When the Federal Circuit handed down its decision in Fujitsu Ltd. v. Netgear Inc., many executives in the Silicon Valley breathed a sigh of relief. They weren’t parties in the suit, but like the defendant, Netgear, they made WiFi-compatible products. And the court found that making such products didn’t necessarily infringe patents in the WiFi standard.

Although many high-tech firms dodged a bullet this time, the court ruling may be bad news for them in the long run. That’s because the decision provides patent owners with a fast and easy way to prove infringement when industry standards are involved.

The Fujitsu case concerned WiFi, a widely used standard that allows electronic products to communicate with one another and to access the Internet. It is used in a huge variety of products, including routers, laptops, televisions, iPads, stereo systems, Blu-ray players, Wii games and cell phones.

Some large and powerful companies own patents covering certain aspects of WiFi. They got together, created a
patent pool and attempted to license their patents.

In 2005, the pool sent an ominous letter to Netgear, a mid-size company whose products include routers and other networking products that use WiFi. The letter claimed that the pool’s patents were “essential” for any product using WiFi and offered to license these patents to Netgear on a nonexclusive basis. Netgear declined.

So, too, did many other technology firms. “Many companies had received letters [from the patent pool] and hadn’t bought licenses. Many were in the same position as Netgear,” says Kenneth Liebman, a Faegre & Benson partner who represents Netgear.

In 2007, the patent pool struck back. Three of its participants–Fujitsu, LG Electronics and U.S. Philips Corp.– sued Netgear for infringement.

“This was a test case,” says Liebman. “Three of the largest companies in the world chose to sue a relatively small Silicon Valley company. They thought Netgear would settle rather than bear the brunt of the litigation since there were no other defendants.”

Mountain to Molehill

The plaintiffs miscalculated. Netgear fought and won decisively in the Federal District Court for the Western District of Wisconsin. Chief Judge Barbara B. Crabb issued summary judgment in favor of Netgear, ruling it did not infringe any of the asserted patents.

The Federal Circuit, on appeal, largely upheld that ruling. The three-judge panel found no infringement for two of the three patent owners, and the panel greatly limited the infringement claims of the remaining plaintiff, Philips.

“If the case was a mountain before, it is now a molehill,” Liebman says.

A spokesperson for Fujitsu had no comment on the decision.

A key legal issue in the lawsuit was how to prove infringement. The usual method is to compare the plaintiff’s patents directly against the defendant’s allegedly infringing products. But that’s not what the plaintiffs in this case did. They opted to prove infringement indirectly. They claimed their patents were essential to any use of the WiFi standard. Because Netgear made products that used the standard, Netgear had infringed the patents, they argued.

The Federal Circuit held that industry standards could be used in this manner to prove infringement. “If the Federal Circuit had gone the other way, it would have made the job of proving infringement a lot more difficult and expensive,” says Robert Kunstadt, a solo patent attorney in New York. “A patent owner would have had to examine all the different models of products that allegedly infringed. It would have been very cumbersome. [But] the Federal Circuit said a district judge is not prohibited from using a shortcut. If anyone using a standard [without authorization] is infringing a patent, then the patent owner doesn’t need to prove infringement against specific products.”

Key Caveats

The Federal Circuit, however, added several large caveats. It warned “in many instances, an industry standard doesn’t provide the level of specificity required to establish that practicing that standard would always result in infringement.” For instance, if a standard allows for different implementations, and a plaintiff’s patent does not cover every possible implementation, a defendant’s use of the standard does not prove it infringed the plaintiff’s patent.

If a plaintiff’s patent covers only an optional part of a standard, a defendant’s use of the standard is insufficient to prove infringement, the court held. The Federal Circuit’s decision was largely a defeat for the patent owners in this case, but it is good news for patent owners overall, according to some experts. The ruling provides “a shortcut, an easy way to prove the [infringement] case,” says James Foster, a shareholder in Wolf, Greenfield & Sacks.

As for companies that want to make products that comply with important technological standards, they had better be on their toes. Says Kunstadt, “It is now more risky to make standard-compliant products because it is easier to prove infringement.”