Alexsam, Inc. v. Mastercard Int'l Inc.
| Decision Date | 17 June 2020 |
| Docket Number | 15- CV-2799 (ILG) (SMG) |
| Parties | ALEXSAM, INC., Plaintiff, v. MASTERCARD INTERNATIONAL INC., Defendant. |
| Court | U.S. District Court — Eastern District of New York |
This is an action for breach of a patent license agreement, brought by Plaintiff Alexsam, Inc. ("Alexsam") against Defendant MasterCard International Inc. ("MasterCard"). (Compl. ¶ 1). The Court is in receipt of three Reports and Recommendations by Magistrate Judge Stephen M. Gold, dated June 11, 2018 ("June R&R"), October 16, 2018 ("October R&R") and December 5, 2018 ("December R&R"). (ECF Nos. 186, 200, 204). Alexsam objects to the June and December R&Rs. (ECF Nos. 188, 205). MasterCard objects to the December R&R. (ECF No. 204). Neither party objects to the October R&R.
For the reasons discussed below, Alexsam's objections are denied in their entirety. MasterCard's objection is granted. Accordingly, the June and October R&Rs are adopted in full and the December R&R is adopted in part.
MasterCard processes payments between the banks of merchants and credit card holders. (Compl. ¶ 3). Alexsam holds two business method patents1 for a multi-card transaction processingsystem. (Id. ¶ 2). The novel aspect of Alexsam's system is its use of bank identification numbers to process prepaid cards on devices normally used for credit card transactions. (June R&R 3). This allows phone cards, gift cards, medical cards and customer loyalty cards to function like credit cards.
In a May 2005 agreement, Alexsam granted MasterCard a license to use the patents. (ECF No. 1-6, "License Agmt."). MasterCard in turn agreed to pay royalties for each transaction it processed using the patented method, and to provide a monthly accounting thereof. (Id. §§ 4.1, 4.2).
Alexsam sued for breach of the license agreement on May 14, 2015, alleging that MasterCard violated its royalty and reporting obligations. (Compl. ¶¶ 21-27). MasterCard argues that Alexsam's underlying patents are invalid based on recent Federal Circuit case law, and seeks a declaration of their invalidity from this Court. (Answer ¶¶ 49-137).
While this case remained pending, MasterCard petitioned the Patent Trial and Appeal Board ("PTAB") for covered business method review of the licensed patents. (See ECF Nos. 125-3, 125-4). Alexsam opposed the petitions, on the ground that the license agreement's covenant not to sue eliminated MasterCard's standing to seek such declaratory relief.2 (ECF No. 193-3 at 3). That covenant reads as follows:
Alexsam hereby agrees and covenants to not at any time initiate, assert, or bring any claim (in any court, administrative agency, or other tribunal, anywhere in the world) against MasterCard, for any claim or alleged liabilities of any kind and nature, at law, in equity, or otherwise, known and unknown, suspected andunsuspected, disclosed and undisclosed, relating to Licensed Transactions arising or occurring before or during the term of this Agreement.
(License Agmt. § 2.2) (emphasis added). The PTAB agreed with Alexsam, and dismissed MasterCard's petitions for lack of standing. MasterCard Int'l Inc. v. Alexsam, Inc., No. CBM2017-00042, 2017 WL 4221130 (P.T.A.B. Sept. 21, 2017) (); MasterCard Int'l Inc. v. Alexsam, Inc., No. CBM2017-00041, 2017 WL 4221401 (P.T.A.B. Sept. 21, 2017) ().3
During the course of litigation, questions arose regarding the construction of various patent claims, the interpretation of the license agreement, the preclusive effect of the PTAB decisions and the law of the case. Judge Gold resolved those questions in three Reports and Recommendations, which this Court now reviews.
When examining a report and recommendation, the court reviews de novo "those portions of the report . . . to which objection is made." 28 U.S.C. § 636(b)(1); see also Fed. R. Civ. P. 72(b). However, where there are no timely objections, "the district court need only satisfy itself that there is no clear error on the face of the record." 28 U.S.C. § 636(b)(1)(A); see also Fed. R. Civ. P. 72(a).
