Precedential Patent Cases From the Federal Circuit in the Past Week
Fenner – Apparently applying de novo review, the panel affirms claim construction based upon intrinsic evidence, noting that the specification and the prosecution history support the district court's construction. The panel rejects arguments that this construction renders the device inoperable. In response to another argument by the patentee, that this construction renders limitations in another claim redundant, the panel notes that claim differentiation cannot enlarge the meaning beyond that supported by the specification and the prosecution history.
Soverain – In an appeal of another case, the Circuit determined the same claims found to be infringed and not invalid in the district court to be invalid, so the panel here holds that this constitutes issue preclusion, and reverses the district court judgment of infringement and validity.
United Access – When a general verdict renders it impossible to determine the basis for a noninfringement verdict, that verdict cannot serve as a basis for collateral estoppel in a subsequent action. Therefore, the panel reverses the district court's dismissal of an infringement case brought against another party based on collateral estoppel.
Helferich – Even though it granted handset manufacturers patent licenses conferring broad authority to sell handsets, a patentee did not exhaust its ability to enforce its patents against content providers who manage and deliver content to handset users.
Fenner Investments, LTD. v Cellco Partnership, Fed. Cir. Case 2013-1640 (February 12, 2015)
The '706 patent is directed to personal communication services (PCS) systems, whereby users are provided with the ability to access a communications network from diverse locations. Before the development of PCS systems, call servicing and billing were specific to a particular communications device at a fixed location. In PCS systems, telephone service can be identified independent of a telephone unit, and each user of a particular device has a personal identification number by which call servicing and billing are identified with the user, and not with a particular telephone unit.
Claim Construction Based on Intrinsic Evidence is Reviewed De Novo
The panel first notes that the ultimate question of the proper construction of patent claims and the evidence intrinsic to the patent is to be reviewed de novo. Teva Pharm. USA, Inc. v. Sandoz, Inc., 135 S. Ct. 831 (2015).The district court's determination of subsidiary facts based on extrinsic evidence is reviewed for clear error. While the panel doesn't explicitly say it is applying de novo review, that appears to be the case since the opinion refers only to the intrinsic evidence.
The district court adopted Verizon's proposed construction of the term "personal identification number," construing it to mean "a number separate from a billing code (as construed herein), identifying an individual system user, which is associated with the individual and not the device." Fenner argues that the district court erred by construing "personal identification number" as a number that is associated with the individual user and not with the device.
A. The Written Description
The specification includes block diagrams and flow charts, typified by Figure 1. Such drawings are part of the "written description" of the invention. The text of the '706 patent states: "Referring now to Fig. 1, wherein there is shown a block diagram of the present invention. . . . The personal identification numbers 2 are not associated with any particular communications unit or physical location but are associated with individual users." Verizon argues and the panel agrees that this description limits the available scope of claim 1. See, e.g., Verizon Servs. Corp. v. Vonage Holdings Corp., 503 F.3d 1295 (Fed. Cir. 2007) ("Describing the features of the 'present invention' as a whole limits the scope of the invention.").
The patent also describes a "fraud protection means" that
uses a check out protocol to determine if a personal identification number 2 is active in only one location. When a personal identification number is found to be active in two non-adjacent locations . . . the switch node attempting to check out the personal identification number is sent a fraud error message.
Verizon argues and the panel agrees that this control further demonstrates that the '706 patent is for a user-centered method in which the personal identification number is associated with a user, not a device-centered method.
B. The Prosecution History
The prosecution history bolsters the district court's construction that the term "personal identification number" is a number associated with the user, not the device. Fenner's claims had been rejected based on a Hayes patent. Fenner overcame this rejection by stressing that Hayes is a device-centered communication system, in contrast to Fenner's user-centered design. Fenner argues that these purportedly limiting statements made during prosecution do not limit the claims, arguing that the statements and the limitations discussed were not the basis for grant of the patent. However, the interested public has the right to rely on the inventor's statements made during prosecution, without attempting to decipher whether the examiner relied on them, or how much weight they were given.
