ALJ Shaw Issues Public Version Of Initial Determination Finding A Violation Of Section 337 By Microsoft In Certain Gaming And Entertainment Consoles (337-TA-752)

Posted On: May 24, 2012   by:

Further to our April 26, 2012 post, on May 11, 2012, ALJ David P. Shaw issued the public version of his Initial Determination (“ID”), finding a violation of Section 337 in Certain Gaming and Entertainment Consoles, Related Software, and Components Thereof (Inv. No. 337-TA-752).  Please note that due to the size of the ID, we have split the file into six parts which can be found here:  part 1, part 2, part 3, part 4, part 5, and part 6.   

In the ID, ALJ Shaw determined that a violation of Section 337 occurred in this investigation by Microsoft by reason of infringement of certain valid claims of U.S. Patent Nos. 5,357,571 (the ‘571 patent); 6,069,896 (the ‘896 patent); 6,980,596 (the ‘596 patent); and 7,162,094 (the ‘094 patent).  ALJ Shaw further determined that the domestic industry requirement is satisfied with respect to all asserted patents. 

By way of background, the Complainants in this investigation are Motorola Mobility, Inc. and General Instrument Corporation (collectively, “Motorola”) and the Respondent is Microsoft Corp. (“Microsoft”).

U.S. Patent No. 6,069,896

According to the ID, the ‘896 patent involves technology to help ensure that devices make only authorized wireless connections, for example, that communications are not received by similar devices used by a neighbor.  More specifically, it relates to a “peer-to-peer network in which node addressing is dynamically configurable.”  The ID addressed several claim construction issues that are central to infringement and invalidity determinations.  In view of these constructions, ALJ Shaw determined that all Microsoft Xbox 360 consoles imported and/or sold on or after December 17, 2010, as well as all Microsoft wireless accessories, including wireless controllers, wireless headsets, wireless speed wheels, microphones, and ChatPads directly infringed claims 1 and 12 of the ‘896 patent.  ALJ Shaw further determined that Motorola had not shown that Microsoft’s accused products indirectly infringed claims 1 and 12 of the ‘896, because Motorola made no showing that Microsoft had specific intent that the products be used for direct infringement, particularly in view of ALJ Shaw’s statement that “wired controllers are one obvious example of a substantial noninfringing use of an Xbox console.”

As to the validity of the ‘896 patent, ALJ Shaw determined Microsoft had not shown by clear and convincing evidence that claims 1 and 12 were invalid.  ALJ Shaw determined that International Patent Application PCT/NZ93/0004 did not disclose the first, second, third or fourth steps of claim 1 of the ‘896 patent, or steps (b),(c), (d), (e), and (g) of claim 12.  ALJ further determined that the so-called Swan reference, which was disclosed during the original prosecution of the ‘896 patent, did not disclose the second, third, and fourth steps of claim 1 or steps (b)-(h) of claim 12.  Similarly, ALJ Shaw determined that U.S. Patent No. 6,094,575 did not disclose the first, third, and fourth steps of claim 1, or steps (b), (c), and (f)-(h) of claim 12.  ALJ Shaw also determined that the so-called WaveLAN reference failed to disclose steps 1-4 of claim 1 or the preamble, and steps (a)-(h) of claim 12.   ALJ Shaw did not consider claims 1 and 12 obvious in view of U.S. Patent No. 5,546,448 in combination with ITU V.34 reference, and ALJ Shaw further determined that secondary considerations such as long-felt need, and commercial success supported the validity of the ‘896 patent.  ALJ Shaw additionally rejected Microsoft’s arguments that the asserted claims of the ‘896 patent were invalid due to lack of written support or indefiniteness.

As to the technical prong of the domestic industry requirement, ALJ Shaw determined that Motorola’s Droid 2 and Droid X smartphones implement the inventions of the ‘896 patent and thus satisfy the technical prong.

U.S. Patent No. 7,162,094

The ‘094 patent relates to certain video coding techniques used in a video coding standard called H.264, also known as MPEG-4 Part 10 or advanced video coding (AVC).  This standard enhances video compression efficiency by using fewer bits of information by eliminating temporal and spatial redundancies, thereby enabling storing and transmitting data using a smaller bandwidth.  This is accomplished by generating approximating data to substitute for nonessential data removed during encoding.

