United States: JMOL Of Noninfringement Appropriate Where Patent Owner Failed To Argue Infringement Based On Narrower Construction

In CardSoft, LLC v. VeriFone, Inc., No. 14-1135 (Fed. Cir. Oct. 17, 2014), the Federal Circuit reversed the jury's verdict for CardSoft (Assignment for the Benefit of Creditors), LLC ("CardSoft"), finding that it was based on an erroneous claim construction, and granted judgment of no infringement as a matter of law for VeriFone, Inc., Hypercom Corp., and Verifone Systems Inc. (collectively "VeriFone").

CardSoft owns U.S. Patent Nos. 6,934,945 ("the '945 patent") and 7,302,683 ("the '683 patent"). The '683 patent is a continuation of the '945 patent and shares the same specification, which describes the use of a virtual machine for controlling a payment terminal. According to the '683 and '945 patents, the virtual machine acts as an interpreter between the applications running on the terminal and the underlying hardware or operating system ("OS") of each terminal. Unlike prior systems in which the applications would need to be rewritten for each specific configuration of the hardware and OS, the applications running on a virtual machine can be used on any device that runs the virtual machine. Although virtual machines were known at the time, the '683 and '945 patents describe an improved virtual machine, optimized for use on specialized portable computers such as payment terminals.

In March 2008, CardSoft filed suit against VeriFone for allegedly infringing the '945 and '683 patents. During claim construction, the district court construed the term "virtual machine" to mean "a computer programmed to emulate a hypothetical computer for applications relating to transport of data" and did not require the claimed "virtual machine" to include the limitation that the applications it runs are not dependent on any specific underlying OS or hardware. Slip op. at 6 (quoting CardSoft, Inc. v. VeriFone Holdings, Inc., No. 2:08-cv-98, 2011 WL 4454940, at *8 (E.D. Tex. Sept. 29, 2011)). Based on this claim construction, the jury determined that certain VeriFone devices infringed claim 11 of the '945 patent and claim 1 of the '683 patent, and returned a verdict for CardSoft. After the district court denied VeriFone's motions for a new trial and for JMOL, VeriFone appealed.

On appeal, the Federal Circuit found that the district court's construction of the term "virtual machine" was "correct, but incomplete" because it did not require that the virtual machine "process[] instructions expressed in a hardware/operating system-independent language." Id. (alteration in original) (quoting CardSoft, 2011 WL 4454940, at *7). The Court found that the virtual machine itself is OS or hardware dependent because it must communicate directly with the underlying OS or hardware. But the Court pointed out that the applications running on the virtual machine are not dependent on the OS or hardware because they are written to communicate with the virtual machine, not the underlying OS or hardware.

The Court found that both the intrinsic and extrinsic evidence supports this construction. The '945 and '683 patent specifications identify as a problem the fact that prior applications were hardware or OS dependent. As a solution, the '945 and '683 patents teach using a virtual machine, so that an application can run on different hardware arrangements. The Court noted that the emphasis on this functionality was not surprising in light of the fact that Sun Microsystems, Inc. ("Sun"), which released the Java virtual machine the year before the earliest patent priority date, had emphasized the "write once, run anywhere" nature of Java. Id. at 7 (quoting Oracle Am., Inc. v. Google Inc., 750 F.3d 1339, 1348 (Fed. Cir. 2014)). And during prosecution of the '945 patent, the applicant used the term "virtual machine" consistently in the same way as Sun used the term.

The Court rejected CardSoft's arguments in support of the district court's construction, including a claim differentiation argument. The Court noted that claim differentiation is merely a presumption, and did not change the clear meaning of "virtual machine" in light of the specification and prosecution history.

Under the correct construction of "virtual machine," the Court held that VeriFone was entitled to JMOL of no infringement. During briefing, VeriFone had argued that the applications running on the accused devices depended on a specific underlying OS or hardware. CardSoft acknowledged VeriFone's argument in its responsive brief, but failed to respond to it. By failing to respond, the Court found that CardSoft had waived any argument that the accused products still infringed the '945 and '683 patents under the Court's construction.

Judges: Prost, Taranto, Hughes (author)

[Appealed from E.D. Tex., Magistrate Judge Payne]

This article previously appeared in Last Month at the Federal Circuit, November 2014

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