Fraunhofer-Gesellschaft Zur Forderung der angewandten Forschung e.V. v. Sirius XM Radio Inc.
Filing
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MEMORANDUM AND ORDER: SXM's motion for summary judgment, D.I. 638 , is granted in part. All remaining motions are denied as moot. Judgment to follow. (See Memorandum and Order for further details) Signed by Judge Joseph F. Bataillon on 07/10/2023. (smg)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
FRAUNHOFER-GESELLSCHAFT ZUR
FORDERUNG DER ANGEWANDTEN
FORSCHUNG E.V.,
1:17CV184
Plaintiff,
MEMORANDUM AND ORDER
v.
SIRIUS XM RADIO INC.,
Defendant.
A number of motions for summary judgment and to exclude expert testimony pend
before the Court. D.I. 637, D.I. 639, D.I. 641, D.I. 643, D.I. 644, D.I. 646, D.I. 649, D.I.
651, D.I. 653, D.I. 654, D.I. 657, D.I. 658, D.I. 660, D.I. 663, D.I. 664, D.I. 667, D.I. 669,
D.I. 671, D.I. 673, D.I. 675, D.I. 679, D.I. 681, D.I. 683. The Court finds this patentinfringement complaint equitably estopped.
In the 1990s, plaintiff, Munich-based research organization FraunhoferGesellschaft zur Förderung der angewandten Forschung e.V. (“Fraunhofer”), obtained
several United States patents claiming technology underlying satellite communication
networks. Via an exclusive and irrevocable license to WorldSpace International Network
Inc., dated March 4, 1998, and a sublicense dated that July 24 (made irrevocable by June
7, 1999, amendment), the technology came to defendant Sirius XM Radio Inc.’s (“SXM”)
predecessor, American Mobile Radio Corporation. Joint development of the technology
ensued, employing both Fraunhofer’s already sublicensed patents and more, per a July
16, 1999, consulting agreement.
Fraunhofer-Gesellschaft zur Forderung der
Angewandten Forschung E.V. v. Sirius XM Radio Inc., 940 F.3d 1372 (Fed. Cir. 2019);
D.I. 676-1 (Exs. 3–5).
1
On October 17, 2008, WorldSpace filed for bankruptcy. Among the settlements,
an earlier iteration of SXM paid WorldSpace a lump sum of $298,517 to maintain the
irrevocable sublicense (Bankruptcy Court approved on July 13, 2009), and then a year
later, in potential contradiction, WorldSpace and Fraunhofer rejected (the parties dispute
the meaning of the term here) the master license agreement (approved June 2, 2010).
940 F.3d at 1376; D.I. 676-1 (Exs. 4, 6–13).
But if Fraunhofer believed the sublicense also terminated, it kept that to itself for
more than five years and, in the meantime, continued consulting with SXM as usual. Not
until October 2015 did Fraunhofer notify SXM of its alleged infringement.
And on
November 13, 2015, further complicating the interpretation of the bankruptcy settlements,
Fraunhofer formally terminated (if it had not already) WorldSpace’s master license. 940
F.3d at 1376; D.I. 676-1 (Exs. 16–19); D.I. 709-1 (Exs. 129–38).
This Court dismissed Fraunhofer’s February 2017 complaint, reasoning that the
sublicense provided a complete defense. D.I. 146, D.I. 175. But the Federal Circuit
reversed, questioning whether the master license had been terminated, and if so, when,
and whether the sublicense survived. 940 F.3d at 1379–80. The present dispositive
motions follow eventful discovery.1
There’s no use complicating matters. Assume SXM’s various mergers effected an
assignment in violation of the sublicense and final settlement.
D.I. 644.
Assume
Fraunhofer properly terminated the master license in 2010, and the sublicense lapsed.
D.I. 646. Assume the consulting agreement gives SXM no right to the asserted patents.
D.I. 649. And ignore whether Fraunhofer, having perhaps left the master license in limbo
1
Citing only American law in the relevant briefing, the parties seem to assume, and the Court accepts, its
application to this international dispute.
2
in 2010, retained any latent right to terminate it in 2015.
In other words, assume
Fraunhofer’s view: that SXM has been using Fraunhofer’s patented technology without
license since at least June 2010—and both knew it.
Why the wait?
If, as Fraunhofer so forcefully argues, the master license
conclusively terminated in June 2010, then its undisputed more than five-year delay in
asserting, let alone mentioning, its patent rights against a known former sublicensee and
now-alleged infringer—who, for that matter, had consulted with Fraunhofer in further
developing that patented technology and had paid nearly $300,000 the year before to
maintain the sublicense—amounts to a bait and switch. This equity estops.
It’s noteworthy that Fraunhofer never attempts to explain the delay.
