Adverse Federal Circuit Ruling Sets Back One Quarterhill Campaign, While Others Appear Imminent

July 17, 2020

The Federal Circuit has upheld a May 2019 judgment of noninfringement for Microsoft in litigation brought by Improved Search LLC, a subsidiary of Quarterhill Inc. That newly upheld ruling stemmed from an August 2018 Markman order from Delaware District Judge Joseph F. Bataillon that resolved a claim construction dispute in Microsoft’s favor, which led the plaintiff to concede the issue of infringement as to both of the two asserted patents. However, the court had also declined to address a pending validity defense against the asserted patents, holding that it was precluded from doing so as a result of its ruling on infringement. Quarterhill appears poised to launch additional litigation despite this latest setback, having disclosed the acquisition of multiple new patent portfolios earlier this year.

Improved Search filed its first litigation in March 2015 against Verizon (AOL) (1:15-cv-00262), accusing the defendant of infringing two patents, generally related to returning search results (6,604,101) and ads (7,516,154) in a language different from the language of the query, through the provision of AOL Search. That same June, AOL filed a motion to dismiss Improved Search’s complaint under Alice, arguing that the patents’ claims are ineligibly drawn to the abstract idea of “searching for documents in a foreign language by translating a modified search request”. District Judge Sue Robinson denied the motion in March 2016, holding that the methods recited contain a layer of complexity added by translation needs and that the methods were drawn with sufficient specificity so as to avoid preemption concerns. That same May, the court further denied AOL’s request to certify the earlier denial for interlocutory appeal. The case was then dismissed about one year later, with filed documents indicating that the parties had settled.

Improved Search filed its complaint against Microsoft (1:16-cv-00650) in the wake of the court’s Alice decision, accusing it in July 2016 of infringing the same two patents through the provision of Bing Search. Microsoft’s answer to that complaint included multiple affirmative defenses, including noninfringement as well as invalidity, but did not assert any counterclaims for declaratory relief.

Claim construction briefing began in September 2017. The following April, Magistrate Judge Sherry R. Fallon issued a report and recommendation that the court adopt all of Microsoft’s proposed constructions for the disputed claim terms—including, most importantly, its construction of the term “dialectal standardization” and variations thereof. Under Judge Fallon’s report, adopted in its entirety by Judge Bataillon in August 2018, that term was construed as “replacing the at least one extracted content word in the first language with a more commonly-known word in a different dialect of the first language so that the second-language search engine will recognize it”. The court also determined that the term “should also be construed to exclude standardization based on synonyms or lemmatization”.

The parties would subsequently come to agree that this construction was fatal to Improved Search’s infringement case, which depended solely on the court’s construction of “dialectical standardization” and whether Bing performs translation searches in the same manner. As stated by the plaintiff in a subsequent motion, “the Court’s construction necessarily requires Improved Search to identify those Microsoft translation searches which are performed in accordance with that definition and that poses a nearly insurmountable hurdle for Plaintiff on liability”. This evidence was unavailable, as Microsoft had performed a search for records of translation searches that meet the claimed requirement. Without that evidence, Improved Search conceded that it “is not in a position to continue to reasonably pursue” its infringement claims (referring to the ‘101 patent, but discussing a hurdle applying also to its infringement claims for the ‘154 patent). For its part, Microsoft—characterizing the flaws in Improved Search’s infringement case stemming from the Markman order—asserted in related briefing that it is undisputed that “the accused Microsoft Bing systems do not extract or replace any content words from web queries” and that “Bing does not perform processing based on dialects, that determines what words may be ‘more commonly known’ in any particular dialect, or that is performed ‘so that’ Bing would recognize a search”.

