Equitable estoppel is a legal defense which can be raised by showing that the defending party was prejudiced by relying on misleading conduct.

Or, in a patent context like in Fraunhofer, “[e]quitable estoppel is a defense ... [that] has three requirements: (1) the patentee engages in misleading conduct that leads he accused infringer to reasonably infer that the patentee does not intend to assert its patent against the accused infringer; (2) the accused infringer relies on that conduct; and (3) as a result of that reliance, the accused infringer would be materially prejudiced if the patentee is allowed to proceed with its infringement action.”

Fraunhofer provides examples in relation to those elements of equitable estoppel.

The patent holder Fraunhofer had provided one company, WorldSpace, an exclusive license to some of its patents while, at the same time, collaborating with another company, XM, to bring technology covered by those patents to the U.S. market.  And at the time, Fraunhofer is understood to have informed XM of a need to obtain a sublicense from WorldSpace.

Years later and while that technology was still being brought to the U.S. market, XM was being absorbed into a parent company, Sirius XM, while WorldSpace was filing for and engaging in bankruptcy proceedings.

Between WorldSpace and XM, those bankruptcy proceedings are understood to have involved a public settlement in which the license from Fraunhofer to WorldSpace was attempted to be amended so that XM would hold the license.  Fraunhofer was not a party to that settlement/amendment.

However, without notice and while Fraunhofer continued to assist XM/Sirius XM in bringing the patented technology to market, Fraunhofer is understood to have formed the (at least) subjective opinion that WorldSpace’s bankruptcy proceedings had reverted the patent rights back to Fraunhofer – not that those rights had been obtained by XM/Sirius XM.

For about 5 years afterword, Fraunhofer is understood to have continued to assist Sirius XM in bringing the patented technology to market, but then, after that 5 years, notified Sirius that it was infringing Fraunhofer’s patents.  And Fraunhofer brought suit against Sirius.

Sirius eventually defended by raising equitable estoppel which was granted on summary judgement by the district court.

On appeal, construing facts most favorably to the non-moving party Fraunhofer, the appeal court reversed by indicating that, although it may be possible to show under a lower standard than SMJ on remand and although a reasonable inference may be drawn that Sirius XM relied on Fraunhofer’s conduct, Sirius had not shown, for SMJ purposes, that it definitively relied on Fraunhofer’s conduct (Fraunhofer’s silence in that 5 year period along with their assistance in bringing the technology to market).

For example, it is understood that the patented technology had an effectively equivalent alternative known to all involved parties, and expert testimony, of record, indicated that the reason why the infringing technology was advanced over the non-infringing equivalent did not seem related to Fraunhofer’s conduct but instead to mere coincidence that since a higher % of the market already involved the patented technology that, as a business decision, it would have been easier to migrate the lower % of non-infringing technology to the other, rather than vice versa.

Therefore, the appeal court, construing facts most favorably for the non-moving Fraunhofer, indicated that the facts of record did not definitively show reliance on Fraunhofer’s conduct.  As such, the district court’s summary judgement was vacated and the case was remanded for further proceedings.

In that light, to the patent holder, keeping silent about infringement, even when the infringer should know, can work against you, like possibly here.  And to others, consider keeping a record whether infringement concerns, belief of operation under license, etc. influenced current product deployment.