PTAB’s sua sponte claim construction without adequate notice and opportunity to respond violates patent owner’s procedural rights under APA
Fumika Ogawa | August 26, 2021
Qualcomm Inc. v. Intel Co.
Decided on July 27, 2021
Moore, Reyna, and Stoll. Opinion by Moore.
Summary
The Federal Circuit vacated and remanded inter partes review (IPR) final written decisions from the Patent Trial and Appeal Board, holding that the Board violated the patent owner’s rights to notice and opportunity under Administrative Procedure Act (APA) to respond to the Board’s sua sponte construction of an undisputed claim term.
Details
The appeal stems from six IPR proceedings before the Board where Intel challenged certain claims of U.S. Patent No. 9,608,675 (“the ‘675 Patent”) owned by Qualcomm.
The ‘675 patent relates to power tracking for generating a power supply voltage for a circuit that processes multiple transmit signals sent simultaneously. One of various claim terms at issue in the IPR is “plurality of carrier aggregated transmit signals,” which appears in representative claim 1, among other challenged claims:
1. An apparatus comprising:
a power tracker configured to determine a single power tracking signal based on a plurality of inphase (I) and quadrature (Q) components of a plurality of carrier aggregated transmit signals being sent simultaneously, wherein the power tracker receives the plurality of I and Q components corresponding to the plurality of carrier aggregated transmit signals and generates the single power tracking signal based on a combination of the plurality of I and Q components, wherein the plurality of carrier aggregated transmit signals comprise Orthogonal Frequency Division Multiplexing (OFDM) or Single Carrier Frequency Division Multiple Access (SC-FDMA) signals;
a power supply generator configured to generate a single power supply voltage based on the single power tracking signal; and
a power amplifier configured to receive the single power supply voltage and the plurality of carrier aggregated transmit signals being sent simultaneously to produce a single output radio frequency (RF) signal.
(Emphasis added.)
Intel’s proposed interpretation of the term was:
“signals for transmission on multiple carriers at the same time to increase the bandwidth for a user.”
Qualcomm’s version was:
“signals from a single terminal utilizing multiple component carriers which provide extended transmission bandwidth for a user transmission from the single terminal.”
The increased bandwidth requirement, included in both parties’ interpretations despite a slight difference in wording, is not explicitly recited in the patent claims although the specification indicates that the invention may enable increased bandwidth among other advantages. Unlike other parts of claim interpretations, the requirement was not extensively discussed over the course of an oral hearing held after the briefing. The parties appeared to have agreed upon this issue.
The Board found that all the challenged claims were unpatentable in its final written decisions, construing the term to simply mean “signals for transmission on multiple carriers.” Without the increased bandwidth requirement, the broader scope of the claim term was found obvious over the asserted prior art. Qualcomm appealed, arguing that the Board’s construction of the claim term was made without notice or opportunity to respond.[1]
On appeal, the Federal Circuit found that the Board violated Qualcomm’s rights to notice and a fair opportunity to be heard mandated by due process and the APA. The relevant APA provisions require that the PTO in an IPR proceeding:
- timely inform the patent owner of the matters of fact and law asserted;
- provide all interested parties opportunity for the submission and consideration of facts and arguments and hearing and decision on notice; and
- allow a party to submit rebuttal evidence as may be required for a full and true disclosure of the facts.
(Alterations and citation omitted.)
The Federal Circuit distinguished cases where the Board adopted its own claim construction as to a disputed term. Because the inclusion of the increased bandwidth requirement was not disputed, the present case is governed by SAS Institute, Inc. v. ComplementSoft, LLC, where the Federal Circuit set aside the Board’s final decision deviating from its previously adopted, agreed-upon claim construction for want of a notice and opportunity to respond, because neither party could possibly have imagined that undisputed claim terms were actually “moving targets,” such that the parties had no reason to set forth alternative arguments as to hypothetical constructions not asserted by their opponent.
Intel’s counterarguments were: (1) Qualcomm did not show prejudice; (2) the oral hearing provided Qualcomm notice and an opportunity to respond; and (3) Qualcomm had an option to move for rehearing which would be an adequate opportunity to respond. The Federal Circuit rejected all of them, finding:
(1) Qualcomm was prejudiced.
Qualcomm consistently argued throughout the proceeding that the increased bandwidth requirement was missing in the prior art. Removal of that requirement from the claim construction released Intel from its burden of proof. Also, without notice of the Board’s omission of the requirement in reaching the final decision, Qualcomm was deprived of the opportunity to provide further brief or evidence in support of its claim interpretation.
(2) The oral hearing did not provide Qualcomm notice and opportunity to respond.
