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Federal Circuit Overturns Substantial Portion Of Apple v. Motorola Patent Case Dismissal

Wednesday, April 30, 2014

By Tony Dutra  

April 25 — A fractured April 25 decision by the U.S. Court of Appeals for the Federal Circuit reflected three distinct battles.

The first and obvious battle is over mobile phone technology, where Apple Inc. and Google Inc.—via Motorola Mobility Inc.—asserted patents against one another only to have the entire case dismissed by the U.S. District Court for the Northern District of Illinois. The update on that battle is good news for Apple, as the Federal Circuit overturned the related summary judgments against a damages award to and the potential injunction in favor of Apple.

The second battle is just now beginning at the appeals court, as it affirmed summary judgment that prevents Motorola from getting an injunction based on Apple's infringement of a standard-essential patent. More of these cases are likely coming, and with each of the three panel members offering a different analysis of the issue here, the appeals court could see more split or contrary decisions in the future.

The third battle appears to be a conflict over patent infringement case handling, as the key reversals—on damages experts, reasonable royalty considerations and injunctions—were of decisions by Judge Richard A. Posner, who ruled at the district court level here by designation from the U.S. Court of Appeals for the Seventh Circuit.

Posner has had a public debate with former Federal Circuit judges over the value of software patents generally and district courts' handling of patent litigation deadlines and discovery specifically. And the chief judge of his circuit court—undoubtedly with Posner's knowledge if not approval—has called for an end to the Federal Circuit's exclusive appellate jurisdiction over patent cases.

A cert petition is likely, so it may take some time, but eventually the case will return to the Northern District of Illinois. It will be interesting to see then if Posner chooses to return to the district court bench and counter the many suggestions made by the Federal Circuit in the opinion here.

Infringement Claims and Counterclaims Dismissed

The case started with Apple's patent infringement complaint (out of 15 patents asserted, U.S. Patent Nos. 5,946,647; 6,343,263 and 7,479,949 are still at issue) against Motorola's Droid, Cliq, and other smartphones, after which Motorola counterclaimed patent infringement (U.S. Patent Nos. 5,319,712; 6,175,559 and 6,359,898 at issue here out of six asserted) by the iPhone, iPad and other Apple products.

Posner essentially preempted discussion of the merits of the parties' patent infringement cases by determining that neither was entitled to damages or an injunction. 869 F. Supp. 2d 901, 2012 BL 157789, 104 U.S.P.Q.2d 1611 (N.D. Ill. 2012). That order to dismiss came after a ruling on a Daubert motion excluded damages experts' testimony on both sides. Both parties appealed.

Functional Claiming Up First

Judge Jimmie V. Reyna wrote the court's opinion. Chief Judge Randall R. Rader and Judge Sharon Prost wrote separate opinions, each dissenting to different aspects of the court's opinion. The first issue on appeal was the primary subject of Prost's dissent.

Apple's '949 patent claims a “horizontal swiping motion” used by mobile phone users to move to the next screen and other finger actions mapping to other functions. The claims at issue include “instructions for applying one or more heuristics to the one or more finger contacts to determine a command for the device” with three specific “heuristics” as limitations. Posner concluded that the heuristics limitations were means-plus-function limitations under 35 U.S.C. §112, ¶6, with no corresponding support in the specification.

The majority said that, to construe a limitation lacking the word “means” as being in means-plus-function format, a court must look to the specification, prosecution history and relevant external evidence to find “sufficiently definite structure” that would negate the construction. The dissent said that looking for structure is the second part of the inquiry only after determining the construction first.

The district court “substitut[ed] its own opinion, rather than focusing on the reliability of the principles and methods used [by Apple's expert] or the sufficiency of the facts and data relied upon.”Majority opinion

Regardless, the majority found the required structure in distinguishing that, with respect to computer software claims, structure can be found in “an outline of an algorithm, a flowchart, or a specific set of instructions or rules.” It devoted three pages to identifying what would and would not qualify as sufficient structure. The search was satisfied here, the court said, because “ ‘heuristic' has a known meaning and the '949 patent also describes the limitation's operation, including its input, output, and how its output may be achieved.”

The court thus reversed Posner's claim construction judgment and vacated a related summary judgment of noninfringement.

Prost said that conclusion “provides a stark example of how patent applicants are able to claim broad functionality without being subject to the restraints imposed by §112 ¶6.” She suggested that the court “revisit the issue of when claim language invokes §112 ¶6, particularly for computer-implemented inventions.”