Fenner argues that the district court's claim construction of "personal identification number" cannot be correct because it renders the patented invention inoperable. Fenner states that only a device (not a person) is capable of transmitting the personal identification number to a radio-frequency communication switch, and that "a human being cannot communicate with such a switch except through a compatible radio-equipped cell phone or other wireless unit." However, the district court's construction requires only that a personal identification number is not permanently associated with a specific communications unit or location. This construction is not flawed.
D. Claim Differentiation
Fenner also argues that the doctrine of claim differentiation negates the district court's construction, but the panel rejects that argument, noting that although claim differentiation is a useful analytic tool, it cannot enlarge the meaning of a claim beyond that which is supported by the patent documents, or relieve any claim of limitations imposed by the prosecution history.
Comment: The case teaches us a couple of things about patent drafting. First, make sure never to refer to "the invention" in describing the preferred embodiments. Second, even though claim differentiation was rejected here, be careful in drafting dependent claims because claim differentiation is a doctrine commonly used when the meaning of a claim term is not clear in the specification.
Soverain Software LLC v. Victoria's Secret Direct Brand Mgmt, LLC, Fed. Cir. Case 2012-1649-1650 (February 12, 2015)
Soverain is the assignee of the '314 and '492 patents. It brought an infringement action against defendants in the E. D. of Texas. On November 18, 2011, a jury determined that defendants infringed the asserted claims and that those claims were not invalid as anticipated or obvious. The district court entered judgment in favor of Soverain and defendants appealed on September 7, 2012.
On January 22, 2013, the Federal Circuit decided Newegg, also a case from the Eastern District in which Soverain alleged infringement of the '314 and '492 patents. There, the district court also had entered judgment that the asserted claims were infringed and not invalid. On appeal, the Circuit reversed, holding invalid the asserted claims of the ‘314 and ‘492 patents.
Issue Preclusion (Collateral Estoppel) Applies Due to the Newegg Judgment
Issue preclusion prohibits a party from seeking another determination of the litigated issue in the subsequent action." State Farm Mut. Auto. Ins. Co. v. LogistiCare Solutions, LLC, 751 F.3d 684 (5th Cir. 2014) The Fifth Circuit applies issue preclusion where the following four conditions are satisfied:
First, the issue under consideration in a subsequent action must be identical to the issue litigated in a prior action. Second, the issue must have been fully and vigorously litigated in the prior action. Third, the issue must have been necessary to support the judgment in the prior case. Fourth, there must be no special circumstance that would render preclusion inappropriate or unfair.
Federal Circuit law is similar. See Jet, Inc. v. Sewage Aeration Sys., 223 F.3d 1360 (Fed. Cir. 2000).
In Newegg, the Circuit held that claims 34 and 51 of the '314 patent and claim 17 of the '492 patent were obvious. Although claim 15 of the '492 patent, at issue here, was not explicitly invalidated in Newegg, the Circuit invalidated claim 41, which depends from claim 15 so the invalidity determination as to claim 41 extends to claim 15, as well. See Callaway Golf Co. v. Acushnet Co., 576 F.3d 1331, 1344 (Fed. Cir. 2009) ("A broader independent claim cannot be nonobvious where a dependent claim stemming from that independent claim is invalid for obviousness.")
The Supreme Court has held that a defense of issue preclusion applies where a party is "facing a charge of infringement of a patent that has once been declared invalid," even though the party asserting the defense was not a party to the action where the patent was invalidated. Blonder-Tongue Labs., Inc. v. Univ. of Ill. Found., 402 U.S. 313 (1971). We have similarly held that "once the claims of a patent are held invalid in a suit involving one alleged infringer, an unrelated party who is sued for infringement of those claims may reap the benefit of the invalidity decision under principles of collateral estoppel." Mendenhall v. Barber-Greene Co., 26 F.3d 1573 (Fed. Cir. 1994). It is also established that issue preclusion applies even though the precluding judgment ( Newegg) comes into existence while the case as to which preclusion is sought (this case) is on appeal.