During the oral hearing, the increased bandwidth requirement was only mentioned in a single question directed to Intel, whereas Qualcomm was never asked about the requirement. No announcement of the Board’s construction or criticism of the parties’ agreed-upon requirement was presented. Further, the requirement was not included in a sua sponte order made after the hearing, where the Board requested additional briefing on a completely separate claim term.
(3) Qualcomm does not need to seek rehearing before appealing the Board’s decision lacking a requisite notice and opportunity to respond.
The general principle is that a party has the right to appeal a final written decision in an IPR without first requesting a rehearing before the Board. Moreover, an exhaustion requirement should not be imposed where finality of the agency action, such as the final written decision, already exists under the APA. As such, even though rehearing would allow for a more efficient use of judicial resources, it is not a requirement before appealing the final written decision.
Takeaway
- In an IPR, the Board may sua sponte enter its own construction of an undisputed claim term different from those agreed upon by the litigating parties if they are afforded a fair notice and opportunity to respond.
- A litigant in an IPR should be cautious of a potential “moving target” even if there has been an agreement on claim construction with an opposing party.
- Why did Intel not dispute the increased bandwidth requirement in the IPR? Before the IPR institution, the parties had been litigating the same patent in other venues, including an International Trade Commission (“ITC”) investigation. Intel’s version of the claim interpretation in the IPR is actually the same construction which Qualcomm had offered and the ALJ had adopted in the ITC investigation. Intel once asserted the ITC interpretation as “overbroad” under Phillips but nevertheless chose to prove the claim invalidity under broadest reasonable interpretation (applied in the IPR where the petition was filed before the changes to the claim construction standard). The increased bandwidth requirement also appeared in extrinsic evidence cited by Intel. The parallel litigation situation apparently led to the parties’ agreement on the narrower claim interpretation.
[1] Qualcomm also challenged, and the Federal Circuit affirmed, the Board’s construction of a means-plus-function claim term, which is not discussed in this report.
Tags: Administrative Procedure Act > Notice and Opportunity to Respond > PTAB's sua sponte claim construction
Anything Under §101 Can be Patent Ineligible Subject Matter
Miki Motohashi | August 16, 2021
Yanbin Yu, Zhongxuan Zhang v. Apple Inc., Fed. Cir. 2020-1760Yanbin Yu, Zhongxuan Zhang v. Samsung Electronics Co., Ltd., Samsung Electronics America, Inc., Fed. Cir. 2020-1803
Decided on June 11, 2021
Before Newman, Prost, and Taranto (Opinion by Prost, Dissenting opinion by Newman)
Summary
Yu had ’289 patent which is titled “Digital Cameras Using Multiple Sensors with Multiple Lenses” and sued Apple and Samsung at District Court for infringement. The District Court found that the ’289 patent is directed towards an abstract idea and does not include an inventive concept. The District Court held the patent was invalid under §101 and granted the defendant’s motion to dismiss. Yu appealed to the CAFC. The majority panel affirmed the District Court’s decision. However, Judge Newman dissented and wrote that the disputed patent is directed towards a mechanical and electronic device and not an abstract idea. The Judge also pointed out that neither the majority panel nor the District Court decided patentability under §102 or 103.
Details
Background
According to Yu, early digital camera technologies were starting to flourish in the 1990s. However, before the ’289 patent, “the technological limitations of then-existing image sensors—used as the capture mechanism—caused digital cameras to produce lower quality images compared with those produced by traditional film cameras.” The’289 patent was applied in 1999 and issued in 2003. Yu believed that “the ’289 patent solved the technological problems associated with prior digital cameras by providing an improved digital camera having multiple image sensors and multiple lenses.[1]” Yu also explained that “all dual-lens cameras on the market today use the techniques claimed in the ’289 Patent[2]” and therefore, sued Apple and Samsung (“the Defendants”) for infringement of claims 1, 2, and 4 of the ’289 patent in October 2018 (before the ’289 patent expires in 2019). In response, the Defendants filed a Rule 12(b)(6) motion to dismiss, asserting that the claims are directed towards an abstract idea under §101.
Claim 1 of the ’289 patent
1. An improved digital camera comprising:
a first and a second image sensor closely positioned with respect to a common plane, said second image sensor sensitive to a full region of visible color spectrum;
two lenses, each being mounted in front of one of said two image sensors;
said first image sensor producing a first image and said second image sensor producing a second image;
an analog-to-digital converting circuitry coupled to said first and said second image sensor and digitizing said first and said second intensity images to produce correspondingly a first digital image and a second digital image;
an image memory, coupled to said analog-to-digital converting circuitry, for storing said first digital image and said second digital image; and
a digital image processor, coupled to said image memory and receiving said first digital image and said second digital image, producing a resultant digital image from said first digital image enhanced with said second digital image.
