W.D. Wisconsin - Disclosure in Specification Limits Claim Term, Vitiating Infringement

Netcraft Corp. v. eBay, Inc. (3:07-cv:00254-bbc), December 10, 2007

Netcraft Corporation owns several patents related to internet billing methods. It argued that Ebay, Inc. and PayPal, Inc. are infringing its patents by providing a third party payment system to customers wishing to make secure purchases over the Internet.

Defendants moved for summary judgment, arguing that the phrase “providing a communications link through equipment of a third party” recited in in the patents imposes a limitation that a third party, such as a company like defendants, must provide internet access to the customer. It was conceded by plaintiffs that defendants do not provide their customers with access to the Internet.

The question in dispute was whether “providing a communications link through equipment of the third party” means providing Internet access to the customer. Defendants say it does; plaintiff says the phrase is not so limited.

The court noted that the claim itself does not define “communications link” the way defendants propose, and that the lay understanding of “communications link” is much broader than “internet access.” However, relying on the CAFC's Phillips decision, Judge Crabb noted that "courts cannot look at the claims in isolation or at just the lay understanding of them, but must consider the patent as a whole."

Turning to the patents,

The phrase “communications link” is never used in the specification, which is the same in both asserted patents, but the specification makes it unmistakably clear that the invention requires that the third party provide internet access to the customer. Because the phrase “communications link” is the only part of the claim that could incorporate this requirement, I construe “providing a communications link” to mean “providing customers access to the internet.”

The first two sentences of the abstract support this construction: “An Internet billing method comprises establishing an agreement between an Internet access provider and a customer . . . The provider creates access to the Internet for the customer.” Thus, the abstract is unambiguous: the third party intermediary is “an Internet access provider” and that provider does in fact connect the customer to the internet.

[T]he same understanding of the invention is repeated throughout the Summary of the Invention as well. In describing the invention, the patent states that “a provider establishes an agreement with a customer,” and even more explicitly that “the provider creates access to the Internet for the customer through the provider’s equipment." In countless instances, the specification refers to the third party as the “provider,” which plaintiff conceded at the claim construction hearing means “internet access provider.”

Interestingly, the plaintiff argued that the dependent claims explicitly recited an “Internet access provider," and that the independent claim would be "meaningless" under the proposed construction under the doctrine of claim differentiation. Nevertheless, the court remained unconvinced:

Plaintiff’s argument has some surface appeal, but I agree with defendants that a reasonable reading of claim 6 is that it simply lists examples of entities that may provide customers with access to the internet. Thus, in claim 6, “Internet access provider” means a company like America On-Line, “whose only business is to offer connection to the Internet,” the other examples, such as “a cable television company,” are entities that may offer internet access as an additional service.

This reading is supported by the specification, which contemplates in multiple locations the possibility that a cable television company or telephone company will provide the customer with internet access. E.g., ‘739 pat., col. 1, lns. 29-30 (“[T]elephone companies and cable television companies have announced plans to provide Internet access.”); id. at col. 2, lns. 64-65 (access to internet may be provided by “cable television companies” or “telephone companies”). In any event, plaintiff’s reliance on a presumption of claim differentiation cannot overcome the plain language of the patents.

Also of interest was the fact that the court made the construction without relying on the prosecution history:

Both sides advance arguments supporting their view of how the prosecution history informs the meaning of “communications link,” but it is unnecessary to consider those arguments when the patent itself is clear. Phillips, 415 F.3d at 1317 (“[B]ecause the prosecution history represents an ongoing negotiation between the PTO and the applicant, rather than the final product of that negotiation, it often lacks the clarity of the specification and thus is less useful for claim construction purposes.”)

View/download the opinion here (link)

MercExchange v. eBay Remand - Injunction Denied, Partial Stay Granted

MercExchange v. eBay, (E.D. Va.), July 27, 2007, case no. 02:01cv736

In the remanded case, the district court considered MercExchange's motion for a permanent injunction, and eBay's motion for a stay, pending the outcome of the reexamination.

Judge Friedman first considered the motion stay the proceedings, given that the '051 and '265 patents were initially rejected by the USPTO. After reviewing the facts surrounding each patent, the court granted a stay for the '051 patent, but denied the '265 patent, due to "vastly differing procedural postures":

[T]he court has considered the timing of eBay’s request for reexamination; namely, that reexamination was sought by eBay after the jury reached a verdict on the ’265 patent in favor of MercExchange. Thus, even in light of the non-final PTO actions indicating that all claims of the ’265 patent are invalid as obvious, the court is not inclined to stay the post-trial proceedings as doing so would create the incentive for adjudicated infringers to seek to circumvent an otherwise enforceable jury verdict by utilizing an alternate forum.

