IP Law Daily Dispute over network security patents remanded for further proceedings on inducement liability
Friday, October 23, 2020

Dispute over network security patents remanded for further proceedings on inducement liability

By Thomas Long, J.D.

District court abused its discretion by excluding evidence that could show Adobe’s subjective belief that it induced customers to infringe by installing accused software products.

In a long-running and contentious battle over network security technology, a district court abused its direction by barring the plaintiff patent owner from presenting any evidence to the jury that defendant Adobe Inc. induced customers to infringe the patents-in-suit after the date of a claim construction order, on the basis that the claim construction made it impossible for Adobe to have the requisite intent for inducement liability. According to the U.S. Court of Appeals for the Federal Circuit, even though the claim construction was "objectively reasonable," Adobe could have subjectively believed that the construction was wrong, and could have directed its customers to install accused Adobe Acrobat software with the awareness that this conduct was infringing. Because the district court failed to consider all of the evidence regarding Adobe’s intent, the case was remanded for further proceedings regarding Adobe’s potential inducement liability. At the same time, the appellate court affirmed the district court’s rejection of Adobe’s subject matter eligibility challenge and declined to disturb the jury’s determination that Adobe was liable for direct infringement. The patent owner was entitled to no damages, however, because it only presented evidence of damages based on sales of the accused products, which would support an award for inducement, but not for direct infringement, which was the only kind found by the jury to have occurred (TecSec, Inc. v. Adobe Inc., October 23, 2020, Taranto, R.).

Patents-in-suit. The patents-in-suit were U.S. Patent Nos. 5,369,702, 5,680,452, 5,717,755, and 5,898,781, all of which were entitled "Distributed Cryptographic Object Method" (the "DCOM patents") and claimed systems and methods for multi-level security of various kinds of files being transmitted in a data network. The DCOM patents described a method in which a digital object—such as a document, video, or spreadsheet—is assigned a level of security that corresponds to a certain combination of access controls and encryption. The encrypted object can then be embedded or "nested" within a "container object," which, if itself encrypted and access-controlled, provides a second layer of security.

Litigation history. In 2010, patent owner TecSec, Inc., sued several companies, including Adobe and IBM, alleging that the companies directly and indirectly infringed claims of the patents-in-suit. On March 3, 2011, after staying the case as to all defendants except IBM, the district court construed several claim terms of the DCOM patents, including the term "multimedia." Based on those constructions, the district court granted IBM summary judgment of noninfringement. In January 2012, the Federal Circuit summarily affirmed that noninfringement without reaching the construction of "multimedia." The case then proceeded in district court against Adobe and other defendants. On April 23, 2012, TecSec and Adobe stipulated that, under the claim construction already adopted (which TecSec reserved the right to appeal), TecSec could not show that Adobe or the users of its accused Acrobat products infringed the DCOM patents, as alleged, through their actions involving PDF files. The district court then entered a judgment of noninfringement for Adobe. On October 2, 2013, the Federal Circuit reversed the district court’s construction of "multimedia" and remanded for further proceedings under the correct construction.

In October 2014, Adobe filed a motion for summary judgment of noninfringement, and the district court granted the motion in May 2015. In August 2016, the Federal Circuit reversed that judgment, holding that there were genuine disputes over material facts.

Back at the district court, Adobe moved for summary judgment of subject-matter ineligibility under 35 U.S.C. § 101; the district court denied that motion. In April 2018, Adobe moved for summary judgment of noninfringement, arguing that there was no provable inducement of infringement; this motion was denied. In August 2018, Adobe stipulated that "on at least one occasion," "there was direct infringement of the asserted claims" by an Adobe employee. The parties agreed that this stipulation referred to an Adobe employee who performed the steps of the method claims using an accused version of Adobe’s Acrobat product.

As the trial date approached, Adobe filed a motion in limine, which, among other things, asked the court to "preclude argument, evidence, or testimony on Adobe’s intent to induce or willfully infringe between March 3, 2011 and October 18, 2013," unless TecSec conceded admissibility of the March 3, 2011 claim construction order and the stipulation of noninfringement made under that construction. The district court decided to preclude "any reference" to Adobe’s post-March 2011 conduct.

The district court ruled that there could be no proof of post-March 3, 2011 inducement of infringement because the March 3, 2011 claim construction and stipulation of noninfringement made it legally impossible for Adobe to have had, after that date, the knowledge of the infringing character of the allegedly induced customer actions required for inducement. Even though the claim construction order had later been reversed, it was objectively reasonable when it was issued, according to the district court. Therefore, in the district court’s opinion, Adobe lacked, as a matter of law, the requisite intent for inducement liability. Additionally, the district court reasoned that allowing either party to present evidence on this issue would substantially prejudice the other party and would confuse the jury.

The case proceeded to trial in December 2018. TecSec stipulated that, because it had failed to mark its product in accordance with 35 U.S.C. § 287, it would not seek damages for any infringement that took place before the filing of its complaint. The trial was therefore limited to TecSec’s ownership of the patents; direct infringement by Adobe from February 2010 to October 2013; induced infringement by Adobe from February 2010 to March 3, 2011; Adobe’s anticipation and obviousness challenges; and damages.

At trial, TecSec sought to introduce deposition testimony by George Johnson, an independent technology consultant, as evidence of direct infringement by third parties allegedly induced by Adobe. The court excluded portions of the testimony relating to conduct after March 3, 2011.