The District Court held that the ’289 patent was directed to “the abstract idea of taking two pictures and using those pictures to enhance each other in some way” and “the asserted claims lack an inventive concept, noting “the complete absence of any facts showing that the claimed elements were not well-known, routine, and conventional.” Therefore, the District Court concluded that the ’289 patent was directed to an ineligible subject matter and entered judgment for Defendants. Yu appealed to the CAFC.
Majority Opinion
At the CAFC, as we have seen in the various other §101 precedents, the panel applied the two-step Mayo/Alice framework.
Step 1: “Whether a patent claim is directed to an unpatentable law of nature, natural phenomenon, or abstract idea. Alice, 573 U.S. at 217.”
Step 2: If Step 1 is Yes, “Whether the claim nonetheless includes an “inventive concept” sufficient to “‘transform the nature of the claim’ into a patent-eligible application. Id.”
(If Step 2’s answer is No, the invention is not a patent-eligible subject matter.)
In the majority opinion filed by Judge Prost, as to Step 1, the court applied the approach to the Step 1 inquiry “by asking what the patent asserts to be the focus of the claimed advance over the prior art” and concluded that “claim 1 is “directed to a result or effect that itself is the abstract idea and merely invoke[s] generic processes and machinery” rather than “a specific means or method that improves the relevant technology.” The majority opinion also mentioned that “Yu does not dispute that, as the district court observed, the idea and practice of using multiple pictures to enhance each other has been known by photographers for over a century.” The majority opinion also noted that although, “Yu’s claimed invention is couched as an improved machine (an “improved digital camera”), … “whether a device is “a tangible system (in § 101 terms, a ‘machine’)” is not dispositive”. Thus, the majority panel concluded that “the focus of claim 1 is the abstract idea.”
As to Step 2, the majority opinion concludes that claim 1 does not include an inventive concept sufficient to transform the claimed abstract idea into a patent-eligible invention because “claim 1 is recited at a high level of generality and merely invokes well-understood, routine, conventional components to apply the abstract idea” discussed in Step 1. Yu raised the prosecution history to prove that “the ’289 patent were allowed over multiple prior art references.” Also, Yu argued that the claimed limitations are “unconventional” because “the claimed “hardware configuration is vital to performing the claimed image enhancement.” However, the court was not convinced with this argument and conclude that “the claimedhardware configuration itself is not an advance and does not itself produce the asserted advance of enhancement of one image by another, which, as explained, is an abstract idea.”
Thus, the majority of the court concluded that the ‘’289 patent is not patent-eligible subject matter under §101. Therefore, the court hold for the Defendants.
Dissenting Opinion
In the dissenting opinion, Judge Newman said that “this camera is a mechanical and electronic device of defined structure and mechanism; it is not an “abstract idea” and “a statement of purpose or advantage does not convert a device into an abstract idea.”
The judge explained that “claim 1 is not for the general idea of enhancing camera image”, but “for a digital camera having a designated structure and mechanism that perform specified functions.” The Judge further mentioned, “the ‘abstract idea’ concept with respect to patent-eligibility is founded in the distinction between general principle and specific application.” The Judge quoted Diamond v. Chakrabarty and emphasized that “Congress intended statutory subject matter to ‘include anything under the sun that is made by man.’”
Judge Newman noted that “the ’289 patent may or may not ultimately satisfy all the substantive requirements of patentability”, and noted that neither the majority opinion and the district court discussed §102 and §103.
Takeaway
- After 7 years from Alice, we are still witnessing the profound impact that Alice has on §101 jurisprudence, and waiting for further judicial, legislative, and/or administrative clarity.
- In a previous §101 decision in American Axel (previously reported by John P. Kong), the dissenting opinion by Judges Chen and Wallach criticized that §101 swallowed §112. Now, Judge Newman criticized that §101 swallowed §102 and §103. The dire warning by the Supreme Court about §101 swallowing all of patent law seems to have come full circle.
- Judge Newman’s criticism of §101 swallowing §102 and §103 can be an added argument for appeal for another case and may help get these issues before the Supreme Court.
- John P. Kong said that The approach for determining the Step 1 inquiry, i.e., “by asking what the patent asserts to be the focus of the claimed advance over the prior art” is the source of much of the court’s criticisms. This approach was never vetted, and it conflates §101 with §102 and §103 issues. First, this “focus” is just another name for deriving the “point of novelty,” “gist,” “heart,” or “thrust” of the invention, which had previously been discredited by Supreme Court and Federal Circuit decisions relating to §102 and §103 issues. The problem with tests such as these is that it subtracts out various “conventional” features of the claimed invention (like what is done for the “claimed advance over the prior art”), and thus violates the Supreme Court requirement to consider the claim “as a whole.” If the point of novelty, gist, or heart of the invention contravenes the requirement to consider the claim “as a whole” in the §102 and §103 contexts, then it should likewise contravene the same Supreme Court requirement to consider the claim “as a whole” in the §101 context (as noted in John P. Kong’ “Today’s Problems with §101 and the Latest Federal Circuit Spin in American Axle v. Neapco” powerpoint, Dec. 2020). Judge Newman’s dissent echoes the same.
