Here is the Viacom-YouTube Google stipulation on privacy, technically called the Stipulation Regarding July 1, 2008 Opinion [PDF] that YouTube just announced, as text. [Update: It is now so ordered, signed by Judge Louis Stanton on July 17, 2008.]
The important part of the agreement is this: Google gets to substitute values for User IDs, IP addresses and Visitor IDs before handing the database over to Viacom. The parties will figure out next exactly how to do it so that unique values are substituted, so that you can still tell when one individual uploaded 10 zillion videos and 10 zillion individuals only 1 each. Viacom promises not to circumvent the encryption.
The parties have not agreed about encrypting the records of any uploading by Google/YouTube employees in the course of their business activities, something I gather Viacom wants to get hold of as part of its quest to prove Google is responsible for infringing content, despite the safe harbor section of the DMCA:
The parties do not agree whether the arrangements contained in Paragraph 1 should extend to records reflecting the business activities of the parties’ employees and agents, including whether the obligations are reciprocal.
Ah! Reciprocal. Otherwise known as tit for tat. Google would like to know what Viacom employees have uploaded to YouTube if Viacom is going to ask for the records on Google employees. So, while the parties argue about all that, the records will be encrypted and turned over to Viacom, and then within two weeks the parties will try to work out the rest, and if they fail, either party can bring the dispute to court. I think you could say they've agreed in the big picture sense that they have agreed to go after each other while leaving end users out of it, so long as they are not employees of either party.
And someone sent me encouraging news of a decision in a patent infringement case by the US Court of Appeals for the Federal Circuit, Muniauction v. Thomson Corporation [PDF], on the subject of obviousness. It's interesting enough that I've done it as text also, right after the short Viacom/Google stipulation.
It involved another business method patent situation, this one on an electronic auction process, specifically of financial instruments. The plaintiff had won in the District Court, despite its invention consisting of adding a web browser to prior art functionality, as best I can make out. I don't know which is harder for me to focus on, patent law or patent law decisions about the intricacies of a process for auctioning off financial packages. But I think that is what the patent was about, adding a browser to auctions. Not obvious, said the jury, and the judge ordered damages in the millions and issued an injunction. Just incredible. Happily, the Appeals Court overruled the District Court, introducing some rationality, and ruled that
the claims were "obvious as a matter of law".
I know some of you cynics think that there is no hope and that the courts are corrupt or run by nincompoops, but you know I don't agree with you. After watching the SCO saga closely, in addition to recent events, I think I could win any debate anywhere arguing the proposition that it's actually *Wall Street* that is run by nincompoops and that only in the courts is there hope for progress. Of course, there is some spill-over effect, since Wall Street influences legislators, I'm told, and they in turn pass laws that judges are bound to apply. But this Order convinces me that there is some progress in how the courts are interpreting obviousness.
Of course, if you are like me, you will still find patent law a bit unsettling when applied to any software, even though the courts seem to be getting better than they were prior to the US Supreme Court decision in April of 2007 in KSR Int'l Co. v. Teleflex Inc.. I find it a bit horrifying that there ever was a patent issued on an electronic auction process, all of the steps for which in significant part were already available in prior art except for one -- adding a web browser. And worse, the defendant had been ordered by the lower court to pay millions for infringing that "invention". That's what the appeal was about:
Thomson Corporation and I-Deal, LLC (collectively “Thomson”) appeal from a final judgment, after a jury trial, that the asserted claims of U.S. Patent No. 6,161,099 (“the ’099 patent”) are not obvious, that Thomson willfully infringed the asserted claims of the ’099 patent, that Muniauction, Inc. is entitled to approximately $77 million for lost profits damages enhanced for Thomson’s willful infringement, and that Thomson is permanently enjoined from continued infringement of the ’099 patent.
$77 million. For a browser as part of an auction process. The appeals court here overturned the lower court's ruling, and some of the claims of the patent were invalidated as obvious and the rest were deemed not infringed. The reasons why they were not infringed was interesting to me.
I'm trying hard to pay attention to patents and how it all works, but I confess I have always hated patent law, and nothing seems to change that feeling. But I'm making myself do it, so as to be more useful to the community. My working theory is that Microsoft isn't going to get any nicer. And I learned something from forcing myself to focus. Here's what I learned from this decision's footnote 4: that “[c]laims which are broad
enough to read on obvious subject matter are unpatentable even though they also read
on nonobvious subject matter.” That is quoting from a case, In re Lintner, and who knows when learning that little nugget may come in handy. So, I've filed it away. Even if, like me, your brain is divided between zoning out from the dryness of it (although I must admit some of the cases cited made me smile because of the goofy names) and feeling like Alice in Wonderland at the Red Queen's court at the upside down-ness of it all, it is unmistakable that there is a sea change under way in US patent law, and it shows vividly in this decision. If you wondered if KSR made any difference, here is your answer.
I left off three of the signature pages, the last three, in the text version of the YouTube/Viacom stipulation. They go on and on because Viacom is joined by so many other companies in going after YouTube, and they all have to sign the stipulation. In case you want a list of folks who haven't yet mastered this Internet tubes thingie, you might start with that list.
UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
VIACOM INTERNATIONAL INC.,
COUNTRY MUSIC TELEVISION, INC.,
PARAMOUNT PICTURES CORPORATION,
and BLACK ENTERTAINMENT TELEVISION
YOUTUBE, INC., YOUTUBE, LLC, and
Civil Action No. 07-CV-2103
THE FOOTBALL ASSOCIATION PREMIER
LEAGUE LIMITED, BOURNE CO. (together
with its affiliate MURBO MUSIC PUBLISHING,
INC.), CHERRY LANE MUSIC PUBLISHING
COMPANY, INC., CAL IV ENTERTAINMENT
LLC, ROBERT TUR d/b/a LOS ANGELES
NEWS SERVICE, NATIONAL MUSIC
PUBLISHERS ASSOCIATION, THE RODGERS
& HAMMERSTEIN ORGANIZATION, STAGE
THREE MUSIC (US), INC., EDWARD B.
BIENSTOCK MUSIC COMPANY d/b/a
BIENSTOCK PUBLISHING COMPANY,
ALLEY MUSIC CORPORATION, X-RAY DOG
MUSIC, INC., FEDERATION FRANCAISE DE
TENNIS, THE SCOTTISH PREMIER LEAGUE
LIMITED, THE MUSIC FORCE MEDIA
GROUP LLC, THE MUSIC FORCE LLC, and
SINDROME RECORDS, LTD. on behalf of
themselves and all others similarly situated,
YOUTUBE, INC., YOUTUBE, LLC and
Civil Action No. 07-CV-3582
JULY 1, 2008 OPINION AND ORDER
WHEREAS, the parties seek to address Defendants’ production obligations with
respect to Section 4 of the Court’s Opinion and Order dated July 1, 2008 (“Order”) in
light of certain user privacy concerns which have been raised;
IT IS HEREBY STIPULATED AND AGREED, by and between the undersigned
counsel of record:
1. Substituted Values: When producing data from the Logging Database
pursuant to the Order, Defendants shall substitute values while preserving uniqueness for
entries in the following fields: User ID, IP Address and Visitor ID. The parties shall
agree as promptly as feasible on a specific protocol to govern this substitution whereby
each unique value contained in these fields shall be assigned a correlative unique
substituted value, and preexisting interdependencies shall be retained in the version of the
data produced. Defendants shall promptly (no later than 7 business days after execution
of this Stipulation) provide a proposed protocol for this substitution. Defendants agree to
reasonably consult with Plaintiffs’ consultant if necessary to reach agreement on the
2. Non-Circumvention: The parties agree that they shall not engage in any
efforts to circumvent the encryption utilized pursuant to Paragraph 1 this Stipulation.
This Paragraph does not limit in any way any party’s rights under Paragraph 8 below.
3. Data Relating to Parties’ Viewing Activities: The parties do not agree
whether the arrangements contained in Paragraph 1 should extend to records reflecting
the business activities of the parties’ employees and agents, including whether the
obligations are reciprocal. The parties do not intend for this Stipulation to resolve this
issue. Defendants shall produce data from the Logging Database relating to the foregoing
activities in anonymized form as provided in Paragraph 1. The parties will meet and
confer within 14 days of the execution of this Stipulation concerning records reflecting
the business activities of the parties’ employees and agents. If the parties cannot reach
agreement on this issue, any party may submit it to the court.
4. Defendants’ Use of Original Data: In connection with their defense of
these lawsuits, Defendants, their counsel, and their outside experts and consultants shall
not make use of any original versions of substituted data being produced from the
Logging Database, unless and until original versions of that data have been produced to
5. Intent of the Parties: Each party stipulates that it shall not seek to
preclude, in any aspect of this litigation, the use of the substituted data produced from the
Logging Database pursuant to Paragraph 1, on grounds that the substituted data, in and of
itself, allegedly constitutes or contains personally identifiable information.
6. Preservation: Nothing herein shall alter Defendants’ preservation
obligations, including the preservation of the Logging Database.
7. Other Obligations Under Court Orders: Any substitution of
information in accordance with the Stipulation shall not delay the parties’ production of
material otherwise called for by the Court’s Orders.
8. Without Prejudice: This agreement shall be without prejudice to the
parties’ rights to seek and object to further discovery on any topic.
AGREED and STIPULATED
July 14, 2008
Attorney for Viacom International Inc.,
Comedy Partners, Country Music Television,
Inc., Paramount Pictures Corporation, and
Black Entertainment Television, LLC
Donald B. Verrilli, Jr. (No. DV-xxx)
JENNER & BLOCK LLP
[address, phone, fax]
Stuart J. Baskin (SB-xxxx)
SHERMAN & STERLING LLP
[address, phone, fax]
AGREED and STIPULATED
Attorney for YouTube, Inc., YouTube, LLC
and Google Inc.