Other Claim Construction Judgments Affirmed

The court next affirmed a claim construction judgment against Apple as to its '647 patent and in favor of Apple as to its '263 patent.

Apple's noninfringement of Motorola's '559 and '712 patents was affirmed based on other claim construction decisions with which the appeals court agreed.

The last of those involved holding Motorola to a disclaimer of claim scope that it had made before the Japan Patent Office on a related patent—the two patents claimed priority to the same Patent Cooperation Treaty application.

Apple's Damages Evidence Admissible

The district court erred in excluding expert testimony on damages, the court said next. Both sides were denied introduction of their experts' evidence, and the court's reversals in this section of the opinion provide substantial detail on distinguishing what should or should not be admissible.

The court dealt with damages testimony related to Apple's '949 patent first, and its reversal provided another reason for remand as to that patent. The court faulted the district court for “substituting its own opinion, rather than focusing on the reliability of the principles and methods used [by Apple's expert] or the sufficiency of the facts and data relied upon.”

Posner excluded evidence comparing Apple's technology as applied to the smartphone with the value of Apple's Magic Trackpad, for use with Mac computers in place of a mouse. He concluded that the comparison was irrelevant because the latter could not be a reliable basis for valuing the specific scrolling feature patented.

An expert need not “value every potential non-infringing alternative” for damages testimony to be admissible.Majority opinion

However, the court said, the requirement is “to value the entire scope of the asserted claims.” The court said:

Thus, the proper question is not whether a comparison to the Trackpad accurately values one of the claimed finger gestures. Rather, we must ask, with the entire scope of the asserted claims and the correct claim construction in mind, whether [the damages expert] employed reliable principles and methods, reliably applied them, and relied upon legally sufficient facts or data.

 

In concluding that the expert's analysis was sound, the court criticized Posner for stating that there was a preferred way to calculate value without pointing out specific flaws in the expert's reasoning. Further, the expert estimated the value of the infringing feature by comparison to what consumers have paid for similar features, which the appeals court said was admissible. It faulted Posner for saying that the expert was required to directly estimate the value of the specific feature.

This decision was the basis for the second part of Prost's dissent. The similar Trackpad features included none of the function asserted in the '949 patent, she said, such that the expert “therefore began his analysis from a highly questionable starting point.”

Finally, on the issue of damages evidence, the court rejected the reason given for excluding evidence as to the '263 patent, related to what it would cost to design around the patent. There is no rule, as Posner seemed to use, against the damages expert using another expert hired by the same party to give technical expertise on the design-around, the court said.

Most of Motorola's Evidence Admissible

Motorola has agreements with “all of the major” mobile phone manufacturers except Apple for licenses to the patents at issue here, which are deemed essential to complying with the Universal Mobile Telecommunications Standard (UMTS). Motorola's expert presented the licenses as evidence and tried to separate out the value attributable to the '898 patent, the only one infringed after the claim construction affirmances noted above.

Posner excluded testimony of a second expert as to the value of one patent out of a portfolio required to meet a standard in general, without a focus on the UMTS standard, and the appeals court agreed with that decision. “We have consistently explained that proof of damages must be carefully tied to the claimed invention itself,” the court said.

However, Posner also excluded all of the first expert's testimony for not directly estimating what it would have cost Apple to use Verizon's network only, which does not use the UMTS standard. The expert need not “value every potential non-infringing alternative” for damages testimony to be admissible, the court said.

Apple here “fails to raise a genuine issue as to whether the allegedly infringing features are drivers of consumer demand for Motorola products.”Judge Sharon Prost, in dissent

The court thus vacated summary judgment of no damages as to each party's patent infringement claims.

Not a Zero Reasonable Royalty

Apple's '647 patent remained for a discussion of damages as, at this stage of the case, it is assumed valid and infringed.

The International Trade Commission found that HTC Corp. had infringed the '647 patent, and Apple argued that damages could be estimated using the time it took HTC to implement a noninfringing design. However, Posner noted that the ITC's claim construction differed from his, such that “the cost [to Motorola] of designing around may have been different.” Discrediting the ITC-related testimony, Posner determined that Apple was not entitled to any damages.

A reasonable royalty is assumed to be what the parties would have agreed to in a hypothetical negotiation prior to litigation, and, the court said, it is “unlikely” that Apple would have agreed to a zero royalty payment in that negotiation. It was therefore incumbent on the fact finder to determine a non-zero royalty from the record evidence.

