Federal Circuit No. 2014-1335

Federal Circuit Reveres District Court Claim Construction and Finds Non-Infringement Argument Under Correction Construction Waived

In March 2008, CardSoft filed suit against VeriFone asserting infringement of U.S. Patent Nos. 6,934,945 (the '945 patent) and 7,302,263 (the '263 patent).  The Eastern District of Texas held a Markman hearing in July 2011 and conducted a jury trial in July 2012.  The jury determined that VeriFone infringed the ‘945 patent and the '263 patent.  VeriFone moved for a new trial and for judgment as a matter of law, but the district court denied both motions.  VeriFone then appealed to the Federal Circuit.  In 2014, the Federal Circuit reversed the district court’s decision because the district court had erred in its claim construction.  In 2015, the Supreme Court vacated the Federal Circuit's decision and remanded in light of the new standard of review set forth in Teva Pharm. USA, Inc. v. Sandoz, Inc. 

VeriFone appealed the "district court's construction of the term 'virtual machine.'"  Before setting forth the legal standard of claim construction as established in Phillips v. AWH Corp., the Federal Circuit set forth the standard of review to be applied when reviewing a district court's claim construction:

We review the district court’s ultimate interpretation of patent claims de novo…“[W]hen the district court reviews only evidence intrinsic to the patent (the patent claims and specifications, along with the patent’s prosecution history), the judge’s determination will amount solely to a determination of law, and [we] will review that construction de novo.”  If, on the other hand, a district court resolves factual disputes over evidence extrinsic to the patent, we “review for clear error those factual findings that underlie a district court’s claim construction.”…But as we have repeatedly held after Teva, it is not enough that the district court may have heard extrinsic evidence during a claim construction proceeding—rather, the district court must have actually made a factual finding in order to trigger Teva’s deferential review…And even then, we may nevertheless review the district court’s constructions de novo if the intrinsic record fully determines the proper scope of the disputed claim terms. 

The Federal Circuit held that "[i]n this case, we review the district court’s construction de novo, as the district court did not make any factual findings based on extrinsic evidence that underlie its constructions of the disputed claim term."  The court held that "[t]he specification and prosecution history establish" that the district court's construction of the term "virtual machine" was "correct, but incomplete," because it improperly conflated the virtual machine with applications written to run on the virtual machine. The Federal Circuit agreed with, and adopted VeriFone's proposed claim construction, which included the requirement that the application run by the virtual machine was not dependent on any specific operating system or hardware. 

Importantly, in its appeal, "VeriFone contend[ed] that, applying the correct construction, it [was] entitled to judgment of no infringement as a matter of law."  The court noted that "CardSoft did not respond to this argument…It instead argued that '[b]ecause [VeriFone's] construction of "virtual machine" is wrong' the jury's verdict should be affirmed."  Citing SmithKline Beecham Corp. v. Apotex Corp., the court stated that "[a]rguments that are not appropriately developed in a party’s briefing may be deemed waived."  As a result, the court held that, "[b]y failing to respond to VeriFone’s argument in the briefing, CardSoft has effectively conceded that the accused devices [infringe].  Consequently, we find that CardSoft has waived this argument, and we grant Appellants judgment of no infringement as a matter of law."  The court thus REVERSED the district court's decision.