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Koninklijke Philips N.V. v. Cinram Int'l

May 24, 2013

KONINKLIJKE PHILIPS N.V.*FN1 AND U.S. PHILIPS CORPORATION
v.
CINRAM INTERNATIONAL, INC., ET AL.; THE ADS GROUP, ET AL.; ENTERTAINMENT DISTRIBUTION COMPANY (USA), LLC, ET AL.; AND OPTICAL EXPERTS MANUFACTURING INC, ET AL.



The opinion of the court was delivered by: Stearns, District Judge.

MEMORANDUM AND ORDER ON DEFENDANTS' EQUITABLE DEFENSES

In August and October of 2012, this court issued summary judgment opinions finding that, inter alia, defendants The ADS Group, Entertainment Distribution Company (USA) LLC and/or Entertainment Distribution Company (collectively EDC), Optical Experts Manufacturing Inc. (OEM), and Universal Music Group Manufacturing & Logistics breached their patent license agreements (PLA) with plaintiffs Koninklijke Philips Electronics N.V. and U.S. Philips Corp. (collectively Philips).*fn2 On March 1, 2013, after a two-week trial on patent validity, the jury returned a verdict that Philips's asserted patent— United States Patent No. 5,068,846 (the ' 846 patent)—was not invalid for anticipation, obviousness, or lack of written description. The jury found that defendants had directly infringed claims 1–4 of the ' 846 patent, and that Universal had indirectly infringed the ' 846 patent by inducing infringement by EDC. Defendants presented additional evidence *fn3 relating to their equitable defenses at a two-day nonjury trial on April 15 and 16, 2013, which was followed by extensive post-trial briefings.

Defendants' equitable defenses arise from three basic factual scenarios. Each will be addressed in turn.

The Inclusion of the ' 301 Patent in the PLA

In 2002, defendants entered into PLAs with Philips for a pool of patents owned by Philips and Sony Corporation covering various aspects of CD disc technology. The pool included both the asserted ' 846 patent and Sony's United States Patent No. 5,305,301 (the ' 301 patent). Both patents were designated as "essential" for the manufacture of CD–Audio discs. Essentiality is an antitrust concept that permits the otherwise forbidden collective licensing of patents by horizontal competitors, when the patents are deemed necessary for the practice of an industry standard.*fn4 The aim is to facilitate the efficient licensing of standardized technologies. As part of the PLA, Philips agreed to hire an independent expert to review the essentiality of the licensed patents and to promptly remove any patent from the essential patents list that was found by the expert to be not essential.*fn5 Under the PLA, licensees retained the right to continue to use any patent deemed nonessential.

Although Philips hired an independent expert to evaluate its ' 846 patent *fn6 (which the expert found essential), Philips did not commission a similar review of Sony's ' 301 patent. In 2001, prior to the offering of the disputed PLA, Sony did commission an expert to evaluate the essentiality of the ' 301 patent, but only for the manufacture of CD–R discs (the expert found the ' 301 patent to be not essential for this format). Sony did not at any relevant time seek an independent evaluation of the essentiality of the ' 301 patent for the manufacture of CD–Audio discs.

Before entering into the 2002 PLA with Philips, defendants had licensed the ' 301 patent through prior licensing agreements, and had practiced the licensed technology—a method of metallizing CD discs by masking the inner and outer edges of the disc before applying the metal layers.*fn7 In 2006, defendants began utilizing an alternative method of metallizing CD–Audio discs that did not depend on the ' 301 patent. In 2009, after the ' 846 patent expired, Philips removed the ' 301 patent (which had not yet expired) from the essential patents list as of the date of the ' 846 patent's expiration.

Defendants contend that Philips is equitably estopped from recovering on the PLA because of its misrepresentations regarding the essentiality of the ' 301 patent; because Philips did not fulfill its obligation under the PLA to commission an independent evaluation of the ' 301 patent; because Philips misused the ' 301 patent and the ' 846 patent by improperly tying the ' 301 patent to the ' 846 patent license; and because Philips soiled its hands in its conduct of the instant litigation.*fn8

To invoke equitable estoppel, a defendants must demonstrate, by clear and convincing evidence,

(1) An act constituting a concealment of facts or a false misrepresentation;

(2) An intention or expectation that such acts will be relied upon;

(3) Actual or constructive knowledge of the true facts by the wrongdoers; [and]

(4) Reliance upon the misrepresentations which causes the innocent party to change its position to its substantial detriment.

Gen. Elec. Capital Corp. v. Armadora, S.A., 37 F.3d 41, 45 (2d Cir.1994); Ritchie RiskÔÇôLinked Strategies Trading (Ireland), Ltd. v. Coventry First LLC, 280 F.R.D. 147, 163 (S.D.N.Y.2012) (equitable estoppel ...


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