As to the four claims listed above, Soverain agrees that issue preclusion would normally be applicable but argues that it should not apply here because Soverain has not had a full and fair opportunity to litigate the issue of obviousness. Under issue preclusion law generally and under both our law and Fifth Circuit law, a judgment of invalidity will not have a preclusive effect if a patentee can demonstrate that it did not have a full and fair opportunity to litigate the issue. Blumcraft of Pittsburgh v. Kawneer Co., 482 F.2d 542 (5th Cir. 1973); see Blonder-Tongue, 402 U.S. at 333 (a patentee "must be permitted to demonstrate, if he can, that he did not have 'a fair opportunity procedurally, substantively and evidentially to pursue his claim the first time.")
We need not here review the various grounds that are relevant to whether a party had a full and fair opportunity to litigate because most are inapplicable here. For example, the issue of incentive to litigate arises where the stakes in the first action may be so small that extensive effort is not reasonable if the risk is limited to the first action. That circumstance does not exist here. Soverain does not dispute that it was represented by distinguished counsel in that appeal and that the amount in controversy was significant.
We note that Soverain does not argue that it was deprived of crucial evidence or witnesses in the first litigation or that it would present additional evidence at a new trial. Nor is there any contention that Soverain did not have a full and fair opportunity to litigate the question of obviousness at the district court. Rather, Soverain's argument is that it did not have the incentive to fully litigate the issue of nonobviousness on appeal.
Specifically, Soverain contends that it would have raised different or additional arguments on appeal if it had known that this court might reverse the district court on invalidity rather than only granting a new trial. But Soverain does not cite any case to support the notion that a full and fair opportunity to litigate is lacking where a party might have argued differently on appeal. In Newegg, the same basic issue of obviousness was central whether the focus was on insufficiency of the evidence as a ground for JMOL or on insufficiency of the evidence as a ground for a new trial. Not surprisingly, Soverain has not identified any significant new arguments that were not in fact raised in the earlier appeal.
Soverain further argues that it did not focus on the credibility of Newegg's expert witness because Soverain was seeking to affirm JMOL of non-obviousness by relying on Newegg's expert Tittel's failure to establish that certain claim elements were prima facie present. Specifically, Soverain argues that it would have presented evidence that Tittel was discredited on cross-examination because he admitted that he did not conduct an element-by-element comparison of the claims to the prior art, apply the district court's claim construction, or review the prosecution history of the patents. But Soverain did have the incentive to raise these arguments in the Newegg appeal. The fact that Soverain had arguments which it did not make does not mean that Soverain lacked the incentive to make them.
Issue Preclusion Also Applies to Claim 39, Where the Validity Issue is Not Materially Different
The remaining question is whether issue preclusion applies to invalidate claim 39 of the '492 patent. Claim 39 depends from claim 15. Claim 15 was invalidated as obvious in Newegg. The only additional limitation in claim 39 concerns the Internet. Claim 39 recites "a hypertext statement in accordance with claim 15, wherein the network is an Internet."
Soverain argues that issue preclusion should not apply because claim 39 was not previously found obvious and does not present identical issues. But complete identity of claims is not required to satisfy the identity-of-issues requirement for claim preclusion. Ohio Willow Wood Co. v. Alps South, LLC, 735 F.3d 1333 (Fed. Cir 2013). "If the differences between the unadjudicated patent claims and adjudicated patent claims do not materially alter the question of invalidity, collateral estoppel applies." Id. at 1342. The additional limitation here—transmitting a hypertext statement over the Internet, rather than over a generic network—does not materially alter the question of the validity of claim 39.
