On Track Innovations Ltd. v. T-Mobile USA, Inc.

• Decision Date: 25 March 2015
• Docket Number: 12–CV–2224 (AJN)
• Parties: On Track Innovations Ltd., Plaintiff, v. T–Mobile USA, Inc., Defendant.
• Court: U.S. District Court — Southern District of New York

106 F.Supp.3d 369

On Track Innovations Ltd., Plaintiff,

v.T–Mobile USA, Inc., Defendant.

12–CV–2224 (AJN)

United States District Court, S.D. New York.

Signed March 25, 2015

Filed April 3, 2015

Clyde Alvin Shuman, Daniel J. Melman, Guy Yonay, Jessica Weili Lin, Veronica Mullally Munoz, Pearl Cohen Zedek Latzer Baratz LLP, New York, NY, for Plaintiff.

Eric J. Lobenfeld, Ira James Schaefer, Hogan & Hartson L.L.P., New York, NY, Douglas James Dixon, Hueston Hennigan LLP, John Charles Hueston, Irell & Manella LLP, Newport Beach, CA, Alexander Chester Giza, Zachary Truman Elsea, Hueston Hennigan LLP, Benjamin Mathes Haber, Ellisen Shelton Turner, Irell & Manella LLP, Los Angeles, CA, for Defendant.

MEMORANDUM AND ORDER

ALISON J. NATHAN, District Judge

This action arises from a patent infringement dispute between On Track Innovations Ltd. ("OTI"), a developer of virtual payment systems and the current owner of U.S. Patent No. 6,045,043 ("the '043 patent"), and T–Mobile USA, Inc. ("T–Mobile"), a mobile network operator ("MNO"). OTI alleges that T–Mobile infringed the '043 patent through its sale of near field communication ("NFC") mobile phones, which, when used in conjunction with a SIM card, allow their owners to make virtual cashless payments with certain merchants.

Presently before the Court are six motions: three Daubert motions seeking to exclude expert testimony and three motions for summary judgment. OTI moves to exclude the testimony of Dr. Michael Allan Martin Davies, T–Mobile's rebuttal expert on issues relating to NFC technology and the market for mobile phones. Additionally, OTI submits two motions for summary judgment, one seeking summary judgment affirming T–Mobile's infringement of the '043 patent and a second dismissing T–Mobile's affirmative defenses of laches, estoppel, acquiescence, patent misuse, and inequitable conduct. On the other side, T–Mobile submits motions to exclude the expert testimony of Dr. Alyssa Apsel regarding infringement and also the testimony of Dr. Christine Meyer regarding damages. It has also filed a cross-motion for summary judgment on the issue of infringement and patent invalidity.

For the reasons set forth below, T–Mobile's motion to strike the testimony of Dr. Apsel is DENIED. Its motion for summary judgment on non-infringement and patent validity is similarly DENIED. OTI's motion for summary judgment on infringement is GRANTED. Its motion for summary judgment on T–Mobile's fourth through ninth affirmative defenses is similarly GRANTED in its entirety. OTI's motion to strike the testimony of Mr. Davies is GRANTED IN PART and DENIED IN PART. Finally, T–Mobile's motion to strike the testimony of Dr. Meyer's is GRANTED.

I. STANDARD OF REVIEW

Summary judgment is properly granted when, after reviewing the evidence in the light most favorable to the non-moving party, "there is no genuine issue as to any material fact" and "the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c) ; Nabisco, Inc. v. Warner–Lambert Co., 220 F.3d 43, 45 (2d Cir.2000). For summary judgment purposes, a genuine issue exists if the evidence is such that a reasonable jury could decide in the non-moving party's favor. Id. In the context of an infringement claim, summary judgment is appropriate when there is no dispute about the operation of the accused products. See IGT v. Bally Gaming Int'l, Inc., 659 F.3d 1109, 1121 (Fed.Cir.2011).

In a summary judgment setting, "the burden is upon the moving party to demonstrate that no genuine issue respecting any material fact exists." Gallo v. Prudential Residential Servs., Ltd. P'ship, 22 F.3d 1219, 1223 (2d Cir.1994). "When the burden of proof at trial would fall on the nonmoving party, it ordinarily is sufficient for the movant to point to a lack of evidence ... on an essential element of the nonmovant's claim." Cordiano v. Metacon Gun Club, Inc., 575 F.3d 199, 204 (2d Cir.2009). "Where the moving party demonstrates the absence of a genuine issue of material fact, the opposing party must come forward with specific evidence demonstrating the existence of a genuine dispute of material fact." Brown v. Eli Lilly & Co., 654 F.3d 347, 358 (2d Cir.2011) (citations omitted). "More specifically, it must do more than simply show that there is some metaphysical doubt as to the material facts and may not rely on conclusory allegations or unsubstantiated speculation." Id. (citations and quotation marks omitted).

II. BACKGROUND

This case concerns the alleged infringement of Patent No. 6,045,043, owned by Plaintiff On Track Innovations, Inc., by Defendant T–Mobile USA, Inc., a mobile telephone network operator that provides wireless services and that sells and distributes mobile phones. (Dkt. No. 167, Ex. 3 at 97:13–16) ("Silis Deposition").

