United States District Court, S.D. New York
February 2, 2004.
AT&T CORP., Plaintiff, -against- MICROSOFT CORPORATION, Defendant
The opinion of the court was delivered by: WILLIAM PAULEY, District Judge
MEMORANDUM AND ORDER
Plaintiff AT&T Corp. ("AT&T") brings this patent infringement
action against Microsoft Corporation ("Microsoft"), alleging that certain
of Microsoft's products containing speech codecs*fn1 infringe its United
States Reissue Patent No. 32,580 (the "580 patent"). Those accused
products include, among others, Microsoft's NetMeeting video conferencing
software, which is available in certain editions of Microsoft's Windows
operating system. Microsoft denies infringement of the 580 patent and
seeks dismissal of the complaint together with a declaratory judgment of
noninfringment, invalidity and unenforceability of the 580 patent.
See AT&T Corp. v. Microsoft Corp., 01 Civ. 4872 (WHP), 2003
WL 21459573 (S.D.N.Y. June 24, 2003). Familiarity with this Court's prior
Memoranda and Orders is presumed.*fn2
Currently before this Court is AT&T's motion for partial summary
judgment on Microsoft's affirmative defenses of equitable estoppel and
implied license. For the reasons set forth below, AT&T's motion for
partial summary judgment is granted.
I. Summary Judgment Standard
Rule 56(c) of the Federal Rules of Civil Procedure provides that
summary judgment "shall be rendered forthwith if the pleadings,
depositions, answers to interrogatories and admissions on file, together
with the affidavits, if any, show there is no genuine issue as to any
material fact and that the moving party is entitled to judgment as a
matter of law." Fed.R.Civ.P. 56(c); accord Celotex Corp. v.
Catrett, 477 U.S. 317, 322 (1986); Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 247 (1986). The burden of demonstrating the
absence of any genuine dispute as to a material fact rests with the
moving party. See, e.g., Adickes v. S.H. Kress &
Co., 398 U.S. 144, 157 (1970);
Grady v. Affiliated Cent., Inc., 130 F.3d 553, 559 (2d
Cir. 1997). The movant may meet this burden by demonstrating a lack of
evidence to support the nonmovant's case on a material issue on which the
nonmovant has the burden of proof. Celotex, 477 U.S. at 323.
To defeat a summary judgment motion, the nonmoving party must do "more
than simply show that there is some metaphysical doubt as to the material
facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 586 (1986). Indeed, the nonmoving party must "set forth
specific facts showing that there is a genuine issue for trial."
Fed.R.Civ.P. 56(e); accord Matsushita Elec., 475 U.S. at 587. In
evaluating the record to determine whether there is a genuine issue as to
any material fact, the "evidence of the nonmovant is to be believed and
all justifiable inferences are to be drawn in his favor." Liberty
Lobby, 477 U.S. at 255.
II. Equitable Estoppel
"Equitable estoppel may be imposed in a patent case when a patentee
induces another party to believe that it will not sue that party for
infringement." Forest Labs., Inc. v. Abbott Labs.,
339 F.3d 1324, 1329 (Fed. Cir. 2003). To prove the affirmative defense of
equitable estoppel, an alleged infringer must establish by a
preponderance of the evidence that: (1)
"[t]he patentee, through misleading conduct*fn3, led the alleged
infringer to reasonably infer that it did not intend to enforce its
patent against the alleged infringer"; (2) "[t]he alleged infringer
relie[d] on that conduct"; and (3) "[d]ue to its reliance, the alleged
infringer will be materially prejudiced if the patentee is allowed to
proceed with its infringement claim." A.C. Aukerman Co. v. R.L.
Chaides Constr. Co., 960 F.2d 1020, 1028, 1046 (Fed. Cir. 1992) (en
bane); accord Ecolab, Inc. v. Envirochem, Inc., 264 F.3d 1358,
1371 (Fed. Cir. 2001); Hemstreet v. Computer Entry Svs. Corp.,
972 F.2d 1290, 1294 (Fed. Cir. 1992).
Even assuming arquendo that AT&T engaged in a course of
misleading conduct which reasonably gave rise to an inference that it was
not going to enforce the 580 patent against Microsoft, summary judgment
is appropriate because Microsoft did not have knowledge of AT&T's 580
patent at the time it incorporated the accused codecs into its software.
