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Tension Between Markman and Cybor Resolved in Favor of Cybor

February 25, 2010

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Last Month at the Federal Circuit - March 2010

Judges: Lourie, Rader (author), Clark (District Judge sitting by designation, concurring)

[Appealed from: N.D. Ill., Senior Judge Moran]

In Trading Technologies International, Inc. v. eSpeed, Inc., Nos. 08-1392, -1393, -1422 (Fed. Cir. Feb. 25, 2010), the Federal Circuit affirmed that eSpeed, Inc., Ecco LLC, Eccoware Ltd., and eSpeed International Ltd. (collectively “eSpeed”) infringed the asserted claims of U.S. Patent Nos. 6,772,132 (“the ’132 patent”) and 6,766,304 (“the ’304 patent”), but not willfully.  The Federal Circuit also held that two other accused products did not literally infringe and then precluded Trading Technologies International, Inc. (“TT”) from asserting infringement under the DOE. 

TT is the owner by assignment of the ’132 and ’304 patents.  The ’304 patent is a divisional of the ’132 patent and both patents share a common provisional application.  The specifications of the patents are, for all relevant purposes, identical.  The ’132 and ’304 patents are directed to software for displaying the market for a commodity traded in an electronic exchange.  In the prior art, these displays had grids that never changed.  As the market fluctuated, however, the prices listed in those grids changed—often times very rapidly.  A trader who wished to place an order at a particular price would miss that opportunity if the price changed as the trader tried to enter an order.  The invention-in-suit addressed the problem by implementing static price levels to prevent the trader from having to worry about “clicking on” or entering an order at the instant after a price change. 

eSpeed provides an electronic exchange for trading commodities and designs and sells trading platforms for use with its electronic exchange.  TT sued eSpeed, alleging that three categories of eSpeed software used in its trading platforms infringe TT’s patents.  The district court construed the word “static” in the limitation “static display of process” in the ’132 patent and in the limitation “common static price axis” in the ’304 patent.  The district court then granted SJ of noninfringement with regard to two of the three categories of accused software—Dual Dynamic and eSpeedometer.  During trial on the third category of software, called Futures View, the district court granted TT’s motion in limine to preclude eSpeed from asserting an on-sale bar defense and granted-in-part TT’s motion in limine to preclude expert testimony that the construction of “single action of a user input device” was indefinite.  The jury found that Futures View willfully infringed the ’132 and ’304 patents, and awarded the patents the benefit of their provisional application’s filing date.  The jury also determined that the prior art did not anticipate or render obvious the claimed invention.  The district court then ruled that eSpeed did not show that TT engaged in inequitable conduct, vacated the jury’s finding of willful infringement, and remitted the damages award.  Both parties appealed.

On appeal, the Federal Circuit, when considering claim construction, found itself “stranded between the language” in the Supreme Court’s decision in Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996), and the language in the Federal Circuit’s decision in Cybor Corp. v. FAS Technologies, Inc., 138 F.3d 1448 (Fed. Cir. 1998) (en banc).  Specifically, the Court found that the ruling in Markman makes multiple references to factual components of claim construction, while in Cybor the Federal Circuit interpreted Markman as holding that claim construction was solely a question of law, which the Federal Circuit should review without deference.   In confronting findings by the district court about the meaning of the disputed claim term “static,” the Court concluded that the Cybor decision “requires a review of the district court’s claim construction without the slightest iota of deference.”  Slip op. at 13.  This dispute turns on the way that the accused products re-center the price levels when the “inside market” (best bid price and best ask price) moves away from the center of the display.  Under the district court’s construction, the patents-in-suit cover only software with a manual re-centering feature and without an automatic re-centering feature.  Given that Dual Dynamic and eSpeedometer automatically re-center the price columns in response to changes in the inside market, TT argued for a broader construction of the word “static” (i.e., “static” does not mean immovable).  TT claims the inventors acted as their own lexicographers and defined the word “static.”  The Court, after reconstruing this term, based on its own understanding of the claims, specification, prosecution history, and record, agreed with the district court’s claim construction of the word “static” that the re-centering command must indeed occur as a result of a manual entry. 