In view of his construction of certain claim terms, ALJ Shaw determined that all Microsoft Xbox 360 consoles imported and/or sold on or after December 17, 2010, directly infringed claims 7, 8, and 10 of the ‘094 patent.  ALJ Shaw further determined that Motorola had not shown that Microsoft’s accused products indirectly infringed the asserted claims of the ‘094 patent, because as to induced infringement, Motorola had not shown that Microsoft instructs its users to use the Xbox to watch H.264 interlaced content.  As to contributory infringement, ALJ Shaw determined that Motorola’s allegations failed because Xbox has substantial non-infringing uses, such as video games and non-H.264 video formats.

Regarding invalidity, ALJ Shaw determined that Microsoft did not show by clear and convincing evidence that the asserted claims of the ‘094 patent were invalid.  Microsoft sought to invalidate the ‘094 patent under 35 U.S.C. § 103 based on two combinations of references.  ALJ Shaw determined that the first combined references MPEG 91/228 and JVT-B068 in fact taught away from each other and combining them would render both unsuitable for their intended purpose.  The second proposed combination was an MPEG-2 Standard with the JVT-B068 reference, which ALJ Shaw again determined taught away from one another.  ALJ Shaw also determined that long-felt need, prior failure of others, and commercial success supported the non-obviousness of the asserted claims of the ‘094 patent.  ALJ Shaw additionally rejected Microsoft’s arguments that these claims were invalid due to lack of written support, indefiniteness, or for claiming both an apparatus and a method of using an apparatus.

Finally, ALJ Shaw determined that various models of Motorola’s VIP12XX series of set top boxes satisfy the technical prong of the domestic industry requirement with respect to the ‘094 patent.

U.S. Patent No. 6,980,596

Like the ‘094 patent, the ‘596 patent also relates to the H.264 video coding standard.  More specifically, according to the ID, the ‘596 patent relates to “frame mode and field mode encoding of digital video content at a macroblock level as used in the MPEG-4 Part 10 AVC/H.264 standard video coding standard.” 

In view of his construction of certain claim terms, ALJ Shaw determined that all Microsoft Xbox 360 consoles imported and/or sold on or after December 17, 2010, directly infringed claims 1 and 2 of the ‘596 patent, relying at least in part, on the H.264 specification as evidence of infringement, in particular the allegedly “admitted use of the Xbox to decode MBAFF-encoded digital video using the Main and High Profiles of the H.264 Standard.”  ALJ Shaw further determined that Motorola again had not shown that Microsoft’s accused products indirectly infringed the asserted claims of the ‘094 patent, because as to induced infringement, Motorola had not shown that Microsoft instructs its users to use the Xbox to watch H.264 interlaced content.  As to contributory infringement, ALJ Shaw determined that Motorola’s allegations failed because Xbox has substantial non-infringing uses, such as video games and non-H.264 video formats.

Regarding invalidity, ALJ Shaw determined that Microsoft showed by clear and convincing evidence that claim 1 of the ‘596 patent was invalid. Specifically, ALJ Shaw determined that each of four references, referred to as the Puri article (RX-18), MPEG-4 draft specification (RX-20), the ‘878 patent (RX-332) and the VCEG-N76 reference (RX-294) anticipated claim 1.   As to claim 2, ALJ Shaw determined that Microsoft had not shown by clear and convincing evidence that the Puri article, ‘878 patent, or VCEG-N76 reference anticipate claim 2.  ALJ Shaw additionally rejected Microsoft’s arguments that claims 1 or 2 were invalid due to lack of written support and indefiniteness.

Finally, with respect to the ‘596 patent, ALJ Shaw determined that various models of Motorola’s VIP12XX series of set top boxes satisfy the technical prong of the domestic industry requirement.

U.S. Patent No. 5,357,571

The ‘571 patent involves encryption of wireless communications to prevent unauthorized reception of these communications, and relates to the IEEE 802.11 standard. 

In view of his construction of certain claim terms, ALJ Shaw determined that Microsoft Xbox 360 consoles and the Xbox 360 Wireless N Adapter directly infringe claims 12 and 13 of the ‘571 patent, relying at least in part, on Microsoft’s admissions that the Xbox products are compliant with the IEEE 802.11 standard, colloquially known as Wi-Fi, and the normal use of the Xbox with Wi-Fi in a home environment.  ALJ Shaw further determined that Motorola again had not shown that Microsoft’s accused products indirectly infringed the asserted claims of the ‘094 patent, because Xbox has many non-infringing uses, such as when it is used without an Internet connection or with a wired Internet connection.

