By Dennis Crouch

Radio Systems Corp. v. Lalor (Fed. Cir. 2013) (Moore (majority author), Reyna, & Newman (in partial dissent)).

In a split decision, the Federal Circuit has affirmed that the judicial doctrine of equitable estoppel applies to block a patentee from alleging patent infringement following a five-year delay in pursuing charges. Writing in partial dissent, Judge Newman argued that estoppel should additionally apply to family members of the patent in question.

In the 1992 en banc decision of Aukerman v. Chaides Constr., the Federal Circuit identified three elements of the equitable estoppel doctrine applicable here:

1. Misleading Silence: 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. Reliance: The alleged infringer relies on that conduct; and
3. Prejudice: The alleged infringer will be materially prejudiced if the patentee is allowed to proceed with its claim.

As background, the patentee (Bumper Boy) sent a demand letter to Innotek back in 2005. The letter indicated that Innotek's "UltraSmart" dog collar infringed Bumper Boy's U.S. Patent No. 6,830,014. Innotek quickly responded with a letter claiming that the patent was invalid. Following that, there was no communication between the parties for 4 ½ years. In fact, Bumper Boy never again communicated with Innotek because that company was acquired by Radio Systems. Radio Systems continued to develop the UltraSmart and other dog collar product lines. Meanwhile, Bumper Boy filed a continuation application and obtained a second patent in 2007 (U.S. Patent No. 7,267,082) with a somewhat more focused claim scope. In 2009, Bumper Boy sent a demand letter to Radio Systems alleging infringement of both the old '014 patent and the new '082 patent.

Radio Systems then filed a declaratory judgment action and the district court awarded summary judgment for Radio Systems. The summary judgment ruling held the patentee equitably estopped from pursuing an infringement action against the UltraSmart products based on either the old or the new patent.

On appeal, the Federal Circuit has affirmed-in-part – affirming that the patentee is estopped from suing the successor-in-interest (Radio Systems) on the old patent (subject of the 2005 letter exchange) but denying to extend the estoppel to the new family-member patent that was not mentioned in the letter and that had not issued at the time.

Judge Moore's language suggests that equitable estoppel could never apply to pending patent applications. She writes "quite simply, the '082 patent claims could not have been asserted against Innotek or Radio Systems until those claims issued." However, that interpretation of the decision is likely unduly expansive – especially since a patentee can collect back-damages for pre-issuance infringement under 35 U.S.C. § 154(d). Thus, for instance, a patentee who sends a pre-issuance 154(d) notice of infringement and then waits to sue for four years following the issuance may well (in my estimation) fall within the realm of equitable estoppel. Of course, these are hypothetical facts that do not apply in the Radio Systems case. A second potential factor in the decision here is that the patentee added new matter to the second patent, but the majority appears to have disregarded that fact as immaterial since the asserted claims do not rely on new matter.

Judge Newman has previously provided an expansive view of equitable estoppel in her majority opinion in the case of Aspex Eyewear v. Clariti Eyewear (Fed. Cir. 2009) (Judge Rader dissenting). In the present caes, Judge Newman penned a quite short opinion that argued that the estoppel should be extended to the continuation application, although her analysis does not directly confront the majority's reasoning. 

A second pressure point in the decision involves the corporate restructuring from Innotek to Radio Systems. The Federal Circuit has previously held that equitable estoppel can be claimed by successors-in-interest where privity has been established. Jamesbury Corp. v. Litton Indus. Prods., Inc., 839 F.2d 1544 (Fed. Cir. 1988). At some point, there may be a need to explore the privity element, but here that was not a real problem since Radio Systems (1) wholly owns Innotek, (2) is headed by the same individual as Innotek, (3) incorporated Innotek designs and products in its own product lines; and (4) exerts substantial control over Innotek. In my view, privity alone should be insufficient to transfer equitable estoppel rights to the new entity if the estoppel has not yet vested and if the patentee has no reasonable knowledge of the shift.

This decision provides some food-for-thought to patentees. On the one hand it places more pressure of having enforcement-through-litigation as a genuine and timely option during any license negotiations. On the other hand, the case also offers a roadmap for avoiding equitable estoppel problems with the use of continuation applications.

Patent versus Portfolio: The conceptual problem with this decision is one that we'll be struggling to deal with for years – and that is the distinctions between a single patent claim, a single patent, a family of patents, and a portfolio of loosely related patents. The law still largely focuses on single patent claims while business leaders are increasingly focused on a portfolio analysis. Equitable estoppel is largely related to reasonable reliance by business leaders and in that context it makes sense to apply the estoppel principles to a portfolio rather than single claims or single patents.

