The sky's the limit for WhitServe after appeals court ruling

US

A case involving cloud computing patents gives the green light for further action against the world's largest software software companies, says Erin Woelker

On 7 August, 2012 The US Court of Appeals for the Federal Circuit affirmed the judgment of the US District Court for the District of Connecticut that Computer Packages Inc ("CPi") of Rockville, Maryland willfully infringed four valid patents owned by WhitServe LLC ("WhitServe")1.



The four patents at issue - US Patent No. 6,981,007, titled "Onsite Backup For Internet-Based Data Processing"; US Patent No. 5,895,468, titled "System for Automating Delivery Of Professional Services"; US Patent No. 6,049,801, titled "Web Site Providing Professional Services"; and US Patent No. 6,182,078, titled "System For Delivering Professional Services Over The Internet." Of the four asserted WhitServe patents, the Federal Circuit confirmed validity of all but a single claim of the ‘007 Patent - WhitServe's patent directed to Cloud Computing Backup - and affirmed that the remainder of the asserted WhitServe patents were willfully infringed.



WhitServe alleged in the present lawsuit that CPi's Electronic Annuity Reminder System ("EARS"), Patent Management System ("PMS"), Trademark Electronic Renewal Management System ("TERMS"), CPi Online, Hosted EARS and Hosted PMS products, infringed the four patents-in-suit. The infringing systems comprise patent and trademark annuity payment service that renews clients' IP rights and corresponding annuity payments with government agencies, based on instructions sent by the client in response to electronic reminders sent by the CPi products regarding approaching deadlines for those annuity payments. In the district court, the Connecticut jury found 43 claims of the four asserted WhitServe patents willfully infringed by five different accused CPi products, totaling 101 separate instances of willful infringement. Surprisingly, the district court denied all of WhitServe's post-trial requests for prospective relief, including a permanent injunction or in the alternative a compulsory licence, enhanced damages, attorneys' fees and prejudgment interest.



On appeal, the Federal Circuit notably reversed the district court's denial of WhitServe's request for an injunction or, in the alternative, a compulsory licence and remanded for reconsideration, holding that the court erred in allowing CPi - an adjudged willful infringer - to continue infringing the WhitServe patents, with little explanation as to why the prospective relief was denied. The panel agreed that the lower court's one-page dismissal of WhitServe's motion for an injunction and complete disregard of WhitServe's alternative request for a compulsory licence was "inadequate"2. Writing for the majority, Judge Sharon Prost found that in cases of willful patent infringement, a court must provide a form of prospective relief above and beyond damages for past infringement, or explain why it refuses to do so.



WhitServe argued on appeal that, if left to stand, the district court's refusal to grant prospective relief in the form of an injunction or compulsory licence would rob inventors of the exclusive right to their discoveries promised by the US Constitution and greatly diminish the value of the patent grant. The possibility that an adjudged willful infringer could continue infringing without an injunction or compulsory licence levied against them would provide infringers every incentive to litigate or completely ignore US patents if the financial benefit of their infringement outweighs the costs of litigation. Without an injunction or compulsory licence, WhitServe would be left with no choice but to resort to serial litigation in order to be compensated for CPi's continuing willful infringement.



Defining damages



While the Federal Circuit seemingly left the door open for a district court to "exercise its discretion to conclude that no forward-looking relief is appropriate in the circumstances", WhitServe believes that such a decision would be appropriate in very few cases and certainly not in those involving willful infringers3. Such a conclusion is supported by the Federal Circuit's endorsement that each of the four factors set forth in eBay Inc v MercExchange LLC4, must be assessed in determining whether to grant a permanent injunction. WhitServe advocated in its cross-appeal that application of eBay as a balancing test was necessary to effectuate the equitable nature of the test and also to adequately account for CPi's willful infringement.



