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Failure to Object to Special Master’s Claim Construction Within Period Specified by Court Order or Federal Rules Results in Waiver

10-1503
October 11, 2011

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Last Month at the Federal Circuit - November 2011

Judges: Rader, Prost, O’Malley (author)

[Appealed from: S.D. Tex., Senior Judge Werlein]

In Absolute Software, Inc. v. Stealth Signal, Inc., Nos. 10-1503, -1504 (Fed. Cir. Oct. 11, 2011), the Federal Circuit affirmed the district court’s construction of three key claim terms and grant of SJ of noninfringement to one party. The Court, however, vacated a grant of SJ of noninfringement to the other party, finding issues of material fact. Accordingly, the Court affirmed-in-part, vacated-in-part, and remanded for further proceedings.

Absolute Software, Inc. (“Absolute”) and Stealth Signal, Inc. (“Stealth”) sell competing software products designed to track lost or stolen laptop computers. Each side asserted claims of patent infringement against the other based on their respective software products. Absolute asserted three patents: U.S. Patent Nos. 6,244,758 (“the ’758 patent”); 6,300,863 (“the ’863 patent”); and 6,507,914 (“the ’914 patent”) (collectively the “Absolute Patents”). These patents relate to a method, apparatus, and system for retrieving lost or stolen electronic devices such as laptops and mobile devices via a global network such as the Internet. Under the ’758 patent, for example, the invention requires a software program (the “agent”) that can be loaded onto an electronic device such as a laptop computer. Using a global network, the agent software program communicates information about the identity and location of the protected electronic device to a host system, which uses the information to track the whereabouts of the device.

Stealth counterclaimed for infringement of U.S. Patent No. 5,406,269 (“the ’269 patent”), which Stealth licensed in response to Absolute’s assertion of patent infringement. The ’269 patent generally describes an invention that remotely monitors electronic devices by imbedding in such devices an agent that makes surreptitious calls to a central monitoring site at a semi-random rate.

For purposes of claim construction, the district court appointed a special master, who conducted hearings on the parties’ claim construction arguments and issued a Report and Recommendation on Claim Construction (“R&R”). When it appointed the special master, the district court entered an order requiring the parties to file any objections to the special master’s recommended claim construction within twenty days of the R&R. While Stealth objected to several aspects of the special master’s report, Absolute objected to only two portions of the report. Following the parties’ objections, the special master issued an Amendment to the R&R. The district court adopted the special master’s R&R as modified by the Amendment and subsequently granted both parties’ motions for SJ of noninfringement.

Absolute raised three issues on appeal: (1) the district court’s claim construction of the term “global network communication links”; (2) genuine issues of material fact precluding SJ of noninfringement of the ’758 and ’863 patents; and (3) genuine issues of material fact precluding SJ of noninfringement of the ’914 patent.

The Federal Circuit first concluded that Absolute waived its right to challenge the district court’s claim construction of the term “global network communication links” by failing to timely object to the special master’s construction of this term within the twenty-day period set forth in the district court’s order or according to the mechanism set forth in Federal Rule of Civil Procedure 53(f)(2). The Federal Circuit rejected Absolute’s argument that, because it argued its position to the special master prior to the issuance of his claim construction report, the argument was somehow “presented to the district court.” Slip op. at 15. Moreover, the Court did not find that any of the reasons the Court has enumerated in the past for considering an argument that was not properly presented below was present in this case.

Turning to SJ of noninfringement of the ’758 and ’863 patents, Absolute and Stealth disagreed as to whether Stealth’s XTool agent satisfied the “global network communication links” limitation. As interpreted by the special master, a “global network communication link” is a connection between two IP addresses in the Internet, as opposed to a single IP address by itself. Under this claim construction, the limitation is satisfied if the XTool agent provides the IP addresses of both the agent and the host.

After weighing the expert testimony of both sides, the Court found the following facts undisputed: (1) Stealth’s XTool agent provides a message packet to the host system with at least the agent’s IP address; and (2) the packet, when it arrives at the host system, contains the IP addresses of both the agent and the host. Given the gap in the record concerning whether the XTool agent—as opposed to any other component of a client device—also furnishes, supplies, or makes available the host’s IP address, the Court held that a genuine issue of material fact remained as to whether the limitation was satisfied by Stealth’s XTool agent.

