Prism Technologies v. Adobe Systems Incorporated et al

Filing 816

MEMORANDUM AND ORDER - Prism's motion to compel (Filing No. 701 ) is granted. On or before July 31, 2012, McAfee will substantively respond to Prism's Fourth Set of Requests for Production (Requests 113-114) and Prism's Sixth Set of Interrogatories (Nos. 21-23). Ordered by Senior Judge Lyle E. Strom. (TEL)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
PRISM TECHNOLOGIES, LLC,

)
)
Plaintiff,
)
)
v.
)
)
ADOBE SYSTEMS, INCORPORATED; )
AUTODESK, INC.; McAFEE, INC.; )
SYMANTEC CORPORATION;
)
and TREND MICRO INCORPORATED, )
)
Defendants.
)
______________________________)

8:10CV220

MEMORANDUM AND ORDER

This matter is before the Court on the motion of
plaintiff Prism Technologies, LLC (“Prism”), filed pursuant to
Federal Rule of Civil Procedure 37(a), to compel defendant
McAfee, Inc. (“McAfee”) to respond to various discovery requests
(Filing No. 701, with accompanying brief and index of evidence,
Filing Nos. 702 and 703).

McAfee filed an opposing brief with

indices of evidence (Filing Nos. 736, 737, and 738), and Prism
filed a reply brief (Filing No. 746).

The Court finds that the

motion to compel should be granted.
I.

Federal Rules of Civil Procedure 26(b) and 37(a).
“"Mutual knowledge of all the relevant facts gathered

by both parties is essential to proper litigation."
Taylor, 329 U.S. 495, 507 (1947).

Hickman v.

Federal Rule of Civil

Procedure 26(b) allows for broad discovery of “any nonprivileged
matter that is relevant to any party’s claim or defense . . . .”
Fed. R. Civ. P. 26(b)(1).

Relevance during discovery is not

measured by the Federal Rules of Evidence:

“Relevant information

need not be admissible at the trial if the discovery appears
reasonably calculated to lead to the discovery of admissible
evidence.”

Id.

Relevance is to be broadly construed for

discovery issues and encompasses “any matter that bears on,
or that reasonably could lead to other matter that could bear on,
any issue that is or may be in the case."

Oppenheimer Fund, Inc.

v. Sanders, 437 U.S. 340, 351 (1978).
However, the proponent of discovery must make “[s]ome
threshold showing of relevance . . . before parties are required
to open wide the doors of discovery and to produce a variety of
information which does not reasonably bear upon the issues in the
case."

Hofer v. Mack Trucks, Inc., 981 F.2d 377, 380 (8th Cir.

1992).

“Determinations of relevance in discovery rulings are

left to the sound discretion of the trial court . . . ." Hayden
v. Bracy, 744 F.2d 1338, 1342 (8th Cir. 1984).
In the event of noncompliance with a discovery request
for relevant information, Rule 37(a) provides, “[A] party may
move for an order compelling disclosure or discovery.”
Civ. P. 37(a)(1).

Fed. R.

“The party resisting production bears the

burden of establishing lack of relevancy or undue burden.”
Paul Reinsurance Co., Ltd. v. Commercial Fin. Corp.
508, 511 (N.D. Iowa 2000).

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St.

198 F.R.D.

II.

Prism’s Motion to Compel.
Prism seeks to compel McAfee to respond to its Fourth

Set of Requests for Production (Requests 113-114) “seeking
financial documents pertaining to McAfee’s use of its U.S.-based
software activation system to activate software sold abroad”
(Filing No. 701, at 1-2; Filing No. 746, at 11).

In addition,

Prism seeks to compel McAfee to respond to its Sixth Set of
Interrogatories (Nos. 21-23) “seeking activation data and related
financials pertaining to McAfee’s use of its U.S.-based software
activation system to activate software sold abroad” (Id. at 2).1
The Patent Act states that “whoever without authority
makes, uses, offers to sell, or sells any patented invention,
within the United States or imports into the United States any
patented invention during the term of the patent therefor,
infringes the patent.”

35 U.S.C. § 271(a).

At issue with this

motion is whether all elements of an accused system must exist on
U.S. soil in order for the infringement to occur “within the
United States.”
Prism alleges that McAfee has infringed U.S. Patent No.
7,290,288 (“‘288 patent”) in connection with software sold to end
users who live outside the territorial United States.

Prism

states, “The patent claims asserted in this case by Prism include

1

Prism has supplied adequate evidence of compliance with
the Nebraska “meet and confer” rule for discovery motions (Filing
No. 702, at 6; see NECivR 7.0.1(i)).
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‘system’ claims, which, under well-established law, can be
infringed in the United States even if some elements of the
accused system [here, the access key and the client computer] are
located outside the United States” (Filing No. 702, at 4).

Thus,

“Prism seeks discovery sufficient to make a full calculation of
damages with respect to such claims” (Id.).
Prism does not appear to contend that the customer who
activates McAfee’s software outside the United States “uses” the
software in the context of its claims of infringement by McAfee.
Rather, Prism’s argument stems from its contention that McAfee’s
customers are not the only users of the accused system.