Andrew H. Schapiro
A. John P. Mancini
MAYER BROWN LLP
[address, phone, fax]
David H. Kramer
Maura L. Rees
Michael H. Rubin
Bart E. Volkmer
WILSON SONSINI GOODRICH &
United States Court of Appeals for the Federal Circuit
MUNIAUCTION, INC. (doing business as Grant Street Group),
THOMSON CORPORATION (trading and doing business as Thomson Financial LLC
and Thomson Financial Municipals Group) and I-DEAL, LLC,
Raymond P. Niro, Niro, Scavone, Haller & Niro, of Chicago, Illinois, argued for plaintiff-appellee. With him on the brief were John C. Janka and Sally Wiggins. Of counsel was
Douglas M. Hall. Of counsel on the brief was Lisa Heinzerling, Georgetown University Law
Center, of Washington, DC.
Richard L. Rainey, Covington & Burling LLP, of Washington, DC, argued for
defendants-appellants. With him on the brief were Anthony Herman, and Scott C.
Weidenfeller. Of counsel were Alissa K. Lipton and Peter A. Swanson.
Appealed from: United States District Court for the Western District of Pennsylvania
Judge Gary L. Lancaster
United States Court of Appeals for the Federal Circuit
MUNIAUCTION, INC. (doing business as Grant Street Group),
THOMSON CORPORATION (trading and doing business as Thomson Financial LLC
and Thomson Financial Municipals Group) and I-DEAL, LLC,
Appeal from the United States District Court for the Western District of Pennsylvania in
case no. 01-CV-1003, Judge Gary l. Lancaster.
DECIDED: July 14, 2008
Before GAJARSA, Circuit Judge, PLAGER, Senior Circuit Judge, and PROST, Circuit
GAJARSA, Circuit Judge.
This is a patent infringement case. Thomson Corporation and I-Deal, LLC
(collectively “Thomson”) appeal from a final judgment, after a jury trial, that the asserted
claims of U.S. Patent No. 6,161,099 (“the ’099 patent”) are not obvious, that Thomson
willfully infringed the asserted claims of the ’099 patent, that Muniauction, Inc. is entitled
to approximately $77 million for lost profits damages enhanced for Thomson’s willful
infringement, and that Thomson is permanently enjoined from continued infringement of
the ’099 patent. Muniauction, Inc. v. Thomson Corp., 502 F. Supp. 2d 477 (W.D. Pa.
2007). Because claims 1, 9, 14, 31, 36, and 56 of the ’099 patent are obvious as a
matter of law, the judgment of nonobviousness is reversed as to these claims.
Similarly, because Thomson does not infringe the remaining asserted claims as a
matter of law, the judgment of infringement is reversed, and the remainder of the final
judgment is vacated.
The ’099 patent is directed to electronic methods for conducting “original issuer
auctions of financial instruments.” ’099 patent col.2 II.49–50. Specifically, the ’099
patent is directed to original issuer municipal bond auctions over an electronic network,
e.g., the Internet, using a web browser. Id. at col.1 II.13–15. In this type of auction, the
municipality (“issuer”) offers its bonds to underwriters (“bidders”), who typically bid on
and purchase the entire bond offering, i.e., all-or-none bidding, and thereafter resell
individual bonds to the public. Id. at col.6 II.11–13. A bond offering may be a package
of debt instruments consisting of bonds having different principle amounts and having
different maturity dates. Id. at col.6 II.19–22. A bidder submits a price and a related
interest rate represented by a coupon for each of the bonds differentiated by a
respective maturity date. Accordingly, the best bid is determined according to the true
interest cost (“TIC”) to the issuer based on the blended rates for each package of the
aggregated submissions made by the bidder. Id. at col.6 II.20–26, col.9 II.4–55. In
addition to all-or-none bidding, the ’099 patent discloses maturity-by-maturity bidding by
which a bidder may bid on less than the entire debt offering. Id. at col.5 II.23–65, col.13
The ’099 patent discusses many prior art electronic auction and trading systems,
yet criticizes those systems as inapplicable to original issuer auctions of financial
instruments. Id. at col.2 II.49–60. The ’099 patent also discusses the Parity® electronic
bid submission system, developed by 21st Century Municipals, Inc. for use in municipal
bond auctions. “The PARITY bid submission system allows bidders who have
previously obtained and installed appropriate software to electronically submit bids in an
auction over a computer network.” Id. at col.3 II.4–7. The ’099 patent criticizes the
Parity® system for three reasons. First, the prior art system requires bidders to obtain
and install the Parity® software prior to participating in an auction over the computer
network; second, the system “is designed to be used together with fax and other bid
submission methods during an auction”; and third, the system operates as a sealed bid
system in which the received bids are not evaluated and no feedback is provided to the
bidders until the auction closes. Id. at col.3 II.4–12.
