High Point Sarl v. Sprint Nextel Corporation , 817 F.3d 1325 ( 2016 )

United States Court of Appeals
for the Federal Circuit
______________________
HIGH POINT SARL,
Plaintiff-Appellant
v.
SPRINT NEXTEL CORPORATION, SPRINT
SPECTRUM, LP, SPRINTCOM, INC., SPRINT
COMMUNICATIONS COMPANY, L.P., SPRINT
SOLUTIONS, INC., APC PCS, LLC, APC REALTY
AND EQUIPMENT COMPANY, LLC, STC TWO LLC,
ALCATEL-LUCENT USA INC.,
Defendants-Appellees
______________________
2015-1298
______________________
Appeal from the United States District Court for the
District of Kansas in No. 2:09-cv-02269-CM-TJJ, Judge
Carlos Murguia.
______________________
Decided: April 5, 2016
______________________
MARTIN J. BLACK, Dechert LLP, Philadelphia, PA,
argued for plaintiff-appellant. Also represented by DEREK
J. BRADER; ROBERT RHOAD, Princeton, NJ.
ERIC J. LOBENFELD, Hogan Lovells US LLP, New
York, NY, argued for defendants-appellees Sprint Nextel
Corporation, et al. Also represented by THEODORE JOHN
2 HIGH POINT SARL v. SPRINT NEXTEL CORPORATION
MLYNAR, NICOLE NUSSBAUM, IRA J. SCHAEFER, THOMAS
SCHMIDT.
DAVID A. NELSON, Quinn Emanuel Urquhart & Sulli-
van, LLP, Chicago, IL, for defendant-appellee Alcatel-
Lucent USA Inc. Also represented by STEPHEN A.
SWEDLOW.
______________________
Before REYNA, MAYER, and CHEN, Circuit Judges.
REYNA, Circuit Judge.
High Point SARL (“High Point”) appeals from the dis-
trict court’s grant of summary judgment that equitable
estoppel and laches preclude prosecution of this lawsuit.
High Point’s predecessors-in-interest to the patents-in-
suit helped Defendants build a communications network
through licensed and unlicensed activity for over a dec-
ade. High Point acquired rights to the patents-in-suit and
asserted them for the first time against Defendants after
more than six years of unlicensed activity. We hold that
equitable estoppel applies in this instance and High Point
is barred from bringing this case against Defendants. We
affirm the district court’s judgment and decline to address
the remaining issue of laches.
BACKGROUND
In the early 1990s, AT&T’s Bell Labs developed and
patented United States Patent Nos. 5,195,090; 5,195,091;
5,305,308; and 5,184,347 (collectively, the “patents-in-
suit”). The patents-in-suit cover the transfer of packet-
ized voice traffic between cellular base stations and
switching centers. The patents-in-suit issued between
1993 and 1994, and expired in 2011. In 1996, AT&T spun
off Lucent Technologies (“Lucent”), one of its corporate
affiliates, as an independent company and assigned the
patents-in-suit to Lucent. In September 2000, Lucent
HIGH POINT SARL v. SPRINT NEXTEL CORPORATION 3
reorganized and spun off part of its business, including
the patents-in-suit, to Avaya, Inc. (“Avaya”). 1
In March 2008, Avaya sold the patents-in-suit for $2
million to High Point, reserving an interest in any pro-
ceeds High Point obtained through litigation. J.A. 21850–
52. High Point is based in Luxembourg and does not
practice the patents-in-suit. Within three days of taking
ownership of the patents-in-suit, High Point began send-
ing demand letters asserting infringement. Sprint Nextel
Corporation and its affiliates (collectively, “Sprint”) were
among many to receive a demand letter from High Point.
Past Conduct Among the Parties
As early as 1995, Sprint decided to build a network
based on a new technology called Code Division Multiple
Access (“CDMA”). CDMA allows a large number of cell-
phone users to share the same radio frequency by associ-
ating each user with a single code. CDMA is now
standard and used around the world. In September 1995,
Sprint met with several vendors, including AT&T, Nortel,
and Motorola, to discuss interoperability standards for its
nascent network.
To build the nationwide CDMA network, Sprint con-
tracted with several vendors to supply equipment for the
network. In 1996, Sprint executed a supply agreement
with Nortel for equipment for the CDMA infrastructure.