Prism

states that it will argue at trial that “McAfee makes its own use
of the infringing system for its own benefit.

Indeed, Prism will

seek to prove that McAfee directly infringes by controlling and
operating its activation system to its own advantage, namely
anti-piracy and license enforcement benefits” (Filing No. 702, at
10-11).
In support of its contention that foreign sales do lead
to infringement by McAfee, Prism cites Uniloc USA, Inc. v.
Microsoft Corp., 632 F. Supp. 2d 147 (D.R.I. 2009) (“Uniloc I”),
which Prism claims addresses the “precise circumstances of this
case” (Filing No. 702, at 4).

In Uniloc I, the court described

the issue at hand as follows:
While the parties tee this up as a
damages question, the issue is much
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more fundamental: whether
Microsoft can be found to infringe
Uniloc’s ‘216 patent when part of
the MPA [Microsoft Product
Activation] system involves an
extraterritorial component. Put
another way, does Microsoft “use”
the claimed system “within the
United States” as required by 35
U.S.C. § 271(a) even when Product
Activation is used during
activation of software on a foreign
computer?
Uniloc I, 632 F. Supp. 2d at 155.

With regard to a system claim

of a patent, which both parties agree is at issue here, the
Uniloc I court noted, “use of a system claim may give rise to
infringement (and thus be included in damages) if the United
States is ‘the place at which the system as a whole is put into
service,’ i.e., ‘the place where control of the system is
exercised and beneficial use of the system is obtained.’”

Id. at

156 (quoting NTP, Inc. v. Research in Motion, Ltd., 418 F.3d
1282, 1317-18 (Fed. Cir. 2005)).

Therefore, “a claim of

infringement is only actionable (and inclusion of foreign
licenses in the damages calculation proper) if the United States
is ‘the place at which the system as a whole is put into
service;’ i.e., ‘the place where control of the system is
exercised and beneficial use of the system is obtained.’”

2

Id.2

In NTP, infringement was found to have occurred inside the
United States even when the defendant Research in Motion (RIM)’s
“relay,” part of the Blackberry system, was located in Canada.
The NTP court noted that an argument to the contrary “fails to
appreciate the way in which the claimed NTP system is actually
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The Uniloc I court noted, “When foreign individuals
obtain licenses and activate their Microsoft software via the
Microsoft Clearinghouse in the United States, the MPA system
truly is (as both parties acknowledge) ‘partly within and partly
outside’ the United States for purposes of infringement under
Uniloc’s § 271(a) theory, a system not unlike NTP.”
632 F. Supp. 2d at 156.

Uniloc I,

The Uniloc I court rejected Microsoft’s

conclusion that “all parts of a collective system must be within
the United States to infringe,” stating that this was “the
argument NTP rejected.”

Id.

The Uniloc I court resolved the

issue in this way:
Therefore, the questions that must
be answered before Microsoft’s
foreign licenses can be includable
in any damage calculation are:
1) where the system as a whole is
put into service; 2) where control
of the system is exercised; and
3) where beneficial use of the
system is obtained. Because the
answers to these questions are fact
intensive and will depend
substantially on the evidence at
trial, they are properly left for
the jury. Therefore, the Court
will allow evidence of foreign
licenses to be presented at trial;
however, the Court will instruct

used by RIM’s customers. When RIM’s United States customers send
and receive messages by manipulating the handheld devices in
their possession in the United States, the location of the use of
the communication system as a whole occurs in the United States.
This satisfactorily establishes that the situs of the ‘use’ of
RIM’s system by RIM’s United States customers for purposes of
section 271(a) is the United States.” NTP, 418 F.3d at 1317.
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the jury that it may only include
these licenses in the damage
calculation if the answer to each
of the above questions is the
United States. The Court will
require the jury to answer special
interrogatories to address the
above questions and further to
indicate how it arrived at any
damage award, by specifying the
number of domestic and foreign
licenses they found to be
infringed.
Id. at 156-57.

Here, Prism argues for a similar result:

“Likewise, there is a fact-intensive inquiry yet to be performed
by the jury in this case on the question of foreign activations,
and Prism must be permitted to present relevant evidence,
including damages evidence, on that question” (Filing No. 702, at
10).
In its opposition to Prism’s motion, McAfee relies on
the Federal Circuit’s analysis of the word “use” in a case that
“turn[ed] on what constitutes ‘use’ of a system or apparatus
claim under § 271(a).”

Centillion Data Sys., LLC v. Qwest

Communic’ns Int'l, Inc., 631 F.3d 1279, 1283 (Fed. Cir. 2011).
In Centillion, which McAfee claims involves “virtually identical”
facts to those at issue here, the Federal Circuit noted, “We have
never directly addressed the issue of infringement for ‘use’ of a
system claim that includes elements in the possession of more
than one actor.

However, we defined the term in a very similar

scenario in NTP.”

Centillion, 631 F.3d at 1283.