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In addition to the estoppel decision, the lower court also found that the claims were not infringed by other Radio Systems products. In the appeal, the Radio Systems offered as an alternative ground for affirmance that the asserted patents were invalid. However, the Federal Circuit refused to hear that contention on technical grounds since the contention was raised in an opposition brief rather than as a cross-appeal. An invalidity holding is generally broader than a holding of equitable estoppel or non-infringement since those holdings are limited to the products or parties involved in the case. Invalidity on the other hand will apply to all future Radio Systems products as well as other would-be infringers and even current licensees. That change-in-scope creates a problem for Radio systems because of the ordinary rule that an appellee cannot request expansion of the lower court holding. Rather, a party unsatisfied with the scope of a lower court ruling must become an appellant by filing an appeal or cross-appeal.

The Supreme Court has long recognized that "[a]bsent a cross appeal, an appellee . . . may not attack the decree with a view either to enlarging his own rights thereunder or of lessening the rights of his adversary." El Paso Nat. Gas Co. v. Neztsosie, 526 U.S. 473 (1999). We have held that a judgment of invalidity is broader than a judgment of noninfringement. "[A] determination of infringement applies only to a specific accused product or process, whereas invalidity operates as a complete defense to infringement for any product, forever." Typeright Keyboard Corp. v. Microsoft Corp., 374 F.3d 1151 (Fed. Cir. 2004). Thus, invalidity cannot be an alternative ground for affirming a judgment of noninfringment absent a cross-appeal.

While we acknowledge the inefficiency that may result from requiring cross-appeals in situations where the scope of a judgment would be enlarged, we are cabined by our jurisdiction and may not reach issues that are not properly before us. On remand, Radio Systems may pursue its invalidity defense in further proceedings, and, should there be additional rulings on invalidity by the district court, Radio Systems may pursue a proper appeal at that time. Because Radio Systems did not properly file a cross-appeal on the invalidity issue in this appeal, Bumper Boy's motion to strike Radio System' alternative grounds for affirmance is granted.

Just to be clear, it doesn't appear that Radio Systems failure to file a cross-appeal was a technical error. Rather, the company could not file an appeal arguing invalidity because the district court had not reached that issue yet.

By Dennis Crouch

Radio Systems Corp. v. Lalor (Fed. Cir. 2013) (Moore (majority author), Reyna, & Newman (in partial dissent)).

In a split decision, the Federal Circuit has affirmed that the judicial doctrine of equitable estoppel applies to block a patentee from alleging patent infringement following a five-year delay in pursuing charges. Writing in partial dissent, Judge Newman argued that estoppel should additionally apply to family members of the patent in question.

In the 1992 en banc decision of Aukerman v. Chaides Constr., the Federal Circuit identified three elements of the equitable estoppel doctrine applicable here:

1. Misleading Silence: 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. Reliance: The alleged infringer relies on that conduct; and
3. Prejudice: The alleged infringer will be materially prejudiced if the patentee is allowed to proceed with its claim.

As background, the patentee (Bumper Boy) sent a demand letter to Innotek back in 2005. The letter indicated that Innotek's "UltraSmart" dog collar infringed Bumper Boy's U.S. Patent No. 6,830,014. Innotek quickly responded with a letter claiming that the patent was invalid. Following that, there was no communication between the parties for 4 ½ years. In fact, Bumper Boy never again communicated with Innotek because that company was acquired by Radio Systems. Radio Systems continued to develop the UltraSmart and other dog collar product lines. Meanwhile, Bumper Boy filed a continuation application and obtained a second patent in 2007 (U.S. Patent No. 7,267,082) with a somewhat more focused claim scope. In 2009, Bumper Boy sent a demand letter to Radio Systems alleging infringement of both the old '014 patent and the new '082 patent.

Radio Systems then filed a declaratory judgment action and the district court awarded summary judgment for Radio Systems. The summary judgment ruling held the patentee equitably estopped from pursuing an infringement action against the UltraSmart products based on either the old or the new patent.

On appeal, the Federal Circuit has affirmed-in-part – affirming that the patentee is estopped from suing the successor-in-interest (Radio Systems) on the old patent (subject of the 2005 letter exchange) but denying to extend the estoppel to the new family-member patent that was not mentioned in the letter and that had not issued at the time.

