DSC Communications Corp. v. Pulse Communications, Inc.

• Citation: 170 F.3d 1354
• Decision Date: 11 March 1999
• Docket Number: 98-1031,Nos. 98-1024,s. 98-1024
• Parties: 1999 Copr.L.Dec. P 27,886, 50 U.S.P.Q.2d 1001 DSC COMMUNICATIONS CORPORATION, Plaintiff-Appellant, v. PULSE COMMUNICATIONS, INC., Defendant-Cross Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit

Page 1354

170 F.3d 1354

1999 Copr.L.Dec. P 27,886, 50 U.S.P.Q.2d 1001

DSC COMMUNICATIONS CORPORATION, Plaintiff-Appellant, v. PULSE COMMUNICATIONS, INC., Defendant-Cross Appellant.

Nos. 98-1024, 98-1031.

United States Court of Appeals, Federal Circuit.

March 11, 1999.

Ruffin B. Cordell, Fish & Richardson P.C., Washington, DC, argued for plaintiff-appellant. With him on the brief were John M. Skenyon, Francis X. Gindhart, Linda Liu Kordziel, and Michael J. McKeon. Of counsel on the brief were Thomas M. Melsheimer, P.C., Lynn Stodghill Melsheimer & Tillotson L.L.P., Dallas, Texas; and Jon A. Baumgarten, Proskauer Rose, L.L.P., Washington, DC.

David R. Francescani, Darby & Darby, P.C., New York, New York, argued for defendant-cross appellant. With him on the brief were Joseph B. Lerch, Eric A. Prager, Maryann V. Hayes, and Benjamin Levi. Of counsel on the brief were Jonathan T. Cain and Mary Catherine Zinser, Mays & Valentine, LLP, McLean, Virginia; and Professor Raymond T. Nimmer, University of Houston Law Center, Houston, Texas. Of counsel were William F. Dudine, Jr., Martin E. Goldstein, Kandis M. Kahn, and Daniel R. Schechter, of Darby & Darby, P.C.

Before MAYER, Chief Judge, FRIEDMAN, Senior Circuit Judge, and BRYSON, Circuit Judge.

BRYSON, Circuit Judge.

DSC Communications Corporation (DSC) and Pulse Communications, Inc., (Pulsecom) make products for the telephone industry and compete for the business of the Regional Bell Operating Companies, more commonly known as the "RBOCs." Competition between the two parties led to this litigation over certain products that the two produce for use in commercial telephone systems.

DSC struck first, filing an action in the United States District Court for the Eastern District of Virginia in which it alleged that Pulsecom had committed various federal and state law violations, including (1) contributory infringement of DSC's copyright in certain software used with one of DSC's products; (2) direct infringement of DSC's copyright in that software; (3) misappropriation of DSC's trade secrets; and (4) tortious interference with DSC's business expectancy. Pulsecom then counterclaimed, charging that DSC had infringed Pulsecom's U.S. Patent No. 5,263,081 (the '081 patent).

The parties went to trial on DSC's claims, and at the close of DSC's case-in-chief, Pulsecom moved for judgment as a matter of law. The court granted the motion and dismissed all four of DSC's claims. With respect to Pulsecom's counterclaim of patent infringement, the court held a hearing to construe the claims, and the parties subsequently filed cross-motions for summary judgment. The court granted DSC's motion and entered a summary judgment of noninfringement.

I

This case involves certain components of digital loop carrier systems (DLCs), electronic devices that allow telephone companies to serve large numbers of subscribers efficiently. Before the advent of DLCs, telephone companies had to run copper wire from their central offices to the telephones of each of their subscribers. DLCs allow the individual copper lines to be run over much shorter distances, resulting in large savings for telephone companies. Typically, a DLC is placed in a location central to a number of subscribers, and copper lines are run over the relatively short distances from the DLC to the subscribers.

The DLC acts as an analog-to-digital converter and as a signal modulator-demodulator. The electrical signals that travel over the copper lines between the DLC and the subscribers are voice-frequency analog signals, but the signals that travel between the DLC and the central telephone office are digital signals that travel over a high-bandwidth (e.g., fiber optic) digital channel. The DLC converts the various analog signals it receives from individual subscribers to a digital format and modulates those digital signals into a high-bandwidth composite signal that is sent to the central office through the digital channel. The DLC performs the reverse process on signals traveling from the central office to individual subscribers.

The devices at the heart of the dispute in this case are the "Litespan 2000" DLC, which is manufactured by DSC, and the interface cards, which DSC and Pulsecom designed to work with the Litespan. The Litespan has a backplane connecting 500 interface card slots, through interface circuitry, to a microprocessor. The backplane is controlled by an application-specific integrated circuit that uses a particular signaling protocol. The purpose of the interface cards is to comport with the backplane protocol while providing a particular type of service to subscribers. For example, a single Litespan might have some interface cards providing POTS (plain old telephone service) service and other interface cards providing PBX (private branch exchange) service. The analog signals traveling between the subscribers and the two types of interface cards may be quite different, but the interface cards process the signals so that they are compatible with the Litespan's backplane protocol.