- John P. Kong also said that Enfish moved up into Step 1 the “improvement in technology” comment in Alice regarding the inventive concept consideration under Step 2 because some computer technology isn’t inherently abstract and thus should not be automatically subject to Alice’s Step 2 and its inventive-concept test. Enfish only had a passing reference to “inquiring into the focus of the claimed advance over the prior art” citing Genetic Techs v. Merial (Fed. Cir. 2016), as support for considering the “improvement in technology” in Alice Step 1. Herein lies the problem. The “improvement in technology” concept pertains to whether the claims are directed to a practical application, instead of an abstract idea. The “claimed advance over prior art” is not a substitute for, and not the same as, determining whether there is a practical application reflected in an improvement in technology. Stated differently, there can still be a practical application (and therefore not an abstract idea) even without checking the prior art and subtracting out “conventional” elements from the claim to discern a “claimed advance over the prior art.” While a positive answer to the “claimed advance over the prior art” would satisfy the “improvement in technology” point as being a practical application justifying eligibility, a negative answer to the “claimed advance over the prior art” does not diminish the claim being directed to a practical application (such as for an electric vehicle charging system, a garage door opener, a manufacturing method for a car’s driveshaft, or for a camera). But, in Electric Power Group v Alstom (Fed. Cir. 2016), the Fed. Cir. considered whether the “advance” is an abstract idea using a computer as a tool or a technological improvement in the computer or computer functionality (in an “improvement in technology” inquiry). And then, in Affinity Labs of Texas LLC v. DirecTV LLC, the Fed Cir cemented the “claimed advance” spin into Step 1, subtracting out “general components such as a cellular telephone, a graphical user interface, and a downloadable application” to arrive at a purely functional remainder that constituted an abstract idea of out-of-region delivery of broadcast content, without offering any technological means of effecting that concept (the 1-2 knockout of: subtract generic elements, and no “how-to” for the remainder). This laid the groundwork for §101 swallowing §§112, 102 and 103.
[1] See Brief, USDC ND of Ca Appeal Nos. 20-1760, -1803.
[2] See Yu v. Apple, United States District Court for the Northern District of California in No. 3:18-cv-06181-JD
A small increase in a Prior Art’s taught range needs to have sufficient reason for the modification to establish obviousness under 35 U.S.C. §103
Michael Caridi | August 6, 2021
Chemours Co. FC, LLC vs Daikin Ind., LTD
Decided on July 22, 2021
NEWMAN, DYK, and REYNA. Opinion by Reyna. Concurring and Dissenting in part by Dyk.
Summary:
Chemours Company FC, LLC, appealed the final written decisions of the Patent Trial and Appeal Board from two inter partes reviews brought by Daikan Industries, Ltd. Chemours argued on appeal that the Board erred in its obviousness factual findings and did not provide adequate support for its analysis of objective indicia of nonobviousness. The CAFC found that the Board’s decision on obviousness was not supported by substantial evidence and that the Board erred in its analysis of objective indicia of nonobviousness. Consequently, they reversed the Board’s decision.
Background:
Chemours Company FC, LLC, appealed the final written decisions of the Patent Trial and Appeal Board from two inter partes reviews brought by Daikan Industries, Ltd., et al. Chemours argues on appeal that the Board erred in its obviousness factual findings and did not provide adequate support for its analysis of objective indicia of nonobviousness.
Two patents were at issue. U.S. Patent No. 7,122,609 (the “’609 patent) and U.S. Patent No. 8,076,4312 (the “’431 patent”). The representative ’609 patent relates to a unique polymer for insulating communication cables formed by pulling wires through melted polymer to coat and insulate the wires, a process known as “extrusion.”
Claim 1 of the ’609 patent is representative of the issues on appeal:
1. A partially-crystalline copolymer comprising tetrafluoroethylene, hexafluoropropylene in an amount corresponding to a hexafluoropropylene index (HFPl) of from about 2.8 to 5.3, said copolymer being polymerized and isolated in the absence of added alkali metal salt, having a melt flow rate of within the range of about 30±3 g/10 min, and having no more than about 50 unstable end groups/106 carbon atoms.
The Board found all challenged claims of the ’609 patent and the ’431 patent to be unpatentable as obvious in view of U.S. Patent No. 6,541,588 (“Kaulbach”).
