally begun on that standard before Rambus resigned from JEDEC. 318 F.3d at Interestingly, the Court also noted the staggering lack of defining details in the EIA/JEDEC patent policy, and commented that a policy that does not define clearly what, when, how, and to whom the members must disclose does not provide a firm basis for the disclosure duty necessary for a fraud verdict. Rambus at The Court went to say that [w]ithout a clear policy, members form vaguely defined expectations as to what they believe the policy requires whether the policy in fact so requires or not. Id. According to the Court, after the fact morphing of a vague, loosely defined policy to capture actions not within the actual scope of that policy... would chill participation in open standard-setting bodies. Id. at 1102, n Rambus withdrew from JEDEC by a letter dated June 17, 1996; JEDEC did not begin formal work on the DDR- SDRAM standard until December of

6 B. Did Rambus Breach Its Disclosure Duty? The Court next addressed whether Rambus breached its disclosure duty by comparing the patent and patent application claims Rambus did not disclose to JEDEC with the final SDRAM standard. Stated another way, the Court analyzed whether Infineon presented substantial evidence to the jury that the SDRAM standard could not practiced without a license from Rambus for the undisclosed claims. Id. at The Federal Circuit answered this question in the negative, explaining that it examined the [undisclosed] claims... as well as the relevant portions of the SDRAM standard. Based on this review, this court has determined that substantial evidence does not support the finding that these applications had claims that read on the SDRAM standard. Rambus at In short, because Rambus s undisclosed claims did not read on the SDRAM standard, it did not breach its duty to JEDEC by failing to disclose them. Finally, the Court addressed Infineon s argument that Rambus believed the claims in its undisclosed patents and patent applications covered the SDRAM standard. 318 F.3d at In response, the Court explained that [t]he JEDEC policy, though vague, does not create a duty premised on subjective beliefs.... [o]therwise the standard would exempt a member from disclosure, if it truly, but unreasonably believes its claims do not cover the standard. Id. Interestingly, the Federal Circuit also observed in dicta that although Rambus s actions might constitute fraud under a different patent policy; however, they do not constitute fraud under this policy. Rambus at IV. The Dissent According to Circuit Judge Prost, Infineon did present substantial evidence to support the jury s fraud verdict against Rambus concerning the SDRAM standard. In Judge Prost s view, the evidence in this case supports a broader duty than the one applied by the majority. Id. at Judge Prost first analyzed Section of JEDEC s Manual of Organization and Procedure, which reads, The Chairperson of any JEDEC committee, subcommittee, or working group must call to the attention of all those present the requirements contained in the EIA Legal Guides, and call attention to the obligation of all participants to inform the meeting of any knowledge they may have of any patents, or pending patents, that might be involved in the work they are undertaking , JEDEC s Manual of Organization and Procedure No. 21-I at 15 (emphasis added by Judge Prost). With respect to this section of JEP 21-I, Judge Prost opined that - 6

7 this portion of the manual clearly states the duty of disclosure required by all members of JEDEC, which is different from the duty applied by the majority in at least two respects. First, the statement might be involved in the standard is much broader than requiring disclosure of only claims reading on the standard. Second, the majority applies the duty to the final standard adopted by JEDEC, whereas the manual requires disclosure based on the work they are undertaking, which is much more expansive than the final, completed standard resulting from the work undertaken. Rambus at 1110 (emphasis added). Moreover, as Judge Prost correctly points out, the majority s comparison of pending claims to the final standard does not take into account the possibility that, during the course of its work, the committee considers, debates, rejects and amends various proposals as the standard evolves. 318 F.3d at According to the dissent, Appendix E merely describes the procedures to be followed in the event that a relevant patent comes to JEDEC s attention, not the scope or content of the duty to disclose patents and patent applications to JEDEC. Although the majority was concerned that section was overly broad and ambiguous, the dissent lacked similar reservations. As noted by the dissent, JEDEC was free to formulate whatever duty it desired and it is not this court s job to rewrite or reinterpret the duty on the basis that it is unbounded.... The fact that JEDEC chose not to use the same kind of language when stating the duty of disclosure indicates that it did not desire to have a bright line rule, such as the one the majority has now imposed upon it. Id. at In Judge Prost s opinion, [i]nstead of creating a duty that it believes JEDEC should have adopted, the court need only determine that there was sufficient evidence of what the duty is such that a jury could apply the duty to the conduct at issue and determine whether the duty was violated. Rambus. The dissent would have therefore ruled that Rambus was under a duty to disclose patents and patent applications that might have been involved in the work the JC-42.3 Committee (responsible for the SDRAM standard) was undertaking, which is the language set forth in Section of JEP 21-I. The dissent then analyzed whether the jury was presented with substantial evidence that Rambus breached this duty while a member of JEDEC. The dissent catalogued a number of admissions by Rambus that it had pending claims that read directly on technical proposals for the SDRAM standard. For example, Richard Crisp, Rambus s JEDEC representative, testified that Rambus certainly had patent applications that covered aspects of those... technologies discussed at SDRAM meetings. Id. at Given these admissions, the dissent easily found that Rambus breached its duty of disclosure by not disclosing patents or patent applications that might have been involved (or actually were involved) in the work undertaken by the JC-42.3 Committee. Id. The dissent also criticized the majority for limiting the application of the duty to disclose to the issue of whether pending claims read on the final standard; the crux of the disagreement between the majority and the dissent. The majority took a no harm, no foul 7

