InterDigital Inc (IDCC)

[NukeJohn]

My Analysis of IDCC's Appeal at the CAFC

As many of you know, I have follow Intellectual Property stocks (and associated litigations) for over 15 years. My current interests are IDCC, Tessera, TiVo, and Rambus, where I attempt to keep track of legal events and attend court cases whenever possible. I have personally observed about 20 oral arguments at the CAFC, and I have read countless legal briefs. I see an interesting parallel between IDCC and Rambus claims construction appeals at the CAFC, which I will get to later.

IMHO, it won't take very long for the CAFC Merits Panel to understand that the definitions used by ITC ALJ Luckern for "code" and "signal" convoluted the normal definition of these terms in the IDCC case. I have seen ALJ's and DCT judges do this several times in the past, and they almost always get their claims construction overturned. One glaring example comes from the EDVA Markman ruling (in the Rambus v. Infineon case) by Judge Robert Payne when he erred in his definition of a "bus". He convoluted the definition of bus to the point where it had to be a triple multiplexed bus so that Infineon wouldn't infringe Rambus' patents. The three judge CAFC Merits Panel was Rader, Bryson, and Prost. When I heard the questions from Rader in the oral arguments, I knew the CAFC would side with Rambus on the claims construction....and I'm 90% sure right now that the same thing will happen in the IDCC case. I'll be 100% sure when I hear the panel grill the Nokia lawyers on the definitions of "code" and "signal" used by one "skilled in the art" at the time the patent was applied for. In numerous respects, this error in claims construction terminolgy in the IDCC case is very analogous to the Rambus case. Here's the Rambus v. Infineon opinion by the CAFC.

http://www.ll.georgetown.edu/federal/judicial/fed/opinions/01opinions/01-1449.html

excerpt....

In this case, the prosecution history shows that a multiplexing bus is only one of many inventions disclosed in the ’898 application. Although some of Rambus’s claimed inventions require a multiplexing bus, multiplexing is not a requirement in all of Rambus’s claims. A careful review of the prosecution histories of the patents-in-suit shows that Rambus expressly recited multiplexing in the claim language for claims limiting the bus to the inventive multiplexing bus. For example, original claim 1 of the ’898 application recites a “bus including a plurality of bus lines for carrying substantially all address, data and control information needed by said memory device.” Other original claims further require that the “bus carry[ ] device-select information without the need for separate device-select lines connected directly to individual semiconductor devices.” This claim language indicates that Rambus did not redefine “bus” in the specification to be a multiplexing bus. Indeed, it is because Rambus viewed “bus” under its ordinary meaning that Rambus specified -- in the claim language -- that the inventive multiplexing bus carries substantially all address, data, and control information and that the bus operates without the need for device-select lines.

Several restriction requirements issued by the PTO also clarify that some of the inventions described in the ’898 application did not require the multiplexing bus. The PTO issued an eleven-way restriction requirement during prosecution of the ’898 application. Later, during prosecution of U.S. Patent No. 5,841,580 (the grandparent of the ’918 patent and the parent of the ’263 patent), the PTO issued a two-way restriction, dividing the claims into two distinct groups: a multiplexing bus group (Group I) and a latency invention group (Group II). That two-way restriction stated:

[T]he memory device in Group I does not require the access-time register of Group II, and the semiconductor device in Group II does not require the plurality of conductor [sic] being multiplexed to receive an address as claimed in Group I.

Rambus elected to prosecute the latency claims from Group II in the ’580 patent. Therefore, the claims of the ’580 patent do not require a multiplexing bus. The claims of the ’580 patent, however, do recite a “bus.” See ’580 patent, col. 24., l. 46. By stating that the latency claims, which recited a “bus,” do not require multiplexing, the PTO demonstrated an understanding of “bus” that is not limited to a multiplexing bus.