On appeal, Chemours argued that Daikin did not meet its burden of proof because it failed to show that a person of ordinary skill in the art (“POSA”) would modify Kaulbach’s polymer to achieve the claimed invention.
The Kaulbach reference teaches a polymer for wire and cable coatings that can be processed at higher speeds and at higher temperatures. Kaulbach highlights that the polymer of the invention has a “very narrow molecular weight distribution.” Kaulbach discovered that prior beliefs that polymers in high-speed extrusion application needed broad molecular weight distributions were incorrect because “a narrow molecular weight distribution performs better.” In order to achieve a narrower range, Kaulbach reduced the concentration of heavy metals such as iron, nickel and chromium in the polymer.
In the Kaulbach example relied on by the Board, Sample A11, Kaulbach’s melt flow rate is 24 g/10 min, while the claimed rate of Claim 1 of the ‘609 patent is 30±3 g/10 min.
The Board found that Kaulbach’s melt flow rate range fully encompassed the claimed range, and that a skilled artisan would have been motivated to increase the melt flow rate of Kaulbach’s preferred embodiment to within the claimed range to coat wires faster. Specifically, the Board found:
We also are persuaded that the skilled artisan would have been motivated to increase the [melt flow rate] of Kaulbach’s Sample A11 to be within the recited range in order to achieve higher processing speeds, because the evidence of record teaches that achieving such speeds may be possible by increasing a [polymer’s] [melt flow rate].
In addition, the Board found that the portions of Kaulbach’s disclosure lacked specificity regarding what is deemed “narrow” and “broad,” and that it would have been obvious to “broaden” the molecular weight distribution of the claimed polymer.
Second, Chemours argued that the Board legally erred in its analysis of objective indicia of nonobviousness by showings of commercial success finding an insufficient nexus between the claimed invention and Chemours’s commercial polymer, as the Board required market share evidence to show commercial success.
CAFC Decision:
- Obviousness and teaching away
The CAFC found that the Board ignored the express disclosure in Kaulbach that teaches away from the claimed invention and relied on teachings from other references that were not concerned with the particular problems Kaulbach sought to solve. In other words, the Board did not adequately grapple with why a skilled artisan would find it obvious to increase Kaulbach’s melt flow rate to the claimed range while retaining its critical “very narrow molecular-weight distribution.”
The Court maintained that the Board’s reasoning does not explain why a POSA would be motivated to increase Kaulbach’s melt flow rate to the claimed range, when doing so would necessarily involve altering the inventive concept of a narrow molecular weight distribution polymer. The Court held that this is particularly true in light of the fact that the Kaulbach reference appears to teach away from broadening molecular weight distribution and the known methods for increasing melt flow rate.
Specifically, Kaulbach includes numerous examples of processing techniques that are typically used to increase melt flow rate, which Kaulbach cautions should not be used due to the risk of obtaining a broader molecular weight distribution.
These factors do not demonstrate that a POSA would have had a “reason to attempt” to get within the claimed range, as is required to make such an obviousness finding.
As Chemours persuasively argues, the Board needed competent proof showing a skilled artisan would have been motivated to, and reasonably expected to be able to, increase the melt flow rate of Kaulbach’s polymer to the claimed range when all known methods for doing so would go against Kaulbach’s invention by broadening molecular weight distribution.
The CAFC therefore held that the Board relied on an inadequate evidentiary basis and failed to articulate a satisfactory explanation that is based on substantial evidence for why a POSA would have been motivated to increase Kaulbach’s melt flow rate to the claimed range, when doing so would necessarily involve altering the inventive concept of a narrow molecular weight distribution polymer.
- Commercial success
In addition, Chemours argued that the Board legally erred in its analysis of objective indicia of nonobviousness finding an insufficient nexus between the claimed invention and Chemours’s commercial polymer, and its requirement of market share evidence to show commercial success.
Specifically, Chemours argued that the Board improperly rejected an extensive showing of commercial success by finding no nexus on a limitation-by-limitation basis, rather than the invention as a whole. Chemours contended that the novel combination of these properties drove the commercial success of Chemours’s commercial polymer. Second, Chemours argued the Board improperly required Chemours to proffer market share data to show commercial success.
The CAFC held that contrary to the Board’s decision, the separate disclosure of individual limitations, where the invention is a unique combination of three interdependent properties, does not negate a nexus. The Court recognized that concluding otherwise would mean that nexus could never exist where the claimed invention is a unique combination of known elements from the prior art.
Further, the Court held, quoting prior caselaw, that the Board, erred in its analysis that gross sales figures, absent market share data, “are inadequate to establish commercial success.”
