Tuesday, October 30, 2007

$156M Verdict Set Aside Against AT&T in the ED Tex.

TGIP v. AT&T (E.D. Tex.) - October 29, 2007

Well, the good news just keeps coming for defendants out of the E.D. Texas. Earlier, the jury found that TGIP's pre-paid calling card patents were not obvious, and that AT&T willfully infringed them, literally, and under the doctrine of equivalents. As recompense, the jury ordered AT&T to pay $156 million dollars - which was the largest patent verdict ever in the E.D. Texas.

AT&T filed a JMOL on the issues of infringement, invalidity, laches, and equitable estoppel. Judge Clark denied JMOL on the issues of invalidity, laches and equitable estoppel, but granted JMOL to AT&T, finding that AT&T could not infringe TGIP's patents.

On the issue of infringement, AT&T argued that

a. The claims teach that the call authorization amount of a card or account is not linked to a security number until the card or account is activated, whereas the call authorization amount in the accused system and method (“the AT&T System”) is linked with the security number before activation;

b. TGIP failed to prove infringement of the ‘114 patent because AT&T uses two different numbers for activation of cards and for making calls, while the claims specify a single number; and

c. TGIP’s claims rest on a theory of joint infringement that cannot be sustained from
the record.

Judge Clark reviewed the functionality of the AT&T System, and found that the evidence in the case could not support the jury verdict:

TGIP argues that the sequence of checks or the updates that take place in the CARDINFO and PINMOD database tables in the AT&T System means that the data terminal does not automatically let the host computer “know” that the card has been activated. However, even if the host computer declines to activate a card because it fails to pass the check, i.e. the card is expired, it is still true that each card’s denomination or call authorization amount is already stored in the database. This evidence only shows that the card can be checked against a denomination stored in the database as a security measure during activation because the amount is already pre-linked to the card’s security number in the database before activation. Similarly, simply copying the call authorization amount to the PINMOD table in the database does not prove infringement because the card’s denomination is already stored in the CARDINFO table of the database. In short, each card’s denomination or call authorization amount has already been generated, printed and stored in the CARDINFO table regardless of whether it can later be modified or copied.

TGIP consistently emphasized that AT&T’s cards allow minutes to be added after the card is activated as a “recharge” function . . . Recharging a card is a separate process that occurs after activation, and cannot be substituted for activation. The fact that the accused card may read on the recharge limitation of a claim does not mean that it reads on every limitation of that claim.

Interestingly, Judge Clark denied AT&T's JMOL on the theory of joint infringement, finding that TGIP provided sufficient evidence showing that AT&T “controlled or directed” the work that third-parties provided for AT&T to perform activation processes, and that AT&T provided specifications to each of its retailers directing the retailers on the processes for sending an activation message to AT&T.

On the issue of willfulness, Judge Clark pointed out that, under the Seagate standard, AT&T did not act in an "objectively unreasonable" manner:

Even though AT&T ultimately did not prove its invalidity defense by clear and convincing evidence, its position was hardly objectively unreasonable. The patentee was concerned enough to ask for reexamination of the ‘768 patent, and to delay taking action on the ‘114 patent for six years. In fact, the USPTO did require changes to the ‘768 patent.

Likewise, it cannot be said there is clear and convincing evidence that it was known or obvious that there was an objectively high likelihood that AT&T’s non-infringement position was incorrect. Even if the jury’s finding of infringement is ultimately upheld, it was, at best, a very close question. Reasonable persons, properly instructed and exercising impartial judgement, could not find by clear and convincing evidence that AT&T acted in the face of an unjustifiably high risk of harm that was either known, or so obvious that it should have been known.
In another interesting sidenote, Judge Clark picked up on the KSR language that stated the TSM test may be "helpful" and stated that the lack of evidence linking the prior art precluded JMOL on obviousness:

The court notes that the presentation of invalidity evidence at trial was, at best, confusing. Conclusory statements by experts are not “uncontradicted evidence” which the jury must accept. There was no lucid explanation as to how one of ordinary skill would combine the three references, nor what parts of each would make up the proper combination. It was not clear whether all three references would be needed, or if any two could be combined. There seemed to be little attempt to set out what structures or parts of systems, known in the prior art, were substituted for others known in the field to achieve a predictable result. While KSR no longer mandates evidence of a motivation or suggestion to combine prior art references, it could still be helpful to a jury (and the judge) to have an expert explain why the references would be combined, or why it was obvious to do so.
View the ruling here (link).

Michael Smith at the EDTexWebLog provides some additional commentary on the plaintiff win rate at the E.D. Tex.:
Overall win rate since 1999 drops from 70% to 67%; Jury win rate drops from 73% to 69%. The 2007 win rate drops from 42% to 28% (now 2 out of seven), and the win rate for 2006 and 2007 combined drops from 57% to 50%. Again, the best national win rate at trial number I've been able to come up with is 59.2%, so the Eastern District is currently running at half that, and has been under the national win rate for two years now. Its overall jury verdict win rate over the past eight years - even with a string of 18 straight wins from 2001 to mid-2006 - is only two percent above the national average of 67%.

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