In September 2018, shortly after Judge Bataillon adopted Magistrate Judge Fallon’s recommended constructions, the parties informed the court that they had tentatively reached an agreement to drop the ’154 patent from the case, and in March 2019, Improved Search filed a request for an order of dismissal as to that patent. Additionally, in January of that year, Improved Search filed a motion for summary judgment of noninfringement as to the ‘101 patent, stating that in light of the court’s Markman order, it could not, “in good faith, pursue a claim of infringement under the Court’s construction of ‘dialectal standardization’ (as well as ‘dialectally standardizing’ and ‘dialectally standardized’)” and that it was seeking summary judgment in order to appeal the result to the Federal Circuit. Microsoft then filed a response in opposition that sought summary judgment of noninfringement on additional grounds and that also included a cross-motion for summary judgment that the ‘101 patent is invalid as indefinite.

Judge Bataillon addressed those filings in May 2019, first granting Improved Search’s request for dismissal of the ‘154 patent and then granting its motion for summary judgment of noninfringement of the ‘101 patent shortly thereafter. In its ruling on the ‘101 patent, the court underscored that while the plaintiff cited the court’s claim construction as the reason that it had conceded the issue of infringement, this concession was entirely dispositive of that issue. This meant, the court continued, that the court’s judgment as to infringement “resolves the controversy as to this patent for all claims asserted or that could have been asserted by Improved” against Microsoft. As a result, the court held that it did not need to address Microsoft’s motion as to invalidity, having decided to treat that request as an affirmative defense rather than as a cross-motion for summary judgment. The court noted that because the defendant had not “assert[ed] a declaratory judgment counterclaim as to invalidity, there is no remaining claim pending and no longer an actual controversy between the parties with regard to the asserted patent”. “By virtue of the doctrines of issue and claim preclusion, as well as the Kessler doctrine, any threat of future enforcement of the infringement claims or litigation against Microsoft is foreclosed.”

Furthermore, the court rejected Improved Search’s argument that the scope of Improved Search’s infringement concession was limited to the plaintiff’s ability to pursue claims based on the court’s claim construction. The court held that “[s]uch a qualified order specifically reserving the parties’ right to litigate other matters would not ‘conclusively resolve’ the controversy and would likely not amount to final judgment.” Indeed, Judge Bataillon emphasized that “[o]ne either infringes or does not infringe—it is as simple as that. The Court is aware of no authority that permits it to enter a conditional final appealable order.”

Improved Search appealed the resulting final judgment in Microsoft’s favor in June 2019 (2019-1961), and Federal Circuit briefing focused solely on the issue of claim construction. The appeals court affirmed without an opinion on July 13, 2020.

The Federal Circuit’s ruling for Microsoft follows Quarterhill’s May 2020 disclosure of its financial performance in the first quarter. In the accompanying earnings call, Board Chairman John Gillberry told investors that Quarterhill, which in 2017 launched an effort to diversify its activities and acquire operating businesses related to the Internet of Things, would halt its M&A activity in part due to the economic impact of COVID-19. However, Quarterhill has also kept a foothold in the business of patent monetization, and indeed, the company entered 2020 with multiple new patent portfolios in hand. In July 2019, the USPTO made public late 2018/early 2019 Quarterhill acquisitions from GlobalFoundries and DB HiTek, comprising over 1,000 US assets. Also in July 2019, WiLAN Inc. (Quarterhill’s patent licensing arm) announced that its Adaptive Streaming Inc. subsidiary had acquired a patent portfolio from Vidiator Enterprises, “a pioneer in the delivery of audio and video data”, assets from which Adaptive Streaming has since started litigating. Additionally, during the first quarter of 2020, WiLAN’s Elpis Technologies Inc. subsidiary received over 470 US assets from IBM. Currently available USPTO records reflect two March 6, 2020 assignments (see here and here) from IBM to Elpis; the transacted portfolio has been described by Quarterhill as relating to semiconductor manufacturing process technologies.

For a more detailed update on Quarterhill’s business—as well as a comparison to two other publicly traded NPEs, Acacia Research Corporation and ParkerVision, Inc., that have taken markedly different paths—see “A Tale of Three Public NPEs: Acacia, ParkerVision, and Quarterhill Release Q1 Results” (May 2020).