Patent Exhaustion Shields Smartphone Makers from Evolved Wireless LTE Suits, at Least Through December 2018

January 30, 2021

The Federal Circuit has just affirmed most of a Delaware noninfringement ruling for HTC, Lenovo (Motorola Mobility), Microsoft, Nokia, Samsung, and ZTE (2020-1337). On January 26, the appellate court agreed with Senior District Judge Joseph F. Bataillon that NPE Evolved Wireless LLC could not raise infringement claims against the companies’ accused smartphones due to a license between the asserted patents’ prior owner and Qualcomm, which provided the LTE chipsets used in those devices. As a result, Federal Circuit ruled that the NPE’s claims against the defendants, as Qualcomm’s customers, were barred under patent exhaustion. However, the court remanded as to the impact of the license’s alleged termination in late 2018—opting not to determine whether such a termination actually occurred, nor its effect on the license or infringement in the subsequent period.

Evolved Wireless launched its campaign in June 2015 with suits against Apple (1:15-cv-00542), HTC (1:15-cv-00543), Lenovo and Motorola Mobility (1:15-cv-00544), Microsoft and Nokia (1:15-cv-00547), Samsung (1:15-cv-00545), and ZTE (1:15-cv-00546), each filed in the District of Delaware. At issue in each complaint were five former LG Electronics (LGE) patents (7,746,916; 7,768,965; 7,809,373; 7,881,236; 8,218,481), with the defendants alleged to infringe through the provision of LTE-compatible devices, variously including smartphones, tablets, and laptops as well as routers, modems, and wireless hotspots. Of those cases, only the one against Apple proceeded to trial, ending in an April 2019 verdict of noninfringement as to the ‘373 and ‘263 patents. Judge Bataillon denied the NPE’s post-trial motions that same August, and the parties stipulated to the dismissal with prejudice of the resulting Federal Circuit appeal in June 2020. Another lawsuit filed by Evolved Wireless against BLU Products in December 2018 (1:18-cv-25116) was dismissed in April 2019, also by joint stipulation.

Meanwhile, litigation proceeded as to the remaining defendants, with the list of patents-in-suit winnowed down to the ‘373 patent after a series of later-affirmed PTAB rulings that, in part, knocked out all claims from the ‘236 patent.

A key issue in those cases was the impact of the aforementioned license, originally granted by LGE to Qualcomm in 1993 and that, as subsequently amended, barred LGE from suing Qualcomm or its customers for infringing certain patents through the provision of “Subscriber Units”. Such a unit was defined, under a 2004 amendment, as “a Complete CDMA Telephone or a CDMA Modem Card, and any subsequent generation products” (emphasis added by the Federal Circuit). Other relevant provisions included one defining a “Complete CDMA Telephone” in part as a “CDMA (including multi-mode) terminal” (emphasis added by Federal Circuit). Also significant was a provision establishing an “Improvement Period”, which, as described by the Federal Circuit, “allow[ed] the license to cover relevant intellectual property subsequently developed or acquired by the parties”. A set of 2010 amendments extended “the Improvement Period through December 31, 2010, which encompasses the October 5, 2010 issuance of the ‘373 patent”.

The parties disputed the effect of that license in a series of dueling summary judgment motions filed in 2017. Since Evolved Wireless was bound by the license’s restrictions on LGE through its acquisition of the patents-in-suit, the parties agreed that infringement could only occur if the license did not cover the accused products. To that end, the defendants argued that the agreement covered the Qualcomm chipsets within the accused devices and that patent exhaustion therefore precluded the defendants’ infringement. An additional wrinkle then arose in February 2019, when Evolved Wireless notified the court that the license had been terminated on December 31, 2018—arguing that the defendants should at least be liable for infringing conduct occurring after that date.

The court denied the defendants’ summary judgment motion on the day that Evolved Wireless submitted its notice but subsequently reconsidered its ruling as to the issues of licensing and patent exhaustion. In December 2019, Judge Bataillon then granted summary judgment for the defendants, holding that the agreement authorized Qualcomm’s use of the ‘373 patent and that patent exhaustion barred Evolved Wireless’s claims against the defendants as a result. The district court’s order did not discuss the impact of the alleged 2018 termination of the license. Evolved Wireless appealed, disputing both the court’s interpretation of the license and its grant of summary judgment without addressing the license’s purported termination.