In 1997, Sprint executed a similar agreement with
Motorola. In 1996 and 1999, AT&T (and later Lucent as
AT&T’s successor) agreed to supply Sprint with equip-
ment. Each of the supply agreements with AT&T and
1 In High Point SARL v. T-Mobile USA, Inc., No.
2015-1235, 2016 U.S. App. LEXIS 2734 (Fed. Cir. Feb. 18,
2016), High Point asserted the same patents, and we
affirmed the district court’s dismissal of the case on
grounds of exhaustion.
4 HIGH POINT SARL v. SPRINT NEXTEL CORPORATION
Lucent had a limited license for several patents, including
the patents-in-suit. The agreements required certain
standards and specifications to be met by the vendors so
the equipment could be interoperable with other vendors’
equipment. See J.A. 18769.
In 1998, Sprint and Lucent entered into a memoran-
dum of understanding about the concept of multi-vendor
interoperability within Sprint’s CDMA network. In that
memorandum, Lucent represented a desire to work with
Sprint and other vendors to develop interoperability
standards. That same year, Lucent entered into a similar
licensing arrangement with Nortel, which was later cross-
licensed to Sprint. In 2000, Sprint and three of its infra-
structure vendors (Lucent, Nortel, and Motorola) signed
another agreement about interoperability. That agree-
ment did not grant Sprint, or any of Sprint’s vendors,
rights under the patents-in-suit, but the agreement
manifested each vendor’s commitment to develop jointly
interoperability standards, including an understanding
that the equipment should work among and between
vendors. J.A. 18727. Avaya succeeded in interest to
Lucent in 2000, but Avaya did not discuss with any of the
involved parties the patents-in-suit in an infringement
context.
At the inception of the Sprint network, all Sprint
zones in the network were covered by a license, either by
the license contained in the Lucent-Sprint supply agree-
ment (which applied to Sprint’s use of Lucent equipment)
or a cross-license that originated from an agreement with
Lucent and Nortel (which applied to Sprint’s use of Nortel
equipment). As the Sprint network grew, Sprint began to
purchase and use unlicensed equipment supplied by
several vendors.
In 2001, Samsung won a competitive bidding pro-
cess—over Lucent, Motorola, and Nortel—to support
Sprint’s operations in Puerto Rico. Bidding began around
HIGH POINT SARL v. SPRINT NEXTEL CORPORATION 5
1999, when Lucent was still patentee. J.A. 18260. It is
undisputed that the Puerto Rican operation involved the
installation of unlicensed infrastructure provided by
Samsung.
In 2004, Sprint began upgrading some of the Lucent
equipment with equipment provided by Motorola.
Motorola was not a party to the Lucent-Sprint licensing
agreement.
In 2006, Alcatel purchased Lucent, naming the sub-
sidiary Alcatel-Lucent USA, Inc. (“Alcatel-Lucent”).
According to High Point, that act terminated any license
as to Sprint’s use of Lucent equipment.
In 2008, Nortel began selling equipment to Sprint and
others. At that point, Nortel was no longer a licensee to
the patents-in-suit.
The record does not reflect that at any time prior to
December 2008, High Point, Avaya, or Lucent raised any
infringement concerns.
Procedural History
On December 29, 2008, High Point sued Defendants
in the Eastern District of Virginia for patent infringe-
ment. High Point accused Defendants of violating the
licensing agreements and alleged that the Sprint CDMA
network operated through the combination of licensed and
unlicensed equipment to facilitate the transmission of
voice call traffic in an infringing manner. In May 2009,
the case was transferred to the District of Kansas. While
the lawsuit was pending, Sprint continued to build its
network by, among other things, entering into a supply
agreement with Alcatel-Lucent under terms similar to
those entered into with Sprint’s prior vendors. On Febru-
ary 8, 2013, Alcatel-Lucent intervened as a defendant.
Defendants moved for summary judgment on a varie-
ty of issues, including laches and equitable estoppel. On
6 HIGH POINT SARL v. SPRINT NEXTEL CORPORATION
December 11, 2014, after reviewing a special master’s
findings and recommendation, the district court granted
summary judgment in favor of Defendants that laches
and equitable estoppel barred the lawsuit. The district
court reasoned that, by waiting and not asserting any
patent rights, Lucent and then Avaya placed Sprint in
detrimental reliance. That silence, while Sprint actively
engaged in the establishment of the CDMA network
induced through the sale, purchase, and licensing of
equipment for that network, caused Sprint economic and
evidentiary prejudice. On January 21, 2015, the district
court entered final judgment dismissing High Point’s
claims.
High Point appeals. We have jurisdiction under 28
U.S.C. § 1295(a)(1).