See AT&T Corp. v. Microsoft Corp., 290 F. Supp.2d 409
(S.D.N.Y. 2003) (holding that AT&T notified Microsoft of its possible
infringement in April 1999, long after the infringing codecs were
incorporated into Microsoft's allegedly infringing software); MS
Opp. at 22; Transcript of Oral Argument, dated December 22, 2003
("Tr.") at 86. It is axiomatic that to assert equitable estoppel, the
alleged infringer must have been aware of the patent at issue when it
undertook its infringing activities. See, e.g., Auckerman, 960
F.2d at 1042; Winbond Elecs. Corp. v. I.T.C., 262 F.3d 1363,
1374 (Fed. Cir. 2001). Indeed, the Federal Circuit has held that "[i]t is
clear . . . that [to assert] equitable estoppel the alleged infringer
cannot be unaware as is possible under laches of the
patentee and/or its patent." Auckerman, 960 F.2d at 1042.
Microsoft concedes that it cannot establish knowledge of AT&T's 580
patent at the time it incorporated the accused codec into its software.
(Tr. at 86 ("I will state for the record, Microsoft did not know of the
`580 patent until it received a letter from AT&T in April of 1999.");
MS Opp. at 22 ("Should . . . the Court determine that knowledge of the
patent is a threshold requirement for estoppel, AT&T's motion should
be granted . . . because it is undisputed that Microsoft lacked
knowledge of the 580 patent before April 1999.").)
Specifically, Blake Irving, Microsoft's corporate designee responsible
for development of its NetMeeting software, disclaimed knowledge of
AT&T's 580 patent at the time of the alleged infringement:
Q: Besides the agreement with Intel was there
anything else that gave Microsoft the belief that
it wouldn't have any patent exposure from shipping
A: No, not to my recollection.
* * *
Q: Besides the assurance from Intel that it was
free to license this H.323 stack, was there
anything else that led Microsoft to believe that
it would not have any patent issues associated
with using that code?
* * *
Q: Isn't it true, then, that there was nothing
that AT&T did vis-a-vis Microsoft that led
Microsoft to the conclusion that it was free to
include the H.323 stack within NetMeeting without
a fear of patent infringement issues?
A: We were never contacted by AT&T about
intellectual property or patent rights inside
H.323 in any way.
* * *
Q: Well, you testified that the reason Microsoft
concluded that it could include the H.323 stack
within NetMeeting without fear of infringement
issues was the assurance from Intel, correct?
Q: And that was the only reason; correct?
Q: So doesn't it stand to reason then that there's
nothing that AT&T did vis-avis Microsoft that
contributed to that decision?
A: That is correct.
Q: During your tenure as head of the NetMeeting
development team did you ever come to the belief
that AT&T had authorized Microsoft to practice
G.723 technology without any fear of patent
enforcement from AT&T?
A: Microsoft had no knowledge that AT&T had
any patent claim against NetMeeting.
* * *
Q: Isn't it true, then, that during the time of
the development of NetMeeting through its launch
as a product, Microsoft never came to the
conclusion that AT&T had authorized Microsoft
to practice any patented technology associated
with the G.723?
A: Microsoft was not aware that AT&T had any
patent claims against NetMeeting.
* * *
Q: Well, my question was whether Microsoft ever
came to the conclusion that AT&T had
authorized Microsoft to practice any AT&T
patents associated with G.723?
A: I guess I don't know how I answer that when we
didn't know that AT&T was a patent holder or
was making a claim, it's hard for me to I
don't know how to answer that question.
Q: Well, given that Microsoft wasn't aware that
AT&T was a patent holder in the G.723 space,
is it fair to say therefore that Microsoft did not
believe that it had been authorized by AT&T to
practice AT&T patents in that space?
A. Yes, I think that's fair.
* * *
Q: So the question now is: At any time did you
personally ever come to believe that AT&T had
authorized Microsoft to practice AT&T patents
associated with G.723?
