CardSoft, LLC v. Verifone, Inc.

Addressing issues of claim construction after a remand from the Supreme Court, the U.S. Court of Appeals for the Federal Circuit again reversed the district court’s judgment of infringement, finding that it was based on an incorrect claim construction. CardSoft, LLC v. Verifone, Inc., Case No. 14-1135 (Fed. Cir., Dec. 2, 2015) (Hughes, J.)

The patents-in-suit describe software for controlling a payment terminal. According to the patents, prior art payment terminals used a variety of “different hardware/software architectures.” But this variety meant that each application program for a payment terminal needed to be written specifically for that terminal, making programming alterations not “portable” between different types of devices. To solve this problem, the specification describes a “virtual machine,” acting as an “interpreter” between an application program and a payment terminal’s underlying hardware and operating system. The district court construed “virtual machine” as “a computer programmed to emulate a hypothetical computer for applications relating to transport of data.” The issue on appeal was the appropriate construction of this term.

This is the second time the Federal Circuit has been asked to review the district court’s construction of the term “virtual machine.” In the first appeal, in 2014, the Federal Circuit vacated a $15.4 million jury verdict in favor of the plaintiff Cardsoft because it was based on a “correct, but incomplete” claim construction of the term “virtual machine,” which the Federal Circuit held “does not reflect the ordinary and customary meaning” of the term, and because Cardsoft waived any argument of infringement under the correct construction. (See IP Update, Vol. 17, No. 11.) Cardsoft petition to the Supreme Court for cert, and post-Teva the Supreme Court vacated and remanded the decision for reconsideration in view of the Teva standard for district court review of claim construction. (See IP Update, Vol. 18, No. 1.)

On remand, the Federal Circuit applied a de novo review, noting that the district court’s construction was based only on intrinsic evidence. Had the district court resolved factual disputes regarding any extrinsic evidence, the district court’s factual findings would have been reviewed for clear error in accordance with Teva. In this case, applying de novo review, the Federal Circuit reversed the district court’s judgment of infringement, again finding that the district court’s construction of the term “virtual machine” was correct but incomplete, as it “improperly conflates the claimed virtual machine with applications written to run on the virtual machine.” By so doing, the Federal Circuit agreed with VeriFone that the district court erred by not requiring the claimed “virtual machine” to include a limitation that the applications it runs are not dependent on any specific underlying operating system or hardware, a construction that reflects the ordinary and customary meaning of “virtual machine.”

Finally, although CardSoft recognized VeriFone’s argument that it does not infringe under VeriFone’s construction, CardSoft had failed to appropriately address the issue on appeal. The Federal Circuit found that CardSoft has waived any argument of non-infringement under VeriFone’s construction and granted VeriFone’s judgment of non-infringement as a matter of law.