Federal Circuit Stops Downstream Enforcement of Standard-Essential DVD Patents

by Dennis Crouch

The case here is interesting and important – especially as it relates to patent pools and FRAND license offers.  I have posted the relevant holding, while I think more about its potential impact. 

In 2012, JVC Kenwood sued Nero, Inc. for infringing its patents relating to methods of playing and burning optical discs (DVD and Blueray).  See, for example, U.S. Patent No. 6,141,491.  These patents are considered standard-essential parts of the patent pools formed around these technology standards and all of the (legit) disc and hardware manufacturers pay the license fee.  That license is obviously designed to cover end-users as well who are the ultimate consumers of the DVD technology.

Nero sells software that helps folks play and burn discs from their computers.  As such, Nero does not directly infringe the patents under section 271(a). JVC alleges instead that Nero should be held liable for contributory and induced infringement under 271(b) and (c).

JVC’s case a number of major theoretical problems: Most important to the District Court and Federal Circuit was that the consumers are already licensed to use the discs and, as such, the alleged underlying direct infringement is actually a licensed use.

The court held, on summary judgment, that JVC is “barred from asserting claims of direct infringement against end users for use of Nero software with DVD and Blu-ray optical discs made or sold by a party whose products have been expressly released from claims of infringement by JVC with regard to the Patents.” The court held that, absent direct infringement, Nero cannot be liable for indirect infringement. . . . We affirm on that ground.

Fed Cir. Decision.

The district court also (alternatively) held that the licensed manufacture and sale of the discs exhausted the patent rights as to those discs.  On appeal, the Federal Circuit vacated that ruling – finding that the evidence was “sketchy.”  It appears to me that the court did not want to further confuse the exhaustion doctrine with this case and perhaps Judges Newman, Dyk, and Reyna could not agree on the correct formulation.

 

43 thoughts on “Federal Circuit Stops Downstream Enforcement of Standard-Essential DVD Patents

  1. 8

    Looks like that thing should be expiring. Also I’m kind of surprised nobody has done a review at the office for 101.

  2. 7

    On further consideration, this decision may be wrongly decided.

    The licenses are available to make discs, or players, or this or that. Effectively, the court decided that a license to make discs gave the disc maker and his customer a license to use unlicensed players/burners.

    I it is not self-evident from the opinion that this conclusion is warranted.

    Also consider General Pictures Co. v. Electric Co., 304 U.S. 175 (1938). A licensee for one field of use was found to infringe when he sold patented vacuum tubes for an unlicensed use.

    Thus, unless the license agreement to the DVD makers included some overall license to use even unlicensed players, etc., this case seems in violation of General Pictures v. Electric Co.

    1. 7.1

      I’m not sure Ned. I thought General Pictures involved an express license restriction. When you don’t have an express restriction things get a little dicey.

      See MME v. Carborundum, 72. F.3d 872,

      “Here, Metaullics sold an unpatented pump;6 the only use of the pump was in the metal purification apparatus of the ‘584 patent. Metaullics did not place any express restrictions on its customers as to the use of the pump. The circumstances of such a sale plainly indicate that a license should be implied under the apparatus patent. Metaullics and its customers are presumed to have intended that at the time the customer purchased the pump, the customer was free to use it for its intended purpose to practice the invention claimed in the ‘584 patent. In order to do so, Metaullics’ customers were free to purchase a reverberatory furnace and a gas supply from any source because these components were necessary to practice the licensed invention. Otherwise, the pump was worthless because it had no other practical use. Moreover, once Metaullics sold the pump without restriction, the parties to the sale were presumed to have intended that the purchaser was free to repair it with parts obtained from any source.7 However, Metaullics and its customers cannot be presumed to have intended that under these circumstances the implied license extended beyond the life of the pump. Unless the circumstances indicate otherwise, an implied license arising from sale of a component to be used in a patented combination extends only for the life of the component whose sale and purchase created the license.”

    2. 7.2

      Ned, you are right here to consider what was actually covered by the license. My understanding is that the license obtained by the manufacturers included a license for end users to use the discs to read and write in accordance with the technology standards.

      1. 7.2.1

        What this means is that no one needs a license from the pool except to make DVDs.

        The result here is clearly wrong. Absurd even.

        1. 7.2.1.1

          Ned: What this means is that no one needs a license from the pool except to make DVDs.