The specification and prosecution histories, taken in their entirety, convince this court that Rambus did not redefine “bus” to be a multiplexing bus in the patents-in-suit. None of Rambus’s statements constitute a clear disclaimer or disavowal of claim scope. In these patents, the term “bus” carries its ordinary meaning as a set of signal lines to which a number of devices are connected, and over which information is transferred between devices.

In sum, the district court erred in its construction of each of the disputed terms. In light of the revised claim construction, this court vacates the grant of JMOL of noninfringement and remands for the district court to reconsider infringement.
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In a patent case, one of the early tasks of a District Court Judge (or an ITC ALJ) is to define the claim terms in a Markman proceeding. He may or may not have an actual hearing. Most district court judges do have a Markman hearing, but often the ALJ's at the ITC decide claims construction based on the briefs (but they do have staff attorneys to help).

Here are the key guidelines from the CAFC as to how to perform claims construction.

http://www.patenthawk.com/blog/2005/04/claim_construction_instruction.html

excerpt....

A finding of infringement, whether literal or by equivalents, is a question of fact. Bai v. L&L Wings, Inc., 160 F.3d 1350, 1353 (Fed. Cir. 1998).

Infringement is a two-step inquiry, in which a court must first construe disputed claim terms, and then compare the properly construed claims to the accused device. Cybor Corp., 138 F.3d at 1454. The patent’s intrinsic record is the primary tool to supply the context for interpretation of disputed claim terms. Vitronics Corp. v. Conceptronic, Inc., 90 F.3d 1576, 1582 (Fed. Cir. 1996). This tool usually provides the technological and temporal context to enable the court to ascertain the meaning of the claim to one of ordinary skill in the art at the time of invention. Moba v. Diamond Automation, Inc., 325 F.3d 1306, 1315 (Fed. Cir. 2003) (“Moreover, as this court has repeatedly counseled, the best indicator of claim meaning is its usage in context as understood by one of skill in the art at the time of invention.”). In most cases, the best source for discerning this proper context is the patent specification, wherein the patent applicant describes the invention. Metabolite Labs., Inc. v. Lab. Corp. of Am. Holdings, 370 F.3d 1354, 1360 (Fed. Cir. 2004). If necessary, courts may also look to extrinsic evidence, often presented in the form of expert testimony. Pitney Bowes, Inc. v. Hewlett-Packard Co., 182 F.3d 1298, 1309 (Fed. Cir. 1999) (“[C]onsultation of extrinsic evidence is particularly appropriate to ensure that [the court’s] understanding of the technical aspects of the patent is not entirely at variance with the understanding of one skilled in the art.”); Vitronics, 90 F.3d at 1582. Dictionaries may also help interpret claim language. See, e.g., Tex. Digital Sys., Inc. v. Telegenix, Inc., 308 F.3d 1193, 1202 (Fed. Cir. 2002).

To reach a proper construction, the district court must look first to the claims, the specification, and the prosecution history, and if further guidance is needed, to extrinsic evidence, such as dictionaries and expert opinions. The trial court should use the term’s “ordinary and accustomed” meaning to one of ordinary skill in the art as a touchstone for meaning. Thus, the district court must determine what “instruction” means to one of ordinary skill in the art, and then must determine whether the specification indicates that the patentee meant a different definition. See, e.g., Moba, 325 F.3d at 1315 (“[T]he best indicator of claim meaning is its usage in context as understood by one of skill in the art at the time of invention.”); Tex. Digital, 308 F.3d at 1204.


