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In Upholding $74 Million Judgment, Federal Circuit Suggests Willingness to Afford Deference to District Court’s Assessment of Extrinsic Evidence in Construing Claims

06-1574
January 31, 2008

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Last Month at the Federal Circuit - February 2008

Judges: Bryson (author), Plager, Keeley (Chief District Judge sitting by designation)

[Appealed from: E.D. Tex., Judge Folsom]

In TiVo, Inc. v. EchoStar Communications Corp., No. 06-1574 (Fed. Cir. Jan. 31, 2008), the Federal Circuit reversed a judgment that EchoStar Communications Corporation’s (“EchoStar”) digital video recorder (“DVR”) devices infringe TiVo, Inc.’s (“TiVo”) hardware claims, but affirmed the judgment of infringement of TiVo’s software claims. Because the damages calculation at trial was not predicated on the infringement of particular claims, the Court affirmed the damages entered by the district court.

TiVo owns U.S. Patent No. 6,233,389 (“the ’389 patent”), which allows television users to “time-shift” television signals—that is, to record a television program in digital format and enable the user to replay, pause, fast forward, or reverse while the program is playing on the television set. In 2004, TiVo sued EchoStar and others for patent infringement, alleging that two types of EchoStar DVRs—the 50X and the Broadcom—infringed the ’389 patent. The accused DVRs receive analog and digital signals, but perform time shifting only for digital satellite signals. The accused DVRs store data relating to digital signals on a hard disk in MPEG format. Two hardware claims at issue relate to the process and apparatus used to effect time shifting according to the invention. Two software claims were also at issue.

A jury found that the 50X DVRs literally infringed the asserted hardware and software claims, and that the Broadcom DVRs literally infringed the asserted hardware claims and infringed the asserted software claims under the DOE. The jury awarded TiVo $73.9 million in damages—$32.6 million in lost profits and $41.3 million in reasonable royalties. The district court entered judgment and issued a permanent injunction against EchoStar. The Federal Circuit granted a stay of the injunction pending appeal.

Claims 1 and 32 of the ’389 patent, the two asserted hardware claims, recite the step of “accepting . . . broadcast signals . . . based on a multitude of standards, including, but not limited to, National Television Standards Committee (NTSC) broadcast, PAL broadcast, satellite transmission, DSS, DBS, or ATSC; . . . .” They also require (1) “tuning said TV signals to a specific program”; (2) that “at least one Input Section” converts the program to a Moving Pictures Experts Group (MPEG) formatted stream for internal transfer and manipulation; (3) that “said MPEG stream is separated into its video and audio components”; and (4) that “at least one Output Section . . . assembles said video and audio components into an MPEG stream; . . . .” On appeal, EchoStar argued that the hardware claims do not apply to DVRs that only time shift digital signals. The Federal Circuit rejected EchoStar’s argument that the “accepting,” “tuning,” and “converts” limitations required that the DVRs of the invention be capable of processing analog as well as digital signals. First, the Court agreed with TiVo that the hardware claims only require that the accused products “accept” television signals based on a multitude of broadcast standards, not that they “process” all such standards. Because evidence at trial showed that EchoStar’s devices were capable of accepting and processing television signals based on numerous data standards, the Court held that the jury’s verdict with respect to the “accepting” limitation was supported by substantial evidence.

The Federal Circuit next rejected EchoStar’s argument that because its DVRs process only digital signals and not analog signals, they do not satisfy the second limitation of the asserted hardware claims, which recites the step of “tuning said TV signals to a specific program.” EchoStar argued that, because the six-MHz band used to transmit digital television signals carries a multiplexed signal that contains data for multiple television programs, tuning to a particular six-MHz band does not constitute tuning to a specific program. The Court rejected this argument, finding that the “tuning . . . to a specific program” limitation is not limited to locating a place on the broadcast band that carries only a single program. Accordingly, the Court upheld the jury’s conclusion that EchoStar’s devices infringed that limitation.

With regard to the “converts” limitation, EchoStar argued that the specification uses this term to refer to the process of encoding a non-MPEG analog program into MPEG format and not to refer to the process of transforming an MPEG signal into an internally storable format. Thus, EchoStar contended that the term “converts” does not encompass transforming MPEG data from a satellite signal that already contains MPEG-encoded data. Because its DVRs process only satellite transmissions that contain MPEG-encoded data, EchoStar argued they do not satisfy the “converts” limitation and, therefore, are not covered by the hardware claims. The Court found that the invention disclosed in the specification and recited in the claims “converts” the signal to which the device has tuned into an MPEG formatted stream for internal transfer and manipulation. Accordingly, the Court held that the accused DVRs,which accept satellite transmissions and convert them into a form for internal transfer and manipulation, satisfy that limitation.