STANDARD OF REVIEW
We review for abuse of discretion decisions on equita-
ble estoppel rendered on summary judgment unless
genuine issues of material fact preclude summary judg-
ment. Pei-Herng Hor v. Ching-Wu Chu, 699 F.3d 1331,
1334 (Fed. Cir. 2012) (citing Ultimax Cement Mfg. Corp.
v. CTS Cement Mfg. Corp., 587 F.3d 1339, 1349 (Fed. Cir.
2009)). We review evidentiary rulings under the law of
the regional circuit in which the district court sits, which
in this case is the Tenth Circuit. Utah Med. Prods., Inc. v.
Graphic Controls Corp., 350 F.3d 1376, 1381 (Fed. Cir.
2003). The Tenth Circuit reviews evidentiary rulings for
abuse of discretion. K-Tec, Inc. v. Vita-Mix Corp., 696
F.3d 1364, 1373 (Fed. Cir. 2012) (citation omitted). “A
district court would necessarily abuse its discretion if it
based its ruling on an erroneous view of the law or on a
clearly erroneous assessment of the evidence.” Highmark
Inc. v. Allcare Health Mgmt. Sys., Inc., 134 S. Ct. 1744,
1748 n.2 (2014) (citation omitted).
HIGH POINT SARL v. SPRINT NEXTEL CORPORATION 7
DISCUSSION
High Point asserts that equitable estoppel is an ex-
traordinary remedy that should not apply under these
facts. High Point contends that a patentee is not obligat-
ed to investigate the technical details of its competitor’s
equipment and then match those specifications to its
patent portfolio; commercial realities dictate that equita-
ble estoppel should not apply when business transactions
are complex and varied.
High Point further suggests that the district court ig-
nored recent case law that required Sprint to demonstrate
bad faith through the patentee’s course of conduct. Ac-
cording to High Point, silence alone is not enough when
the parties are sophisticated business partners and there
is no showing of bad faith. High Point asserts that under
the licensing agreements, it could not in any event assert
infringement until 2004 for the Motorola equipment (after
the Motorola updates to some of the Lucent equipment),
2006 for the Lucent equipment (after Alcatel acquired
Lucent), and 2008 for the Nortel equipment (after the
cross-license was no longer in effect).
High Point urges that we conclude that the district
court improperly drew inferences from disputed facts that
should have obviated summary judgment. According to
High Point, the district court effectively placed the burden
on High Point to disprove equitable estoppel by using
phrases like the “most sensible inference” and “most
persuasive.” The evidence shows that Avaya was a new
company in 2000 and could not have known about the
infringement claim until it had an opportunity to evaluate
its patent portfolio. High Point further asserts that
Defendants’ reliance on interoperability is a red herring
because the equipment accused in this case was not
subject to any interoperability project. High Point claims
that Sprint never implemented the CDMA interoperabil-
ity project.
8 HIGH POINT SARL v. SPRINT NEXTEL CORPORATION
High Point asserts that Sprint cannot claim reliance
because it was not aware of the patents, and there is no
evidence that Sprint would have acted differently had it
known about a potential lawsuit. High Point challenges
the admissibility of testimony by two Sprint employees
because those employees are not credible and were not
involved in strategic decision-making or the projects at
issue. High Point concludes that both economic and
evidentiary prejudice are not apparent from the record
and, at best, any perceived prejudice is a fact issue better
suited for trial.
Defendants counter that there is no genuine dispute
of material fact that High Point should be equitably
estopped from pursuing the lawsuit. Defendants assert
that High Point’s predecessors (AT&T, Lucent, and
Avaya) communicated, both by action and silence, that
Sprint would not be disturbed in building out a packet-
based CDMA network with equipment from multiple
vendors. Defendants argue that High Point’s predeces-
sors-in-interest were in a position to sue as early as 1996,
when Sprint entered into a supply agreement with Nortel
and later with Motorola in 1997. Additionally, High
Point’s predecessors expressly agreed, on multiple occa-
sions, to help Sprint integrate the equipment from other
vendors. Defendants point to a 1998 letter from Lucent’s
Vice President, stating that Sprint “continue[d] to place a
high value on the development of an interoperable
CDMA” network, and “share[d] Lucent’s desire to docu-
ment our respective commitments towards that goal in a
manner consistent with that of Motorola and Nortel.”
J.A. 21063. Defendants further highlight the 1998 memo-
randum of interoperability entered into by Sprint and
Lucent as well as a similar agreement in 2000 involving
Sprint, Lucent, Motorola, and Nortel.