The Federal Circuit began its January 26 ruling on appeal with the license issue, agreeing with the defendants that the Qualcomm license covered the accused devices. In particular, the court ruled that the products met the definition of “Subscriber Units” under the agreement as amended in 2004, which as noted above includes “subsequent generation products”. Here, the court accepted the defendants’ argument that this term “includes products that operate using a standard that is subsequent to the third-generation (3G) CDMA standard”, since “[e]ach set of cellular standards is commonly demarcated as a ‘generation’”—including 3G, 4G, and now 5G. Moreover, the court rejected Evolved Wireless’s argument that “subsequent generation” referred only to newer CDMA devices as inconsistent with the more common usage of “generation” in this context. Given the breadth of the term “subsequent generation products”, and because the ‘373 patent covers the 4G LTE standard, the court concluded that the accused devices are “Subscriber Units” under the agreement.

Further support for this conclusion, the Federal Circuit continued, can be found in the term “Complete CDMA Telephone”, which as indicated above includes “multi-mode” devices as of the 2010 amendment. Here, the court pointed out that the parties agree that a “multi-mode” device is one that supports both CDMA and another standard, which precludes the plaintiff’s arguments that such devices can only be CDMA: “To give effect to the term ‘multi-mode,’ it cannot be the case that, within the meaning of the license agreement, only CDMA-related patents can be necessary to a multi-mode CDMA device”.

The appellate court also found Evolved’s other arguments unavailing—including its assertion that “multi-mode” could refer to a device supporting 2G and 3G, not necessarily 4G. However, the fact that the amendment was entered into 2010 “suggests that the term ‘multi-mode’ referred to the existing 3G standard and the newly completed 4G standard, rather than being limited to 3G and the earlier 2G standard”. The court additionally rejected the NPE’s argument that the “improvement period” extending the license to subsequently developed technologies ended in 2006, before LTE had been standardized—pointing out that, as mentioned above, the period had actually been extended through 2010.

Turning next to the alleged termination of the license agreement, the Federal Circuit found that the Third Circuit caselaw proffered by the defendants did not fully address the circumstances. Specifically, the court distinguished the facts here from that court’s 2014 decision in Greene v. Virgin Islands Water & Power Authority, noting first that the “court here explicitly asked about the termination of the license agreement and whether the license agreement had been replaced, suggesting that the district court viewed the termination as irrelevant” (whereas in Greene the court ignored an analogous affidavit). Second, the Federal Circuit observed that the notice of termination had been offered promptly (while the affidavit was belated in Greene).

However, the Federal Circuit remarked that the only indication of Judge Bataillon’s stance on the termination suggested that he “declined to consider the termination because the court assumed that the license agreement must have been replaced”. Responding to a statement from plaintiff’s counsel that there was “no evidence the agreement was replaced”, Judge Bataillon shot back that “[t]hat’s complete nonsense. They had to have been replaced. Qualcomm wouldn’t sell you their technology unless they’re covered with the licenses”.

That said, the Federal Circuit did not address whether the district court abused its discretion in ignoring Evolved’s evidence of the alleged termination. Rather, it vacated the summary judgment of noninfringement for conduct occurring after the purported December 31, 2018 termination date and remanded for further proceedings, to address whether the termination occurred and, if so, its impact on the license and infringement after that date.

Evolved Wireless was formed in Delaware in July 2014 and is an affiliate of IP investment firm Techquity Capital Management, LLC. The plaintiff acquired its patent portfolio in 2014 from TQ Lambda LLC, a Techquity subsidiary with overlapping management: Abha S. Divine, the managing director of Evolved Wireless, is also identified (in records filed with the USPTO) as the managing director of TQCAP GP, LLC (formed in Delaware in April 2010), the general partner of TQ Lambda, and of Techquity Capital Management, TQ Lambda’s member. She and Mark Roche characterize themselves as the former “founders” of AT&T Knowledge Ventures, L.P. (f/k/a SBC Knowledge Ventures, L.P.), Divine indicating that her position as managing director of Techquity began in 2007 while Roche indicates that his position as managing director began in July 2008.

For more on the Evolved Wireless litigation and other Techquity plaintiffs, see “Evolved Wireless’s LTE Standards Campaign Grinds to a Halt, While a Coin Toss Slows Techquity's TQ Delta DSL Litigation” (December 2019).