Patent Watch: Alexsam, Inc. v. IDT Corp.

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Expert testimony [may be] required not only to explain what the prior art references disclosed, but also to show that a person skilled in the art would have been motivated to combine them in order to achieve the claimed invention.

On May 20, 2013, in Alexsam, Inc. v. IDT Corp., the U.S. Court of Appeals for the Federal Circuit (Dyk,* Mayer, Moore) affirmed-in-part, reversed-in-part and remanded the district court's judgment, inter alia, that IDT infringed U.S. Patent No. 6,000,608, which related to a system for activating and using multifunction cards such as prepaid phone cards and electronic gift certificate cards, and that the '608 patent was not invalid for obviousness. The Federal Circuit stated:

A district court's decision to sanction a litigant under Rule 37 is reviewed for abuse of discretion. [T]he propriety of severe sanctions such as dismissing a claim or entering default judgment depends on whether the discovery misconduct "result[ed] from wilfulness or bad faith"; "the deterrent value of Rule 37 cannot be substantially achieved by the use of less drastic sanctions"; "the other party's preparation for trial was substantially prejudiced"; and the misconduct was "plainly attributable to an attorney rather than a blameless client," or to "confusion or sincere misunderstanding of the court's orders." For less severe sanctions, however, including deeming certain facts established for purposes of the litigation, [a less-rigorous standard applies,] requiring only that the sanction be "[j]ust and [f]air," that it have a "substantial relationship" to the facts sought to be established by the discovery, and that it meet Rule 37's goals of punishment and deterrence. [T]he sanction imposed on IDT falls within the category of less-severe sanctions.

[T]he district court issued a discovery order [obligating] IDT to disclose which of its cards bore card numbers that included "a bank identification number approved by the American Banking Association for use in a banking network" -- an element of each of the claims at issue. IDT's production in response to this order was minimal, however, and did not include documents disclosing that the cards activated over the miscellaneous systems were encoded with BINs. . . . Following the close of discovery, Alexsam moved for sanctions pursuant to Rule 37, alleging that IDT had violated the court's discovery orders by failing to disclose these BIN-encoded cards in a timely manner. The court granted Alexsam's motion, sanctioning IDT by deeming the miscellaneous systems to have infringed Alexsam's patents. . . .

[W]hile IDT argues that lesser sanctions such as an award of attorneys' fees would have been sufficient to meet the purposes of Rule 37, we see no abuse of discretion in the district court's sanction, especially in light of the failure of its earlier sanctions to secure compliance. We therefore affirm the district court's judgment deeming the miscellaneous systems to infringe as a sanction for IDT's discovery violations. . . .

A patent claim is invalid if "the differences between the subject matter [of the claim] and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art." The party challenging the patent bears the burden of proving invalidity by clear and convincing evidence. While obviousness is a question of law, it is based on several underlying questions of fact, including "the scope and content of the prior art" and the nature of any "differences between the prior art and the claims at issue."

IDT argues that claims 57 and 58 would have been obvious over a combination of Levine and either one of two other patents, both of which supposedly supply the missing element of a standard, unmodified POS terminal. Even if these references do disclose this element, IDT would still need to show that a person having ordinary skill in the art would have been motivated to combine one of these patents with Levine in order to achieve the claimed invention. Even though IDT bore the burden of proving this fact by clear and convincing evidence, it did not introduce any expert testimony about whether a skilled artisan would have been motivated to combine the various references to achieve the claimed invention.

On appeal, IDT asserts that expert testimony was not necessary and that the introduction of the references themselves was sufficient. "'[E]xpert testimony regarding matters beyond the comprehension of layper¬sons is sometimes essential,' particularly in cases involving complex technology." In this case, the technology was complex and the prior-art references were not easily understandable without expert testimony. The claim that the technology is simple is belied by the fact that both sides believed it necessary to introduce extensive expert testimony regarding the content of the prior art. Expert testimony was required not only to explain what the prior art references disclosed, but also to show that a person skilled in the art would have been motivated to combine them in order to achieve the claimed invention. IDT provided no such expert testimony. Substantial evidence therefore supports the jury's finding that claims 57 and 58 are not invalid.