Cascades' Patent License to Google Passes Through to All Android Phones

Bloomberg BNA’s Patent Trademark & Copyright Law Daily™is the IP industry’s premier news service, offering objective, timely,and reliable daily news coverage and commentary from leading IP law...

By Tony Dutra

Sept. 15 — Many Samsung and HTC mobile devices use the Android operating system, and a patent license to Android developer Google allows them to use the patented technology, the Northern District of Illinois ruled Sept. 14.

The Supreme Court's Quanta decision in 2008 dictated the result. Even though the Cascades Computer Innovation LLC license to Google Inc. excluded smart phones other than those made by its subsidiary, Motorola Mobility LLC, the grant of a “full right” to use a patented method and distribute it via the Android operating system allowed for no carve-outs, the court said.

However, the court also found that Samsung and HTC were liable for use prior to the date of the agreement with Google, and it denied summary judgment of noninfringement applied retroactively.

License Agreement to Google

Cascades was exclusive licensee of a patent (U.S. Patent No. 7,065,750) on a method of making software written and compiled for execution on one computing platform compatible for execution on another platform.

While it was exclusive licensee, Cascades sued Samsung Electronics Co., HTC Corp. and Motorola for patent infringement related to software applications that ran on each company's mobile phones. The phones use the Google Android operating system.

Subsequently, in 2014, Cascades entered into a settlement and licensing agreement with Google, which was by then the Motorola parent company. The agreement covered “any Google product,” which all parties agreed included the Android operating system.

However, the agreement also made an exception of “mobile devices manufactured by third parties and running the Android OS except any Nexus-branded devices.”

Samsung and HTC argued that patent exhaustion applies to the Cascades sale to Google, and that an additional release and covenant not to sue barred recovery for pre-agreement infringement.

Quanta Computer Inc. v. LG Elecs. Inc. (128 S. Ct. 2109, 2008 BL 122107, 86 U.S.P.Q.2d 1673 (2008)) held, however, that the doctrine of patent exhaustion “provides that the initial authorized sale of a patented item terminates all patent rights to that item,” and Cascades contended that the exclusion in the agreement meant that the sale to Samsung and HTC was not “authorized.”

Filters Through to Samsung, HTC

Judge Matthew F. Kennelly first noted that Quanta dealt with a similar issue. In that case, LG Electronics Inc. gave Intel Corp. “full right to make, sell, and use” a patented item, with an exclusion for sales that combined Intel and non-Intel components.

However, the Quanta court adhered to the 1873 holding in Adams v. Burke (84 U.S. 453, 455 (1873)) that the “full right” language “carries with it the right to the use of that machine to the full extent to which it can be used,” the district court said.

Here, as in Quanta, the court said, Cascades was trying to “circumvent the patent exhaustion doctrine and reap multiple gains from a single sale.” As such, “the agreement's attempt to carve out downstream users' own mobile devices is ineffective under Quanta,” the court said.

Keurig, Inc. v. Sturm, Foods, Inc. (732 F.3d 1370, 1373, 108 U.S.P.Q.2d 1648 (Fed. Cir. 2013)) laid out additional requirements for a showing of patent exhaustion, the court said.

As applied here, Samsung and HTC had to show that Android as distributed “substantially embodies” the patented method, that it “(1) has no reasonable noninfringing use and (2) includes all inventive aspects of the claimed method.”

The court's fact-specific analysis rejected the Cascades argument that the infringing mobile phones could “function with unchanged performance” without the Android module that implemented the patented method.

The court thus granted summary judgment of noninfringement from the date of the Cascades-Google agreement forward.

Prior Infringement Still at Issue

However, the court agreed with Cascades as to past infringement.

The doctrine of patent exhaustion looks forward, the court said, so that is of no benefit to Samsung and HTC. The only remaining question was whether the release and covenant not to sue could extend to those firms as well.

The court said, “a release given to one tortfeasor does not release others and does not, unlike a sale or a license, surrender the releasor's rights.”

The court distinguished the Federal Circuit holding in TransCore, LP v. Elec. Transaction Consultants Corp. (563 F.3d 1271, 90 U.S.P.Q.2d 1372 (Fed. Cir. 2009)) as a case where the covenant “expressly concerned future infringing activity.”

Judge Kennelly stated simply that he disagreed with another decision in the Northern District of Illinois—PSN Illinois LLC v. Abbott Labs(2011 BL 332779 (N.D. Ill. 2011))—with apparently a contrary interpretation of Transcore.

He thus denied summary judgment for past infringement and set a status hearing for Sept. 30.

Ashley Elizabeth LaValley of Niro, Haller & Niro Ltd., Chicago, represented Cascades. Marc Howard Cohen of Kirkland & Ellis LLP, Palo Alto, Calif., represented Samsung. Albert Shih of Wilson Sonsini Goodrich & Rosati, Palo Alto, Calif., represented HTC.

To contact the reporter on this story: Tony Dutra in Washington at adutra@bna.com

To contact the editor responsible for this story: Tom P. Taylor at ttaylor@bna.com

Full text at http://www.bloomberglaw.com/public/document/Cascades_Computer_Innovation_LLC_v_Motorola_Mobility_Holdings_Inc.