          What are you referring to when you say “this”, Ned?

          The holding here seems to stand for the opposite of what you suggest: i.e., if you are burning standard-compliant DVDs (or Blu-Rays) using standard-compliant software and a standard-compliant machine and standard-compliant discs, then you are licensed according to the terms that JVC signed onto when its patents were put into the pooling agreement. Licensed users of patents aren’t direct infringers of those patents and therefore they can’t be induced to infringe those patents.

          1. 7.2.1.1.1

            MM, Nero did not have a license.

            If the DVD caries with it the right to use unlicensed software to burn, to read, to display or whatever, then the licensing program requiring providers of such apparatus/software to first obtain a license and pay royalties just went poof!

            The court seem to imply a right to use unlicensed software/apparatus to play or burn. Why? That simply is not and was not necessary to enjoy a DVD given that the pool licenses all comers on a FRAND basis.

            An implied right to use unlicensed software/apparatus just drains the pool — or any pool for that matter.

            This case and the underlying district court case cannot be right otherwise pool licensing is dead. Why would anybody even try given this case?

            1. 7.2.1.1.1.1

              It’s called “freeloading” for a reason, Ned.

              (and you seem to want to act surprised that Malcolm would advocate such)

            2. 7.2.1.1.1.2

              Ned: Nero did not have a license.

              Nero’s software doesn’t infringe JVC’s patents so they don’t need a license.

              Nero’s software is standards compliant, however, so users who burn standard-compliant CDs with the software are licensed under the terms of the patent pool agreement. Because there is no direct infringement, Nero can not be an inducer.

              pool licensing is dead

              I highly doubt that. When do we put a fork in it? Now? Two years? Make your prediction, Ned.

              And if there is anybody trying to “freeload” here, it’s JVC. It’s hilarious to see “anon” take the side of “Big Corp” here (“Big Corp” never innovates!). Also totally predictable.

                1. Malcolm has no clue as to what he is talking about. All he sees is a chance to say “Patent Bad, Commune Good

                  Look how eagerly he seeks to misrepresent my views on Big Corp with the “never innovates” which has never been a view of mine. “anon” must be one of those that thinks that patents are good – lump them all together…

                  What a chump.

                2. “anon”: Look how eagerly he seeks to misrepresent my views on Big Corp with the “never innovates” which has never been a view of mine.

                  How odd that you’ve never taken issue with that assertion over at your hero’s blog.

                3. How odd that you’ve never taken issue with that assertion over at your hero’s blog.

                  Exact same comment for you: I have never seen you take issue with that assertion over at your hero’s blog.

                  I mean, you obsess over him enough and all…

                  Meanwhile, here on this blog, my comments have been plain as day – and yet that does not stop you from attempting to dissemble on my STATED views.

                  Maybe you should stop trying to hard to spin and just engage in an inte11ectually honest manner….

                  (and no, I will not be holding my breath for that to happen)

              1. 7.2.1.1.1.2.2

                MM, the facts of this case are not well developed and are thus confusing. If the end users have a right to use “certified” software, and Nero went through a process of certifying their software, then Nero’s software IS licensed. It carried the right with it to be used even with otherwise infringing DVDs.

                Now if you were to say that Nero’s software cannot be used with infringing DVDs, why is that not implied as well?

                I am arguing the that legit DVD owners do not have an implied right to use unlicensed software.

                You counter that Nero software was standards compliant — meaning it had to be certified. To me that means licensed.

                But the development of the facts by the court is ultimately very confusing.

                1. Or it just means that Malcolm took a shortcut and meant that ANY software that met the published standards MUST be “OK.” Why give anything in return? (hint: see the definition of “freeloader”)

                  There is no “need” whatsoever for ANY such third parties to bother with what is actually IN the pool, because their stuff is not in that pool.

                  “Compliant with” has NO connection to the pool, other than compatability to that which has been made public. By choosing to “make public,” somehow Malcolm equates this with “making free to copy.”

                  His disdain for inte11ectual property does not stop at patents.

                  You need not “rest your hat” on whether this particular case is “written well” with the facts well ordered – those facts are immaterial to Malcolm. His mantra would be exactly the same no matter how well developed the facts might be.

                2. “anon”: You counter that Nero software was standards compliant meaning it had to be certified.

                  That was JVC’s argument, made repeatedly in its infringement contentions.