Regarding invalidity, ALJ Shaw determined that Microsoft has not showed by clear and convincing evidence that claims 12 or 13 of the ‘571 patent are invalid.  Specifically, ALJ Shaw determined that U.S. Patent No. 5,268,962 (the Abadi patent) does not anticipate claims 12 or 13.  ALJ Shaw further determined that claim 12 was not anticipated by U.S. Patent No. 4,549,308 (the LoPinto patent), and that claim 13 was not obvious in light of the LoPinto patent in combination with the Abadi patent or U.S. Patent No. 5,309,516 (the Takaragi patent).  ALJ Shaw further determined that the Takaragi patent did not anticipate either of claims 12 or 13, and that claim 13 was not rendered obvious by Takaragi in combination with the Abadi patent.  ALJ Shaw next determined that claim 12 was not anticipated by U.S. Patent No. 5,179,591 (the Hardy patent) and claim 13 was not obvious in light of the Hardy patent in combination with the Abadi patent or the Takaragi patent.  ALJ Shaw then determined that claim 12 was not anticipated by U.S. Patent No. 5,146,498 (the Smith patent), and claim 13 was not obvious in light of the Smith patent in combination with the Abadi or Takaragi patents.

Finally, with respect to the ‘571 patent, ALJ Shaw determined that Motorola’s Droid 2 and Droid X smart phones satisfy the technical prong of the domestic industry requirement.

U.S. Patent No. 5,319,712

Like the ‘571 patent, the ‘712 patent also involves encryption of wireless communications to prevent unauthorized reception of these communications, and relates to the IEEE 802.11 standard. 

In view of his construction of certain claim terms, ALJ Shaw determined that Microsoft’s accused Xbox 360 consoles and the Xbox 360 Wireless N Adapter do not infringe any of claims 6, 8, or 17 of the ‘712 patent.   With respect to direct infringement, ALJ Shaw determined that Motorola failed to establish infringement of claim 6, because contrary to the second element the claim, and the construction of “transmit overflow sequence number” requiring the “packet sequence number” not be transmitted to the receive unit, there was no dispute that a portion of the TKIP Sequence Counter is transmitted to the receiver.   Since the third element of claim six required that it be “operatively coupled” to the second element of claim 6, which is missing, ALJ Shaw similarly determined that this third element of claim 6 was not satisfied.  Claim 8, which is dependent on claim 6 could not be satisfied for the same reasons.  According to the ID, claim 17 is the method claim counterpart of apparatus claim 6, and so ALJ Shaw determined that claim 17, which also uses the term  “transmit overflow sequence number” could not be satisfied for the same reasons as claim 6.  Without evidence of direct infringement, Motorola could not establish contributory or induced infringement.

Regarding invalidity, ALJ Shaw determined that Microsoft has not showed by clear and convincing evidence that claims 6, 8, or 17 of the ‘712 patent are invalid.  Specifically, ALJ Shaw determined that JPA Publication 4-326221 (Kimura) does not anticipate claims 6 or 17 of the ‘712 patent.  ALJ Shaw also rejected Microsoft’s arguments that dependent claim 8 was obvious over the combination of Kimura and U.S. Patent No. 4,654,480.  ALJ Shaw further determined that Microsoft failed to meets its burden that the asserted claims of the ‘712 were indefinite.

Finally, with respect to the ‘712 patent, ALJ Shaw determined that Motorola’s Droid 2 and Droid X smart phones fail to satisfy the technical prong of the domestic industry requirement.  For the same reason that the Xbox failed to infringe the second and third elements of claim 6, and by extension, claims 8 and 17, the Droid smart phones do not practice these claim elements.

Equitable Defenses – RAND

According to the ID, Microsoft argued that four of the five asserted patents, i.e., the ‘571, ‘712, ‘596, and ‘094 patents are subject to commitments Motorola made to standards setting organizations (“SSOs”) that it would license those patents on reasonable and non-discriminatory (“RAND”) terms.  Microsoft further argued under its “RAND Obligation defense,” that Microsoft is a beneficiary of Motorola’s legal obligation to grant RAND licenses to all who request licenses, and that under the general Supreme Court guidance that “wherever rights or the situation of parties are clearly defined and established by law, equity has no power to change or unsettle those rights or that situation,” citing Hedges v. Dixon County, 150 US 182, 192 (1893).  Microsoft further argued that the Commission’s equity powers to issue an injunction are foreclosed by this general subordination of equity to law, and such equitable powers are “antithetical” to enforcing Motorola’s promise to license Microsoft.  ALJ Shaw determined that Microsoft had not cited a single case in which a section 337 remedy was foreclosed simply due to the existence of RAND obligations, and that Microsoft had not shown that the “rights or the situation of the parties are clearly defined and established by law” so as to prohibit Motorola from obtaining relief from the Commission.