Now that CPi's liability for infringement has been affirmed by the Federal Circuit, the only question left to answer is how much CPi must pay WhitServe in damages for its near decade of infringement. The Court remanded the case back to the Connecticut District Court for a new trial on damages and also for determinations of enhanced damages, attorneys' fees, post-trial accounting, and prejudgment interest. The Federal Circuit also made clear that a district court must provide a full and clear explanation for its decision to deny enhanced damages, attorneys' fees and prejudgment interest in cases of willful infringement - a jury finding that CPi did not appeal in this case.



The Federal Circuit's opinion has cleared the way for WhitServe to obtain an injunction that would preclude CPi and CPi's customers from using CPi's infringing EARS, TERMS, CPi Online, and PMS products, all of which directly compete with the products and services offered by WhitServe's subsidiary, NetDocket. The present case has sent a strong reminder to business owners, in-house counsel and management teams that alternate sources of products or services should be considered when a vendor or provider of those products or services is accused of patent infringement. NetDocket is a viable replacement for CPi's products and WhitServe is currently providing two options to CPi customers to eliminate any risk of liability or injunction from CPi's willful infringement of the four patents-in-suit: (1) WhitServe will grant a complete release to any CPi customer that switches its IP renewal business to WhitServe's subsidiary NetDocket; or (2) WhitServe is prepared to negotiate licences for past infringement with any CPi customers wishing to transfer their IP renewal business from CPi to a WhitServe licensee.



Further action



From a business perspective, the panel's confirmation that the ‘007 patent had been willfully infringed was particularly important for WhitServe. WhitServe believes that a broad group of companies and products are currently infringing the Cloud Computing Backup and several related patents, including Google Docs, Microsoft Office Web Apps, Adobe's Acrobat.com, IBM LotusLive, Facebook, Zoho.com, and Salesforce.com. WhitServe has challenged these companies and their products. The Federal Circuit's confirmation of validity of the ‘007 patent reinforces WhitServe's strong patent position, emphasising the continued willful infringement by these companies and making it increasingly difficult for accused infringers to invalidate the patent in the future. Those responsible for handling charges of patent infringement should be aware of the consequences that a Federal Circuit confirmation of the validity and willful infringement of a patent can have.



Since the initiation of the lawsuit against CPi, WhitServe has added three additional US patents to its Cloud Computing Backup patent family: US Patent No. 7,647,364, titled "Onsite Backup Of Internet-Based Data In A Requested Format"; US Patent No. 7,925,628, titled "Internet-Based Data Processing System With Onsite Backup"; and US Patent No. 7,974,951, titled "Onsite Backup For Third Party Internet-Based Systems."



Further, the Federal Circuit's confirmation of infringement and claim construction for WhitServe's ‘468, ‘801 and ‘078 patents - the Professional Service Reminder Patents - also strengthens WhitServe's position in its pending litigation against domain registrar GoDaddy.com, for infringement of these same patents. In addition to GoDaddy, WhitServe has put many other domain registrars on notice of their infringement and will pursue its damage claims against them once the GoDaddy litigation is concluded.



WhitServe has also put companies in several different fields, such as electronic subscriptions (Amazon, Zinio and others) and medical appointment software (RelayHealth, AthenaHealth and others), on notice of infringement for the same patents and will pursue damage claims against them as well.



Judges Sharon Prost, Haldane Robert Mayer and Kathleen M O'Malley sat on the panel for the Federal Circuit.



WhitServe is represented by attorneys Gene S Winter, Erin R Woelker, Michael J Kosma, and Stephen FW Ball, Jr of the firm St Onge Steward Johnston & Reens. CPi is represented by attorneys John A Krause, Douglas Sharrot and Marc J Pensabene of the firm Fitzpatrick Cella Harper & Scinto.



Footnotes

1. WhitServe LLC v Computer Packages, Inc, Nos. 11-1206 and 11-1261 (Fed Cir 2012).

2. WhitServe v CPi, slip op at 39.

3. WhitServe v CPi, slip op at 39.

4. 547 US 388, 391 (2006).