The Federal Circuit next considered the trial court’s decision to preclude TT from asserting infringement under the DOE.  The trial court reasoned that claim vitiation barred assertion of infringement by equivalents against the Dual Dynamic system and that prosecution history estoppel barred TT from asserting equivalents against the eSpeedometer system.  The Federal Circuit reiterated the “all-elements rule” and “claim vitiation,” stating that “[u]nder the ‘all-elements rule,’ a patentee may not assert ‘a theory of equivalen[ce] [that] would entirely vitiate a particular claim element,’” and that “[u]nder prosecution history estoppel, a patentee may not seek to recapture as an equivalent subject matter surrendered during prosecution.”  Id. at 21 (quoting Warner-Jenkinson Co. v. Hilton Davis Chem. Co., 520 U.S. 17, 39 n.8 (1997)). 

The Federal Circuit found that in this case, the relevant standard for measuring the difference in this instance is not the frequency of automatic re-centering, but the difference between a price axis that moves only in response to the trader’s instruction and a price axis that adjusts itself without prompting.  The Court found that this difference was not subtle, but rather “lies at the heart of the advantages of the patented invention over prior art.  Specifically the invention ‘ensures fast and accurate execution of trades.’  ’132 patent col.3 ll.5-6.”  Id. at 22.  Accordingly, the Court affirmed the district court’s judgment that TT cannot rely on the DOE to show that Dual Dynamic infringes. 

The Federal Circuit then determined prosecution history estoppel also prevented TT from asserting the DOE against the eSpeedometer system.  The Court found that the PTO examiner allowed the claims only after the claims were amended to clarify that the claimed price levels “do not move” when the inside market changes.  TT’s argument assumes that the trial court and the Federal Circuit would have construed “static” the same without the full prosecution history.  The Court found that it need not engage in this conjecture because the inventors narrowed the claim scope during prosecution.  Thus, the Court held that both claim construction and prosecution history estoppel operated in this case with similar limited results to prevent TT from asserting the DOE.

The Court also found that the district court’s grant of a motion for JMOL was proper because the defendants did not willfully infringe.  The Court reiterated the standard from In re Seagate Technology, LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007), that “proof of willful infringement permitting enhanced damages requires at least a showing of objective recklessness.”  In this case, the Court found that “[p]rompt redesign efforts and complete removal of infringing products in a span of a few months suggest that eSpeed was not objectively reckless.”  Slip op. at 25-26.  The Court also considered that TT offered no evidence to suggest that eSpeed sold Futures View to new customers during the contested time period.  Nor did TT offer any evidence that eSpeed could have disabled the infringing feature or removed Futures View that was already installed on the customers’ computers.

The Court also affirmed the district court’s grant of a motion in limine precluding eSpeed from alleging the on-sale bar defense.  One of the inventors of the patents-in-suit and an avid trader on electronic exchanges conceived an idea that formed the basis of the invention and hired TT to build trading software based on his idea.  TT and the inventor entered into a consulting agreement and TT delivered a “market depth trader workstation” to the inventor, who agreed to pay TT for the custom software.  The Federal Circuit affirmed the district court’s de facto SJ that the consulting agreement was not a sales transaction for a product embodying the patented invention.  Rather, the Court found it was a contract for providing hourly programming services to the inventor—not a computer software license. 

Finally, the Federal Circuit determined whether TT’s failure to disclose these activities involving the inventor to the PTO constituted inequitable conduct.  eSpeed argued that TT should have disclosed TT’s “sale” of the custom software to the inventor.  The Court, however, found that because the consulting agreement was not a commercial transaction, a reasonable examiner would not have regarded it as material to the issue of patentability.  The Court therefore found that these activities did not amount to inequitable conduct.

Judge Clark, sitting by designation, concurred with the majority opinion, but wrote separately to “respectfully suggest that the current de novo standard of review for claim construction may result in the unintended consequences of discouraging settlement, encouraging appeals, and, in some cases, multiplying the proceedings.”  Clark Concurrence at 1.

Summary authored by Amanda Joy Dittmar, Esq.