“When a patentee can demonstrate commercial success, usually shown by significant sales in a relevant market, and that the successful product is the invention disclosed and claimed in the patent, it is presumed that the commercial success is due to the patented invention.” J.T. Eaton & Co. v. Atl. Paste & Glue Co., 106 F.3d 1563, 1571 (Fed. Cir. 1997); WBIP, 829 F.3d at 1329. However, market share data, though potentially useful, is not required to show commercial success. See Tec Air, Inc. v. Denso Mfg. Mich. Inc., 192 F.3d 1353, 1360–61 (Fed. Cir. 1999).
The CAFC therefore reversed the Board’s finding of obviousness of the ‘609 and ‘431 claims at issue.
- Dissent
Judge Dyk dissented in part as to the strength of the teaching away by Kaulback. Specifically, he noted that Kaulbach’s copolymer is nearly identical to the polymer disclosed by claim 1 of the ’609 patent. The only material difference between claim 1 and Kaulbach is that Kaulbach discloses (in Sample A11) a melt flow rate of 24 g/10 min, slightly lower than 27 g/10 min, the lower bound of the 30 ± 3 g/10 min rate claimed in claim 1 of the ’609 patent.
As to the teachings of Kaulbach, he went on to note that even though Kaulbach determined that “a narrow molecular weight distribution performs better,” it expressly acknowledged the feasibility of using a broad molecular weight distribution to create polymers for high speed extrusion coating of wires. Hence, Judge Dyk concluded that this is not a teaching away from the use of a higher molecular weight distribution polymer.
Contrary to the majority’s assertion, modifying the molecular weight distribution of Kaulbach’s disclosure of a 24 g/10 min melt flow rate to achieve the 27 g/10 min melt flow rate of claim 1 would hardly “destroy the basic objective” of Kaulbach as the majority claims.
Take away
- There must be clear motivation for a POSA to modify a claimed range even to a small extent. Evidence within the prior art that such a modification would not be beneficial maybe a sufficient teaching away and can negate a finding of increasing the range as an obvious modification. Patent prosecutors should be more assertive in requiring a clear showing of reasons to make a modification of increasing a range outside of a prior art’s taught range.
Note Quite Game Over as Bot M8 Receive a 1-Up from the CAFC
Adele Critchley | July 23, 2021
Bot M8 LLC., v. Sony Corporation of American, Sony Corporation, Cony Interactive Entertainment LLC.
Decided on July 13, 2021
Before Dyk, Linn and O’malley, Circuit Judges.
Opinion by Circuit Judge O’malley.
SUMMARY
Briefly, the CAFC addresses the stringency of pleading requirements in cases alleging patent infringement, and that patentees need not prove their case at the pleading stage. Further that “a patentee may subject its claims to early dismissal by pleading facts that are inconsistent with the requirements of its claims” Col. 2, L., 1 to 13.
DETAIL
Bot M8 LLC (herein Bot M8) filed suit against Sony et al (herein Sony) alleging infringement of six patents, five of which remain at issue. U.S. Patent Nos., 8,078,540, 8,095,990, 7,664,988, 8,112,670 and 7,338,363. The asserted patents relate to gaming machines. Bot M8 accused Sony’s PlayStation 4 (PS4) consoles and aspects of Sony’s network of infringing the ‘540, ‘990, ‘998 and ‘670 Patents, while certain PS4 videogames of infringing the ‘363 patent.
- Procedural History
Bot M8 initially sued Sony in the United States District Court for the Southern District of NY, Sony filed an answer, asserting non-infringement and arguing that “the Complaint fails to identify legitimate theories for how the claim limitations of the patent-in-suit are all allegedly satisfied,” along with a motion to transfer the case to California. Col 6, L., 1 to 6. Sony did not move to dismiss the complaint for failure to state a claim.
After the case was transferred, the district court held a case management conference, and the court directed Bot M8 to file an amended complaint specifying “every element of every claim that you say is infringed and/or explain why it can’t be done.” The court instructed Bot M8 that, “if this is a product you can buy on the market and reverse engineer, you have got to do that.” Id. Counsel for Bot M8 responded that they “would be happy to…” and that reverse engineering would not be a problem because it had already “torn down the Sony PlayStation.”
— First Amended Complaint (FAC)
Bot M8 timely filed a FAC, and Sony moved to dismiss. The district court held oral argument on Sony’s motion and at the hearing questioned why Bot M8 had not cited to Sony’s source code in the FAC, a failing Sony did not identify in its motion to dismiss. The Court specifically asked “Why can’t you buy one of these products and take whatever code is on there off and analyze it?” Bot M8 indicated that the PS4 source code is not publicly available.
Consequently, the district court granted Sony’s motion to dismiss as to the ’540, ’990, ’988 and ’670 patents.
