Federal Circuit Upholds ITC Non-Essentiality and Infringement Ruling in Fortress LTE Campaign

September 2, 2022

In June 2020, the International Trade Commission (ITC) dealt a blow to INVT SPE LLC when it affirmed a final initial determination that certain cellular networking patents asserted against HTC were neither standard essential nor infringed by certain HTC smartphones. The Federal Circuit has now affirmed that setback for the plaintiff, an entity controlled by Fortress Investment Group LLC, by upholding that ruling—albeit on a different basis. In an August 31 precedential decision, the court held that the ITC erred in construing the remaining patent claim as requiring that an accused product actually perform the claim limitation at issue to infringe, rather than merely being capable of doing so, but nonetheless agreed on the same record as to essentiality and infringement.

This litigation campaign began in February 2017 with a pair of Delaware lawsuits filed against Apple and HTC by publicly traded NPE Inventergy Global, Inc., which had previously received financing from Fortress. However, after it found itself unable to make scheduled payments on $10M of debt, Inventergy announced in May 2017 that it had assigned over 740 telecommunications patents to INVT SPE, a “special purpose entity” controlled by Fortress, under the terms of a December 2016 debt restructuring agreement between the two parties that gave Fortress sole discretion over the patents’ assertion.

Fortress took then control of the campaign, substituting INVT SPE as the new plaintiff. Shortly after the US Supreme Court issued its May 2017 decision in TC Heartland on proper venue in patent suits, INVT SPE dismissed the Delaware suits against Apple and HTC and refiled them in New Jersey, adding ZTE to the campaign in another New Jersey complaint filed that same August. The following year, INVT SPE took the campaign to the ITC (337-TA-1138), leading to stays in the district court suits, as has become customary. At issue in the ITC action were five of the eight former Panasonic patents asserted in the district court actions (6,760,590; 7,206,587; 7,339,949; 7,764,711; 7,848,439), with INVT SPE later withdrawing the ‘711 and ‘949 patent, and one asserted claim from the ‘439 patent, in early-mid 2019. The plaintiff asserted that each patent is “essential to a number of LTE and 3G 3GPP cellular communications standards”.

ITC Administrative Law Judge (ALJ) MaryJoan McNamara issued an initial determination in that investigation in February 2020, holding that the asserted claims from the ‘590 and ‘587 patents are not essential to the 3G and LTE standards, and that the claims at issue from the ‘439 patent are not essential to the LTE standard. Moreover, ALJ McNamara ruled that INVT SPE had failed to establish infringement, either under a theory that the accused products complied with the standards at issue or under a theory of direct infringement, and that the complainant had, in turn, failed to meet the technical domestic industry prong.

With respect to the ‘439 patent—the only one remaining at issue by the time the subsequent appeal was decided, as detailed further below—the issue for essentiality was whether two particular limitations were LTE-essential. Those limitations from asserted claim 1 (referred to as limitations [d] and [e]) relate to the manner in which a user device and a cellular base station exchange information using certain combinations of modulation and coding parameters. Under the LTE standard, a “user device receives information about the modulation and coding parameters that were selected by the base station to modulate and encode the data that the user device receives from the base station” (as later summarized by the Federal Circuit). The user device then “demodulates and decodes the received data” using “one set of modulation and coding parameters” provided by the base station.

The problem for that asserted claim, per ALJ McNamara, was that for limitations [d] and [e], INVT SPE “failed to present evidence that the modulation and coding parameters corresponding to the CQI index the [user device] initially reports to the base station are the ‘very parameters’ that the base station ultimately determines are appropriate”. (The CQI, or “channel quality indicator”, index is sent by the user device and tells the base station the “maximum rate at which the base station can send real data to the UE [user equipment]”, per the respondents’ expert report.) The ALJ found that “even if the base station happens to consider the CQI reported by the [user device], it does not appear to be likely, must [sic] less required, for the base station to choose the ‘very parameters’ initially decided by the [user device]”.

As such, ALJ McNamara determined that the asserted claim was not standard essential—also rejecting INVT SPE’s argument that despite the mismatch between the parameters that the user device and base station are respectively able to set, the claim was standard essential “because an LTE-compliant user device has the capability to receive data modulated and encoded using the parameters decided by the user device and to demodulate and decode that data” (quote from Federal Circuit opinion; emphasis in original). ALJ McNamara explained that as a matter of law, essentiality cannot “be established merely by showing that the asserted standard is capable of meeting the claim, as mere capability of a claimed feature is ipso facto not tantamount to the requirement that the claimed feature must be mandatory” (quote from ITC initial determination)—and essentiality requires the standard to “necessarily” meet the elements of the claim. Moreover, ALJ McNamara “found that the language of claim 1 was not drawn to capability, as further support for the conclusion that ‘mere capability in this instance does not equate to infringement,  . . . based on the fact that its language (‘using,’ ‘decided’) did not follow the ‘for performing’-type language (‘for preventing,’ ‘for obtaining’) of the claims” found to allow infringement through mere capability in the Federal Circuit’s 2010 Finjan v. Secure Computing decision.