                  To me that means licensed.

                  Right. That what’s it meant to the district court and the CAFC, too.

                  “Compliant with” has NO connection to the pool,

                  Of course you’re wrong about that. Maybe try reading the case.

      2. 7.2.2

        DC: My understanding is that the license obtained by the manufacturers included a license for end users to use the discs to read and write in accordance with the technology standards.

        That’s correct.

        I’m also certain that JVC has been very well compensated for the licensed “innovations” described in the pooled, standard-essential patents asserted here. JVC certainly didn’t invent Nero’s software and there’s no reason JVC should be entitled to compensation or control over Nero’s work.

        If customers are engaging in “unlicensed” behavior than JVC should find those customers and sue every one them, assuming that it’s actually that important to JVC.

  3. 6

    Interesting final part of this Fed. Cir. decision on “patent exhaustion”:

    “On the sketchy record, contradictory arguments, and undeveloped facts before us, we decline to expand the theory of patent exhaustion to reach this case. “Patent exhaustion is a judicially fashioned doctrine without a specific source in congressionally enacted text stating the terms of this limitation on patent rights.” Helferich Patent Licensing, LLC v. New York Times Co., 778 F.3d 1293, 1305 (Fed. Cir. 2015).
    On application of the principle of exhaustion as set forth in Quanta, the threshold criterion is that the product whose sale is suggested to exhaust the patent must
    have originated from or through the patentee; the record of this case does not so establish. See Quanta, 553 U.S. at 636 (“Exhaustion is triggered only by a sale authorized by the patent holder.”). “

    1. 6.1

      Don’t you just love the Federal Circuit continuing to blare the Rich horn that anything that was not nailed down in ’52 and codified is necessarily non statutory and can be ignored, or as in this case, limited. That is exactly what got them into trouble with the Supreme Court with software and with “invention” (Hotchkiss v. Greenwood’s focus on functional improvements, that Rich and crew declared non statutory, was restored with KSR.)

      The better approach it would seem would be to try to tie it down to a statute. For example, Morse’s “abstract” actually cited the then analog to 112. But that is lost to history, and Morse and its progeny are now clearly rooted in 101.

      I give you double patenting. Rich called it “judicial.” The PTO calls it 101.

      See.

      And you Paul, cite 101 as requiring that the inventorship on a patent be correct so that naming incorrect inventors will render the patent invalid despite the repeal of 102(f).

      1. 6.1.1

        Restored…?

        You do know that the Court does not have authority to rewrite what Congress took away, right?

  4. 5

    Since Nero is not a member of the SEP group (or a licensee of the group) – could a divided infringement allegation for the method claims be levied against the software? It seems to me that the patented method is performed – Nero provides the software that runs a bunch of the steps, the end user selects the video, Nero has control (ha, the reverse problems with End User License Agreements! – companies want so much control that it CREATES liability, e.g., updates, whether the program runs, etc., and a benefit is conferred.

    Or, does the end user, who performs the action that is ATTRIBUTED to Nero and has a license somehow give Nero a license even though the end-user license (implied license? I haven’t read the SEP agreement) probably doesn’t allow such transfer/modification/grant?

    1. 5.1

      Sorry,

      should read:
      Nero has control (ha, the reverse problems with End User License Agreements! – companies want so much control that it CREATES liability, e.g., updates, whether the program runs, etc.,) and a benefit is conferred.

    2. 5.2

      Does the end user really have a license to burn videos?

      I assume the end user has a license to save “data” on the disks. But MPEG data in particular? I’d have to see that. Is it on the box?

  5. 4

    Is the following claim (from the ‘491 patent) valid?

    1. A recorded medium on which moving picture data is recorded, said moving picture data coded with high efficiency in accordance with a moving picture experts group (MPEG) method in which an I picture frame to which an intraframe coding is applied is at least present, said moving picture data including a plurality of sequence headers and a plurality of groups of pictures (GOPs), each of said plurality of sequence headers being followed by one or more GOPs, said GOPs including at least one said I picture frame and starting with at least said I picture frame,

    a recording area of the recorded medium being divided into a plurality of sectors, each sector of said plurality of sectors having a sector header and a data field which follows said sector header, each sector header having an MPEG system header which is located at the end of each sector header;

    the recorded medium comprising:

    said moving picture data being recorded in said recorded medium in such a way that a recorded position of each sequence header of said plurality of sequence headers of said moving picture data comes just after said MPEG system header and matches a head position of said data field of a sector which is one of said plurality of sectors in said recorded medium.