Judge Moore's language suggests that equitable estoppel could never apply to pending patent applications. She writes "quite simply, the '082 patent claims could not have been asserted against Innotek or Radio Systems until those claims issued." However, that interpretation of the decision is likely unduly expansive – especially since a patentee can collect back-damages for pre-issuance infringement under 35 U.S.C. § 154(d). Thus, for instance, a patentee who sends a pre-issuance 154(d) notice of infringement and then waits to sue for four years following the issuance may well (in my estimation) fall within the realm of equitable estoppel. Of course, these are hypothetical facts that do not apply in the Radio Systems case. A second potential factor in the decision here is that the patentee added new matter to the second patent, but the majority appears to have disregarded that fact as immaterial since the asserted claims do not rely on new matter.

Judge Newman has previously provided an expansive view of equitable estoppel in her majority opinion in the case of Aspex Eyewear v. Clariti Eyewear (Fed. Cir. 2009) (Judge Rader dissenting). In the present caes, Judge Newman penned a quite short opinion that argued that the estoppel should be extended to the continuation application, although her analysis does not directly confront the majority's reasoning. 

A second pressure point in the decision involves the corporate restructuring from Innotek to Radio Systems. The Federal Circuit has previously held that equitable estoppel can be claimed by successors-in-interest where privity has been established. Jamesbury Corp. v. Litton Indus. Prods., Inc., 839 F.2d 1544 (Fed. Cir. 1988). At some point, there may be a need to explore the privity element, but here that was not a real problem since Radio Systems (1) wholly owns Innotek, (2) is headed by the same individual as Innotek, (3) incorporated Innotek designs and products in its own product lines; and (4) exerts substantial control over Innotek. In my view, privity alone should be insufficient to transfer equitable estoppel rights to the new entity if the estoppel has not yet vested and if the patentee has no reasonable knowledge of the shift.

This decision provides some food-for-thought to patentees. On the one hand it places more pressure of having enforcement-through-litigation as a genuine and timely option during any license negotiations. On the other hand, the case also offers a roadmap for avoiding equitable estoppel problems with the use of continuation applications.

Patent versus Portfolio: The conceptual problem with this decision is one that we'll be struggling to deal with for years – and that is the distinctions between a single patent claim, a single patent, a family of patents, and a portfolio of loosely related patents. The law still largely focuses on single patent claims while business leaders are increasingly focused on a portfolio analysis. Equitable estoppel is largely related to reasonable reliance by business leaders and in that context it makes sense to apply the estoppel principles to a portfolio rather than single claims or single patents.

= = = = =

In addition to the estoppel decision, the lower court also found that the claims were not infringed by other Radio Systems products. In the appeal, the Radio Systems offered as an alternative ground for affirmance that the asserted patents were invalid. However, the Federal Circuit refused to hear that contention on technical grounds since the contention was raised in an opposition brief rather than as a cross-appeal. An invalidity holding is generally broader than a holding of equitable estoppel or non-infringement since those holdings are limited to the products or parties involved in the case. Invalidity on the other hand will apply to all future Radio Systems products as well as other would-be infringers and even current licensees. That change-in-scope creates a problem for Radio systems because of the ordinary rule that an appellee cannot request expansion of the lower court holding. Rather, a party unsatisfied with the scope of a lower court ruling must become an appellant by filing an appeal or cross-appeal.

The Supreme Court has long recognized that "[a]bsent a cross appeal, an appellee . . . may not attack the decree with a view either to enlarging his own rights thereunder or of lessening the rights of his adversary." El Paso Nat. Gas Co. v. Neztsosie, 526 U.S. 473 (1999). We have held that a judgment of invalidity is broader than a judgment of noninfringement. "[A] determination of infringement applies only to a specific accused product or process, whereas invalidity operates as a complete defense to infringement for any product, forever." Typeright Keyboard Corp. v. Microsoft Corp., 374 F.3d 1151 (Fed. Cir. 2004). Thus, invalidity cannot be an alternative ground for affirming a judgment of noninfringment absent a cross-appeal.

While we acknowledge the inefficiency that may result from requiring cross-appeals in situations where the scope of a judgment would be enlarged, we are cabined by our jurisdiction and may not reach issues that are not properly before us. On remand, Radio Systems may pursue its invalidity defense in further proceedings, and, should there be additional rulings on invalidity by the district court, Radio Systems may pursue a proper appeal at that time. Because Radio Systems did not properly file a cross-appeal on the invalidity issue in this appeal, Bumper Boy's motion to strike Radio System' alternative grounds for affirmance is granted.

Just to be clear, it doesn't appear that Radio Systems failure to file a cross-appeal was a technical error. Rather, the company could not file an appeal arguing invalidity because the district court had not reached that issue yet.