The U.S. Court of Appeals for the Federal Circuit upheld the lower court’s decision of patent exhaustion in a case involving a labyrinth of assignments and prior licenses. The Federal Circuit also agreed that a hybrid (method/apparatus) was involved was invalid under 35 U.S.C. § 112, ¶ 2. Rembrandt Data Techs., LP v. AOL, LLC et al., Case No. 10-1002 (Fed. Cir., Apr. 18, 2011) (Gajarsa, J.).

The two patents-in-suit relate to computer modems and methods of identifying modems. The patents were originally acquired by subsidiaries of AT&T in 1993 and 1994, respectively. In 1996, when AT&T underwent a “trivestiture,” the patents were transferred to Lucent Technologies. Through a series of subsequent corporate spin-offs and acquisitions, in 2008, these patents eventually were assigned to the plaintiff, Rembrandt.

The defendant-appellees, Hewlett-Packard Co. (HP) and the Canon corporate entities, defended against Rembrandt’s assertions of patent infringement by claiming that they could trace their rights to use the patented technology to a prior license. In 1988, AT&T licensed the patents-in-suit to Rockwell International Corporation. In 1995, a “Side Letter Agreement” between AT&T and Rockwell amended the 1988 license agreement to grant Rockwell additional sub-licensing rights. Rockwell eventually spun-off its modem business to Conexant Systems, Inc., the allegedly infringing modem chip supplier for HP and Canon.

The district court found that that the 1995 Side Letter Agreement had effectively given Rockwell the ability to sub-license the patents-in-suit, noting that although the law generally does not recognize the right of a licensee to sublicense patent rights without the licensor’s written consent, a contract may provide otherwise. Rembrandt appealed.

The Federal Circuit affirmed, noting that the language “the licenses and rights granted in the Agreement may be sublicensed to any future divested present business of Rockwell” expressly permitted Rockwell to sublicense the patents-in-suit without AT&T’s written consent.

Finding that Conexant was a proper sub-licensee of the patents, the Federal Circuit affirmed the district court’s holding that Rembrandt’s rights to enforce the patents-in-suit against HP and Canon had been exhausted by Conexant’s sale of the modem chips.

The Federal Circuit also upheld the district court’s finding of patent invalidity as to several claims of one of the patents in suit. The district court had found the claims invalid for indefiniteness under §112, ¶ 2, because it recited “both and apparatus and a method of using that apparatus.” Specifically, the claims recite five elements. The first four are apparatus elements (a buffer means, a fractional encoding means, a second buffer means and a trellis encoding means), but the fifth element (“transmitting the trellis encoded frames”) is a method step.

Although Rembrandt asserted that the fifth element was a mere typographical error, the Federal Circuit citing its 2004 decision in Chef Am. v. Lamb-Weston (see IP Update, Vol. 7, No. 3) emphasized the Court’s inability to redraft claims, “whether to make them operable or to sustain their validity.” Moreover, the Federal Circuit, citing its 2003 decision in Novo Industries v. Micro Molds (see IP Update, Vol. 6, No. 12) a court can correct a patent “only if (1) the correction is not subject to reasonable debate based on consideration of the claim language and the specification and (2) the prosecution history does not suggest a different interpretation of the claims.” Neither was the case here.

Finally, the Federal Circuit reversed the district court’s summary judgment finding certain claims that recited a “fractional rate encoding means” and “trellis encoding means” invalid for indefiniteness. It held that the district court improperly interpreted those claim terms as means-plus-function elements under §112, ¶ 6. Although use of the word “means” raises the presumption of a means-plus-function claim, that presumption can be rebutted if the claim limitation itself recites sufficient structure to perform the claimed function in its entirety. Because there was still a genuine dispute of material fact as to whether the patent sufficiently disclosed an algorithm able to perform the recited functions in the claims, the Federal Circuit reversed and remanded that issue to the district court.