Litespans and individual interface cards each have their own microprocessors and interface circuitry, which require software to operate. Two software packages are at issue here. The first is the Litespan System software, which includes both the Litespan operating system software and various Litespan utility programs. The second is the POTS-DI (download image) software, which DSC developed to operate its POTS interface cards. Both the Litespan System software and the POTS-DI software normally reside in nonvolatile storage within Litespan systems. When a DSC POTS card is inserted into a Litespan and powered up, a copy of the POTS-DI software is downloaded into volatile memory on the POTS card. When the POTS card is powered down, its copy of the POTS-DI software ceases to exist. This design allows changes to be made to the POTS-DI software in a central location (i.e., in the Litespan system) with no need to update software in the individual POTS cards.

DSC designed the Litespan to be used in the telephone networks of the RBOCs, and it transferred the Litespan technology to the RBOCs through a series of comprehensive agreements. The seven agreements at issue here--DSC-Ameritech, DSC-NYNEX, DSC-Bell Atlantic (1993-96 and 1996-99), DSC-U.S. West, DSC-Pacific Bell, and DSC-BellSouth--have generally similar provisions. The agreements all contain provisions that license, under a variety of restrictions, the Litespan System software and POTS-DI software to the RBOCs.

Pulsecom has developed a Litespan-compatible POTS card to compete with DSC's POTS card. Pulsecom decided not to develop the software necessary to operate its POTS card, but rather to design the card so that--like DSC's POTS card--it downloads the POTS-DI software from the host Litespan into its resident memory upon power-up. Pulsecom's design has the obvious advantage of allowing Pulsecom's POTS cards to remain compatible with the Litespan system if DSC modifies its Litespan System software and POTS-DI software.

II

A

Although DSC's complaint alleged only copyright and state law claims, we have jurisdiction over this appeal under 28 U.S.C. § 1295(a)(1) because Pulsecom filed a counterclaim that raised a nonfrivolous claim of patent infringement. See generally In re Innotron Diagnostics, 800 F.2d 1077, 1080, 231 USPQ 178, 180 (Fed.Cir.1986); Schwarzkopf Dev. Corp. v. Ti-Coating, Inc., 800 F.2d 240, 244, 231 USPQ 47, 50 (Fed.Cir.1986). Section 1295(a)(1) gives this court exclusive jurisdiction over an appeal from a final judgment of a district court "if the jurisdiction of that court was based, in whole or in part, on [28 U.S.C. § 1338]." The congressional policy underlying section 1295(a)(1) was to ensure uniform resolution of patent law disputes. In light of that policy and the plain language of section 1295(a)(1), we have held that our appellate jurisdiction extends to cases in which nonfrivolous claims of patent infringement have been raised in compulsory counterclaims. See Aerojet-General Corp. v. Machine Tool Works, 895 F.2d 736, 739-45, 13 USPQ2d 1670, 1672-78 (Fed.Cir.1990) (in banc). While the court in Aerojet-General did not need to decide whether to apply that principle to permissive counterclaims, we see no sufficient basis in the language or purpose of section 1295(a)(1) to distinguish between compulsory and permissive counterclaims. See Unique Concepts, Inc. v. Manuel, 930 F.2d 573, 575, 18 USPQ2d 1654, 1656 (7th Cir.1991); John Donofrio & Edward C. Donovan, Christianson v. Colt Industries Operating Corp.: The Application of Federal Question Precedent to Federal Circuit Jurisdiction Decisions, 45 Am. U.L.Rev. 1835, 1874-75 (1996). We therefore hold that any counterclaim raising a nonfrivolous claim of patent infringement is sufficient to support this court's appellate jurisdiction.

DSC's principal contention on appeal is that the district court improperly granted judgment to Pulsecom on DSC's contributory copyright infringement claim at the close of DSC's case. On that issue, as on the other copyright and state law issues before us, we follow the law of the circuit from which this appeal is taken. See Glaxo, Inc. v. Novopharm, Ltd., 110 F.3d 1562, 1572, 42 USPQ2d 1257, 1265 (Fed.Cir.1997); Atari, Inc. v. JS & A Group, Inc., 747 F.2d 1422, 1439-40, 223 USPQ 1074, 1087 (Fed.Cir.1984) (in banc). With respect to the issues raised in DSC's appeal, our task is therefore to determine how the Fourth Circuit would decide those issues.

DSC's theory of contributory infringement is that each time an RBOC powers up a Pulsecom POTS card in one of its Litespan systems, it directly infringes DSC's POTS-DI software copyright by copying the POTS-DI software from the Litespan into the resident memory of a Pulsecom POTS card. An act of direct infringement is a necessary predicate for any derivative liability on the part of Pulsecom; absent direct infringement, there can be no...