“Certainly, if the patentee's proof is weak, the court is free to award a low, perhaps nominal, royalty, as long as that royalty is supported by the record,” the court said. But in reversing summary judgment, it noted that Motorola offered “no evidence or argument to support a zero royalty” and Apple “presented admissible evidence that it is entitled to a non-zero royalty.”

Apple Injunction Possible for Aggregate Features

Reversal of the '949 patent claim construction judgment “alter[ed] the potential scope of infringement underlying Apple's injunction request,” the court said next.

The court set up the injunction analysis on remand by effectively adding a circumstance in which the district court could find irreparable harm to Apple, one of the four factors for an injunction under eBay Inc. v. MercExchange LLC, 547 U.S. 388, 78 U.S.P.Q.2d 1577 (2006).

Posner had faulted Apple for failing to show a causal nexus between its harm and Motorola's infringement of specific patented features. But the appeals court said that “aggregate harm caused by all of the infringing features”—at this point, all three patents asserted by Apple are assumed valid and infringed—should be considered.

On the one hand, the court said, “Infringement of multiple patents by a single device may strengthen a patentee's argument for an injunction by, for example, supporting its argument that the infringed features drive consumer demand or are causing irreparable harm.”

However, the three patents cover a small number of features of a smartphone. Thus the court said, it is also appropriate for the district court to consider the harm to the public “of an injunction on a product with many non-infringing features.”

Prost's third area of dissent was on this issue. She wrote the Federal Circuit's opinion in another smartphone patent case, Apple Inc. v. Samsung Electronics Co., 695 F.3d 1370, 695 F.3d 1370, 104 U.S.P.Q.2d 1401 (Fed. Cir. 2012), which is substantially based on the causal nexus requirement. As was true in that case, she said, Apple here “fails to raise a genuine issue as to whether the allegedly infringing features are drivers of consumer demand for Motorola products.”

No Injunction for Motorola

Motorola's injunction problem was different, because it had agreed in its participation with the UMTS standards group that it would license its technology on fair, reasonable and nondiscriminatory (FRAND) terms.

When a standard-essential patent (SEP) holder offers a license on terms higher than it could have gotten before the standard was set, it is accused of “hold up” in seeking more than the fair value of the technology. Conversely, if a prospective licensee refuses to negotiate a royalty rate, knowing that it will be difficult for the SEP owner to get an injunction, the alleged infringer is accused of “hold out.”

“The record in this case shows evidence that Apple may have been a hold out.”Chief Judge Randall R. Rader, in dissent

The court's opinion accused Posner of setting a per se rule that an SEP owner could never get an injunction, though Prost's opinion said that was a mischaracterization. In any case, the court refused to say that there should be special rules for the injunction analysis when an SEP is involved. Instead, it placed the question of whether hold-up or hold-out exists properly within the eBay framework, and none of the panel members objected to that. However, they disagreed on how the negotiations so far between these two parties should be factored into that framework here.

Motorola offered a license to Apple and Apple refused the initial offer. According to the majority opinion, Motorola “has agreed to add as many market participants as are willing to pay a FRAND royalty,” and “negotiations [with Apple] have been ongoing.” Under eBay then, according to the majority, the lack of irreparable harm to Motorola is controlling, so the court affirmed summary judgment of no injunction for Motorola.

Chief Judge Rader's dissent, on the other hand, said, “The record in this case shows evidence that Apple may have been a hold out.” Since that determination would come from a factual inquiry necessary to a proper eBay analysis, he said, this issue should be remanded to allow Motorola to prove Apple's hold out.

Prost joined the majority on this issue, but she discounted any negotiations to date, saying that the lower court could simply increase damages when “an infringer previously engaged in bad faith negotiations.” She proposed that monetary damages would be inadequate only where the alleged infringer could not or would not pay a court-order damages award, which was not relevant here.

E. Joshua Rosenkranz of Orrick, Herrington & Sutcliffe, New York, represented Apple. David A. Nelson of Quinn Emanuel Urquhart & Sullivan LLP, Chicago, represented Motorola.


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

To contact the editor responsible for this story: Naresh Sritharan at nsritharan@bna.com

Text is available at http://www.bloomberglaw.com/public/document/Apple_Inc_v_Motorola_Inc_Docket_No_1201548_Fed_Cir_Jul_30_2012_Co.

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