A: I never knew that AT&T had patents in the
area; therefore, I never thought we were
authorized on thinking they had any claims.
(Rule 30(b)(6) Deposition of Blake Irving, dated November 21, 2002
("Irving Dep.") at 61-62, 65-66, 74-77.)
Summary judgment is additionally appropriate because Microsoft cannot
establish reliance on AT&T's misleading conduct. See
Auckerman, 960 F.2d at 1042-43 ("The second element,
reliance,. . . is essential to equitable estoppel."); Forest
Labs., 339 F.3d at 1329 ("Reliance by the [alleged infringer] as
well as prejudice are required in order to estop the patentee from later
suing."). To establish reliance "[t]he accused infringer must show that,
in fact, it substantially relied on the misleading conduct of the
patentee in connection with taking some action." Auckerman, 960
F.2d at 1042-43.
Microsoft notes that it worked with AT&T in developing
Windows-based computers that contained its NetMeeting software with the
accused codec, as well certain AT&T services. (MS Opp. at 12-19; Tr.
at 91-93.) Microsoft argues that it relied on AT&T's silence
concerning any infringement of the 580 patent when it employed the
accused codec in its NetMeeting software. (Tr. at 88-89.) The undisputed
evidence, however, does not support Microsoft's argument. Specifically,
Irving's unrefuted deposition testimony undermines Microsoft's position.
Irving unequivocally denied Microsoft's reliance on any AT&T
misconduct in incorporating the accused codec into Microsoft's NetMeeting
software. (Irving Dep. at 61-62, 65-66, 74-77.) Indeed, Irving repeatedly
attributed Microsoft's implementation of the accused codec to Microsoft's
desire to employ the latest ITU standard-compliant
technology*fn4 and to assurances from non-party Intel that
Microsoft was permitted to include the accused codec within its
NetMeeting software. (Irving Dep. at 61-62, 65-66, 74-77; see
also Deposition of Toby Lee Nixon, dated August 13, 2003 ("Nixon
Dep.") at 61-63 (Microsoft's standards body representative attributing
incorporation of accused codec into NetMeeting software solely to Intel's
conduct); Deposition of Microsoft In-House Counsel, Gory Hunter Van
Arsdale, Esq. ("Van Arsdale Dep.") at 21-23, 108 (no knowledge of
AT&T authorizing Microsoft to practice the 580 patent).)
Microsoft submitted no evidence contradicting or even explaining
Irving's disclaimer of reliance from which one might infer AT&T's
consent to Microsoft's use of the accused codecs. Accordingly, Microsoft
is not entitled to assert equitable estoppel. Auckerman, 960
F.2d at 1042-43 ("The accused infringer must show that, in fact, it
substantially relied on the misleading conduct of the patentee in
connection with taking some action.").
Since Microsoft cannot establish reliance on AT&T's conduct or
knowledge of the 580 patent, it cannot assert an affirmative defense of
equitable estoppel as a matter of law. Auckerman, 960 F.2d at
III. Implied License
AT&T also moves to prohibit Microsoft from asserting the
affirmative defense of implied license at trial. Whether an implied
license exists is a question of law. Met-Coil Sys. Corp. v. Korners
Unlimited, Inc., 803 F.2d 684, 687 (Fed. Cir. 1986). An implied
license signifies a patent owner's "waiver of the statutory right to
exclude others from making, using or selling the patented invention."
Wanq Labs., Inc. v. Mitsubishi Elecs. Am., Inc., 103 F.3d 1571,
1580 (Fed. Cir. 1997) (citations omitted). Essentially, it is an
allegation that the patentee's statements or conduct led the accused
infringer to infer consent to its use of the patent. Implied licenses may
be granted through the theories of acquiescence, conduct, equitable
estoppel, or legal estoppel. Wanq Labs., 103 F.3d at 1580.