Accordingly, the invention of the ’099 patent provides an "integrated system on a
single server" that allows issuers to run the auction and bidders to prepare and submit
bids using a conventional web browser, without the use of other separate software. Id.
at col.5 II.13–28. The system of the ’099 patent also allows issuers to monitor the
progress of the auction and allows bidders to monitor their bid vis-ŕ-vis the current best
bid. Id. at col.12 I.60 to col.13 I.60. Claim 1 states:
In an electronic auction system including an issuer’s
computer having a display and at least one bidder’s
computer having an input device and a display, said bidder’s
computer being located remotely from said issuer’s
computer, said computers being coupled to at least one
electronic network for communicating data messages
between said computers, an electronic auctioning process
for auctioning fixed income financial instruments comprising:
inputting data associated with at least one bid for at least
one fixed income financial instrument into said bidder’s
computer via said input device;
automatically computing at least one interest cost value
based at least in part on said inputted data, said
automatically computed interest cost value specifying a rate
representing borrowing cost associated with said at least
one fixed income financial instrument;
submitting said bid by transmitting at least some of said
inputted data from said bidder’s computer over said at least
one electronic network; and
communicating at least one message associated with said
submitted bid to said issuer’s computer over said at least
one electronic network and displaying, on said issuer’s
computer display, information associated with said bid
including said computed interest cost value,
wherein at least one of the inputting step, the automatically
computing step, the submitting step, the communicating step
and the displaying step is performed using a web browser.
Id. at col.14 I.41 to col.15 I.2.
The accused process has as its genesis the Parity® system discussed in the
’099 patent. Originally introduced in 1992, Parity® allowed bidders using a modem to
access bid calculation software on a central server over a proprietary computer network
and input data to calculate a TIC for a given bid. Bidders could then submit a bid over
the electronic network to a central server, which ordered the bids according to TICs and
transmitted the bids to issuers’ computers for display. In 1995, 21st Century Municipals
modified Parity® to work with other bid calculation programs, including Thomson’s
BidComp software, originally introduced in 1988. In 1997, Thomson acquired Parity®
from 21st Century Municipals and integrated the BidComp and Parity® products into a
single system marketed as BidComp/Parity®. In 1998, Thomson modified
BidComp/Parity® to allow issuers to view bids over the Internet using a web browser
rather than over a proprietary computer network.
On June 1, 2001, Muniauction filed suit against Thomson, alleging that Thomson
infringes method claims 1, 2, 9, 14, 18, 20, 24, 31, 32, 36, 40, 42, 46, and 56 of the ’099
patent when it conducts auctions on its BidComp/Parity® system. After trial, a jury
found that the asserted claims were not obvious and that Muniauction, Inc. was entitled
to $38,482,008 in lost profits damages for Thomson’s willful infringement. On October
20, 2006, Thomson filed a motion for judgment as a matter of law (“JMOL”) or a new
trial, asserting, inter alia, that the claims of the ’099 patent were obvious and that
Thomson did not infringe the claims under the appropriate standard for joint
infringement. On April 30, 2007, the Supreme Court issued KSR International Co. v.
Teleflex Inc., which rejected a rigid application of this court’s teaching-suggestion-motivation test for obviousness. 127 S. Ct. 1727, 1739 (2007). The district court
considered KSR, but denied Thomson’s motion in all respects, enhanced the damages
award to $76.9 million, awarded $7.7 million in pre-judgment interest, and granted a
permanent injunction against Thomson. The district court entered a final judgment on
July 30, 2007, and Thomson filed a timely notice of appeal on August 1, 2007.
Thomson also sought a stay of the injunction pending appeal.
While the appeal was pending, this court issued two opinions relevant to issues
presented by this case. First, on August 20, 2007, In re Seagate Technology, LLC
changed the standard of willful infringement from one akin to negligence to that of
objective recklessness. 497 F.3d 1360, 1371 (Fed. Cir. 2007). Second, on September
20, 2007, BMC Resources, Inc. v. Paymentech, L.P. held that where steps of a method
claim are performed by multiple parties, the entire method must be performed at the
control or direction of the alleged direct infringer. 498 F.3d 1373, 1380–81 (Fed. Cir.
2007). This court thus granted Thomson’s motion for a stay of the injunction pending
appeal, concluding that Thomson had shown a likelihood of success on the merits
under BMC Resources. Muniauction, Inc. v. Thomson Corp., 07-1485, 2007 WL
2827915 (Fed. Cir. Sept. 28, 2007). We have jurisdiction over this appeal pursuant to
28 U.S.C. § 1295(a).
The denial of a JMOL motion is “a procedural issue not unique to patent law,
which we review under the law of the regional circuit where the appeal from the district
court normally would lie.” Riverwood Int’l Corp. v. R.A. Jones & Co., 324 F.3d 1346,
1352 (Fed. Cir. 2003). Under Third Circuit law, “[w]e exercise plenary review of an
order granting or denying a motion for judgment as a matter of law and apply the same
standard as the district court.” Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1166
(3d Cir. 1993); see also Juicy Whip v. Orange Bang, 292 F.3d 728, 736 (Fed. Cir.
At trial and in its Motion for Judgment as a Matter of Law or for a New Trial
(“JMOL Motion”), Thomson argued that the asserted claims were obvious over a
proposed modification of the prior art Parity® system to incorporate the use of a web
browser. Muniauction, 502 F. Supp. 2d at 491. In its denial of Thomson’s motion, the
district court concluded that substantial evidence supported the jury’s verdict that
Thomson had not proved the invalidity of the asserted claims of the ’099 patent by clear
and convincing evidence. First, the district court concluded that “the jury could only
reasonably have found that [Parity®] did not contain all of the elements found in the
asserted claims of the ’099 Patent.”Id. Second, the court noted that the jury’s verdict
was supported by sufficient evidence of secondary indicia that the asserted claims were
not obvious. Id. We disagree.
