CardSoft (Assignment for the Benefit of Creditors), LLC v. VeriFone, Inc.

• Citation: 112 U.S.P.Q.2d 1628,769 F.3d 1114
• Decision Date: 17 October 2014
• Docket Number: No. 2014–1135.,2014–1135.
• Parties: CARDSOFT (assignment for the Benefit of Creditors), LLC, Plaintiff–Appellee, v. VERIFONE, INC., Hypercom Corp., and Verifone Systems Inc., Defendants–Appellants, and Ingenico S.A., Ingenico Corp., Ingenico Inc., and Way Systems, Inc., Defendants.
• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit

769 F.3d 1114

112 U.S.P.Q.2d 1628

CARDSOFT (assignment for the Benefit of Creditors), LLC, Plaintiff–Appellee

v.VERIFONE, INC., Hypercom Corp., and Verifone Systems Inc., Defendants–AppellantsandIngenico S.A., Ingenico Corp., Ingenico Inc., and Way Systems, Inc., Defendants.

No. 2014–1135.

United States Court of Appeals, Federal Circuit.

Oct. 17, 2014.

Rehearing and Rehearing En Banc Denied Dec. 22, 2014.^*

Donald R. McPhail, Cozen O'Connor, of Washington, DC, argued for plaintiff-appellee. With him on the brief were Barry P. Golob and Kerry B. McTigue. Of counsel on the brief was William E. Davis, III, Davis Firm P.C., of Longview, TX.

E. Joshua Rosenkranz, Orrick, Herrington & Sutcliffe LLP, of New York, NY, argued for defendants-appellants. With him on the brief were Mark S. Davies, Richard A. Bierschbach, Brian D. Ginsberg, and Cam T. Phan. Of counsel on the brief was Robert W. Kantner, Jones Day, of Dallas, TX.

Before PROST, Chief Judge, TARANTO and HUGHES, Circuit Judges.

Opinion

HUGHES, Circuit Judge.

CardSoft alleges that Appellants infringe two patents directed to software for small, specialized computers, like payment terminals. In construing the patent claims, the district court adopted CardSoft's proposed construction for the claim term “virtual machine.” Applying the district court's construction, a jury returned a verdict for CardSoft. Because the district court erred in its construction of “virtual machine,” and because CardSoft waived any argument that Appellants infringe under the correct construction, we reverse.

I

CardSoft (Assignment for the Benefit of Creditors), LLC (CardSoft) filed suit in March 2008 against Appellants VeriFone, Inc., VeriFone Systems Inc., and Hypercom Corp. (collectively, VeriFone), asserting infringement of U.S. Patent Nos. 6,934,945 (the '945 patent) and 7,302,683 (the '683 patent). The district court held a Markman hearing in July 2011 and conducted a jury trial in June 2012. The jury determined that certain VeriFone devices infringed claim 11 of the '945 patent and claim 1 of the '683 patent and that these claims were not invalid. VeriFone moved for a new trial and for judgment as a matter of law, but the district court denied both motions. VeriFone appeals. We have jurisdiction under 28 U.S.C. § 1295(a)(1).

II

The '683 patent is a continuation of the '945 patent and shares the same specification. Both patents describe software for controlling a payment terminal. See '945 patent col. 1 ll. 10–17. Payment terminals are small, specialized computers, and include a processor, peripheral units like a card reader, a display, a printer, or a communications interface, and a software operating system to control the hardware components.Id. at col. 2 l. 64–col. 3 l. 1.

According to the patents, prior art payment terminals used a variety of “different hardware/software architectures.” Id. at col. 2 ll. 34–37. But this variety of different architectures meant that each application program for a payment terminal needed to be written specifically for that terminal. Id. at col. 3 ll. 5–11. “[P]rogramming alterations are not ‘portable’ between different types of devices.” Id. at col. 3 ll. 13–14.

To solve this problem, the specification describes a “virtual machine,” acting as an “interpreter” between an application program (like a particular merchant's payment processing software) and a payment terminal's underlying hardware and operating system. Id. at col. 3 ll. 29–36. Instead of writing a payment processing application for a particular hardware configuration or operating system, a developer can write the application for the virtual machine. Id. at col. 3 ll. 41–45. This application can then run on any payment terminal running the virtual machine, creating “a complete portable environment for program operations.” Id. at col. 3 ll. 45–46.