Instead,
quoting SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC,
Fraunhofer notes that “silence alone will not create an estoppel unless there was a clear
duty to speak.” D.I. 708 at 25. True enough in general. But in what the Court can only
imagine to be unintentional drafting, Fraunhofer omits the material remainder of the
quote—“or somehow the patentee’s continued silence reenforces the defendant’s
inference from the plaintiff’s known acquiescence that the defendant will be unmolested.”
SCA Hygiene Prod. Aktiebolag v. First Quality Baby Prod., LLC, 767 F.3d 1339, 1349
(Fed. Cir. 2014) and 580 U.S. 328 (2017) (emphasis naturally added). Indeed, as the
Federal Circuit has confirmed more recently: silence, “accompanied by some other factor
which indicates that the silence was sufficiently misleading as to amount to bad faith,” can
equitably estop a patent suit. High Point SARL v. Sprint Nextel Corp., 817 F.3d 1325,
1330 (Fed. Cir. 2016).
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High Point itself proves illustrative. To begin, Fraunhofer thinks relevant only its
post(-alleged)-termination conduct. Granting the importance of that conduct, High Point
nonetheless looked to the entirety of the patent owners’ conduct during both licensed and
unlicensed periods, where like here, Sprint and High Point’s patent-owning predecessors
had collaborated since the 1990s, with appropriate licenses. And there too, only after
years of known and undisrupted unlicensed activity, High Point sued.
True enough, during that silence, High Point’s predecessors had continued to work
with Sprint and others in the relevant field, including “licensing arrangements involving
the patents, discussing interoperability with other potentially infringing vendors, and
continuing business relationships.” 817 F.3d at 1331. But so too here, after Fraunhofer
supposedly terminated the master license and extinguished the sublicense, it continued
consulting as usual with SXM. D.I. 676-1 (Ex. 14); D.I. 709-1 (Ex. 129–31,2 133–38).
Fraunhofer downplays the extent to which this continuing relationship implicated the
asserted patents and notes most of SXM’s later consulting payments had been due
before the master license terminated. Accepting all this as true, it remains undisputed
that SXM and Fraunhofer continued an otherwise ordinary business relationship for fiveplus years following the supposed master-license termination before ever raising the
matter of infringement.
Equity is a sliding scale. Where Sprint had affirmatively exceeded the bounds of
its existing licenses, premised on equipment supplied by High-Point’s predecessors or
other approved vendors, by procuring unlicensed equipment from third parties, here SXM
remained within the substantive bounds of the irrevocable sublicense it had just paid, with
2
The Court accepts Fraunhofer’s disavowal of SXM’s Exhibit 132. D.I. 720 at 12, n. 11.
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the Bankruptcy Court’s approval, to maintain—the dispute being whether the agreement
lapsed for other reasons. Sprint’s greater deviation from the license logically required
greater justification. At best for Fraunhofer, these differences come out awash.
Fraunhofer responds that courts generally refuse to recognize an implied license,
which equitable estoppel effectively grants, where an agreement on point exists. But
setting aside that licenses on point did not preclude estoppel in High Point, or that SXM’s
reliance on the believed sublicense here is the exception that proves the rule, Fraunhofer
is talking out of both sides of its mouth. Its entire case rests on the premise that no license
of the asserted patents exists between it and SXM (or WorldSpace for that matter).
Similarly, Fraunhofer finds no absolution hiding behind its licensing intermediary.
Fraunhofer told SXM to obtain a sublicence from WorldSpace, SXM did so, and
Fraunhofer’s case here is that it terminated the master license.
At bottom, if Fraunhofer believed that its 2010 rejection of the master license
extinguished the sublicense that SXM had just fully paid and could point to Bankruptcy
Court order approving, had consulted with Fraunhofer for years under, and would
continue to consult in at least limited capacity for several more years, the record confirms
that Fraunhofer never said so until five-plus years later. That undisputed and misleading
silence-plus-more very reasonably implied approval of SXM’s now-allegedly infringing
activity.
SXM, unsurprisingly enough, relied on Fraunhofer’s extended silence and conduct
to its detriment. Following the Sirius and XM family mergers culminating in Sirius XM
Radio in 2008, the new company had to decide which of the former pair’s competing
systems (referred to as the high-band and low-band systems) to continue and which to
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retire. The high-band system employed Fraunhofer’s patents and collaborative efforts;
the low-band did not. Each move entailed shifting a substantial portion of carmakers from
one hardware set to the other and launching and maintaining a network of satellites
(satellite radio after all). Viewed favorably to Fraunhofer, the record appears to reflect
that the high-band system carried some meaningful, but by no means dispositive,
technical benefits, though undisputed testimony reveals that either option would have
been technically feasible (indeed, SXM has maintained legacy low-band service as
recently as discovery in this suit). Ultimately, as the parties agree, e.g., D.I. 708 at 26,
the choice came down to business pragmatics: SXM elected to shift over the smaller
market share of the low-band system rather than shift over the larger market share of the
high-band. And, again unsurprisingly, SXM’s license (or so it thought) proved material.
