A federal appellate court agreed that San Diego’s Qualcomm (NASDAQ: [[ticker:QCOM]]) should be punished for hiding its work from industry groups developing a new video technology standard. But the three-judge panel ruled that a San Diego trial judge went a step too far by invalidating Qualcomm’s patents on the video compression technology it had concealed.
Qualcomm’s misconduct emerged in a January 2007 trial that was the culmination of a patent infringement lawsuit the San Diego wireless giant filed two years earlier against Broadcom (NASDAQ: [[ticker:BRCM]]), a rival chipmaker in Irvine, CA.
In its ruling yesterday, the U.S. Court of Appeals for the Federal Circuit upheld much of the punishment that San Diego federal Judge Rudi Brewster imposed on Qualcomm in his August 2007 opinion. The panel agreed, for example, that Qualcomm must pay Broadcom’s attorneys’ fees in the case, which totaled more than $8.5 million. Instead of stripping Qualcomm’s video patents, however, the appeals court said Qualcomm cannot assert its patents in connection with what’s known as the H.264 standard, an upgrade to MPEG 2 and MPEG 4 video technologies.
Perhaps more importantly, the appellate opinion clarifies the proper legal course that technology companies should follow in disclosing their internal technology development to standards setting organizations.
The appeals court agreed that Qualcomm was legally required to disclose its intellectual property rights as a participant in an industry group called the Joint Video Team that was developing a standard for video compression technology in 2003. That’s because a patent holder is in a position to “hold up” other participants in the group from implementing a new standard by claiming its patents take precedence. Instead, Qualcomm withheld the fact it had established two key patents in the area in 1995 and 1996.
Qualcomm then sprang its patent “ambush,” citing its key patents in a 2005 lawsuit filed against Broadcom. Throughout the case, Qualcomm and its lawyers insisted the company had not participated in the 2003 standard-setting meetings, which would have precluded the company from filing its suit. Broadcom lawyers uncovered emails during the trial, however, that showed Qualcomm had participated and its engineers were closely following the technical progress of the standards setting organization.
A federal magistrate in San Diego later sanctioned six lawyers representing Qualcomm for withholding tens of thousands of emails in a “monumental” violation of the legal rules for pre-trial discovery.