Microsoft additionally argued, according to the ID, that the doctrine of implied license similarly should bar exclusionary remedies, since Motorola promised to the SSOs that it would grant a license.   However, Microsoft admitted that the letters from Motorola to the SSOs contained the explicit statement that “no license is implied.”  ALJ Shaw further noted that Microsoft cited no instance in which a letter such as the one from Motorola resulted in an implied license, and that Motorola had indeed licensed its patents to other parties, but only after often lengthy negotiations.  In this case, ALJ Shaw determined that Motorola had sent letters to Microsoft offering a license to Microsoft, but Microsoft did not respond to such letters.  On the basis of the above, ALJ Shaw rejected Microsoft’s defense of an implied license.  Microsoft additionally argued a waiver defense, and that by informing the public that Motorola would license the patents for a reasonable royalty, it was “impliedly renouncing any right to enforce the patents though injunctive or exclusionary relief,” relying on the Qualcomm v. Broadcom Corp. case.  ALJ Shaw rejected this argument, since Qualcomm involved patents not disclosed to the SSO, which was not the case with Motorola.

Lastly, according to the ID, Microsoft argued that equitable estoppel relinquished any of Motorola’s rights to an exclusion order, since Motorola’s license offers were “shams” designed to set up this investigation in retaliation to Microsoft’s earlier Android litigation against Motorola, and that Microsoft had reasonably relied upon Motorola’s assurances to SSOs to license the standard-essential patents on RAND terms.  More specifically, Microsoft argued that Motorola’s proposed royalty rate of 2.25% on end products was unreasonable and discriminatory, particularly since these patents did not relate to the Xbox’s primary uses, and that the royalty exceeded the price of the component providing the covered 802.11 functionality of the Xbox.  ALJ Shaw determined that to be successful, Microsoft must show (i) that Motorola’s statements or conduct must be misleading; (ii) Microsoft relied on the misleading conduct to its detriment; and (iii) Microsoft would be materially prejudiced if Motorola were permitted to proceed.  ALJ Shaw determined that Motorola’s letters to Microsoft offering the 2.25% royalty were indeed misleading and “could not possibly have been accepted by Microsoft.”  In view of the fact that Motorola’s 2.25% royalty would amount to a $400 million per year payment, and the limited use of the standards during the regular use of the Xbox, ALJ Shaw determined that “the evidence supports Microsoft’s conclusion that Motorola was not interested in good faith negotiations and in extending a RAND license to it.”  ALJ Shaw, however, also determined that while Motorola’s communications to the SSOs may have been misleading, “as betrayed by Motorola’s subsequent conduct toward Microsoft,” there was “no evidence that Microsoft relied on any statement by Motorola to embark on or continue in any course of conduct.”  Although ALJ Shaw determined that the third element, i.e., material prejudice had been established, “all three elements have not been established,” and therefore it was not found that equitable estoppel bars Motorola’s request for a remedy.

Economic Prong of Domestic Industry Requirement 

ALJ Shaw determined that Motorola satisfied the economic prong of the domestic industry requirement with respect to all asserted patents through substantial investment in licensing, as each of the five asserted patents play an important part in Motorola’s substantial licensing business.  ALJ Shaw additionally determined that this prong is met for the ‘712, ‘571, and ‘896 patents through substantial domestic investments in engineering and R&D related to the Droid 2 and Droid X.  ALJ Shaw determined that R&D with respect to Motorola’s VIP12XX set-top boxes was not deemed substantial, and therefore the R&D regarding these set-top boxes cannot be relied upon to support the economic prong of the domestic industry requirement for the ‘596 and ‘094 patents.

ALJ Shaw further determined that Motorola focused its economic domestic industry requirements on licensing, engineering, and R&D, but that it had not emphasized Motorola’s domestic investment in plant and equipment or employment of labor or capital.  Therefore, although ALJ Shaw already determined that Motorola satisfied the economic prong of the domestic industry requirement through section 337(a)(3)(C), Motorola did not meet the additional, optional means to satisfy the economic prong through sections 337(a)(3)(A) or (B). 

Conclusion

Based on all of the above, ALJ Shaw determined that a violation of Section 337 occurred in the importation of Microsoft’s Xbox consoles and certain accessories by virtue of infringement of claims 1 and 12 of the ‘896 patent, claims 7, 8, and 10 of the ‘094 patent, claim 2 of the ‘596 patent, and claims 12 and 13 of the ‘571 patent, while no violation of Section 337 occurred with respect to claim 1 of the ‘596 patent or claims 6, 8, and 17 of the ‘712 patent.

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