If barred from the high-band, SXM could and would have elected the low. D.I. 676-1 (Exs.
22–24, Paul David Krayeski, David A. Birks, and Craig P. Wadin Dep. Trs.); D.I. 685-103
at 11 (Denise Karkos Dep. Tr.); D.I. 685-121 (Ex. 119, Wadin Tr. 283).3
Instead of proffering evidence to the contrary, Fraunhofer recasts Mr. Wadin’s
testimony as admitting the low band’s infeasibility.
Review compels the opposite
conclusion. First, Mr. Wadin explained that SXM’s reliance on radio sets installed in
consumers’ cars presented an “ugly” challenge in picking a single system to proceed
with—SXM couldn’t just shut off one band and send everyone a replacement radio to reinstall in their car. But that, instead of foreclosing the low-band system, in large part
explains why SXM has kept the legacy low-band—the alternative to infringement—
operational all these years. D.I. 685-121 (Wadin Tr. 150–54, 162–63). Second, Mr.
The Court did not consider the late-arriving declaration of Craig Wadin, appended to SXM’s opposition to
Fraunhofer’s third motion for summary judgment. D.I. 709-4 (Ex. 152).
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Wadin explained that rolling out new equipment with each carmaker proved a prime
obstacle, an effort that lasted from 2010 to 2020. Id. (Tr. 169). Yet again, instead of
foreclosing the low-band as an option, this both reemphasizes the noninfringing
alternative’s feasibility (recall, SXM kept it running) and (looking ahead) highlights the
prejudice here—a decade’s unrecoverable effort changing over automotive installations.
And third, Mr. Wadin did describe counsel’s hypothetical immediate shutdown of the highband system in 2010 due to patent infringement suit as “a real disaster scenario,” given
SXM would have had to quickly redesign a noninfringing solution and because “if you turn
off the service, it’s not viable.” But the alternative remained: “as I understood your
question, low band is still operational.”
So, aside from highlighting the five years
Fraunhofer sat on its hands, this testimony again reaffirms the low band to be a feasible
alternative. Id. (Tr. 278–83).
Fraunhofer next posits that SXM determined upon the high-band system sometime
between its July 2008 formation and the master license termination, though none of
Fraunhofer’s record citations seem to support this assertion, and other witness testimony
places the decision sometime between 2010 and 2012, D.I. 676-1 (Ex. 23, Birks. Tr. 37).
Even assuming the earlier decision, however, that would hardly diminish SXM’s reliance
on Fraunhofer’s apparent approval of its decision over the next five years of the ten-year
effort to shift over equipment manufacturing.
Finally on reliance, Fraunhofer faults SXM’s apparently brazen, well, reliance on
its sublicense when Fraunhofer finally raised the matter of infringement in late 2015. But
this just confirms SXM’s heartfelt (if indignant) belief that it had a valid sublicense.
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Prejudice, undisputed, requires little inquiry. Besides the Deutsche Marks lost to
history and the remaining hundreds of thousands of Euros paid to develop the high-band
system before and after the supposed master-license termination, work it now apparently
can’t use without Fraunhofer’s permission, D.I. 709-1 (Exs. 129–31, 135–37), SXM
irretrievably installed hundreds of millions of dollars of equipment into peoples’ cars during
the ten years it took to shift car manufacturers over to the new system—or launched it
into space, D.I. 685-121 (Ex. 119, Wadin Tr. 152, 157–58, 169).
And it’s worth
highlighting (judicial notice permitting), now that high-speed cellular data permits music
and podcast streaming to iPhones in cars across the nation, it’s not just that SXM can’t
get its time back—from present vantage, that five-year period of Fraunhofer’s silence may
have been SXM’s golden years.
To conclude, an undisputed record establishes a more than five-year period during
which Fraunhofer’s silence and course of conduct (intentional or not) misled SXM into
reasonably believing it still had a valid and Bankruptcy Court approved sublicense to the
asserted patents, during which SXM substantially developed its business in reliance, in
an expenditure of time, product development, manufacturing shifts, and installations that
(aside from the money) SXM could not get back were this stale claim permitted. 817 F.3d
at 1330.
THEREFORE, IT IS ORDERED THAT SXM’s motion for summary judgment, D.I.
638, is granted in part. All remaining motions are denied as moot. Judgment to follow.
Dated this 10th day of July, 2023.
BY THE COURT:
s/ Joseph F. Bataillon
Senior United States District Judge
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