Briefly, the district court held the following:
- For the ’990 patent—which describes a mutual authentication mechanism for video games—the court found that “the complaint fails to allege when or where the game program and mutual authentication program are stored together.”
- For the ‘540 patent—which describes an authentication mechanism for video games—the district court found that “the complaint fails to allege when or where the game program and authentication program are stored together on the same memory board.” Because the allegations “do not address where the game program is stored,” the court found them insufficient.
- For the ’988 and ’670 patents—which describe computer program fault inspection—the court found that “the complaint provides no basis to infer the proper timing of the inspection”—i.e., whether a “fault inspection program” is “completed before the game starts.” That Bot M8’s “allegation too closely tracks the claim language to be entitled to the presumption of truth,” and “[n]o underlying allegations of fact are offered.”
The district court explained that Bot M8 “already enjoyed its one free amendment under the rules” and was instructed to “plead well, element-by-element.” The court stated that Bot M8 “does not deserve yet another chance to re-plead,” but nevertheless gave Bot M8 another chance to do so. But added that, if Bot M8 “move[d] for leave to file yet another amended complaint, it should be sure to plead its best case.”
Next, during a discovery hearing, Bot M8 raised, for the first time, concerns about the legality of reverse engineering the PS4’s software, otherwise known as “jailbreaking,” under the Digital Millennium Copyright Act (“DMCA”) and other anti-hacking statutes. The District Court asked Sony to give Bot M8 permission, and Sony agreed.
— Motion for Leave to Amend (Second Amended Complaint – SAC)
Bot M8 filed a motion for leave to amend its complaint and attached a redlined version of its proposed Second Amended Complaint (“SAC”). Bot M8 explained that the SAC was based on new evidence obtained only after Sony gave them permission to “jailbreak” the PS4.
Though Bot M8 moved for leave to file the SAC within the time frame authorized by the district court, the court still denied Bot M8’s motion for lack of diligence. Specifically, the court found that Bot M8 should have done the so-called “jailbreak” early in the proceedings and included the evidence in the FAC. The court explained that Bot M8’s motion was governed by FRCP 16, which authorized modifications “only for good cause.”
The district court found that Bot M8 “could have, and should have” included this evidence early because the issue of reverse engineering was brought up at the case management conference during which they failed to raise on concerns about the legality thereof. In fact, Bot M8’s counsel indicated they had already done it.
Consequently, the proposed amendment was deemed untimely.
—Motion to Reconsider
Bot M8 sought leave to move for reconsideration of the court’s order denying leave to amend, arguing that it could not have reverse engineered the PS4 before obtaining permission to disable the PS4’s access control technology in light of the DMCA.
The district court denied the motion, finding that Bot M8’s “theory of the [DMCA] crossing paths with patent rights remain[ed] unsupported by caselaw,” and Bot M8 “offer[ed] no binding decision directing a different pleading or amendment standard.”
—Summary Judgement under 35 U.S.C. §101
Sony moved for summary judgment of non-infringement and patent ineligibility under 35 U.S.C. § 101 against the ‘363 patent. In applying the two-part test set forth in Alice (Alice Corp. v. CLS Bank International, 573 U.S. 208, 217– 18 (2014)) the district court found claim 1 of the ’363 patent ineligible.
At Alice step one, the court found that claim 1 recites “the abstract idea of increasing or decreasing the risk-to-reward ratio, or more broadly the difficulty, of a multiplayer game based upon previous aggregate results.” At Alice step two, the court concluded that “claim 1 offers no inventive concept.” That, “[t]hough given special names, each part remains a generic computer part invoked to effect the conventional computer task of gathering, manipulating, transmitting, and using data.”
Bot M8 has submitted two expert declarations to establish inventive step, but the court concluded that Bot M8’s expert testimony was insufficient “to forestall summary judgment,” because, for example, the experts failed to articulate any “specific inventive concept in claim 1… other than [a generic reference to] ‘the totality’” based expert report.
- CAFC
- Amending the Original Complaint: Bot M8 argued that the district court erred by “forcing” them to replace their original complaint. The CAFC disagreed, holding that the court merely gave Bot M8 a chance to amend, and Bot M8 chose to file an amended complaint rather than defend the original.
- Dismissal of the FAC: As per FRCP 8(a)(2) “generally requires only a plausible ‘short and plain’ statement of the plaintiff’s claim,” showing that the plaintiff is entitled to relief. Skinner, 562 U.S. at 530. To survive a motion to dismiss under Rule 12(b)(6), a complaint must “contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. (citing Twombly, 550 U.S. at 555).
Initially, the CAFC disagreed with the districts approach of instructing Bot M8 that it must “explain in [the] complaint every element of every claim that you say is infringed and/or explain why it can’t be done.” The CAFC reiterated that a plaintiff “need not ‘prove its case at the pleading stage.’” That, a plaintiff is not required to plead infringement on an element-by-element basis.
