Lenovo Sues Nokia for Breach of Contract Over Failure to Disclose Video Compression Patent Rights

On Monday in the Northern District of California, electronics manufacturer Lenovo filed a complaint against Nokia Technologies Oy, a wholly owned subsidiary of Nokia Corporation whose purported main purpose is to monetize the patent rights obtained by the numerous Nokia entities, for breach of contract, alleging that the defendant failed to disclose its patent rights as it was contractually obligated to do before the industry standard for video compression was frozen.

Nokia asserted that Lenovo is “required to take a license to patents that Nokia Oy claims to own and claims are essential to practice the H.264 video compression standard” developed by the Joint Video Team.

The complaint noted that “(i)ndustry technical standards are sets of technical guidelines and protocols that enable a product produced by one manufacturer to interoperate with products produced by other manufacturers that support the same standard.” According to the complaint, the H.264 standard “‘was developed in response to the growing need for higher compression of moving pictures for various applications such as videoconferencing, digital storage media, television broadcasting, Internet streaming, and communication.’”

These industry standards are developed and released by standard setting organizations (SSOs). Accordingly, “(t)he standard is then adopted (or ‘frozen’) and published for use by product suppliers.” The plaintiff noted that after standardization, “former alternatives to perform the standardized functions are often no longer viable substitutes for those practicing the standard and thus no longer constrain royalties relating to standardized technology. As a result, a patent holder may demand royalties attributable to the inclusion of the patented technology in the standard rather than the actual value of the patented technology.”

Lenovo said since most SSOs have adopted intellectual property rights (IPR) policies to minimize the risk of exploitative patents rights being used in the standard, IPR policies “typically require participants to timely disclose any alleged standard-essential patent rights (including rights in pending patent applications) that might cover the technology that the SSO is considering for standardization.”

“By requiring members to declare any patent rights that, if adopted into the standard, might be essential to practice the standard, members can evaluate alternative technical proposals, decide not to include the proposed technology, and consider other potential implications of any patents that that might cover the various proposals,” the complaint added

Lenovo contended that in regards to the nineteen patents-in-suit, Nokia , the prior owner, failed to comply with its contractually obligated disclosure of “any rights in the allegedly essential Nokia Patents to the relevant standards-setting organization before the H.264 standard was ‘frozen’…”

Due to this failure to disclose, the plaintiff averred that Nokia breached its contract with the H.264 standards-setting organization, of which Lenovo is a third-party beneficiary. Lenovo proffered that all of the patents are unenforceable against the H.264 standard because Nokia allegedly breached the California unfair competition law, since “this repeated late disclosure was egregious” and Nokia “leveraged the allegedly standard-essential nature of the late-disclosed Nokia Patents to obtain unjust benefits.

Lenovo is represented by Wilmer Cutler Pickering Hale and Dorr LLP.