In the June 11, 2018 Report and Recommendation, Judge Gold constructed Alexsam's patent claims for a "debit/medical services card" system, a "loyalty card" system, and a"preselected information receiving device system." (June R&R 20-21).4 5 Alexsam objects to these constructions, and so the Court reviews them de novo. See Fed. R. Civ. Proc. 72(b). MasterCard did not object to the June R&R.
Alexsam's first objection is that Judge Gold should not have engaged in patent claim construction in the first place. Alexsam argues that MasterCard has "already admitted that it has not paid for Licensed Transactions," which purportedly "constitutes a material breach" of the license agreement.6 (ECF No. 188 at 1-2). This argument is unpersuasive. Before this Court reaches the question of whether MasterCard breached the License Agreement, it must necessarily construct the underlying patent claims. This is because, as Judge Gold correctly noted, the License Agreement "defines 'licensed transactions' as those covered by the patents." (June R&R 2; see also License Agmt. § 1.3). To adopt Alexsam's position would contravene a bedrock principle of federal patent law: that royalty obligations under a patent license agreement are not enforceable if the underlying patent is invalid. Lear, Inc. v. Adkins, 395 U.S. 653, 674 (1969) (); see also Stephen Yelderman, Do Patent Challenges Increase Competition?, 83 U. Chi. L. Rev. 1943, 2004 (2016) (). Indeed, MasterCard asserts invalidity as an affirmative defense to the claimed breach. (See Answer ¶¶ 6, 8, 57, 62).
Judge Gold constructed "debit/medical services card"7 as "a card that can function as part of a multifunction card system as both a debit card and a medical services card, the different functions depending upon the database the system is directed to access when the card is used." (June R&R 10). Alexsam does not object to this construction per se. However, it does object to certain dicta in the June R&R that the debit/medical services card must be "swiped through a [point-of-sale] device." (ECF No. 188 at 3-4). The Court does not address this dicta, which had no bearing on Judge Gold's ultimate conclusions. See Davis v. Post Univ., Inc., No. 9:18-CV-81004, 2019 WL 904790, at *1 (S.D. Fla. Feb. 22, 2019) () Judge Gold's construction of the "debit/medical services card" claim is therefore adopted.
Alexsam further objects to Judge Gold's construction of "loyalty card"8 as "a card, separate from a card used to purchase goods or services, used to reward a consumer's loyalty account at the point of sale in real time as a purchase takes place." (ECF No. 188 at 5). Alexsam concedes that a loyalty card may be a separate card, but disagrees that it must be a separate card. (Id. at 8). In support of this argument, it points to Patent Claim 58 of the '608 Patent, which makes reference toa "loyalty card" as part of a larger "multi-function card system." (Id. at 9). However, Judge Gold already considered and rejected this argument in thorough and convincing fashion:
To be sure, some language in the specification described the preferred embodiment of the invention as a multifunction card system capable of performing all functions the specification describes. But while many of the patent claims begin by describing a "multifunction card system," '608 Claim 20 begins by describing a loyalty card system. If this difference is to be recorded any meaning, the distinction must be between cards capable of performing multiple functions, and those that function only as a loyalty card.
(June R&R 15). The Court agrees in full with this analysis.
Alexsam also objects to Judge Gold's construction of "loyalty card" on the grounds that he construed that term "with reference to the accused products." (ECF No. 188 at 7). This objection is based entirely on the transcript of the claim construction hearing held by Judge Gold, and not on his written Report and Recommendation. (Id. at 7-8). Accordingly, the Court may not consider it. See Fed R. Civ. P. 72(b) ().
Judge Gold's construction of the term "loyalty card" is therefore adopted.
Finally, Judge Gold constructed the patent claim for a "preselected information receiving device"9 as "a device, such as an electronic mail device, facsimile device, or voice response device, selected in advance from among two or more devices to receive the requested information." (June R&R 16) (emphasis added). Alexsam objects to the emphasized language above, solely on the grounds that the finder of fact might mistake it for an exclusive list of applicable devices. (ECF No. 188 at 13). On the contrary, Judge Gold's use of the words "such as" makes abundantly clearthat the list is not exclusive. There is no risk of confusion to the factfinder. The Court adopts Judge Gold's construction of this patent claim in full.
On October 16, 2018, Judge Gold issued a Report and Recommendation denying Alexsam's motion to file a supplemental complaint. (October R&R 17). That supplemental complaint would have added a claim for breach of the license agreement's forum selection clause. (Id. at 2).1...
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