    I thought the (arguably tenuous) theory re: Beauregard claims was that the code stored on the medium was functional (ie, told the processor/computer/etc what to do), and therefore got patentable weight. And therefore avoided being hand-waved away under the printed matter doctrine.

    Here, on the other hand, it just looks like the medium stores a data structure – a data structure that is surely useful (and usable by executable code to do stuff), but not in and of itself functional.

    Or maybe I should re-read In re Lowry. Has the CAFC cited Lowry at any point in the last few years?

    1. 4.1

      This is an unusually detailed Rule 75(e) Jepson claim preamble, hence an unusual amount of admitted relevant prior art, as well as being a Beauregard claim. Although the validity of a Beauregard claim has been attacked by academics on “written matter” and other grounds, as far as I am aware there has not been a thorough attack on Beauregard claims in general in a Fed. Cir. decision so far. [They became accepted after the PTO withdrew objections to them in a pending Fed. Cir. case, which therefor was not actually decided.]

      1. 4.1.1

        I am not aware of a case directly on point (though I admit that it could be difficult to get a case directly on point, given the wide variety of claims that seem to be Beauregard claims).

        To me, this claim is a data claim and not a Beauregard claim. As such, it seems unpatentable.

      2. 4.1.2

        I don’t think this is a Beauregard claim. It is not claiming a computer program. It is claiming a the recorded medium comprising moving picture data, physically arranged a particular way.

        For example, the moving picture data is required to be recorded in the recorded medium in such a way that a recorded position of each sequence header of the plurality of sequence headers of the moving picture data comes just after an MPEG system header and matches a head position of a data field of a sector which is one of said plurality of sectors in said recorded medium.

    2. 4.2

      Would a claim to a gear structure with the teeth located in a particular position relative to another portions of the gear be valid?

      Of course it would.

      Likewise the claimed STRUCTURE (happy MM?) of this recorded medium is patent eligible.

          1. 4.2.1.1.1

            What is the difference between cooking and a recipee?
            A gear is to cooking as a recipee is to a blueprint of the gear.
            Ditto CDs with computer instructions that may be compiled into an executable and the machine code that is executed.

            1. 4.2.1.1.1.1

              Of the many things wrong with your “logic” here Ned of the obvious one of “anthropomorphication” and your confusingly attempting to insert a person where no person is there.

              Your view of software remains archaic at best, malinformed at middle, and downright deceitful given that you should know better.

            2. 4.2.1.1.1.2

              “A gear is to cooking as a recipee is to a blueprint of the gear.”

              What?

              What does this have to do with photographs of gears?

              “Ditto CDs with computer instructions that may be compiled into an executable and the machine code that is executed.”

              What?

              I don’t understand what you are trying to say Ned.

              In any event, the claim above is directed to the physical structure of a DVD.

              a recording area of the recorded medium being divided into a plurality of sectors, each sector of said plurality of sectors having a sector header and a data field which follows said sector header, each sector header having an MPEG system header which is located at the end of each sector header;

              That is clearly a claim to a physical structure.

                1. Take that next step, Ned.

                  Recognize the difference in Set B written matter and Set C written matter.

                  Think printed lines on a measuring cup, or printed numbers on a magic hat band…

  6. 3

    The decision tracks the court’s decisions on implied licenses. The fact pattern is very similar to what the court dealt with in Molten Metal v Carborundum. The intended use will be licensed. Whether it is exhausted is a different question.

  7. 2

    This case brings back fond memories. I clerked for J. Mariana R. Pfaelzer from 2012 to 2013. This was one of the cases I was assigned to help the Judge with.

    She passed away this summer at the age of 89 and was quite fond of patent cases. Just thought it was interesting to see it featured here.

    Whenever we’d work on a patent case and had to discuss its appellate fortunes, I would tell her that I wasn’t sure how the CAFC was going to handle it (given how panel dependent the circuit is); she’d reply “at least it isn’t going to the 9th!” :)

    Sidenote: if this thing got reversed, who does it go to? Judge ain’t around to take it on remand. So I guess it would be randomly assigned to the patent pilot program in CDCA.

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