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Claim Construction Should Not Conflict with the Claim’s Plain Meaning nor Should It Exclude Disclosed Embodiments

April 19, 2006

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Last Month at the Federal Circuit - May 2006

Judges: Mayer (dissenting), Rader (author), Linn

In Lava Trading, Inc. v. Sonic Trading Management, LLC, Nos. 05-1177, -1192 (Fed. Cir. Apr. 19, 2006), the Federal Circuit vacated the district court’s claim construction and the stipulated final judgment orders of noninfringement, and remanded for further proceedings.

The patent-in-suit, U.S. Patent No. 6,278,982 (“the ’982 patent”) owned by Lava Trading, Inc. (“Lava”), describes software that aggregates and integrates information from various trading systems for buying and selling securities. The ’982 patent addresses a problem wherein a user with access to only a subset of these trading systems may not know of lower or higher prices available on another system.

Lava sued Sonic Trading Management, LLC, Joseph Cammarata, and Louis Feng Liu (collectively “Sonic”) and Royalblue group plc and related companies (collectively “Royalblue”) for infringement of the ’982 patent. Sonic and Royalblue denied infringement and counterclaimed for DJ that the ’982 patent is invalid, unenforceable, and not infringed. The district court held a Markman hearing and issued a claim construction ruling from the bench. The district court concluded that “distributing” means distributing a combined order book pertaining to all orders from all trading system members. Similarly, the district court concluded that “displaying” means that the system must display the whole combined order book for the trader. After this ruling, the parties stipulated to final judgments of noninfringement. Lava appealed the stipulated final judgment orders.

On appeal, before reaching the district court’s claim construction, the Federal Circuit addressed the procedural posture of the appeal. The Court noted with concern that the invalidity and unenforceability counterclaims were still pending before the district court and that information comparing the accused products to the asserted claims is not available on the record to allow the Court to review the infringement finding in context of the accused products or processes. However, the Court concluded that it did have jurisdiction under 28 U.S.C. § 1295(a)(1) because the district court issued a Rule 54(b) certification, which allows the district court to determine when each “final decision” is ready for appeal. See Fed. R. Civ. P. 54(b).

The Federal Circuit vacated the district court’s claim construction, concluding that the district court’s interpretation of the claim terms “distributing” and “displaying” conflicts with the plain meaning of the claim and excludes embodiments disclosed in the specification. The Federal Circuit noted that the preamble to claim 9 mentions “a security or commodity,” rather than “all” securities or commodities, and also discussed various embodiments in the specification that distribute and display information for only a subset of the combined order book. The Court relied on its decision in Phillips v. AWH Corp., 415 F.3d 1303, 1313 (Fed. Cir. 2005) (en banc), stating that “[r]eading the claim language and these embodiments in the specification, one of ordinary skill in this art would not limit the distributing and displaying limitations in the manner suggested by the district court.” Slip op. at 12.

Additionally, the Federal Circuit addressed Sonic’s waiver/estoppel argument relating to Lava’s claim construction theory. While before the district court, Lava changed counsel. Lava’s initial counsel argued the term “distributing” should be construed as providing the consolidated list of open orders for “a given security,” i.e., for only one security. The district court, however, rejected Lava’s proposed definition and adopted a construction requiring the distribution of data for all securities in the combined order book. Lava then obtained new counsel, who asserted in a motion for reconsideration that “distributing” means providing information for “one security or more than one security,” i.e., a subset of the combined order book. The district court denied Lava’s motion for reconsideration. On appeal, Sonic argued that Lava should be estopped from raising the construction of “distributing” as presented in the motion for reconsideration. The Federal Circuit rejected Sonic’s argument, reasoning that the Court could not find any practical difference between the two theories, and that judicial estoppel is not normally applied on appeal to prevent a party from altering a position that was unsuccessful before a trial court. This was not a case where a party presented an argument on appeal that substantially changed the scope of a prior position taken before a trial court.

Judge Mayer dissented, arguing that there was no final judgment by the district court and the Federal Circuit therefore lacked jurisdiction. He noted that there were “no ‘facts’ on the record to prevent parties from presenting claim construction one way in the trial court and in an entirely different way in this court. By not dismissing this case, we issue a decision based on an undeveloped record. We set ourselves up to have to decide claim construction again later, which could well differ from the ruling today.” Slip op., Dissent at 2.