At EchoStar’s urging, the Court went on to construe the fourth limitation of the hardware claims that the MPEG stream be “separated into its video and audio components.” TiVo contended that a device satisfies the “separation” limitation even if the audio and video streams were not copied to separate buffers but were maintained in a single interleaved buffer, as long as the separate audio and video components were logically indexed by their locations in the buffer. The Court rejected this argument and found that the specification supported a construction of the term “is separated” that requires separation into distinct buffers and not to encompass more logical separation, as performed by the Broadcom DVRs. Thus, the Federal Circuit agreed with EchoStar that the trial evidence did not show that the accused Broadcom DVRs satisfy the “is separated” limitation of the hardware claims.

The Court also construed the language referring to the assembly of audio and video components into “an MPEG stream” to mean a single stream, not one or more streams. Despite TiVo’s argument that “an MPEG stream” should be read as one or more streams, the Court concluded that the claims and written description here show that a singular meaning applies. In so holding, the Court distinguished its recent ruling in Baldwin Graphic Systems, Inc. v. Siebert Inc., No. 07-1262 (Fed. Cir. Jan. 15, 2008). Baldwin Graphic followed the general rule that “a” or “an” can mean “one or more.” The Court, however, noted that whether “a” or “an” is treated as singular or plural depends on the context of the use, and “[t]he general rule does not apply when the context clearly evinces that the usage is limited to the singular.” Slip op. at 20.

Here, the Court found that, although “comprising” is used to refer generally to the limitations of the hardware claims, the “assembles” limitation itself does not contain that term. Rather, the claim language simply refers to the assembly of two components into “an MPEG stream.” The Federal Circuit observed that the MPEG stream is mentioned as being “reassembled” as a single stream, not two different streams. Accordingly, the Court concluded that the 50X device could not infringe this limitation of the hardware claims because it was not shown to assemble the audio and video components into a single, interleaved stream.

Because the Court found that the Broadcom device did not literally infringe the “is separated” limitation and that the 50X device did not infringe the “assembles” limitation, it reversed the district court’s judgment that the hardware claims were infringed. In so doing, the Court declined to uphold the judgment on the basis of the DOE because the parties had not briefed that issue. Instead, the Court remanded to the district court to decide whether any further proceedings regarding the equivalents issue were appropriate.

Turning to the software claims, claims 31 and 61, the Court affirmed the district court’s construction of the term “object,” as used in the software claim terms “source object,” “transform object,” and “control object.” The Federal Circuit first rejected EchoStar’s argument that the claims were limited to embodiments using C++ or a similar object-oriented programming language. Instead, the Court affirmed that “object” is a software term that describes “a collection of data or operations.” TiVo argued that EchoStar’s software constitutes “a collection of data and operations.” EchoStar disagreed, arguing that its software was not a “collection” because all “data and operations” are not grouped together within the software code. The Court found no objective support for EchoStar’s contention and concluded that the jury’s verdict on this issue was supported by substantial evidence.

EchoStar also argued that its DVRs do not satisfy a portion of the “source object” limitation that requires the source object to “extract video and audio data” from a physical data source. EchoStar contended that the software in its DVRs does not extract data, but rather that its devices use a “hardware push” to move data from the physical data source to a temporary data buffer. The Court was not persuaded by EchoStar’s distinction between hardware and software in this context because, in the Court’s view, software alone cannot extract data from a physical device and certain hardware operations are always necessary. Accordingly, the Court concluded that the “extracting” limitation was found in EchoStar’s DVRs and upheld the jury’s verdict that the DVRs infringe the software claims of the ’389 patent.

In reviewing the district court’s use of extrinsic evidence to construe the software claims, the Court took the opportunity to address its en banc ruling in Cybor Corp. v. FAS Technologies, Inc., 138 F.3d 1448 (Fed. Cir. 1998), that claim construction is a question of law subject to de novo review on appeal. The Court stated that, although it has characterized claim construction as a question of law even when it involves competing presentations of extrinsic evidence, it recognizes that “there is substantial force to the proposition that such a conclusion is indistinguishable in any significant respect from a conventional finding of fact, to which we typically accord deference.” Slip op. at 28 n.2. Although the Court upheld the district court’s ruling on the software claims under the governing nondeferential standard of review, it stated that it would also uphold the district court’s ruling a fortiori in light of the more deferential “clear error” standard applicable to factual findings.

Next, the Court turned to EchoStar’s argument that TiVo made misleading and false statements in its arguments to the jury on the issue of willfulness and that those statements were so prejudicial that they required a new trial. TiVo responded, and the Court agreed, that its lawyer’s remarks about the failure to seek a written opinion applied only to a particular law firm, that there was nothing false or misleading about the comments when viewed in that context, and that the lawyer’s comments did not deny EchoStar a fair trial.

The Court also rejected EchoStar’s argument that the district court improperly limited the testimony of its expert on the issue of invalidity of the ’389 patent. The Court concluded that the district court did not abuse its discretion in limiting the expert’s testimony to the court’s claim construction and the prior art, and did not deprive EchoStar of any evidence it was entitled to produce.

Finally, because the Court upheld the jury’s verdict that all of the accused devices infringe TiVo’s software claims, the Court affirmed the damages award entered by the district court, but directed the district court to determine any additional damages that TiVo sustained while the stay of the permanent injunction had been in effect during appeal.