Instead, it is enough “that a complaint place the alleged infringer ‘on notice of what activity . . . is being accused of infringement.’” Lifetime Indus., Inc. v. Trim-Lok, Inc., 869 F.3d 1372, 1379 (Fed. Cir. 2017) (quoting K-Tech Telecomms., Inc. v. Time Warner Cable, Inc., 714 F.3d 1277, 1284 (Fed. Cir. 2013)). See Twombly, 550 U.S. at 556 (“[A] well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and that a recovery is very remote and unlikely.”)
Thus, “The relevant inquiry under Iqbal/Twombly is whether the factual allegations in the complaint are sufficient to show that the plaintiff has a plausible claim for relief. Iqbal, 556 U.S. at 679. “The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. at 678. In other words, a plausible claim must do more than merely allege entitlement to relief; it must support the grounds for that entitlement with sufficient factual content. Id.” Col. 14, L., 4 to 13.
As such, the Plaintiff “cannot assert a plausible claim for infringement under the Iqbal/Twombly standard by reciting the claim elements and merely concluding that the accused product has those elements. There must be some factual allegations that, when taken as true, articulate why it is plausible that the accused product infringes the patent claim.” Col. 14, L 22 to 28. That is, a Plaintiff is to “give the defendant fair notice of what the . . . claim is and the grounds upon which it rests,” Erickson v. Pardus, 551 U.S. 89, 93 (2007) (quoting Twombly, 550 U.S. at 555).
Having clarified the standard, the CAFC concluded that they agreed with the district court that the allegations as to the ‘540 and ‘990 patents were conclusory, and at times contradictory but disagreed with the dismissal of the ‘988 and ‘670 patents. Here, the CAFC emphasized that the “court simply required too much.”
Briefly, the CAFC held the following:
- For the ’990 patent—which describes a mutual authentication mechanism for video games—the CAFC agreed with the district counts analyzing that found “the complaint fails to allege when or where the game program and mutual authentication program are stored together.”
- For the ‘540 patent—which describes an authentication mechanism for video games—the CAFC agreed with Sony that the FAC actually alleges away from infringement by asserting that the purported “authentication program” is stored on the PS4 motherboard—an allegation that is inconsistent with Bot M8’s infringement theory. That CAFC noted that Bot M8 had taken a “kitchen sink” approach in their complaint, revealing inconsistencies that ended up being fatal.
- For the ’988 and ’670 patents—which describe computer program fault inspection—and completed the inspection before the game starts. Here, the CAFC differed with the district court. Bot M8 argued on appeal that the district court erred in its dismissal because the FAC “includes specific evidence demonstrating that the PS4 includes a fault inspection program that concludes prior to the game starting.” That is, the PS4 displays error codes upon boot up and prior to a game starting, and the CAFC agreed this supports a plausible inference that the PS4’s fault inspection program concluded prior to the start of a game. Sony argued, and the district court agreed, that these passages failed to allege that execution of a fault inspection program completes before a game start, only that they commence during start-up. That CAFC held that Sony, like the district court, “demands too much as this stage of proceedings.”
- Denial of Leave to Amend the FAC: The CAFC ultimately determined that the denial was proper, because Bot M8 did not raise any concerns about its ability to reverse engineer the PS4 until after the district court issued its decision on Sony’s motion to dismiss, thus Bot M8 was not diligent.
Of note, the CAFC stated that while the district court perhaps should not have required reverse engineering of Sony’s products as a prerequisite to pleading claims of infringement, Bot M8 ultimately waived its objection to that obligation when it told the court it was happy to undertake that exercise.
- The ‘363 Patent: After consideration, the CAFC found no error in the districts 101 analysis.
CONCLUSION: Affirmed in part, reversed in part and remanded to the district court for further proceedings regarding infringement of the ’988 and ’670 patents.
- Take-Aways:
- Patentees need not prove their case as the pleading stage. But there must be some factual allegations that, when taken as true, articulate why it is plausible that the accused product infringes the patent claim.
- A patentee may subject its claims to early dismissal by pleading fats that are inconsistent with the requirements of its claims. As here, be mindful of “kitchen sink” approached, that arguments do not end up inconsistent.
- Be mindful of comments made during pre-trail procedures and always strive to be timely. Here, Bot M8’s counsel stated during the case management conference that their client was happy to reverse engineer the PS4 and had already done it, which turned out to be untrue and thus their wait of around 9 weeks to seek authorization to reverse engineer the product provide fatal for a lack of diligence. This ultimately lead to Bot M8 waiving its objection to this obligation.
