By Eric Schweibenz and John Presper
Further to our October 30, 2017 post, on December 8, 2017, ALJ Dee Lord issued the public version of the Initial Determination (“ID”) (see part 1, part 2, part 3, and part 4) finding no violation of Section 337 in Certain Audio Processing Hardware and Software, and Products Containing the Same (Inv. No. 337-TA-1026).

By way of background, this investigation is based on a September 19, 2016 complaint filed by Andrea Electronics Corporation (“Andrea”) alleging violation by Apple Inc. (“Apple”), Samsung Electronics Co. Ltd., and Samsung Electronics America, Inc. (collectively, “Samsung”) of Section 337 by way of unlawful importation into the U.S., selling for importation, and/or selling within the U.S. after importation certain audio processing hardware, software, and products containing same that infringe one or more claims of U.S. Patent Nos. 6,049,607 (“the ’607 patent”); 6,363,345 (“the ’345 patent”); and 6,377,637 (“the ’637 patent”). See our September 21, 2016 and October 21, 2016 posts for more details on the complaint and Notice of Investigation, respectively. Samsung was terminated from the investigation on the basis of settlement agreement. See our August 22, 2017 post for additional details. Only the ’345 patent remained at issue after the investigation was terminated as to the ’607 and ’637 patents based on Andrea’s withdrawal of its allegations.

According to the ID, ALJ Lord found that Andrea lacked standing to assert the ’345 without joining AND34 Funding LLC (“AND34”), a “collateral agent for investors that gave money to Andrea in a common plan to monetize Andrea’s patent portfolio, including the ’345 patent.” Specifically, a revenue sharing agreement between Andrea and AND34 gave AND34 a right to receive a portion of the litigation and licensing proceeds related to the ’345 patent, and contractually obligated Andrea to monetize the ’345 patent by seeking to enforce it against 22 specified mobile device companies (as opposed to collaborating with such companies). Further, Andrea and AND34 shared control over litigation strategy pursuant to a common interest agreement between the parties. The ALJ thus concluded that Andrea had ceded substantial rights to AND34 to such an extent that it cannot be considered the sole owner of the ’345 patent for standing purposes.

ALJ Lord also found that the accused iPhones, iPads, Apple Watches, AirPods, and MacBooks do not literally infringe the asserted claims of the ’345 patent because they do satisfy the limitation of “detecting for each frequency bin whether the magnitude of the frequency bin is less than the corresponding threshold,” as required by independent claims 1 and 38. In particular, the ALJ determined that literal infringement requires “an explicit calculation or estimation of magnitude,” and that the accused products did not meet this limitation because they use power, not magnitude, to make any threshold comparison.

With respect to validity, ALJ Lord found that none of the prior art references relied on by Apple anticipated or rendered obvious the asserted claims of the ’345 patent.

Further, ALJ Lord rejected Apple’s argument that the ’345 patent is unenforceable because the named inventors committed inequitable conduct by withholding the Hirsch, Martin 93, and Martin 94 prior art references from the United States Patent & Trademark Office (“USPTO”). The ALJ found, inter alia, that Hirsch is not “material” under the Therasense standard, and that Apple failed to establish that by clear and convincing evidence that the inventors withheld the references for the purpose of deceiving the USPTO.

ALJ Lord also was not persuaded by Apple’s equitable estoppel defense, which was based on a “MiFi Development License” that Apple had granted to Andrea in 2014 in which Andrea represented and warranted that is “has no knowledge that any product of Apple, or any of its Affiliates, infringes any patent owned or controlled by” Andrea. Before it was terminated, the license automatically renewed in July 2015 and July 2016, and Apple asserted that the automatic renewals “reaffirmed Andrea’s initial representation that it was unaware that Apple’s products infringed its patents.” Apple argued that had Andrea either brought an earlier suit or corrected its representations regarding Apple’s alleged infringement, Apple would have had an opportunity to implement alternative solutions years earlier and avoided any potential need to implement design arounds for the later launched Apple Watch and Apple AirPods products. The ALJ determined, however, that even if Apple could have reasonably inferred from the license that Andrea did not intend to enforce the ’345 patent against Apple when the agreement was signed in July 2014, Andrea provided explicit notice that Apple was infringing Andrea’s patents in May 2015, and Apple did not identify any evidence that it relied on Andrea’s representation in the license when implementing its noise suppression algorithms.

Regarding domestic industry, ALJ Lord determined that Andrea’s Segment 300 products do not satisfy the technical prong because they generate frequency-limited time domain sub-bands which do not meet the “frequency spectrum generator” limitations of claims 1 or 38 of the ’345 patent that require a frequency spectrum consisting of frequency bins of the audio signal. In the absence of any expenditures relating to a domestic industry article that practices the frequency spectrum generator limitations of the ’345 patent, Andrea failed to satisfy the economic prong as well.

As to remedy and bonding, ALJ Lord noted the “massive market for Apple products in the United States and that exclusion of Apple products from the U.S. market, even for a relatively short time, would have a significant impact not only on Apple and its employees but on consumers, merchants, and institutions that rely on Apple products. Accordingly, the ALJ recommended that in the event a violation is found, any remedy—including a limited exclusion order (“LEO”) sought by Andrea—be delayed for a period of three months to one year to permit Apple to respond to the finding of infringement and implement an alternative. In addition, the ALJ recommend that any LEO include exceptions for warranty, refurbishment, and government use, as well as a certification provision. ALJ Lord also concluded that Apple maintains a significant inventory in the U.S., and recommended that a cease-and-desist order be issued against Apple in the event a violation is found. The ALJ further determined that a reasonable bond rate could be determined in Andrea’s (confidential) software license agreement with Samsung.