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JMOL Based on Lack of Standing Affirmed Where Third Party Had an Ownership Interest in the Asserted Patent

September 25, 2008
Kabakoff, Stephen E.

Decision icon Decision

Last Month at the Federal Circuit - October 2008

Judges: Lourie, Bryson, Prost (author)

[Appealed from: S.D. Cal., Judge Brewster]

In Lucent Technologies, Inc. v. Gateway, Inc., Nos. 07-1546, -1580 (Fed. Cir. Sept. 25, 2008), the Federal Circuit affirmed the district court’s grant of JMOL based on lack of standing with regard to U.S. Patent No. RE 39,080 (“the ’080 patent”) and based on noninfringement of U.S. Patent No. 5,341,457 (“the ’457 patent”).

The patents at issue are directed to methods of compressing digital audio files. James Johnston and Joseph Hall are the listed inventors on the earliest application related to the patents-in-suit, Application No. 07/292,598 (“the ’598 application”). They are also the inventors of the ’457 patent, which is a continuation of the ’598 application. Mr. Johnston is the sole inventor of U.S. Patent No. 5,627,938 (“the ’938 patent”). Following a reissue proceeding, the ’938 patent was surrendered in favor of the ’080 patent, which claims priority as a CIP to the ’598 application.

The ’080 patent was developed pursuant to a Joint Defense Agreement (“JDA”) between Lucent Technologies, Inc.’s (“Lucent”) predecessor, AT&T Bell Laboratories (“AT&T”), and the German company, Fraunhofer Gesellschaft (“Fraunhofer”). According to the JDA, AT&T and Fraunhofer preserved their ownership rights to “Existing Technology” developed prior to April 1989. However, “New Work,” developed jointly by AT&T and Fraunhofer under the JDA, was to be jointly owned, and each company had a nonexclusive right to make use of or grant nonexclusive licenses to the New Work.

Lucent filed suit against Gateway, Inc. and Dell, Inc. Both cases were transferred and consolidated in the Southern District of California, where Microsoft Corporation (“Microsoft”) intervened and filed a DJ complaint against Lucent. After a jury trial, the jury found contributory and induced infringement of all asserted claims of the ’080 and ’457 patents, and rejected all invalidity defenses. The jury awarded damages in the amount of $1,538,056,702 for infringement of both patents. The district court set aside the jury’s verdict, dismissing Lucent’s infringement claims for the ’080 patent for lack of standing and granting JMOL of noninfringement for the ’457 patent. The district court also granted JMOL for a new trial on damages.

On appeal, the Federal Circuit agreed with the district court that Lucent did not have standing to sue for infringement of the ’080 patent. Lucent challenged the district court’s holding that it lacked standing to sue for the infringement of the ’080 patent in the absence of Fraunhofer on two grounds. First, Lucent averred that the district court erred in finding that two claims of the ’938 patent constituted New Work under the JDA. Alternatively, Lucent contended that, even if those claims were New Work, the district court erred in concluding that Fraunhofer was a co-owner of the ’938 patent, and thus the ’080 patent.

In support of its first argument that the two claims were not New Work, Lucent first argued that it was not necessary for there to be written descriptive support for the claims in the specification of the ’938 patent, since contract law, not patent law, governs. Lucent argued that, under the JDA, all that was required was for the claimed subject matter to have been in the public domain prior to April 1989. Lucent further argued that a person skilled in the art would have recognized the means claimed in the ’938 patent as existing in the prior art. The Federal Circuit disagreed, finding that there was no basis for Lucent to broadly read Existing Technology as encompassing any technology in the public domain prior to the JDA. The Court also disagreed with Lucent’s assertion that written description support in the specification was not relevant to determining when the claimed technology was developed. Rather, the Court noted that in order to be valid, each patent claim must meet all the statutory requirements, including written description under 35 U.S.C. § 112, first paragraph. Finally, the Court held that patent claims are awarded priority on a claim-by-claim basis, and certain claims in the ’080 patent contained New Work because they were not entitled to priority dates prior to the April 1989 critical date for distinguishing between New Work and Existing Technology.

The Federal Circuit also disagreed with Lucent’s contention that Fraunhofer was not a co-owner of the ’080 patent because AT&T merely granted a license to Fraunhofer for the claims incorporating New Work while retaining its ownership interest in the entire patent. In rejecting this argument, the Federal Circuit concluded that the ’080 patent contained some claims directed to AT&T’s Existing Technology and other claims that encompassed New Work under the JDA. The Court held that an inventor of one or more claims of the patent is an owner of all the claims of the patent. Consequently, the Court found that Fraunhofer was an owner of the ’080 patent, even though it did not contribute to the invention of the ’080 patent claims covering AT&T’s Existing Technology. The Court reasoned that AT&T had the ability to file separate patents for inventions constituting New Work and Existing Technology, but chose to include both inventions in a single application. Accordingly, the Court held that the ’080 patent was jointly owned by Lucent and Fraunhofer, and Lucent could not bring suit on the ’080 patent in the absence of Fraunhofer.

The Federal Circuit also held that the district court properly granted JMOL of noninfringement of the ’457 patent because the jury lacked substantial evidence to find infringement. At trial, Lucent relied on its expert, who testified that he could infer that Windows Media Player runs an infringing encoder called the “High Quality encoder” as a backup under certain conditions, although he lacked the means to observe the encoder ever being used. The Court acknowledged that a patentee may rely on either direct or circumstantial evidence to prove infringement, but found that Lucent failed to provide sufficient evidencet hat the infringing encoder had ever actually run on Windows Media Player. For this reason, the Court determined that it would be too speculative to conclude that Windows Media Player necessarily infringes the ’457 patent. Accordingly, the Court affirmed the grant of JMOL of noninfringement of the ’457 patent.