When reviewing the denial of a JMOL motion, “‘[t]his court reviews a jury's
conclusions on obviousness, a question of law, without deference, and the underlying
findings of fact, whether explicit or implicit within the verdict, for substantial evidence.’”
Dippin’ Dots, Inc. v. Mosey, 476 F.3d 1337, 1343 (Fed. Cir. 2007) (quoting LNP Eng’g
Plastics, Inc. v. Miller Waste Mills, Inc., 275 F.3d 1347, 1353 (Fed. Cir. 2001)); accord
PharmaStem Therapeutics, Inc. v. ViaCell, Inc., 491 F.3d 1342, 1360 (Fed. Cir. 2007)
(citing Caver v. City of Trenton, 420 F.3d 243, 262 (3d Cir. 2005)). “Those factual
underpinnings include the scope and content of the prior art, differences between the
prior art and the claims at issue, and the level of ordinary skill in the art.” Dippin’ Dots,
476 F.3d at 1343 (citing Graham v. John Deere Co., 383 U.S. 1, 17–18 (1966)).
The first issue we address with respect to obviousness is the scope and content
of the prior art—specifically whether the prior art exhibited every step of the methods
claimed in independent claims 1 and 31 of the ’099 patent. Thomson argues that a
bidding process employing the prior art Parity® system performed every step of the
claimed methods other than a web browser. Because Muniauction’s expert conceded
that bid submissions using Parity® performed every limitation of claims 1 and 31 as
construed by the district court, other than a web browser, no reasonable juror could find
to the contrary.
At trial and on appeal, the parties dispute whether bid submissions using the
Parity® system performed the step of “automatically computing at least one interest cost
value based at least in part on said inputted data” (the “automatic computation step”),
which appears in both independent claims 1 and 31. ’099 patent col.14 ll.54–57, col.17
II.1–5. The court noted that in the Notice of Allowability, the Examiner concluded that
articles related to the trademark registration of Parity® and trade press releases
supported the applicant’s argument that Parity® did not perform the automatic
computation step. Muniauction, 502 F. Supp. 2d at 491; see also Notice of Allowability,
U.S. App. No. 09/087,574 at 2–3 (Aug. 24, 2000). However, the testimony of
Muniauction’s expert establishes that the Examiner’s conclusion was incorrect under the
district court’s construction of the automatic computation step.
The district court construed the automatic computation step as “calculating,
without further action by the user, an interest cost value, representing borrowing cost
associated with an original issue fixed income financial instrument, based at least in part
on the information put into a bidder's computer in the previous step.” Muniauction, Inc.
v. Thomson Corp., No. 01-CV-1003 at 15 (Aug. 11, 2006) (“Claim Construction Order”).
The court also concluded that the automatic computation step was not claimed as being
performed in a specific location—e.g., it “could be performed on the bidder’s computer,
where the bid data has been inputted, or, at some other location where the data has
been transferred for the purpose of computation.” Id. at 10. On direct examination,
Muniauction’s liability expert, Don O’Neill, testified that Parity® “didn’t do” the automatic
computation step because bid calculations were performed using independent software
on the bidder’s computer, which were then transferred using a Parity® export file. On
cross-examination, however, Mr. O’Neill clarified that his conclusion that Parity® did not
perform the automatic computation step was based on the absence of “an automatically
computing calculator” in the Parity® system. Mr. O’Neill further testified that Parity®
“did automatically compute a true interest cost” in the sense that bidders did not have to
compute bids by hand and that Parity® re-did some of the computation done by the
bidder’s software during bid preparation.
Only Mr. O’Neill’s testimony on cross-examination is relevant to the inquiry of
whether the automatic computation step is disclosed by the prior art. When testifying on
invalidity, “[a]n expert must ‘[compare] the construed claims to the prior art.’” Tivo, Inc.
v. Echostar Comm’ns Corp., 516 F.3d 1290, 1311 (Fed. Cir. 2008) (second alteration in
original) (quoting Helifix, Ltd. v. Blok-Lok, Ltd., 208 F.3d 1339, 1346 (Fed. Cir. 2000)).
As discussed above, Mr. O’Neill explicitly stated that his original conclusion on direct
examination was based on the absence of “an automatically computing calculator” from
Parity®, a limitation not required by the claims. The district court specifically construed
the automatic computation step as capable of being performed on the bidder’s
computer, Claim Construction Order at 10, and Mr. O’Neill testified that this is exactly
what happened when a user submitted a bid using Parity®. Accordingly, we conclude
that substantial evidence does not support a finding that the submission of bids using
Parity® lacked any element of independent claims 1 and 31 other than the use of a web
Having ascertained the differences between the prior art Parity® system and the
independent claims of the ’099 patent, we turn to the legal question of whether it would
have been obvious to one of ordinary skill in the art to modify the Parity® system to
incorporate conventional web browser functionality. Section 103 of Title 35 “forbids
issuance of a patent when ‘the differences between the subject matter sought to be
patented and the prior art are such that the subject matter as a whole would have been
obvious at the time the invention was made to a person having ordinary skill in the art to
which said subject matter pertains.’” KSR Int’l Co. v. Teleflex Inc., 127 S. Ct. 1727,
1734 (2007) (quoting 35 U.S.C. § 103). A central principle in this inquiry is that “a court
must ask whether the improvement is more than the predictable use of prior art
elements according to their established functions.” Id. at 1740. On the record before
us, we answer this question in the negative and conclude that claims 1 and 31 of the
’099 patent are obvious as a matter of law.
