Wi-Lan Inc. v. Sansui America, Inc.

The Federal Circuit has just upheld the dismissal of two Quarterhill Inc. smart TV cases against Sharp and Vizio after rejecting evidence central to its infringement claims as inadmissible. In an April 6 precedential decision (2020-1041), the appellate court agreed with Delaware District Judge Leonard Stark that plaintiff Wi-LAN Inc. (WiLAN), Quarterhill’s licensing arm, could not rely on certain documents obtained through litigation: an alleged printout of certain source code for the video chipsets at issue and related explanatory declarations. WiLAN had offered that evidence in lieu of the source code itself, which the NPE had been unable to procure from the chipsets’ third-party manufacturers through discovery.

The plaintiff sued Sharp (1:15-cv-00379) and Vizio (1:15-cv-00788) in 2015, accusing both companies of infringing three patents (5,847,774; 6,359,654; 6,490,250) through the provision of smart TVs with certain video deinterlacing and stream multiplexing features. That list of patents was subsequently winnowed down to zero through a series of rulings adverse to WiLAN—the first of which was an April 2018 Markman order, which in part construed the terms “output multimedia data stream” and “a multimedia processor, coupled to the data rate analyzer” from the ‘250 patent such that the NPE was forced to concede that it could not prove infringement. This led WiLAN to request the entry of final judgment of noninfringement as to that patent in March 2019, which the court granted that September.

The litigation fate of the ‘774 patent, meanwhile, echoed the present dispute just resolved by the Federal Circuit. In October 2016, WiLAN and Vizio jointly stipulated to the dismissal with prejudice of the ‘774 patent. The following month, WiLAN moved to dismiss its claim asserting that patent from the Sharp case as well, though without prejudice—citing what it characterized as delay tactics from the defendant, and noting that it had been unable to obtain the production of third-party source code outside the US needed to support its infringement contentions. However, the court granted that motion to dismiss with prejudice in September 2017, citing WiLAN’s “failure to timely obtain the information it needed to pursue its claims” for the patent and the NPE’s prior representation to the court that it would seek dismissal with prejudice.

WiLAN’s related attempt to procure and introduce third-party source code to support its infringement claims for the ‘654 patent would ultimately doom that infringement claim on appeal. As noted by the court, WiLAN’s infringement claim for that patent “essentially depend[ed]”on the source code for the accused systems-on-chip (SoCs) from three third-party manufacturers—MediaTek, MStar, and Sigma—which refused to provide the requested code, after which the NPE sued them for infringement in 2017. “Shortly thereafter”, WiLAN dismissed those lawsuits after the SoC manufacturers agreed to produce a much narrower set of documents, which (as later characterized by the Federal Circuit) “purported to be the source code printouts together with declarations from employees of the manufacturers purporting to authenticate the source code printouts”. The NPE alleged that this evidence was admissible under several theories—all of which were rejected by Judge Stark, who granted summary judgment of noninfringement as to the ‘654 patent in February 2019. WiLAN appealed the court’s final judgment, and the court’s orders dismissing its claims asserting the ‘654 and ‘250 patents, in October of that year.

The Federal Circuit addressed each of WiLAN’s admissibility theories in its April 6 ruling on appeal, rejecting each in turn. The first of these theories was that the source code and declarations fell under the business records exception to the hearsay rule—which the appellate court rejected because the NPE had failed to authenticate the documents as business records through testimony by a “custodian or other qualified witness”. The declarations from the SoC manufacturers could not be used in this manner, held the Federal Circuit, because they were neither a proxy for trial testimony (since WiLAN had admitted the declarants were unlikely to testify at trial) nor business records themselves (since they were produced as a result of litigation).

Next, the Federal Circuit dismissed WiLAN’s argument that the source code printouts were admissible under Federal Rule of Evidence (FRE) 901(b)(4), which allows the admission of a record if “[t]he appearance, contents, substance, internal patterns, or other distinctive characteristics of the item, taken together with all the circumstances” “support a finding that the item is what the proponent claims it is”. On this point, the appellate court found that Judge Stark had not abused his discretion in finding that the printouts fell short of this standard, “given the highly dubious circumstances surrounding the production and the lack of indicia of trustworthiness in the source code”—the latter referring to “inconsistent dates in the metadata, copyright, and revisions histories” for the source code “as well as added commentary on the printed excerpts”.

In addition, the Federal Circuit declined to accept WiLAN’s assertion that the source code printout was admissible under FRE 703, which in part allows the admission of certain materials relied upon by experts in their testimony. The reasons were twofold. First, the court noted that the rule does not provide a hearsay exception and does not allow the admission of otherwise inadmissible evidence like this unauthenticated printout when the expert is merely transmitting the evidence. As such, the Federal Circuit agreed with Judge Stark that WiLAN was “attempt[ing] to do exactly what is impermissible under Rule 703 by using its expert as a substitute for a fact witness to circumvent the rules of evidence to admit otherwise inadmissible evidence”. Second, the appellate court rejected WiLAN’s argument on the basis that its expert’s testimony would not be admissible to prove infringement: while FRE 703 allows the admission of otherwise inadmissible evidence if an expert in the field would reasonably rely upon it, the court found that the NPE had failed to show that an expert on source code would “reasonably rely on unauthenticated source code printouts”.

Having dispatched with those evidentiary theories, the Federal Circuit then rejected WiLAN’s alternative argument that the district court should have given it more time to procure an admissible version of the source code—finding that the plaintiff “had ample time to obtain the source code and to find custodial witnesses to authenticate the source code over the course of discovery but failed to do so”. The Federal Circuit then concluded by declining to overturn certain claim constructions for the ‘250 patent, affirming the lower court’s entry of final judgment.

Despite this latest setback, Quarterhill’s latest financial disclosures state state that it had a “strong” 2020. The company released its Q4 and 2020 financial results in March, reporting decreased year-over-year patent licensing revenue but several new license agreements as well as multiple acquisitions of large operating company portfolios. The company’s slower fourth quarter followed a surge in licensing revenue in Q3, which management characterized at the time as Quarterhill’s “best quarter” in three years.

See here for more details on those disclosures.