Equitable Estoppel: Misleading Silence Not Enough Unless It Was Relied on and Caused Prejudice

Written by: Douglas B. Wentzel and Zachery Rufa

FRAUNHOFER-GESELLSCHAFT v. SIRIUS XM RADIO INC.

Before Lourie, Dyk, and Reyna. Appeal from the United States District Court for the District of Delaware.

Summary: The defense of equitable estoppel requires showing that the patentee engaged in misleading conduct that the accused infringer relied on, resulting in prejudice.

Fraunhofer sued Sirius XM (Sirius), alleging patent infringement. Fraunhofer had previously collaborated with Sirius’s predecessor, XM, to develop satellite radio technology. To do so, XM obtained a sublicense to the patents at issue from Fraunhofer’s exclusive third-party licensee, who later went bankrupt. Years later, Fraunhofer sued Sirius for patent infringement, arguing that all patent rights had reverted to Fraunhofer during the bankruptcy. Before the district court, Sirius moved for summary judgment that Fraunhofer’s claims were barred by equitable estoppel because Fraunhofer collaborated with Sirius’s predecessor to create the accused features of Sirius’s satellite radio system and Fraunhofer had waited more than five years to raise Sirius’s alleged infringement. The district court agreed, granting summary judgment based on equitable estoppel.

On appeal, the Federal Circuit reversed. While the Federal Circuit agreed with the district court’s finding that Fraunhofer’s conduct was misleading by staying silent for more than five years before filing suit against Sirius, the Federal Circuit did not agree that Sirius presented sufficient evidence to show it relied on Fraunhofer’s silence when deciding to incorporate the accused features into its radio system. Because Sirius failed to prove reliance, the Federal Circuit held that Sirius could not show it was prejudiced by relying on Fraunhofer’s silence. However, the Federal Circuit also explained that, if Sirius could establish at trial that it relied on Fraunhofer’s misleading silence, then it could adequately show it was prejudiced by that reliance because Sirius clearly decided to migrate to the accused system rather than pursue a viable non-infringing alternative.

Editor: Sean Murray