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[U]nlike the advanced stage of the litigation involving the ’265 patent, the ’051 patent never reached the jury as prior to the 2003 infringement trial on the ’265 and ’176 patents, the court granted summary judgment in favor of eBay on the ’051 patent, finding such patent unenforceable for failing to provide an adequate written description. This court’s grant of summary judgment was thereafter reversed by the Federal Circuit, but as five years have passed since discovery was conducted on such dispute, it does not appear that the parties are presently prepared for trial. Likewise, the fact that a large portion of the trial evidence will involve experts further indicates that both plaintiff and defendants will need to expend significant additional time and resources to prepare for trial.

Regarding the permanent injunction, the court found that MercExchange failed to satisfy most of the SCOTUS 4-prong test:

Irreparable Harm:

The court found it significant that MercExchange entered licensing negotiations with multiple parties, including UBid.com, during and after the litigation with eBay. Because the evidence showed that MercExchange was primarily interested in money, the court ruled against it in this regard. Interestingly the court also also distinguished between patentees that used their inventions as a "sword" versus those that use them as a "shield":

This court recognizes and concurs with such utility and further recognizes that a patent holder’s decision to establish a licensing program does not negate the possibility that such patent holder will suffer damage to its goodwill, reputation, research and development opportunities, or ability to bring a unique product to market. However, the majority of the utility achieved by such licensing programs results from the fact that patent holders are still seeking to develop their patent, they are just opting to do so in partnership with others. In contrast, here, MercExchange’s modus operandi appears to be to seek out companies that are already market participants that are infringing, or potentially infringing, on
MercExchange’s patents and negotiate to maximize the value of a license, entered into as a settlement to, or avoidance of, litigation. Such consistent course of litigating or threatening litigation to obtain money damages by a company of two employees,
the inventor of the patents a former patent attorney, indicates that MercExchange has utilized its patents as a sword to extract money rather than as a shield to protect its right to exclude or its market-share, reputation, goodwill, or name recognition, as MercExchange appears to possess none of these.

Adequate Remedy at Law:

Again, since MercExchange was "only in it for the money," so to speak, the court found this factor weighed against Mercexchange.

Although the court recognizes that MercExchange has every right to utilize its patents in such manner, such behavior suggests that an injunction against eBay may also be used to obtain similar ends. Utilization of a ruling in equity as a bargaining chip suggests both that such party never deserved a ruling in equity and that money is all that such party truly seeks, rendering monetary damages an adequate remedy in the first instance.

Balance of the Hardships:

Recognizing that forced royalties are an "imperfect solution," the court found that royalties were nevertheless the best option. Noting that this factor "favors neither party," the court stated that too much uncertainty lingered over the validity of the patents, especially in light of KSR. If the patents are found to be ultimately invalid, the "equitable calculus" would change.

The Public Interest:

On this prong, the court noted that it "weighs slightly against entry of an injunction." Being careful not to issue any categorical rules, the court considered the type of patent involved, the impact on the market, the impact on the patent system, and any other factor that may impact the public at large.

When considering the type of patent involved, the court ran with Justice Kennedy's concurring eBay opinion and KSR to disparage business method patents:

[T]he ’265 patent is a business method patent that appears to rely upon combining non-unique elements into a unique combination. The questionable nature of many business method patents has both forced the PTO to implement a second level review policy . . . See eBay, 126 S. Ct. at 1842 (Kennedy, J., concurring) (recognizing that the “potential vagueness and suspect validity of some [business method patents] may affect the calculus under the four-factor test”). Furthermore, the validity of patents constituting nothing more than a combination of elements depicted in prior art producing a predictable result was recently called into question by a unanimous Supreme Court in KSR, 127 S. Ct. at 1739. Here, although the ’265 patent is presently valid and enforceable, the court must recognize that such patent never underwent a “second look” review by the PTO and that interim findings from the PTO during reexamination have twice indicated that every claim in the ’265 patent is invalid as obvious. Although this court does not ground its opinion in
speculation regarding the final outcome of such reexamination, it would be futile to attempt to craft forward looking equitable relief without considering foreseeable future events.

Also, in a footnote, the court looked at the use of litigation financing companies (Altitude Capital), and noted that money used for funding litigation, instead of development of the patents, weighed against injunctive relief:

Altitude Capital invested such funds to purchase an interest in MercExchange’s litigation recovery. Specifically, $4 million of such investment was distributed to MercExchange’s three members, and a large portion of the remainder was used to fund litigation or set aside as a reserve to pay MercExchange’s two employees salaries of $240,000 a year; little appears to have been devoted to developing the patents. Although the court accepts MercExchange’s sensible explanation that such investment, although substantial, was insufficient to enter the market as a freestanding competitor to eBay, it nevertheless appears to represent a bypassed opportunity to attempt to develop MercExchange’s patents.

