Soverain Software LLC v. Newegg Inc.

• Decision Date: 22 January 2013
• Docket Number: No. 2011–1009.,2011–1009.
• Citation: 705 F.3d 1333
• Parties: SOVERAIN SOFTWARE LLC, Plaintiff–Appellee, v. NEWEGG INC., Defendant–Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

705 F.3d 1333

SOVERAIN SOFTWARE LLC, Plaintiff–Appellee,

v.NEWEGG INC., Defendant–Appellant.

No. 2011–1009.

United States Court of Appeals, Federal Circuit.

Jan. 22, 2013.

Robert B. Wilson, Quinn Emanuel Urquhart & Sullivan, LLP, of New York, NY, argued for the plaintiff-appellee. With him on the brief were David Nelson and Neil G. Cave. Of counsel was Paul J. Ripp, Williams Montgomery & John Ltd., of Chicago, IL.

Edward R. Reines, Weil, Gotshal & Manges, LLP, of Redwood Shores, CA, argued for the defendant-appellant. Of counsel on the brief were Kent E. Baldauf, Jr., David C. Hanson and Daniel H. Brean, The Webb Law Firm, of Pittsburgh, PA; and Claudia W. Frost and Kevin M. Fong, Pillsbury Winthrop Shaw Pittman, LLP, of Houston, TX.

Before NEWMAN, PROST, and REYNA, Circuit Judges.

NEWMAN, Circuit Judge.

Soverain Software LLC brought this patent infringement suit against Newegg Inc. for infringement of specified claims of United States Patent No. 5,715,314 (“the '314 patent”), its continuation Patent No. 5,909,492 (“the '492 patent”), and Patent No. 7,272,639 (“the '639 patent”). The patents relate to electronic commerce, wherein a merchant's products are offered and purchased online, through computers interconnected by a network. The patents arise from a software system called “Transact” that was developed in 1996 by a company named Open Market, Inc. The Abstract of the '314 and '492 patents describes the subject matter as follows

A network-based sales system includes at least one buyer computer for operation by a user desiring to buy a product, at least one merchant computer, and at least one payment computer. The buyer computer, the merchant computer, and the payment computer are interconnected by a computer network. The buyer computer is programmed to receive a user request for purchasing a product, and to cause a payment message to be sent to the payment computer that comprises a product identifier identifying the product. The payment computer is programmed to receive the payment message, to cause an access message to be created that comprises the product identifier and an access message authenticator based on a cryptographic key, and to cause the access message to be sent to the merchant computer. The merchant computer is programmed to receive the access message, to verify the access message authenticator to ensure that the access message authenticator was created using the cryptographic key, and to cause the product to be sent to the user desiring to buy the product.

Figure 1 in the '314 and '492 patents is:

IMAGE

In 2001 Open Market was sold, with the Transact software and patents, to a company named Divine, Inc. Former Divine employee and current Soverain President Katharine Wolanyk testified that the Transact software was “a very complex product” that required constant support services and engineering development, that Divine was unable to provide the necessary support and development, and that Divine declared bankruptcy after fifteen months. Soverain acquired the Transact software and patents. Soverain then sued seven online retailers, including Newegg, for patent infringement. The record states that all of the defendants except Newegg took paid-up licenses to the patents. Trial Tr. 47 ll.7–25, ECF No. 392.

Newegg declined to pay for a license, stating that its system is materially different from that described and claimed in the patents, and that the patents are invalid if given the scope asserted by Soverain. Newegg pointed out that similar electronic commerce systems were known before the patented system, that the Transact software was generally abandoned, and that Newegg's system, which is based on the different principle of using “cookies” on the buyer's computer to collect shopping data, is outside of the claims.

Suit against Newegg proceeded in the United States District Court for the Eastern District of Texas.¹ The jury found Newegg liable for infringement of the '314 and ' 492 patents, and awarded Soverain damages of $2.5 million. The jury found that Newegg did not infringe the ' 639 patent, but the district court granted Soverain's motion for JMOL of infringement of the ' 639 patent, and ordered a new trial to assess damages for the ' 639 patent, to be tried after the completion of appeals. The district court awarded Soverain post-verdict damages and an ongoing royalty.

After the close of evidence the district court removed the question of obviousness from the jury, the court stating: “I don't think there's sufficient testimony to present an obviousness case to the jury. I think it would be very confusing to them.” Trial Tr. 3 ll.9–12, ECF No. 395. The district court then held that the claims are not invalid on the ground of obviousness. Op. at 478–79. Newegg's motions for JMOL or a new trial were denied.