These labels describe "different categories of conduct which lead to the
same conclusion: an implied license." Wanq Labs., 103 F.3d at
1580. The Federal Circuit has cautioned, however, that "judicially
implied licenses are rare under any doctrine." Wanq Labs., 103
F.3d at 1581. Microsoft asserts an implied license
based on equitable estoppel, acquiescence and conduct. (MS Opp. at
10; Pl. Ex. 2 at 36-39.) Microsoft bears the burden of proving the
implied license affirmative defense. Bandaq, Inc. v. Al Bolser's
Tire Stores, Inc., 750 F.2d 903, 924 (Fed. Cir. 1984) (citing
Bassick Mf'q Co. v. Adams Grease Gun Corp., 54 F.2d 285, 286
(2d Cir. 1931)).
A. Implied License by Equitable Estoppel
The test for implied license by equitable estoppel is nearly identical
to that for equitable estoppel, requiring: (1) reliance by the alleged
infringer on the patentee's conduct or lack of conduct in creating the
infringing good; and (2) knowledge of the patent at the time of the
infringement.*fn5 Windbond, 262 F.3d at 1374;
Aukerman, 960 F.2d at 1028, 1042-43. "One common thread in
cases in which [implied license by] equitable estoppel applies is that
the actor committed himself to act, and indeed acted, as a direct
consequence of another's conduct." Bandaq, 750 F.2d at 925
(reversing finding of implied license where alleged infringer could not
show reliance) (citing H.M. Stickle v. Heublein, Inc.,
716 F.2d 1550, 1559 (Fed. Cir.
1983)). As noted, Microsoft cannot establish as a matter of law
that it relied on AT&T's conduct or knew of the 580 patent at the
time of the alleged infringement. See supra Section II;
see also Windbond, 262 F.3d at 1374 (holding that alleged
infringer could not assert an implied license by equitable estoppel
because, like Microsoft, it was unaware of plaintiff's patent);
Bandaq, 750 F.2d at 925 (holding that an implied license based
on equitable estoppel only applies where there is reliance). Accordingly,
AT&T's motion for partial summary judgment on Microsoft's affirmative
defense of implied license by equitable estoppel is granted.
B. Implied License by Conduct or Acquiescence
To establish an affirmative defense of implied license by conduct or
acquiescence, Microsoft must show a nexus between AT&T's course of
conduct or purported waiver of its patent rights and the allegedly
infringing action. See, e.g., De Forest Radio Tel. & Tel. Co. v.
United States, 273 U.S. 236, 241 (1927) (holding that an implied
license exists where the patentee "consents to his use of the patent in
making or using it, or selling it, upon which the other acts"); Wanq
Labs., 103 F.3d at 1582 (finding implied license where accused
infringer relied on patentee's numerous public statements and conduct,
showing clear acquiescence, in creating the infringing goods);
Windbond, 262 F.3d at 1374 ("An implied license finding [under
requires a nexus between the patentee's purported waiver and the
infringing action."); Bandaq, 750 F.2d at 925-26 (reversing
finding of implied license where accused infringer was unaware of
patentee's actions, and thus did not rely on them, when it used
infringing goods); H.M. Stickle, 716 F.2d at 1559 (affirming
finding of no implied license because acts of infringement occurred after
and apart from patentee's conduct and holding that "[o]ne must have been
led to take action by the conduct of the other party").
Microsoft argues that AT&T's course of conduct with Microsoft
established an implied license to practice the 580 patent technology in
its NetMeeting software. An implied license may only be established where
the infringer "properly inferred consent to its use of
[plaintiff's]. . . patents." Wanq Labs., 103 F.3d at 1582.
Microsoft presents no evidence that it actually inferred that AT&T
had consented to the use of its patented technology. Indeed, it is
undisputed that Microsoft did not actually rely on any misleading
conduct or inaction by AT&T here. As noted, Irving clearly and
unequivocally denied relying on any alleged conduct or acquiescence by
AT&T in incorporating the accused codec into Microsoft's NetMeeting
software. See supra Section II (citing Irving Dep. at 61-62,
65-66, 74-77). Accordingly, Microsoft cannot sustain an affirmative
defense of implied license by conduct or acquiescence as a matter of law.
For the reasons set forth above, AT&T's motion for partial summary
judgment on Microsoft's affirmative defenses of implied license and
equitable estoppel is granted and Microsoft is prohibited from asserting
them at trial.