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The Centillion

court concluded, “We hold that to ‘use’ a system for purposes of
infringement, a party must put the invention into service, i.e.,
control the system as a whole and obtain benefit from it.”
at 1284 (citing NTP, 418 F.3d at 1317).

Id.

The court stated that

while a user need not have “physical or direct control” over
every part of an accused system, nevertheless, the user must
“use” every element of the accused system.

Centillion, 631 F.3d

at 1284.
Applying this standard to the facts before it, the
Centillion court concluded, “We agree with Qwest that, as a
matter of law, it does not ‘use’ the patented invention under the
appropriate test from NTP.

To ‘use’ the system, Qwest must put

the claimed invention into service, i.e., control the system and
obtain benefit from it.”

Id. at 1286.

“While Qwest may make the

back-end processing elements, it never ‘uses’ the entire claimed
system because it never puts into service the personal computer
data processing means.

Supplying the software for the customer

to use is not the same as using the system.”

Id.3

McAfee emphasizes the fact that Centillion was decided
after Uniloc I.

McAfee states that “the Federal Circuit’s

holding in Centillion establishes that the issue of foreign sales

3

The Centillion court also held that Qwest was not
vicariously liable for the use of its customers. Centillion, 631
F.3d at 1287.
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related to a system claim is an issue that can and should be
decided by the Court,” rather than by the jury, as the district
court concluded in Uniloc I “without the benefit of the Federal
Circuit’s analysis in Centillion” (Filing No. 736, at 10).
Prism disagrees with McAfee’s conclusion that the facts
in Centillion are “virtually identical” to the facts of this
case, and claims that the distinction is dispositive.

In

Centillion, the patent at issue disclosed “a system for
collecting, processing, and delivering information from a service
provider, such as a telephone company, to a customer.”
Centillion, 631 F.3d at 1281.

The Centillion court considered

two “manners of operation” of the Qwest accused system.
1285.

Id. at

“First, there is an on-demand function where a customer

seeks particular and specified information by creating a query
that the Qwest back-end system processes and provides a result
for download (on-demand operation).”

Id.

“Second, during the

normal functioning of the system after a user subscribes, Qwest’s
back-end systems create periodic summary reports (standard
operation) which are available for the user to download.”

Id.

Here, Prism is accusing McAfee of infringing only one
system claim, Claim 187.

Prism states that its “allegations are

different [from the Centillion case]; Claim 187 does not involve
a customer’s on-demand operation of software, and Prism is not

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making a ‘use-of-software’ claim against McAfee.

Instead, Claim

187 is about ‘controlling access to protected computer
resources,’ which McAfee does for its own benefit, without regard
for customer demand” (Filing No. 746, at 8).

“Thus Prism has

asserted a valid theory of infringement, and McAfee’s argument
that it cannot possibly be a direct infringer of [the] ‘288
patent must fail” (Id.).

The Court finds that the distinction

between the Prism system claim and the Qwest system claim in
Centillion bears strong consideration.

The Prism patent

expressly describes a “system for controlling access to protected
computer resources provided via an Internet Protocol network”
(‘288 Patent at 51:1-2).

Prism reasonably argues that the

computer resources to be protected belong to McAfee, not McAfee’s
customers, such that it would be McAfee who would “use” the
system for protection.
Prism also cites the Federal Circuit’s opinion from the
second iteration of the Uniloc litigation, wherein defendant
Microsoft maintained that “Uniloc failed to prove direct
infringement because Microsoft did not supply or use the
end-users’ computers that implemented the local licensee unique
ID generating means and mode switching means.”

Uniloc USA, Inc.

v. Microsoft Corp., 632 F.3d 1292, 1308 (Fed. Cir. 2011), reh’g
denied (Mar. 22, 2011) (“Uniloc II”).

In rejecting Microsoft’s

argument, the Federal Circuit stated, “That other parties are

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necessary to complete the environment in which the claimed
element functions does not necessarily divide the infringement
between the necessary parties.”

Uniloc II, 632 F.3d at 1309.

“For example, a claim that reads ‘An algorithm incorporating
means for receiving e-mails’ may require two parties to function,
but could nevertheless be infringed by the single party who uses
an algorithm that receives e-mails.”

Id.

At this stage of the litigation, the Court cannot say
whether or not Prism’s theory of McAfee’s “use” of the accused
system will succeed.

However, the Court finds that Prism’s

discovery requests are relevant to its infringement claim
involving McAfee’s accused use of its system, even when one
component of the system is physically located outside of the
United States.

Accordingly,

IT IS ORDERED that Prism’s motion to compel (Filing No.
701) is granted.

On or before July 31, 2012, McAfee will

substantively respond to Prism’s Fourth Set of Requests for
Production (Requests 113-114) and Prism’s Sixth Set of
Interrogatories (Nos. 21-23).
DATED this 17th day of July, 2012.
BY THE COURT:
/s/ Lyle E. Strom
____________________________
LYLE E. STROM, Senior Judge
United States District Court

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