United Access Technologies, LLC v. Centurytel Broadband Services LLC, Fed. Cir. Case 2014-1347 (February 12, 2015)
United is the owner of three patents directed to systems for using a landline telephone connection for both voice communication and data transmission. In 2002, United's predecessor in interest, Inline Connection Corporation, brought suit against EarthLink, Inc., charging EarthLink with direct infringement of various claims of the three patents. Inline's theory of the case was that EarthLink offered its customers an Internet connection service based on a broadband digital communications technology known as Asymmetrical Digital Subscriber Line ("ADSL"), and that Earthlink's ADSL service infringed the asserted patents. EarthLink's defense was that it did not infringe, for two reasons: first, the ADSL technology did not infringe the patents; and second, Earthlink's accused ADSL system did not include a "telephone device" as required by all asserted claims.
The General Verdict Was Not Clear as to the Basis for the Jury's NonInfringement Verdict
The jury in the EarthLink case returned a general verdict of non-infringement with respect to all of the asserted claims. Nothing in the verdict form or the other aspects of the record indicated what ground for decision the jury had adopted in reaching its verdict.
Inline moved for judgment as a matter of law ("JMOL"). The trial court denied the motion, holding that the jury's verdict of non-infringement was supported by the evidence. In particular, the court ruled that the jury's verdict could be upheld on either of two theories: (1) the jury could have concluded that Inline failed to carry its burden to show that the ADSL technology infringed the asserted claims, or (2) the jury could have found that EarthLink did not infringe because none of its systems included a telephone, which was a required element of each of the asserted claims.
In 2011, United, as Inline's successor, filed this action against defendants-appellees CenturyTel Broadband Services LLC, and Qwest Corporation. United charged the defendants with infringing the same claims of the three patents that had been asserted against EarthLink. CenturyTel and Qwest sought dismissal of United's claims based on collateral estoppel. Their theory was that the jury's verdict in the EarthLink case established as a matter of law that the industry standard ADSL technology did not infringe United's patents. The district court agreed with the defendants and dismissed the action on collateral estoppel grounds.
United argues on appeal that the district court misapplied the principles of collateral estoppel, as those principles are applied by the Third Circuit. The essence of United's argument is as follows: The JMOL order in the EarthLink case established only that the jury could permissibly have reached its verdict on either of two possible grounds—either that EarthLink's system did not infringe because it lacked a telephone or that the standard ADSL technology was not within the scope of the patents in suit. The EarthLink JMOL decision therefore did not establish that the jury necessarily based its verdict on a conclusion that the standard ADSL technology did not infringe United's patents. Accordingly, it was improper for the court to hold that United is collaterally estopped from litigating that issue in this case.
The Issue of Whether ADSL Infringes Was Not Actually Decided in EarthLink
A party seeking to apply the doctrine of collateral estoppel based on a prior action must show that (1) the previous determination was necessary to the decision; (2) the identical issue was previously litigated; (3) the issue was actually decided in a decision that was final, valid, and on the merits; and (4) the party being precluded from relitigating the issue was adequately represented in the previous action. In this case, we focus on the third of those requirements: whether the issue in dispute was actually decided in the prior action. We conclude that the issue in dispute—whether standard ADSL infringes the asserted claims of United's patents—was not actually decided in the EarthLink case.
To address this issue, we must consider the principles of collateral estoppel that apply in the context of a general jury verdict. It is well established that a general jury verdict can give rise to collateral estoppel only if it is clear that the jury necessarily decided a particular issue in the course of reaching its verdict. When there are several possible grounds on which a jury could have based its general verdict and the record does not make clear which ground the jury relied on, collateral estoppel does not attach to any of the possible theories. When a court seeks to determine what issues were necessarily decided by the jury, the party asserting preclusion bears the burden of showing with clarity and certainty what was determined by the prior judgment.
In its 1876 decision in Russell v. Place, 94 U.S. 606 (1876), the Supreme Court dealt with a case roughly analogous to this one and set out the principles that govern our decision in this case. In Russell, a patentee obtained a jury verdict for patent infringement, upon which judgment was entered. The verdict was obtained over a defense of patent invalidity. The patentee later filed a second action on the same patent against the same defendant and sought to invoke the judgment in the first case to estop the defendant from asserting patent invalidity in the second case. The Supreme Court held that collateral estoppel was not available, because of uncertainty as to the scope of the verdict in the first case.