Regarding SJ of noninfringement of the ’914 patent, Absolute and Stealth disagreed as to whether Stealth’s XTool agent meets the “contacting . . . without signaling” limitation found in the asserted claim. The parties did not dispute that Stealth’s XTool agent does not emit an audible signal when it establishes a connection with the host, but it does emit a beep “at the end of contact with the host.” Absolute argued that there are at least issues of fact as to whether the agent’s silence at the beginning of the connection and during communication constitutes “contacting . . . without signaling,” as that term was construed by the district court. The district court construed “contacting” as “getting in touch with or communicating with.”

The Federal Circuit found that Stealth neither sought to clarify this construction before the district court nor challenged it on appeal. Stealth’s own expert admitted that the XTool agent does not emit a sound when it establishes a connection with the host, thereby confirming that the agent meets this limitation. Moreover, the Court found issues of material fact as to the temporal relationship between the communication and the audible signal. For example, if there is a gap between the communication and the audible signal, a fact-finder might reasonably conclude that the communication is sufficiently removed from the signal that the communication is accomplished “without signaling.” The Court therefore vacated SJ of noninfringement of the ’914 patent.

The Federal Circuit turned next to the three issues that Stealth raised on cross-appeal: (1) the district court’s construction of the term “semi-random rate”; (2) genuine issues of material fact precluding SJ of noninfringement of the ’269 patent; and (3) the district court’s construction of the terms “unique usage agreement information” and “said terms of said usage agreement imbedded in said software.” The Court affirmed the district court’s decisions on all three issues.

First, the Court found that the term “semi-random rate,” as it appears in the ’269 patent, requires “transmission means for initiating, at a semi-random rate, the transmission of the message packet from the formatting means to the central site means of the system surreptitiously of a user of said electrical apparatus.” Slip op. at 24. The district court construed “semi-random rate” to mean “normally taking place exactly once at a randomly chosen time during each occurrence of a repeating predetermined time interval.” Id. (citation omitted). The special master based this construction on the ’269 patent’s description of the randomizer’s two functions: (1) ensuring that there is one call per time period, such as day/week/month; and (2) making sure that the call is made randomly only once during that period. This configuration allows the system to detect unlicensed copies of the software (if it receives multiple calls from the same serial number during a single time period) while preventing users from detecting when the agent will make the next call to the central site.

Second, the Federal Circuit concluded that Absolute’s software did not meet this limitation, either literally or under the DOE. Absolute’s software is designed to initiate a call to the monitoring center 24.5 hours following the completion of the last call. The Court found that, although unusual circumstances, such as lack of Internet availability, make the call interval unpredictable, the ’269 patent’s randomness requirement is not satisfied by mere unpredictability. With regard to infringement under the DOE, the Court held that Absolute’s 24.5-hour call interval was not equivalent to Stealth’s semi-random rate, because the two elements serve different functions. The function of Stealth’s semi-random rate is to detect piracy and to prevent users from detecting when the agent will make the next call to the central site. In contrast, the 24.5-hour interval built into Absolute’s products was designed to reduce the load on its server. Thus, the Court affirmed the district court’s holding that Absolute did not infringe the ’269 patent, either literally or under the DOE.

Finally, Stealth challenged the district court’s construction of the terms “unique usage information agreement” and “terms of said usage agreement imbedded in said software,” as they appear in the ’269 patent. Stealth argued for a construction of these terms that would be satisfied by a mere product serial number. Absolute would infringe under such a construction because its software sends an identifying serial number to the host. The Court, however, affirmed the district court’s construction of “information describing the unique usage agreement for this copy of the software, including a statement of the terms of that usage agreement.” The Court found no error in that interpretation, especially when considering that Stealth’s proposed construction would render the word “terms” meaningless.



Summary authored by Timothy V. Fisher, law clerk at Finnegan.