The jury found that Adobe had directly infringed all asserted claims, but had not committed inducement of infringement. The jury awarded TecSec $1.75 million in damages. The district court vacated the jury’s damages award and set damages to zero, explaining that TecSec’s only evidence of damages related to sales of Acrobat software to customers and that such evidence could support damages only for inducing infringement, which the jury had found had not occurred.

The district court entered a final judgment in Adobe’s favor. TecSec appealed, and Adobe cross-appealed.

Evidentiary rulings. Applying the Fourth Circuit’s abuse-of-discretion review standard to the district court’s motion-in-limine ruling and the its related exclusion of Johnson’s deposition testimony, the Federal Circuit reversed the district court’s decision to exclude evidence of inducement of infringement after March 3, 2011, as well as the exclusion of Johnson’s testimony. The court remanded for further proceedings on TecSec’s inducement claim as to the period after March 3, 2011.

The appellate court rejected the district court’s reasoning as to Adobe’s intent, explaining that the intent standard for inducement of patent infringement could be met Adobe’s subjective belief regarding the infringing nature of the induced acts at issue. In the Federal Circuit’s view, Adobe might have had the requisite knowledge of infringement if it subjectively believed that the March 3, 2011 claim construction was incorrect, whether or not the construction was objectively reasonable. The court also noted that it had ultimately determined in 2013 that the construction was in fact incorrect. The district court’s March 2011 ruling could, at most, create a factual question, not an entitlement to a no-knowledge finding as a matter of law.

Next, the appellate court also rejected the district court’s undue prejudice and juror confusion rationale. Federal Rule of Evidence 403 provides that a court "may exclude relevant evidence if its probative value is substantially outweighed by a danger of," among other factors, "unfair prejudice" or "confusing the issues." However, the Federal Circuit pointed out, the district court went beyond excluding a single piece or even a fixed set of evidence and foreclosed the introduction of any evidence on the issue of post-March 3, 2011 inducement of infringement. "This is materially different from any application of Rule 403 Adobe has identified," the appellate court said. The appellate court also noted that Adobe’s motion in limine was limited to arguing that if TecSec were allowed to present evidence of inducement, Adobe should be able to introduce the claim-construction ruling and TecSec’s stipulation that the conduct was not infringing under that construction. The motion did not call for TecSec to identify all evidence of intent so that the district court could determine if there was a triable issue of post-March 3, 2011 inducement of infringement. The district court did not view the totality of the evidence and did not consider means to reduce jury confusion. Without consideration of all relevant material evidence on Adobe’s intention to induce infringement, the district court could not properly resolve the issue as a matter of law, the appellate court said.

Accordingly, the appellate court reversed the district court’s decision to preclude TecSec from introducing evidence of post-March 3, 2011 inducement of infringement. Because the erroneous its motion-in-limine ruling was the basis for excluding Johnson’s testimony, the court reversed that evidentiary exclusion as well.

Damages award. The Federal Circuit rejected TecSec’s challenge to the district court’s reduction of the jury’s damages award to zero. According to TecSec, because the jury found direct infringement of each asserted claim, Patent Act Section 284 entitled it to a non-zero reasonable royalty. However, the Federal Circuit explained that Section 284 "does not require an award of damages if none are proven that adequately tie a dollar amount to the infringing acts." An award of no damages is permissible when no damages were proven. TecSec presented no evidence of damages caused by Adobe’s direct infringement, such as evidence regarding the number of Adobe employees in the United States or the number of times that Adobe employees installed Acrobat. TecSec’s only damages evidence relied on "sales of accused products," but it was established that direct infringement occurred only after Acrobat was installed, so sales could not be a measure of damages from direct infringement.

Eligibility of subject matter. Adobe appealed the district court’s rejection of its contention that the asserted claims were ineligible for patent protection under 35 U.S.C. § 101. Adobe argued to the district court that "the claims are directed to the impermissibly abstract idea of managing access to objects using multiple levels of encryption." However, according to the Federal Circuit, that characterization of the two representative claims was materially inaccurate and disregarded claim elements that the specification made clear were important parts of the claimed advance in the combination of elements. The specification showed that the claims at issue were directed at solving a problem specific to computer data networks, specifically, allowing for the simultaneous transmission of secure information to a large group of recipients connected to a decentralized network but without uniform access to all data by all recipients. In light of the claim language and specification, the Federal Circuit concluded that the claims were directed to improving a basic function of a computer data-distribution network, namely, network security. Therefore, the district court correctly rejected Adobe’s ineligibility challenge.

However, that did not quite end the inquiry, because on appeal, Adobe attempted to modify its definition of what the asserted claims were directed to. Adobe contended that that "[t]he representative claims are directed to the abstract idea of managing access to objects using multiple layers of encryption and labels." At the district court Adobe omitted labeling from its characterization of the purported abstract idea. In the appellate court’s view, Adobe’s analysis on appeal was still deficient. Adobe did not meaningfully address the combination of features whereas, in the court’s view, the combination of techniques was "what the patent asserts to be the focus of the claimed advance over the prior art."

This case is No. 19-2192 and 19-2258.

Attorneys: Michael Oakes (Hunton Andrews Kurth LLP) for TecSec, Inc. Tara Elliott (Latham & Watkins LLP) for Adobe Inc.

Companies: TecSec, Inc.; Adobe Inc.

MainStory: TopStory Patent GCNNews FedCirNews

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