8 approach, in other words, because none of Rambus s undisclosed claims actually read on the final SDRAM standard, Rambus did not commit fraud. In the dissent s view, because Rambus failed to disclose patents or patent applications that might have been (or actually were) involved in the work undertaken by the JC-42.3 Committee, Rambus committed fraud. The dissent also criticized the majority for undertaking a de novo comparison of Rambus s undisclosed patent claims to the final SDRAM standard in holding that the jury lacked substantial evidence of fraud. According to the dissent, I do not believe that we, as an appellate court of review, are in a position to make this finding because neither party appears to have given the jury the necessary evidence to make such an analysis in the first instance, and Rambus points to no trial testimony supporting the argument it now makes on appeal. 318 F.3d Id. at The dissent closed by stating that JEDEC s disclosure policy required its members to disclose patents and pending applications that might be involved in the work they are undertaking. While the majority rejected this standard as unbounded, nothing required JEDEC to formulate its policy with precision and clarity. V. Questions Raised By The Rambus v. Infineon Case Rambus v. Infineon holds a special place in reported standards cases because there are so few reported cases to begin with, and because it is the only case where the accused infringer actually tried its standards-based defense (in this case, common law fraud) to a jury, and won monetary damages for it. At a minimum, Infineon proved that standards misbehavior has quite a bit of jury appeal and therefore must be taken seriously by patentees. Rambus v. Infineon also provides some insight as to the how the Federal Circuit, and the District Courts, for that matter, will handle standards-based defenses in the future. For example, loosely worded or unclear disclosure duties might not support a fraud case of action. 11 Also, if the claims of an undisclosed patent or patent application do not read on the final, approved standard, a patentee s failure to disclose those claims might not support a fraud claim. Whether such conduct supports other affirmative defenses such as equitable estoppel or patent misuse remains to be seen. The Federal Circuit s no harm, no foul approach to the Rambus v. Infineon case could be extended to other standards-based affirmative defenses in the future. The majority determined that the language of Section of the JEDEC Manual of Organization and Procedure 12 did not create a disclosure duty because that duty would be 11 Although it is yet to be seen, the Federal Circuit s Rambus v. Infineon opinion may prompt the re-drafting of scores of patent policies for standards organizations in the U.S., clarifying the disclosure duty of each participant and the penalties for breach of that duty. 12 Section states that [t]he Chairperson of any JEDEC committee... must call to the attention of all those present... the obligation of all participants to inform the meeting of any knowledge they may have of any patents, 8

9 unbounded. On the contrary, the language of Section not only provides a bounded duty, but that duty could be applied in an objective fashion. For example, the majority could have ruled that, according to Section 9.3.1, participants were under a duty to disclose patents or patent applications that would reasonably be involved in the work undertaken by the committee working on the standard. Or the majority could have ruled that under Section 9.3.1, a participant is under a duty to disclose patents or patent applications if a JEDEC member would reasonably believe that the claims might be involved in the work they are undertaking. Clearly, these formulations are neither unbounded nor subjective. Further, such a disclosure duty would favor the early disclosure of patents so that the committee can draft the standard around the patent or take measures to ensure that the patentee is willing to license its patent on fair, reasonable and non-discriminatory terms. By analyzing the final standard only, the majority opinion marginalizes these tasks; the same tasks that standards organizations take so seriously. Another question left open by the Rambus v. Infineon case is the extent to which a standards organization can control the unenforceability of undisclosed patents and patent applications. In other words, can a standards organization require its participants to sign an agreement promising to abide by a broad disclosure duty? For example, what if a standards participant agreed in writing to disclose issued or pending patent claims that reasonably read on a technical proposal for a standard, or reasonably read on a draft standard? Would breach of such a duty support an equitable estoppel defense or a fraud counterclaim, or would the Federal Circuit take a no harm, no foul approach as in Rambus v. Infineon? If the controlling issue is whether the undisclosed claims read on the final standard, then it seems that the standards organization s rulemaking function is either minimized or diminished, particularly where the standards organization requires early disclosure of patents and patent applications. At the heart of this issue is the degree to which a standards organization can make its own rules, and the extent to which a Federal Court will give force and effect to those rules. For the time being, these questions remain unanswered. VI. Conclusion Standards based defenses to patent infringement suits tend to be very fact specific and difficult to generalize. The Rambus v. Infineon is certainly no exception to this rule. In the wake of Rambus v. Infineon, standards organizations and their participants will no doubt review their disclosure duties carefully and compare them to the disclosure duties discussed in this case. or pending patents, that might be involved in the work they are undertaking , JEDEC Manual of Organization and Procedure No. JEP 21-I at 15. 9