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IMHO, ALJ Luckern did not follow the CAFC guidance to "look first to the claims, the specification and the prosecution history". He did not use the ordinary meaning of "code" and "signal". For example, he convoluted the definition of code to where it had to be a spreading code (he made a very narrow claims construction). He did not go back to the patent and look at the how the terms applied in the individual patent claims. He did follow the recommneded guidelines by the CAFC. In fact, his conclusion was in error so much that if you used his definitions of "code" and "signal", the preferred embodiments of the patent would not even be infringed. IMHO, the claims construction in this case will be overturned by the de novo review of the Merits Panel. As part of his ruling, Judge Luckern already ruled that in the event his claims construction is overturned, he is recommending a Limited Exclusion Order (LEO) and various Cease & Desist orders. After the CAFC rules in favor of IDCC, this will be like a directed verdict (ie., they will tell the ITC that infringement is determined and to execute the remedy). The CAFC did this in the Crocs case recently. Here's the CROCS CAFC Order..

http://www.itcblog.com/20100224/federal-circuit-reverses-and-remands-in-crocs-appeal-2008-1596/

excerpt...

Accordingly, the Federal Circuit reversed the ITC’s final determination that the ‘789 patent was not infringed, that Crocs did not satisfy the technical prong of the domestic industry requirement of Section 337 relating to the ‘789 patent, and that the ‘858 patent would have been obvious. Further, the Federal Circuit remanded the investigation to the ITC for a determination of infringement of the ‘858 patent and any appropriate remedies.

If the CAFC does this (as I am 90% sure they will) it will have a devastating effect on Nokia....to the point that IDCC will have them completely over a barrel. The C&D order would halt all sales of Nokia phones in the US, no matter where they are in the distribution channel (pack 'em up boys and ship 'em back to Finland). Here is ALJ Luckern's order....he said if his ruling is overturned, he recommends a LEO and C&D order.

http://www.usitc.gov/secretary/fed_reg_notices/337/337_613_Notice10162009sgl.pdf

excerpt....

On August 14, 2009, the ALJ issued his final ID, finding no violation of Section 337. In particular, he found that the asserted claims of the patents-in-suit are not infringed and that they are not invalid. The ALJ further found that a domestic industry exists with respect to the patents-in- suit. Additionally, the ALJ found that there is no prosecution laches relating to the ‘004, ‘966, and ‘847 patents and that the ‘579 patent is enforceable. The ALJ further found that there is no waiver and patent misuse with respect to the patents-in-suit. The ALJ also issued a Recommended Determination on remedy and bonding, recommending that, in the event a violation of Section 337 is found, the appropriate remedy is a limited exclusion order barring entry of infringing 3G mobile handsets and components thereof and that it would also be appropriate to issue various cease and desist orders. The ALJ also recommended that there is no evidence to support the issuance of a bond during the period of Presidential review.

If this plays out as I believe it will....Nokia will have no choice but to sign a license on IDCC's terms. Of course, they may decide to settle early while they still have a little leverage. FWIW, Samsung signed a license last year and paid 400 Million for 2G/3G coverage through the end of 2012 (about 300M being for 3G in my estimation). During this period of time, Nokia has had at least a 50% higher volume of 3G phones than Samsung. Samsung pays 25 Million per quarter....so at a minimum Nokia would be looking at over 35 million per quarter (and probably over 40 Million/Qtr). This would bring IDCC annual earnings to over $6/share and would likely normalize their PE to an area near QCOM's PE (~23). Then, of course, on top of the 3G market, IDCC has the upcoming tornado of LTE licensing that will be here before you know it.

If you got this far and want to read the final IDCC reply brief...here it is.

http://wirelessledger.com/IDCC_ReplyBrief_20100830_USCAFC_2010-1093.pdf


One last thing...it appears to me that Nokia tried to play a game of smoke and mirrors on the "de novo review" of claims construction to make it an issue that requires "substantial evidence" review (ie., they want to argue this issue again). IDCC called them out in their final reply brief. Nokia knows that the logic and the definitions used by the ALJ (and affirmed by the Commission) will not hold up at the CAFC. Nokia doesn't want a directed verdict to come back from the CAFC....they want to try the case again at the ITC (ie., a do-over). IDCC did a very effective job shooting this argument down on page 8 (of 41) of the pdf JimLur attached as a sticky note at the top of this page.

Essentially, Nokia is trying to avoid a de novo review. They must be scared to death....IMHO, they know what is coming.


JMHO,

NJ