The specification acknowledges that the concept of a virtual machine was well known at the time, but argues that the slowdown in operation created by a conventional virtual machine would create a “performance penalty” that could be a “significant problem” for a payment terminal. Id. at col. 3 ll. 35, 47–49. To solve this problem, the specification describes an improved virtual machine optimized for use on specialized portable computers, like payment terminals. This improved virtual machine includes a specialized “virtual message processor” designed to optimize network communications. Id. at col. 3 ll. 56–67. It also includes a specialized “virtual function processor” designed to optimize control of the payment terminal itself. Id.

Claim 1 of the '945 patent is representative of the asserted claims:

A communication device which is arranged to process messages for communications, comprising a virtual machine means which includes

a virtual function processor and function processor instructions for controlling operation of the device, and

message in[str]uction means including a set of descriptions of message data;

a virtual message processor, which is arranged to be called by the function processor and which is arranged to carry out the message handling tasks of assembling the messages, disassembling messages and comparing the messages under the direction of the message instruction means that is arranged to provide directions for operation of the virtual message processor, whereby when a message is required to be handled by the communications device the message processor is called to carry out the message handling task,

wherein the virtual machine means is emulatable in different computers having incompatible hardwares or operating systems.

Id. at col. 50 ll. 48–67 (emphases added).

III

VeriFone appeals the district court's construction of “virtual machine,” found in all asserted claims. It argues that the district court erred by not requiring the claimed “virtual machine” to include the limitation that the applications it runs are not dependent on any specific underlying operating system or hardware. We agree. Because the district court's construction does not reflect the ordinary and customary meaning of “ virtual machine” as understood by a person of ordinary skill in the art, we reverse.

A

“Claim construction is a legal statement of the scope of the patent right” that we review de novo. Lighting Ballast Control LLC v. Philips Elecs. N. Am. Corp., 744 F.3d 1272, 1276–77, 1284 (Fed.Cir.2014) (en banc); Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1456 (Fed.Cir.1998) (en banc). Claim terms are generally given their ordinary and customary meaning as understood by a person of ordinary skill in the art. Phillips v. AWH Corp., 415 F.3d 1303, 1312–13 (Fed.Cir.2005) (en banc). The person of ordinary skill in the art is “deemed to read the claim term not only in the context of the particular claim in which the disputed term appears, but in the context of the entire patent,” including the specification and the prosecution history. Id. at 1313. It can also be appropriate to use extrinsic evidence to determine a term's meaning, but “while extrinsic evidence can shed useful light on the relevant art ... it is less significant than the intrinsic record in determining the legally operative meaning of claim language.” Id. at 1317 (citations and quotations omitted).

B

The district court construed “virtual machine” as “a computer programmed to emulate a hypothetical computer for applications relating to transport of data.” CardSoft, Inc. v. Verifone Holdings, Inc., No. 2:08–cv–98, 2011 WL 4454940, at *8 (E.D.Tex. Sept. 29, 2011). That construction is correct, but incomplete. The district court improperly rejected the Appellants' argument that the “virtual machine” must “process[ ] instructions expressed in a hardware/operating system-independent language.” Id. at *7. In doing so, the district court noted that dependent claims 5 and 6 of the '945 patent expressly require that the “message processor” and “function processor” components of the virtual machine are “implemented in the native software code of the microprocessor in the device.” Id. at *7. The district court also noted that the specification does not bar the virtual machine from being “written in hardware specific code.” Id. Relying on this, the district court held that the claimed “virtual machine” need not run applications or instructions that are hardware or operating system independent.

The district court's construction improperly conflates the claimed virtual machine with applications written to run on the virtual machine. The claimed virtual machine is operating system or hardware dependent because it must communicate directly with the underlying operating system or hardware. But the applications written to run on the virtual machine are not correspondingly dependent because the applications are written to communicate with the virtual machine, not the actual underlying operating system or hardware.

The intrinsic and extrinsic evidence establishes that, at the time the asserted patents were filed, the defining feature of a virtual machine was its ability to run applications that did not depend on any specific underlying operating system or hardware. One problem with the prior art, as the specification notes, was that applications were hardware or operating system dependent. '945 patent col. 3 ll. 5–14, 29–36. The patent teaches using a virtual machine to solve this problem because a virtual machine “creates a complete portable environment,” which “allows programs to operate independent of processor” and allows “[d]ifferent arrangements of hardware [to] be controlled by the same application software.” Id. at col. 3 ll. 34–46; col. 10 ll. 5–7.

That the specification would emphasize this aspect of a virtual machine is not surprising in light of the extrinsic evidence. Sun Microsystems, Inc. (Sun) released the famed Java virtual machine in 1996, the year before the earliest possible priority date of the asserted patents. See Oracle Am., Inc. v. Google Inc., 750 F.3d 1339, 1348 (Fed.Cir.2014). The Java virtual machine acted as...