When the ’099 patent’s application was filed on May 29, 1998, the use of web
browsers was well known. Indeed, the written description of the ’099 patent itself
identifies the invention as using “a conventional Internet browser,” ’099 patent, Abstract,
and “conventional web browsing software,” id. at col.6 I.43. The use of “conventional” to
modify “Internet browser” and “web browsing software” denotes a reference to web
browsers in existence at the time of the alleged invention of the ’099 patent. See PC
Connector Solutions LLC v. SmartDisk Corp., 406 F.3d 1359, 1363 (Fed. Cir. 2005)
(concluding that term “conventional” is implicitly time dependent and construing “the
literal scope of the claim limitations qualified by th[at] term as being limited to
technologies existing at the time of the invention”). We therefore begin with an
understanding that the modification of Parity® to incorporate web browser functionality
represents a combination of two well known prior art elements to a person of ordinary
skill in the art.
In our analysis of the obviousness of independent claims 1 and 31, we recognize
our obligation to guard against any hindsight bias, see Graham v. John Deere Co., 386
U.S. 1, 36 (1966), but we note that the use of the internet and web browser technology
to conduct electronic auctions was well-established at the time the ’099 patent
application was filed. For example, U.S. Patent No. 5,794,219, filed on February 20,
1996, discloses an online auction wherein bids are submitted using internet browsers
such as Netscape. ’219 patent Fig. 1, col.5 II.14–30. Similarly, U.S. Patent No.
5,835,896, filed on March 29, 1996, also discloses the use of the World Wide Web and
a web browser to conduct on electronic auction. ’896 patent Fig. 3, col.6 II.23–38.
Although neither the ’219 patent nor the ’896 patent specifically address original issuer
auctions of financial instruments, “[w]hen a work is available in one field of endeavor,
design incentives and other market forces can prompt variations of it, either in the same
field or a different one.” KSR, 127 S. Ct. at 1740. With regard to this case, a speech
given in May of 1996 at a meeting of the Government Finance Officer’s Association
(“GFOA”) explicitly addressed the desirability of using World Wide Web technology to
distribute debt issue to consumers. Girard Miller, Technical Servs. Dir., GFOA, Speech
at the 1996 General Session of the GFOA Conference (May 18–22, 1996). At a
minimum, this speech suggests “the effects of demands known to the design community
or present in the marketplace,” KSR, 127 S. Ct. at 1740, thereby indicating the
obviousness of the claimed combination.
Finally, the combination of known elements present in this case is quite similar to
that in Leapfrog Enterprises, Inc. v. Fisher-Price, Inc., 485 F.3d 1157 (Fed. Cir. 2007).
In Leapfrog, the court ruled that “[a]ccommodating a prior art mechanical device that
accomplishes [the goal of teaching a child to read phonetically] to modern electronics
would have been reasonably obvious to one of ordinary skill in designing children’s
learning devices.” 485 F.3d at 1161. The court reached this result based in part on its
reasoning that “[a]pplying modern electronics to older mechanical devices has been
commonplace in recent years.” Id. The record in this case demonstrates that adapting
existing electronic processes to incorporate modern internet and web browser
technology was similarly commonplace at the time the ’099 patent application was filed.
When there is a design need or market pressure to solve a
problem and there are a finite number of identified,
predictable solutions, a person of ordinary skill has good
reason to pursue the known options within his or her
technical grasp. If this leads to the anticipated success, it is
likely the product not of innovation but of ordinary skill and
common sense. In that instance the fact that a combination
was obvious to try might show that it was obvious under
KSR, 127 S. Ct. at 1742.
Muniauction argues, notwithstanding this trend, that the incorporation of web
browser functionality into existing electronic prior art systems was nevertheless beyond
the ability of a person of ordinary skill in the art at the time the ’099 patent application
was filed. In particular, Muniauction claims that a person of ordinary skill would not
have known how to use a web browser to implement certain steps of methods claimed
in the ’099 patent. Thomson responds by noting that the ’219 patent teaches the use of
a web browser both to communicate information associated with a bid over an
electronic network and to display information associated with a bid. In light of this
teaching, we are not persuaded by Muniauction’s argument that a person of ordinary
skill would not have known how to implement the communicating and displaying steps
of the ’099 patent with a web browser during the relevant time period.
Under the foregoing analysis, we conclude that Thomson has clearly and
convincingly established a prima facie case that claims 1 and 31 of the ’099 patent are
obvious as a matter of law. Accordingly, we turn to Muniauction’s attempt to rebut this
prima facia case with secondary considerations of nonobviousness.
