Cardsoft (Assignment for the Benefit of Creditors), LLC v. Verifone, Inc.

Citation807 F.3d 1346
Decision Date02 December 2015
Docket NumberNo. 2014–1135.,2014–1135.
Parties CARDSOFT (assignment for the Benefit of Creditors), LLC, Plaintiff–Appellee v. VERIFONE, INC., Hypercom Corp., Verifone Systems Inc., Defendants–Appellants Ingenico S.A., Ingenico Corp., Ingenico Inc., Way Systems, Inc., Defendants.
CourtUnited States Courts of Appeals. United States Court of Appeals for the Federal Circuit

Donald R. McPhail, Cozen O'Connor, Washington, DC, for plaintiff-appellee. Also represented by Barry P. Golob, Kerry Brendan McTigue ; William Ellsworth Davis III, The Davis Firm, PC, Longview, TX; Kristina Caggiano Kelly, Patrick D. McPherson, Duane Morris LLP, Washington, DC.

E. Joshua Rosenkranz, Orrick, Herrington & Sutcliffe LLP, New York, N.Y., for defendants-appellants. Also represented by Richard A. Bierschbach, Brian David Ginsberg ; Mark S. Davies, Susannah Weaver, Washington, DC; Cam Thi Phan, Menlo Park, CA; Robert W. Kantner, Jones Day, Dallas, TX.

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

HUGHES, Circuit Judge.

The case returns to us on remand from the Supreme Court. In CardSoft v. VeriFone, Inc., 769 F.3d 1114 (Fed.Cir.2014), we decided an appeal by defendant-appellants (collectively, VeriFone) from a decision of the United States District Court for the Eastern District of Texas. In construing the patent claims, the district court adopted plaintiff-appellees' (collectively, 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 reversed the district court's decision.

Following our first decision in this case, the Supreme Court held that we must review a district court's ultimate interpretation of a claim term, as well as its interpretations of "evidence intrinsic to the patent," de novo and its subsidiary factual findings about extrinsic evidence for clear error. See Teva Pharm. USA, Inc. v. Sandoz, Inc., ––– U.S. ––––, 135 S.Ct. 831, 841–42, ––– L.Ed.2d –––– (2015). The Court also vacated and remanded our CardSoft decision for further consideration in light of this new standard of review. CardSoft, LLC v. VeriFone, Inc., ––– U.S. ––––, 135 S.Ct. 2891, 192 L.Ed.2d 919 (2015). Because this case does not involve the factual findings to which we owe deference under Teva, we again reverse the district court's construction of the term "virtual machine."

I

CardSoft filed suit in March 2008 against 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

We review the district court's ultimate interpretation of patent claims de novo. Teva, 135 S.Ct. at 839, 841–42.

"[W]hen the district court reviews only evidence intrinsic to the patent (the patent claims and specifications, along with the patent's prosecution history), the judge's determination will amount solely to a determination of law, and [we] will review that construction de novo." Id. at 841. If, on the other hand, a district court resolves factual disputes over evidence extrinsic to the patent, we "review for clear error those factual findings that underlie a district court's claim construction." Id. at 842. But as we have repeatedly held after Teva, it is not enough that the district court may have heard extrinsic evidence during a claim construction proceeding—rather, the district court must have actually made a factual finding in order to trigger Teva's deferential review. See, e.g., Shire Dev., LLC v. Watson Pharm., Inc., 787 F.3d 1359, 1364 (Fed.Cir.2015) (citing Teva, 135 S.Ct. at 840–42 ); Teva Pharm. USA, Inc. v. Sandoz, 789 F.3d 1335, 1342 (Fed.Cir.2015) ("Teva cannot transform legal analysis about the meaning or significance of the intrinsic evidence into a factual question simply by having an expert testify on it."); see also Teva, 135 S.Ct. at 840 ("[S]ubsidiary fact-finding is unlikely to loom large in the universe of litigated claim construction."). And even then, we may nevertheless review the district court's constructions de novo if the intrinsic record fully determines the proper scope of the disputed claim terms. See, e.g., Shire, 787 F.3d at 1364 (citing Teva, 135 S.Ct. at 840–42 ); Microsoft Corp. v. Proxyconn, Inc., 789 F.3d 1292, 1297 (Fed.Cir.2015) (reviewing claim construction de novo, and declining to consider "findings on [extrinsic] evidence because the intrinsic record [was] clear"); Eidos Display, LLC v. AU Optronics Corp., 779 F.3d 1360, 1365 (Fed.Cir.2015) ("To the extent the district court considered extrinsic evidence in its claim construction order or summary judgment order, that evidence is ultimately immaterial to the outcome because the intrinsic record is clear."). In this case, we review the district court's construction de novo, as the district court did not make any factual findings based on extrinsic evidence that underlie its constructions of the disputed claim term.

Claim terms are generally given their ordinary and customary meaning as understood by a person of ordinary skill in the art. See 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...

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