Since the complainant could not establish infringement through standard compliance, given the Commission’s essentiality ruling, the opinion turned to the issue of direct infringement. Here, ALJ McNamara held that the accused products did not meet limitations [d] or [e] “because they did not receive data modulated and encoded ‘on a per subband group basis’ nor demodulate and decode data ‘on a per subband group basis’” as required by the claim language.

The ITC affirmed that final initial determination in June 2020, and INVT SPE appealed the Commission’s initial determination later that month as to the ‘590 and ‘439 patents, stating in its opening brief that the ‘587 patent was “not at issue” in the appeal. Apple and ZTE withdrew from the appeal in June 2021 and April 2022, respectively, both citing settlements.

Ruling on appeal on August 31 (2020-1903), the Federal Circuit began by noting that the ‘590 patent’s March 5, 2022 expiration mooted the appeal as to that patent, since the ITC does not have the authority to issue exclusion orders barring the future importation of expired patents. The Federal Circuit rejected INVT SPE’s argument that the claim was not mooted due to the pendency of the district court litigation asserting that patent, holding to the contrary that “because ITC decisions on patent infringement or invalidity do not have preclusive effect on district court litigation, a decision by this court does not have enough ‘collateral consequences’ to avert mootness, even though a pending district court case involves the same issues”.

Turning to the merits as to the ‘439 patent, the Federal Circuit ruled that the ITC had erred by determining that claim 1 is not directed to capability under Finjan, countering that the “for performing”-type language considered in that case “is not the only way for a computer-implemented claim to be directed to capability”. This was evident, the court explained, from its 2010 decision in Silicon Graphics v. ATI Technologies, in which the court reached a similar conclusion for language describing “a rasterization circuit coupled to the processor that rasterizes the primitive according to a rasterization process which operates on a floating point format” (emphasis in original quote). The court “held that  infringement did not turn on whether the accused product was actually performing the rasterization but, simply, whether it included a rasterization circuit for doing so”—as an “apparatus claim directed to a computer, claimed in functional terms, is nonetheless infringed so long as the product is ‘designed ‘in such a way as to enable a user of that [product] to utilize the function . . . without having to modify [the product]’”, meaning whether the device is “capable of the functions”.

Based on the claim language here at issue, the Federal Circuit saw “very little significance in the difference between a limitation that might recite ‘a data obtaining section for demodulating and decoding’ (Finjan-style) and one that recites ‘a data obtaining section that demodulates and decodes” (the actual ‘439 claim language), for determining on which side of the capability/actual-operation line the claims fall” (emphasis in original quote). As a result, the court ruled that under Finjan and Silicon Graphics, the ‘439 patent was directed to capability, “as in a device that includes ‘software components with specific purposes,’ programmed to have the ability to perform the operative steps: namely, a ‘receiving section’ that can receive a signal containing data modulated and encoded using the parameters decided at user device, and a ‘data obtaining section’ that can demodulate and decode the signal using the parameters decided at the user device”.

However, in evaluating infringement, the Federal Circuit “further construe[d] the asserted ‘439 patent claims to clarify that determining a user device’s capability involves analyzing a base station’s operation”, agreeing with HTC that the base station is “part of the infringement analysis” even though it is not included in the asserted claims. Since the claim requires that the user device “handle and process” a data signal that “must be modulated and encoded with specific parameters” by a separate base station, the “base station is part of ‘the environment’ in which the user device must function” under the court’s 2011 decision in Advanced Software Design v. Fiserv (which reached a similar conclusion for a check validation system that required checks encrypted and printed using a non-claimed financial system).

On the present record, the Federal Circuit found as a result that there was no evidence of infringement even though the claims are drawn to capability, as “proof of reasonable capability of performing claimed functions requires, at least as a general matter, proof that an accused product—when put into operation—in fact executes all of the claimed functions at least some of the time or at least once in the claim-required environment”. While the claimed “receiving section” and “data obtaining section” from the claim limitations here at issue require “receiving and handling a data signal from the base station that is modulated and encoded using parameters that were decided by the user device”, the court found that the complainant had “failed to show that under the LTE standard, a user device ever receives and handles such a data signal”. This meant that there was no infringement based on the claim’s essentiality—the court rejecting the complainant’s arguments to the contrary as based on an improper reading of the cited expert testimony. “Nor”, for that matter, had INVT SPE “shown that the accused products receive such a data signal”, thereby undercutting its claims of direct infringement as well. On that issue, the Federal Circuit found that ALJ McNamara had made no reversible error, and that her holding had been supported by substantial evidence.

The Federal Circuit then declined to reach INVT SPE’s other arguments on infringement due to the overarching evidentiary deficiencies noted above, the Federal Circuit ruled that, as agreed by the parties, the domestic industry findings “fall with the noninfringement findings”, affirming on that issue as a result. After underscoring that it was acting in accordance with precedent in affirming the ITC’s decision despite relying on a different claim construction (citing, in part, the Supreme Court’s decision in SEC v. Cheney Corp.), the court concluded by affirming the Commission’s determination of no Section 337 violation as to the ‘439 patent and vacating and remanding as to the expired ‘590 patent, ordering it to dismiss the relevant part of the complaint.

The New Jersey case against HTC remains stayed as of this article’s publication date.