In its denial of Thomson’s JMOL motion, the district court noted that “[p]laintiff
presented evidence of skepticism, legally appropriate praise, copying, and commercial success."
Muniauction, 502 F. Supp. 2d at 491. The district court ruled that the
evidence presented by Muniauction on these secondary considerations was sufficient
for the jury to have concluded that Thomson failed to prove obviousness by clear and
convincing evidence. Id. We disagree for two reasons. First, at least some of the
factors argued by Muniauction lack the requisite nexus to the claims. Second, to the
extent that some of the factors arguably meet the nexus requirement, their relationship
to the claims is simply too attenuated to overcome the strong prima facie demonstration
by Thomson that the claims are obvious.
For us to accord substantial weight to the secondary considerations proffered by
Muniauction, “[a] nexus between the merits of the claimed invention and evidence of
secondary considerations is required in order for the evidence to be given substantial
weight in an obviousness decision.” Ruiz v. A.B. Chance Co., 234 F.3d 654, 668 (Fed.
Cir. 2000) (quoting Simmons Fastener Corp. v. Ill. Tool Works, Inc., 739 F.2d 1573,
1575 (Fed. Cir. 1984)). Put another way, commercial success or other secondary
considerations may presumptively be attributed to the patented invention only where
“‘the marketed product embodies the claimed features, and is coextensive with them.’”
Ormco Corp. v. Align Tech., Inc., 463 F.3d 1299, 1311–12 (Fed. Cir. 2006) (quoting
Brown & Williamson Tobacco Corp. v. Philip Morris Inc., 229 F.3d 1120, 1130 (Fed. Cir.
Muniauction claims, for example, that legally appropriate praise in the form of an
“Innovations in American Government” award to the City of Pittsburgh for its use of the
Muniauction system tends to rebut any prima facie showing of obviousness. The press
coverage of the award in the record, however, focuses on the availability of maturity-by-maturity bidding in the Muniauction system, as compared to the conventional all-or-none
bidding. Although both auction types are disclosed in the written description of the ’099
patent, see ’099 patent col.5 II.23–65, col.13 II.31–33, claims 1 and 31 include
conventional all-or-none bidding, as well as maturity-by-maturity bidding. Thus, the
1999 award lacks the required nexus with the scope of the claims. In addition, the
same press coverage of the Innovations in American Government award also
demonstrates that the source of much of the skepticism was the large investment banks
who were advantaged by the existing all-or-none bidding system. This type of market-force skepticism also lacks the requisite nexus to the claimed invention. Finally, as to
any remaining secondary considerations, the evidence is simply inadequate to
overcome a final conclusion that independent claims 1 and 31 are obvious as a matter
of law. Cf. Leapfrog, 485 F.3d at 1162 (“given the strength of the prima facie
obviousness showing, the evidence on secondary considerations was inadequate to
overcome a final conclusion that claim 25 would have been obvious”).
In addition to independent claims 1 and 31, Mr. O’Neill also testified that
elements of certain asserted dependent claims were also performed when an electronic
bid was submitted using the Parity® system. In particular, O’Neill testified that Parity®
met the limitations of claims 9, 14, 36, and 56. Accordingly, these claims are also
obvious under our analysis of independent claims 1 and 31. Because we do not reach
a similar conclusion with respect to the remaining dependent claims—2, 18, 20, 24, 32,
40, 42, and 46—we must consider whether they are infringed by Thomson.
Turning to infringement of the remaining dependent claims, the only theory of
infringement presented by Muniauction is that of so-called joint infringement. The law of
this circuit is axiomatic that a method claim is directly infringed only if each step of the
claimed method is performed. BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d
1373, 1378–79 (Fed. Cir. 2007) (citing cases). With respect to the ’099 patent, the
parties do not dispute that no single party performs every step of the asserted claims.
For example, at least the inputting step of claim 1 is completed by the bidder, whereas
at least a majority of the remaining steps are performed by the auctioneer’s system
(e.g., Thomson’s BidComp/Parity® system). The issue is thus whether the actions of at
least the bidder and the auctioneer may be combined under the law so as to give rise to
a finding of direct infringement by the auctioneer.
In BMC Resources, this court clarified the proper standard for whether a method
claim is directly infringed by the combined actions of multiple parties. The court’s
analysis was founded on the proposition that direct infringement requires a single party
to perform every step of a claimed method. 498 F.3d at 1380 (concluding that this
requirement derived directly from 35 U.S.C. § 271(a)); see also NTP, Inc. v. Research in
Motion, 418 F.3d 1282, 1317–18 (Fed. Cir. 2005) (holding that users of accused system
could not infringe method claims in the United States because one step of the method
was performed in Canada). Yet the court recognized a tension between this proposition
and the well-settled rule that “a defendant cannot thus avoid liability for direct
infringement by having someone else carry out one or more of the claimed steps on its
behalf.” Id. at 1379. Accordingly, where the actions of multiple parties combine to
perform every step of a claimed method, the claim is directly infringed only if one party
exercises “control or direction” over the entire process such that every step is
attributable to the controlling party, i.e., the “mastermind.” Id. at 1380–81. At the other
end of this multi-party spectrum, mere “arms-length cooperation” will not give rise to
direct infringement by any party. Id. at 1371.