The district court in this case found that the jury could have based its verdict in the EarthLink case on one of two separate grounds—either that EarthLink did not use a telephone in its system or that the standard ADSL technology itself did not infringe. Normally, the court's finding that the verdict could have been based on alternative grounds would be sufficient to render collateral estoppel unavailable. The court, however, ruled that collateral estoppel was available to the defendants because the trial court in the EarthLink case had held, in response to the plaintiffs JMOL motion, that the jury's verdict could be sustained on either of the two theories of noninfringement that were presented to it. The defendants argued to the district court, and continue to argue here, that under Third Circuit law, if there are alternative grounds for a decision, collateral estoppel can apply to both of them. The defendants principally rely on the holding in Jean Alexander Cosmetics, Inc. v. L'Oreal USA, Inc., 458 F.3d 244 (3d Cir. 2006), for that proposition.
The problem with the defendants' argument is that it is based on a principle that applies to a situation very different from the one at issue here. The Jean Alexander case involved a decision by an adjudicator in the first case that was explicitly based on two alternative grounds. That means that the adjudicator actually considered both grounds and regarded each as independently sufficient to justify the conclusion reached. The defendants' argument that a ruling as to the sufficiency of the evidence on multiple grounds provides a basis for invoking collateral estoppel on each of those grounds is squarely contrary to the reasoning of one of the Supreme Court's leading decisions on collateral estoppel, Ashe v. Swenson, 397 U.S. 436 (1970). In Ashe, the Court explained that in determining the collateral estoppel effect, if any, of a general jury verdict, the court must decide "whether a rational jury could have grounded its verdict upon an issue other than that which the defendant seeks to foreclose from consideration." The Court held that if the jury could have based its verdict on a ground other than the one in dispute, collateral estoppel would not bar litigation of the disputed issue. That is exactly the situation in this case.
Comment: As demonstrated in Soverain, collateral estoppel is a powerful defense that does not even need to be reciprocal. However, United Access shows us that the courts, including the Federal Circuit, require that all of the requirements of collateral estoppel be clearly present.
Helferich Patent Licensing, LLC v. New York Times Co., Fed. Cir. Case 2014-1196-1200
(February 10, 2015)
The patents in suit include system and method claims for storing and updating information and sending it to wireless devices like mobile-phone handsets (and include "handset" and "content" claims). Helferich licensed its portfolio to manufacturers of handsets but the licenses distinguish the conduct of content providers, noting that they are not granted rights to practice the claimed methods.
The panel considers whether the district court correctly held that Helferich's infringement claims are barred due to patent exhaustion because they necessarily involve the use of already-licensed handsets. The premise of defendants' exhaustion defense is that all handsets are licensed and that the asserted claims contemplate a use of handsets by handset owners/possessors and content providers.
The Exhaustion Doctrine Does Not Extend to Complementary Inventions
This situation involves an inventor coming up with two inventions presumed to be separately patentable, one invention to be practiced by one group of users, the other invention by another group, where each invention tends to make the other more useful than when separately practiced. Defendants rely on the reciprocal enhancement of utility to argue that the patentee's licensing of the first group terminates the patentee's rights against the second group for practicing the second invention, when practicing the second invention contemplates the first group's use of a product made under the license (even if not actually embodying the first invention). The panel holds that the exhaustion doctrine's lifting of patent law restrictions on a licensed product has never been applied to terminate patent rights in such complementary activities or goods in these circumstances.