A. History of the '043 Patent

The application ultimately issuing as the '043 Patent was filed on December 30, 1997, naming Oded Bashan, Nehemya Itay, Ronnie Gilboa, and Moshe Aduk as inventors. (See Dkt. No. 138 ("Shuman Declaration"), Ex. A). Initially, on June 25, 1999, the Patent Office ("PTO") mailed a Non–Final Office Action to Helfgott & Karas, P.C., local counsel for the inventors and OTI, rejecting all pending claims as being anticipated by U.S. Patent No. 5,733,812 ("Kreft '812 Patent"). (Id. Ex. B). On September 22, 1999, Helfgott & Karas filed an Amendment and Remarks in response to the Office Action. (Id. Ex. C). In light of the Amendment and Remarks, a Notice of Allowability was mailed on October 25, 1999 and the patent itself was issued on April 4, 2000. (Id. Exs. A, D). The '043 Patent will expire on December 29, 2017. (See Dkt. No. 184, Ex. 4 at 4).

B. The ISIS Mobile Wallet Technology

In 2010, T–Mobile, joined by Verizon and AT & T, formed ISIS, a company whose purpose was to promote cashless transactions made from mobile phones. (See Dkt. No. 179, Exs. 15–16).¹ As part of its participation in ISIS, T–Mobile sells phones capable of implementing NFC technology. It also distributes Universal Integrated Circuit Cards ("UICC" or "SIM card") that must be inserted into the NFC phones in order to facilitate cashless payments. (See Dkt. No. 167, Ex. 35 ¶ 16) ("Apsel Report"). ISIS then makes software, known as the ISIS Mobile Wallet, available for subscription. Subscribers with NFC phones can then make mobile payments using their phone. (Id. ).

The NFC phones are capable of operating in "card emulation mode," but do not do so continuously. (See Dkt. No. 192, Ex. D ¶ 178) ("Conrad Rebuttal Report"). When operating in card emulation mode, the phone can communicate with a contactless reader as a contactless card, enabling mobile payment services. (Apsel Rep. ¶ 22). In effect, when operating in this mode, the phone replaces a physical plastic payment card. (Silis Dep. Tr. 54:22–55:21). This is "the primary function of any Isis device," as it facilitates "payment, e-cash, and transit applications." (See Dkt. No. 167, Ex. 26 at 42) ("ISIS Architecture"). Accordingly, "[t]he NFC hardware must support card emulation." (Id. )

At a general level, the hardware employed by ISIS combines a secure element on the SIM card with a processor, NFC controller, and antenna located on the phone itself. (ISIS Architecture 14). An image of this structure is below. [redacted text]

(ISIS Architecture 14).²

A secure element is a tamper-resistant device with an embedded microprocessor chip capable of encrypting and decrypting data. It is capable of storing data securely. (Apsel Rep. ¶ 31). [redacted text] (Apsel Rep. ¶ 32; see Dkt. No. 167, Ex. 27 at 8 ("JVL Secure Element Requirements"); Silis Dep. Tr. at 60:11–23; Tech Tut. Tr. at 6:2–6). [redacted text] (See ISIS Architecture 14). Although the secure element could be integrated into the phone's circuitry in several ways, including through a removable card inserted into a phone's MicroSD card slot, T–Mobile mandates that it take the form of the SIM card due to certain advantages in portability and durability (See Dkt. No. 167, Ex. 31 at 3.2.3–2 ("GSMA Requirements for Single Wire Protocol"); Silis Dep. Tr. 76:1–12).

Beyond the secure element on the SIM card, the ISIS hardware incorporates the phone's general purpose processor (See Dkt. No. 167, Ex. 33 at Section 5.2.11) ("T–Mobile Product Requirements Document" or "PRD"). The NFC controller, also within the phone, serves to connect the antenna, the processor and the secure element. (See ISIS Architecture 24). All NFC phones at issue here also come complete with an NFC proximity antenna. (See Silis Dep. Tr. 57:9–13).

Finally, it is worth highlighting that the NFC phones facilitate data communication through the use of "communication protocols," which Dr. Apsel explained to be a kind of common language for data communication. (Tech. Tut. Tr. at 10:1–4). Use of these protocols facilitates the interoperability of devices by ensuring they are able to communicate with one another. (Id. at 10:13–16). Contact communication is commonly governed by ISO 7816. (Id. at 13:21–22). The specifications for the secure element used by T–Mobile enabled use of the ISO 7816 protocol. (See Dkt. No. 167 ("Yonay Declaration"), Ex. 39 at 2.1.3). The specifications further require communications between the antenna and the SIM Card, first by transmitting contactless data with a contactless communications protocol, possibly ISO 14443, from the antenna to the NFC Controller (or antenna interface), and then from the NFC controller to the SIM card along a physical wire governed by the Single Wire Protocol ("SWP"). (See ISIS Architecture 42).

To be clear, the NFC phones at issue here are manufactured by third parties not involved in this suit. However, the technical specifications described are dictated by requirements and standards promulgated by ISIS and T–Mobile to phone manufacturers. For instance, ISIS distributed a document titled "Isis Architecture: Mobile NFC Device Specification," which mandates certain specifications for manufacturers who wish for their products to be...