Obviousness

Obviousness is a question of law based on underlying facts, as set forth in Graham v. John Deere Co., 383 U.S. 1, 86 S.Ct. 684, 15 L.Ed.2d 545 (1966). The Graham factors are (1) the scope and content of the prior art, (2) the difference between the prior art and the claimed invention, (3) the level of ordinary skill in the field of the invention, and (4) any relevant objective considerations. The Graham Court explained that “the ultimate question of patent validity is one of law.” Id. at 17, 86 S.Ct. 684. Thus on appellate review, the question of obviousness is decided de novo. See Vulcan Eng'g Co. v. Fata Aluminium, Inc., 278 F.3d 1366, 1372 (Fed.Cir.2002) (district court's application of the law of obviousness to the found facts is reviewed for correctness); C.R. Bard, Inc. v. M3 Sys., Inc., 157 F.3d 1340, 1351–52 (Fed.Cir.1998) (“The ultimate determination of obviousness vel non is a legal conclusion.”).

Newegg argues that it was wrongfully deprived of a jury determination of the question of obviousness, pointing to the extensive testimony on this issue at trial. However, Federal Rule of Civil Procedure 50 “allows the trial court to remove cases or issues from the jury's consideration ‘when the facts are sufficiently clear that the law requires a particular result,’ ” Weisgram v. Marley Co., 528 U.S. 440, 448, 120 S.Ct. 1011, 145 L.Ed.2d 958 (2000) (quoting Wright & Miller, Federal Practice and Procedure (2d ed. 1995)). The Court has explained that the purpose of Rule 50 is “to speed litigation and avoid unnecessary retrials.” Neely v. Martin K. Eby Const. Co., 386 U.S. 317, 326, 87 S.Ct. 1072, 18 L.Ed.2d 75 (1967).

Although here both sides had presented witnesses and evidence on the question of obviousness, the district court's removal of the legal question from the jury did not violate the right to jury trial. See Markman v. Westview Instruments, Inc., 517 U.S. 370, 389, 116 S.Ct. 1384, 134 L.Ed.2d 577 (1996) (“[A]ny credibility determinations will be subsumed within the necessarily sophisticated analysis of the whole document.”). In KSR International Co., v. Teleflex, Inc., 550 U.S. 398, 427, 127 S.Ct. 1727, 167 L.Ed.2d 705 (2007), the Court applied similar principles in its determination of the question of obviousness, stating that: “Where, as here, the content of the prior art, the scope of the patent claim, and the level of ordinary skill in the art are not in material dispute, and the obviousness of the claim is apparent in light of these factors, summary judgment is appropriate” and remand unnecessary.

However, questions of law must be correctly decided, and the district court's determination of the question of obviousness as a matter of law receives de novo determination on appeal. See Western Union Co. v. MoneyGram Payment Sys., Inc., 626 F.3d 1361, 1369 (Fed.Cir.2010) (reversing judgment of nonobviousness when “[t]he parties' disputes revolve around whether the prior art taught three specific elements of the claimed inventions, whether there was a motivation to combine these elements with the prior art system, and whether secondary considerations support a finding of nonobviousness.”); Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318, 1327 (Fed.Cir.2008) (reversing judgment of nonobviousness when defendant “clearly and convincingly established a prima facie case that [the] claims [were] obvious as a matter of law.”); Inventio AG v. Otis Elevator Co., No. 2011–1615, ––– Fed.Appx. ––––, ––––, 2012 WL 5907489, at *5 (Fed.Cir. Nov. 27, 2012) (non-precedential) (reversing judgment of nonobviousness when patent was “a clear example of a ‘combination of familiar elements according to known methods [yielding] no more than ... predictable results.’ ” (citations omitted)).

On these premises, we determine the question of obviousness. Newegg relied primarily on a prior electronic commerce system called “CompuServe Mall.” The district court, sustaining validity of all claims in suit, did not discuss the claims or the prior art; the court stated that Newegg's expert had not presented a prima facie case of obviousness, and criticized Newegg for not presenting “some articulated reasoning with some rational underpinning to support the legal conclusion of obviousness.” Op. at 479.

The parties divided the claims in suit into three groups, and presented evidence and argument, including expert and other witness testimony, for the claims as grouped. We retain the parties' groupings, as follows:

A

The '314 and '492 patents—the “shopping cart” claims

Soverain asserted claims 34 and 51 of the '314 patent and claim 17 of the '492 patent as a group called the “shopping cart” claims. These claims are directed to the overall system wherein products are offered online by a merchant, a buyer designates products for purchase, and payment for the designated products is initiated upon the buyer's request for checkout, all operating through a computer network. The parties agreed that claim 34 of the '314 patent is representative of this group. Claim 34 follows (with bracketed numbers added):

34. A network-based sales system, comprising:

[1] at least one buyer computer for...