Defendants contend that Sprint’s investment in in-
teroperable CDMA infrastructure underscores detri-
mental reliance on the conduct of and inaction by High
HIGH POINT SARL v. SPRINT NEXTEL CORPORATION 9
Point’s predecessors-in-interest. Defendants represent
that Sprint had several non-infringing alternatives it
could have pursued if AT&T, Lucent, or Avaya had indi-
cated any intent to demand royalties or sue for infringe-
ment of the patents-in-suit. Sprint’s purchase of
equipment from multiple vendors is further indication of
its desire for an interoperable network.
Defendants claim both economic and evidentiary
prejudice. Defendants note that Sprint continued its
capital investment from the late 1990s until the time of
the lawsuit and beyond. Even accepting High Point’s
infringement start date of 2001, when Sprint installed the
Samsung equipment in Puerto Rico, Sprint had invested
billions of dollars in infrastructure before this lawsuit was
filed in 2008. As to evidentiary concerns, Defendants
point to the time lapse resulting in loss of evidence rele-
vant to inventorship and Defendants’ defenses. For
example, Defendants’ motion for summary judgment on
failure to join the correct inventor was dismissed for lack
of evidence. J.A. 75.
We hold that the district court did not abuse its dis-
cretion in determining that equitable estoppel precludes
High Point from bringing this case against Defendants.
Three elements must be established for equitable estoppel
to bar a patentee’s suit:
(1) the patentee, through misleading conduct (or
silence), leads the alleged infringer to reasonably
infer that the patentee does not intend to enforce
its patent against the alleged infringer; (2) the al-
leged infringer relies on that conduct; and (3) the
alleged infringer will be materially prejudiced if
the patentee is allowed to proceed with its claim.
Radio Sys. Corp. v. Tom Lalor & Bumper Boy, Inc., 709
F.3d 1124, 1130 (Fed. Cir. 2013) (citation omitted). Alt-
hough certain facts remain contested in this case, resolu-
10 HIGH POINT SARL v. SPRINT NEXTEL CORPORATION
tion of equitable estoppel rests on a record without mate-
rial dispute.
First, we conclude that High Point’s predecessors’
misleading course of conduct caused Sprint to reasonably
infer that they would not assert the patents-in-suit while
Sprint purchased unlicensed infrastructure to build its
network. Misleading conduct occurs when the alleged
infringer is aware of the patentee or its patents, and
knows or can reasonably infer that the patentee has
known of the allegedly infringing activities for some time.
A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d
1020, 1042 (Fed. Cir. 1992) (en banc). If the record indi-
cates silence alone, “mere silence must be accompanied by
some other factor which indicates that the silence was
sufficiently misleading as to amount to bad faith.” Hem-
street v. Comput. Entry Sys. Corp., 972 F.2d 1290, 1295
(Fed. Cir. 1992) (emphasis in original); see also Meyers v.
Asics Corp., 974 F.2d 1304, 1308 (Fed. Cir. 1992).
The evidence in this case shows both silence and ac-
tive conduct. There is no dispute that the licensing activi-
ty between Sprint and High Point’s predecessors-in-
interest covered the patents-in-suit. Although the supply
agreement had several terms and conditions, among those
was the identification of the patents-in-suit and what
Sprint could do with those patents. At varying points
(2001 for the Samsung equipment, 2004 for the Motorola
equipment, 2006 for the Lucent equipment, and 2008 for
the Nortel equipment), those licenses lapsed or were no
longer in effect prior to the lawsuit being filed.
The evidence demonstrates that AT&T, Lucent, and
Avaya were aware of Sprint’s intent to create CDMA
infrastructure with equipment supplied from various
vendors. Sprint began entering commercial transactions
with several vendors in the late 1990s for, what was at
the time, unlicensed infrastructure. And by 2001, Sam-
sung had agreed to provide Sprint with unlicensed CDMA
HIGH POINT SARL v. SPRINT NEXTEL CORPORATION 11
infrastructure. Although High Point suggests that it was
not aware of the scope of the Samsung project in Puerto
Rico, High Point fails to present any evidence to rebut
Defendants’ showing that the same allegedly infringing
activity was occurring in Puerto Rico. Yufa v. Lockheed
Martin Corp., 575 F. App’x 881, 887 (Fed. Cir. 2014)
(rejecting attorney argument as evidence); Enzo Biochem,
Inc. v. Gen-Probe, Inc., 424 F.3d 1276, 1284 (Fed. Cir.