Exhaustion Only Applies if the Allegations of Infringement Entail Infringement of the Asserted Claims by Authorized Acquirers
Exhaustion protects an authorized acquirer's freedom from the legal restrictions imposed by the patent statute. Once there has been an authorized sale of a patented item, that sale confers on the purchaser, or any subsequent owner, the right to use or sell the thing as he sees fit. Bowman v. Monsanto Co., 133 S. Ct. 1761 (2013). Exhaustion has never applied unless, at a minimum, the patentee's allegations of direct or indirect infringement entail infringement of the asserted claims by authorized acquirers, either because they are parties accused of infringement or because they are the ones allegedly committing the direct infringement required by the indirect infringement charged against other parties. For instance, in LifeScan Scot., Ltd. v. Shasta Techs., LLC, 734 F.3d 1361 (Fed. Cir. 2013), the patentee rested its allegation of indirect infringement by a manufacturer of disposable test strips used in patented blood-glucose meters on the assertion that use of such strips with such meters would cause direct infringement by the authorized acquirers of the meters. Similarly, in Keurig, Inc. v. Sturm Foods, Inc., 732 F.3d 1370 (Fed. Cir. 2013), the patentee rested its allegation of indirect infringement by the seller of coffee pods for use with a patented coffee brewer on the assertion that the use would cause direct infringement by the authorized acquirers of the brewers.
Neither LifeScan nor Keurig departed from the pattern of finding exhaustion only where the patentee's assertion of infringement was based on an authorized acquirer's use of the same invention by infringing the asserted claims. In contrast to Keurig, the present case involves no assertion that the defendants are inducing or contributing to authorized acquirers' infringement of the claims asserted against defendants.
Exhaustion Does Not Extend to Distinct but Related Inventions
The panel also finds that extending exhaustion in the present case would run counter to the pronouncement of the Supreme Court dictum in Morgan Envelope Co. v. Albany Perforated Wrapping Paper Co., 152 U.S. 425 (1894). In Morgan, the Court indicated the exhaustion doctrine would not apply where the alleged infringement involved distinct, though related, validly patented inventions. The Court distinguished a circumstance in which the patent owner sold to purchasers two distinct, separately patentable inventions, even when they are designed to be used together, and indicated that, even though an authorized buyer of product X was free of the patent owner's patent on that product, the buyer could not, by virtue of his purchase, prevent the patent owner from enforcing his patent as to product Y, even though Y was specifically designed to be used with X and, at a minimum, made X more useful than it otherwise would be and, indeed, was essential to X's utility.
Under this principle, exhaustion is inapplicable even when it is the owner of product X that would also be using product Y. In the present case, the panel found that it is not even the owner of X but someone else who is using Y, to the indirect benefit of X's owner.
Declining to Extend Exhaustion to the Content Claims Does Not Render the Handset Claims Worthless
The panel rejects defendants' argument that the inventions of the asserted content claims have no reasonable use other than one involving someone's practicing of the handset claims, because it is not necessarily true that the asserted content claims call on use of the inventive features of the handset claims: at most an ordinary handset is required. The panel finds that the handset claims have a substantial, reasonable, intended use other than one that plays a role in content providers' infringement of the asserted content claims. Handset users can take advantage of the distinct handset inventions without content providers' practicing the asserted content claims, including by using features like airplane mode and by receiving from one person information for obtaining content at the website of another (not under the former's control). Even more fundamentally, there is evident value in obtaining a product (and permission to use it) — for example, a network product like the walkie-talkie — whose value depends on other people obtaining complementary products, even when the latter must themselves obtain a patent license. Thus, to the extent the handset inventions increase in value with the prevalence of content providers' practicing the asserted content claims, handset makers and users, in paying to make and acquire the handsets, obtain benefits that increase over time as Helferich licenses ever more content providers.
The Panel Reverses the District Court's Expansion of the Exhaustion Doctrine
After scrutinizing defendants' argument that the content and handset claims are distinguished only by "semantics," or "artful drafting," and examining all suggested statutorily and doctrinally grounded approaches to defining legal identity of substance, the panel does not find that the two groups of claims can be collapsed into one. The panel sees no sound basis for expanding the exhaustion doctrine to hold that authorized sales to persons practicing the handset claims exhaust the patentee's rights to enforce the asserted content claims against different persons and entities.
- Alexandra BodnarAssociate
- Peter HeuserShareholder