Under BMC Resources then, the issue of infringement in this case turns on
whether Thomson sufficiently controls or directs other parties (e.g., the bidder) such that
Thomson itself can be said to have performed every step of the asserted claims. In its
denial of Thomson’s JMOL motion, before BMC Resources issued, the district court
purported to apply the standards of On Demand Machine Corp. v. Ingram Industries,
Inc., 442 F.3d 1331 (Fed. Cir. 2006). The district court read that case as requiring a
connection less than “direct control,” and thus found that “[t]here was sufficient evidence
for the jury to have found the required connection between defendants, the bidders to
whom they charge a fee for their services, and the issuers for whom they facilitate
auctions, under the appropriate legal standards as set forth in the instructions.”
Muniauction, 502 F. Supp. 2d at 492. The jury instruction on joint infringement read as
Consider whether the parties are acting jointly or together in
relation to the electronic auction process. Are they aware of
each other's existence and interacting with each other in
relation to the electronic auction process? Is there one party
teaching, instructing, or facilitating the other party's
participation in the electronic auction process? These are the
types of questions that you should ask in making your
decision on this issue. If you find that there is a sufficient
connection between Thomson and the bidders and the
issuers that used Thomson’s process, then you could find
Thomson liable for direct infringement.
However, this court in BMC Resources explicitly affirmed a reading of On Demand as
“not in any way rely[ing] on the relationship between the parties.” 498 F.3d at 1380.
Moreover, none of the questions identified by the jury instruction are relevant to whether
Thomson satisfies the “control or direction” standard of BMC Resources. That
Thomson controls access to its system and instructs bidders on its use is not sufficient
to incur liability for direct infringement.
Under BMC Resources, the control or direction standard is satisfied in situations
where the law would traditionally hold the accused direct infringer vicariously liable for
the acts committed by another party that are required to complete performance of a
claimed method. 498 F.3d at 1379; accord Int’l Rectifier v. Samsung Elecs. Co., 361
F.3d 1355, 1361 (Fed. Cir. 2004) (reversing district court’s ruling that Samsung violated
a permanent injunction prohibiting infringement in the United States on the grounds that
Samsung did not control or participate in the extraterritorial activities of a third party
such that the acts of the third party were not attributable to Samsung). In this case,
Thomson neither performed every step of the claimed methods nor had another party
perform steps on its behalf, and Muniauction has identified no legal theory under which
Thomson might be vicariously liable for the actions of the bidders. Therefore, Thomson
does not infringe the asserted claims as a matter of law.
Because we conclude that claims 1, 9, 14, 31, 36, and 56 are obvious, the
judgment that these claims are valid is reversed. Because we conclude that claims 2,
18, 20, 24, 32, 40, 42, and 46 are not infringed, the infringement judgment is also
reversed. Finally, given our holdings on invalidity and noninfringement, we need not
consider Thomson’s remaining arguments presented on appeal. Accordingly, the
remainder of the district court’s judgment is vacated.
REVERSE-IN-PART AND VACATE-IN-PART
Costs to Thomson.
Although the ’219 patent did not issue until after the ’099 patent was filed,
it is prior art to the ’099 patent under 35 U.S.C. § 102(e)(2)—“a patent granted on an
application for patent by another filed in the United States before the invention by the
applicant for patent.”
The ’896 patent is also § 102(e)(2) prior art to the ’099 patent.
Because the ’099 patent is itself silent regarding how to actually implement the
methods claimed therein with a web browser, Muniauction’s argument therefore might
suggest that the claims present an enablement issue, rather than support a conclusion
of nonobviousness. See, e.g., Sitrick v. Dreamworks, LLC, 516 F.3d 993, 999 (Fed. Cir.
2008) (“The ‘enablement requirement is satisfied when one skilled in the art, after
reading the specification, could practice the claimed invention without undue
experimentation.’” (quoting AK Steel Corp. v. Sollac, 344 F.3d 1234, 1238–39 (Fed. Cir.
We further note that our conclusion as to the nexus between this award
and the claims is consistent with the long-established rule that “[c]laims which are broad
enough to read on obvious subject matter are unpatentable even though they also read
on nonobvious subject matter.” In re Lintner, 458 F.2d 1013, 1007 (CCPA 1972) (citing
In re Mraz, 455 F.2d 1069, 1073 (CCPA 1972)).
The inputting step of claim 1 requires “inputting data associated with at
least one bid for at least one fixed income financial instrument into said bidder’s
computer via said input device.” Although we conclude that claims 1 and 31 are invalid
as a matter of law, we will, for convenience, confine our infringement analysis to these
independent claims. A conclusion of noninfringement as to the independent claims
requires a conclusion of noninfringement as to the dependent claims. See, e.g.,
Monsanto Co. v. Syngenta Seeds, Inc., 503 F.3d 1352, 1359 (Fed. Cir. 2007).