View the opinion here (link)

Post-Ebay Decision in D. Del.: Plaintiff Must Show Why Monetary Damages Aren't Enough

Praxair Inc. v. ATMI Inc. (03-1158) District of Delaware, March 27, 2007

After Praxair successfully sued ATMI for patent infringement, Praxair moved for a permanent injunction on ATMI's infringing gas cylinder device. The two companies were in "direct and head-to-head competition" and are the two main mechanical-based systems for the controlled delivery of industrial gases on the market. Praxair argued that this relationship, and ATMI's sale of the infringing product, entitled Praxair to an injunction.

ATMI countered that an injunction would force customers to incur significant costs by shutting down operations to qualify an alternative gas source or to switch to alternate cylinders. While ATMI retained title to most of its cylinders, the customers own the gas stored in the cylinders.

After reviewing the eBay four-factor test, the district court ruled that Praxair has not provided sufficient evidence showing irreparable injury and the inadequacy of legal remedies:

Under eBay, a plaintiff must prove that it is entitled to its statutory right to exclude by demonstrating, inter alia, irreparable injury and the inadequacy of legal remedies. Though the quantum of evidence required is relatively unclear, the court finds that Praxair has not met its burden under eBav to put forward sufficient proof vis-a-vis the broad scope of the relief requested. Praxair generally argues that VAC's presence in the market will cause Praxair to "likely lose additional market share, profits, and goodwill," without further detail. Praxair has not provided or described any specific sales or market data to assist the court, nor has it identified precisely what market share, revenues, and customers Praxair has lost to ATMI . . . While money damages are generally considered inadequate to compensate for the violation of a patentee's right to exclude, Praxair nonetheless had a burden to iterate specific reasons why ATMl's infringement can not be compensated for with a money award.

The court stated that Praxair may renew its motion for injunctive relief following appellate review of the jury verdict.

Download opinion here

Hat Tip: Delaware IP Law Blog

What Hath the SCOTUS Wrought? Willful Infringement In a Post-Ebay World

In the case of Paice LLC v. Toyota Motor Corporation, the E.D. Texas found that Toyota infringed Paice's patent. Since Ebay, permanent injunctions are no longer granted as a matter of course, and the district courts must use the four-factor test to determine a proper equitable remedy.

In Paice, the district court decided that, since Paice did not produce products that competed with Toyota, an injunction was not an appropriate remedy. Instead, the court ordered that each future sale of a subject vehicle by Toyota would require a $25 per vehicle royalty to Paice. This number was based off of a reasonable royalty that the jury determined would have been agreed upon by the parties in a hypothetical negotiation at a time just prior to first infringement.

The problem here is that the Ebay court provided no guidance on what types of remedies are appropriate for the court to consider, and how the remedies are applied.

According to Paice, the reasonable royalty may have been acceptable for "regular" infringement, but it is not appropriate for ongoing, post-verdict, infringement. Since the district court's royalty is tantamount to a compulsory license, Paice argues that such a remedy is contrary to judicial precedence and 35 U.S.C. § 283. Also, Paice argues that since a compulsory license relates to damages, Paice is entitled to a jury trial under the 7th Amendment to determine the appropriate number for future damages:

Toyota erroneously asserts that once Paice made a request for equitable relief, the district court was free to fashion any remedy it chooses, including entry of a compulsory license for future infringement . . . If this position were correct, there would be no limitation on the remedies available because virtually all patent cases include a request for some equitable remedy. The right to a damages trial before a jury would not exist, and yet the law is clear that the Seventh Amendment requires that a district court submit damages to a jury.

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Toyota's argument assumes that Paice is only entitled to the same reasonable royalty rate the jury calculated for past damages. That amount is what the jury found a willing licensor and willing licensee would have agreed upon in a hypothetical negotiation from the time infringement began to trial . . . It cannot, and should not, be used for calculating a future royalty rate in a prospective compulsory license. This standard fails to take into account the potential for future lost profits, loss of potential value in granting an exclusive license, and the ongoing willful infringement that would occur by Toyota. Though an injunction has not been entered, Toyota's decision to commit ongoing willful infringement of a valid United States patent, because it is so essential to the success of its product, should be considered in setting a royalty rate. A district court may find that it should not permanently enjoin an adjudged infringer from selling infringing goods. However, the infringer should still have to account for its choice to continue willfully infringing if it chooses to do so.

In response, Toyota argues that the license was appropriate under section 283, which authorizes courts to award patentees prospective injunctive relief "in accordance with the principles of equity . . ., on such terms as the court deems reasonable." Since the equitable jurisdiction of the court was properly invoked for injunctive purposes, "[t]he court has the power to decide all relevant matters in dispute and to award complete relief even though the decree includes that which might be conferred by a court of law [i.e., monetary damages]."

Because the prospective damages were awarded as part of the equitable jurisdiction of the court, Toyota argues that Paice is not entitled to a jury trial.

Oral Arguments are scheduled for May 7, 2007 (2006-1610)

See Paice's Brief here.

See Toyota's Brief here.