2005) (same). Lucent—as the then-patentee—was on
notice of the unlicensed activity because it bid on the
Puerto Rican project in 1999 and lost to Samsung, an
entity not covered by Lucent’s licenses. High Point also
bases its current infringement allegations on public
information about that project; that evidence demon-
strates that for the Puerto Rican project to operate, in-
teroperability with other facets of Sprint’s network was
necessary. It is undisputed that the parties are sophisti-
cated competitors that were aware of unlicensed activity
occurring as early as 2001, activity that increased over
time.
There is no genuine dispute of material fact that High
Point’s predecessors failed to challenge Sprint when its
activity fell outside the licenses as early as 2001. The
effect of equitable estoppel is “a license to use the inven-
tion that extends throughout the life of the patent.” SCA
Hygiene Prods. Aktiebolag v. First Quality Baby Prods.,
LLC, 807 F.3d 1311, 1332 (Fed. Cir. 2015) (en banc). That
effect can arise when a predecessor’s conduct is imputed
to its successors-in-interest. Cf. Radio Sys. Corp., 709
F.3d at 1131 (citing Jamesbury Corp. v. Litton Indus.
Prods., Inc., 839 F.2d 1544, 1555 (Fed. Cir. 1988)). High
Point’s predecessors were not only silent as to infringe-
ment concerns, they were actively involved in licensing
arrangements involving the patents, discussing interop-
erability with other potentially infringing vendors, and
continuing business relationships, including with respect
to the unlicensed activity in Puerto Rico. Although High
12 HIGH POINT SARL v. SPRINT NEXTEL CORPORATION
Point suggests that evidence of bad faith must be present
to establish intent, we have never held that bad faith is
the sine qua non of intent, especially here where the facts
demonstrate the predecessors’ active engagement in
building Sprint’s CDMA network. See Aspex Eyewear,
Inc. v. Clariti Eyewear, Inc., 605 F.3d 1305, 1311 (Fed.
Cir. 2010) (affirming the district court’s determination of
equitable estoppel and noting that “equitable relief is not
a matter of precise formula”). The claim that Avaya or
Lucent were nascent businesses with limited capacity to
exercise their rights is not supported by the evidence and
is contrary to their active participation in establishing
Sprint’s network.
Second, we agree with the district court that Defend-
ants detrimentally relied on the conduct of High Point’s
predecessors. The district court did not abuse its discre-
tion in admitting and crediting the unrebutted deposition
testimony of Sprint’s witnesses, indicating that Sprint
had several options when building its network and that
Sprint would have acted differently if the threat of litiga-
tion was a possibility. Sprint offered testimony from its
in-house patent counsel as well as its outside counsel who
negotiated the CDMA supply contracts with Lucent,
Nortel, Motorola, and Samsung. The witnesses testified
that Sprint had many conversations about building its
network and considered using a different system (e.g.,
Global System Mobile). The witnesses discussed how
Sprint also considered purchasing equipment solely from
AT&T and Lucent, or purchasing equipment from licensed
vendors entirely. The witnesses observed that Sprint
could have retrofitted the potentially infringing infra-
structure with sufficient notice of possible infringement.
Those witnesses were deposed and testified based on their
unique roles in rendering advice as legal counsel.
High Point fails to rebut with evidence that Sprint’s
proposed solutions would have been unrealistic or infeasi-
ble. Aspex Eyewear, 605 F.3d at 1312 (“However, to show
HIGH POINT SARL v. SPRINT NEXTEL CORPORATION 13
reliance on Aspex’s silence and inaction, Clariti need not
prove precisely what alternative paths it would have
taken, or that every marketing decision was based on
reliance on Aspex’s silence.”). Whether inside or outside
the licensing arrangements, Sprint systemically worked
to build a network while High Point’s predecessors con-
tinued to sell to Sprint equipment and negotiate the
interoperability that High Point would come to allege
constituted unlicensed infringing activity.
Finally, the district court did not err in finding that
Defendants suffered prejudice from the delay. There is no
dispute that Sprint—as early as 1996—worked to build a
CDMA network at significant cost, totaling billions of
dollars. Radio Sys. Corp., 709 F.3d at 1130 (affirming a
district court’s findings of prejudice where the accused
infringer “relied on this silence by significantly expanding
its product line”). The district court did not err in finding
evidentiary prejudice because the unrebutted evidence
demonstrated that information about the inventor, which
could have been used for a variety of defense theories, was
fading or is already absent. High Point failed to present
evidence to rebut the economic and evidentiary prejudice
showing made by Defendants.
CONCLUSION
The district court did not abuse its discretion in grant-
ing summary judgment that High Point is equitably
estopped from prosecuting this lawsuit against Defend-
ants. We affirm the judgment below.
AFFIRMED
COSTS
Each party shall bear its own costs.