Federal Circuit Affirms District Court’s Eligibility Analysis, Reyna Dissents

On July 14, the United States Court of Appeals for the Federal Circuit, with Judge Lourie writing for the majority, affirmed-in-part and vacated-in-part a decision of the United States District Court for the Eastern District of Texas in Packet Intelligence, LLC v. NetScout Systems, Inc. The CAFC affirmed the district court’s judgments on the issues of infringement, invalidity, and willfulness, but reversed with respect to pre-suit damages. Judge Reyna wrote separately, dissenting on the issue of patent eligibility under Section 101.

District Court Proceedings

Packet Intelligence is the owner of U.S. Patent Nos. 6,665,725 (the ’725 patent), 6,839,751 (the ’751 patent), and 6,954,789 (the ’789 patent), which are directed to methods and apparatuses for monitoring packets exchanged over a computer network. In the district court, Packet Intelligence asserted claims 19 and 20 of the ’789 patent, claims 10 and 17 of the ’725 patent, and claims 1 and 5 of the ’751 patent against NetScout’s products, i.e. the “G10” and the “GeoBlade”.

A jury found that all asserted claims were willfully infringed, rejected NetScout’s invalidity defenses, and awarded pre-suit and post-suit damages to Packet Intelligence. Following the jury verdict, the district court rejected NetScout’s Section 101 invalidity defense and awarded enhanced damages in an amount of $2.8 million and further awarded an ongoing royalty for post-verdict infringement. NetScout appealed to the CAFC, challenging the district court’s judgment on the issues of infringement, invalidity under Section 101, invalidity under Section 102, pre-suit damages, and willfulness.

Infringement

The parties agreed that claim 19 of the ‘789 was representative of all the asserted claims, thus the CAFC focused its analysis on claim 19. NetScout’s argument that it did not infringe relied entirely on NetScout’s assertion that the memory limitation of claim 19 required “correlating connection flows into conversational flows.” NetScout asserted that its accused products did not infringe because its products “track connection flows but never joins them together” into conversational flows, as required by the claims. The CAFC agreed with Packet Intelligence that the asserted claims did not require joining connection flows into conversational flows. Noting that the term “conversational flows” is found in a limitation reciting “a memory for storing a database comprising none or more flow-entries for previously encountered conversational flows, each flow-entry identified by identifying information stored in the flow entry”, the CAFC explained that the limitation required storing flow entries, but did not require “correlating connection flow entries into conversational flows” as asserted by NetScout. Further, the CAFC noted that even if the claims did require correlating connection flows into conversational flows, the jury’s infringement verdict was supported by substantial evidence because an expert, Dr. Almeroth, testified that the accused products contain flow entries and information that can be used to correlate flow entries into conversational flows. Thus, the CAFC concluded that the jury’s verdict on infringement was supported by substantial evidence.

Patent Eligibility

NetScout argued that the asserted patent claims were directed to ineligible subject matter and, in particular, were directed to “the abstract idea of collecting, comparing, and classifying packet information.” Further, NetScout argued that the district court “erred by considering the specification’s teachings of how to identify packets belonging to the same conversational flow.” NetScout also asserted that the “claims lack an inventive concept because the recited components in the claim are standard, off-the-shelf components, used in every probe.”

The CAFC agreed with Packet Intelligence that the district court correctly held that the claims were not directed to an abstract idea. Citing SRI International, Inc. v. Cisco Systems, Inc., the CAFC explained that it has previously “relied on statements in the specification that the claimed invention purported to solve weaknesses in the prior art” where the “claims recited general steps for network monitoring with minimal detail present in the claim limitations themselves.” The CAFC noted that the asserted patents’ specifications made “clear that the claimed invention presented a technological solution to a technological problem” by explaining that prior art network monitors were unable to identify disjointed connection flows to each other. The CAFC also noted that the “focus of the claims [was] a specific improvement in computer technology: a more granular, nuanced, and useful classification of network traffic.”  Thus, the CAFC concluded that the claims were not directed to an abstract idea, in accordance with the Alice framework, and did not address step two.

Invalidity Under Section 102

NetScout argued before the district court that the asserted patents were invalid because RMON Working Group was not listed as inventors, when RMON Working Group “devised the ‘Track Sessions’ probe functionality that relates connection flows into conversational flows as claimed in the patents.” NetScout relied on testimony by its expert, Mr. Waldbusser, who opined that “the Track Sessions Probe … could correlate packets associated with an activity, even though those packets were exchanged via different connection flows with different port numbers.” Packet Intelligence responded that the jury’s rejection of NetScout’s § 102 challenge was supported by substantial evidence, noting that Mr. Waldbusser improperly focused on “conversational flows” rather than considering the limitations of claim 19. Further, Packet Intelligence relied on the testimony of Dr. Almeroth for an assertion that “Track Sessions counts all of the packets in a conversational flow as a single flow entry, as opposed to correlating several connection flows.” The district court rejected NetScout’s motion for judgment as a matter of law on the inventorship defense and supported its conclusion by “citing Dr. Almeroth’s testimony that Mr. Waldbusser failed to analyze the claim language as written and that the NetScout probe did not associate connection flows but, instead, replaced one flow with another.”  The CAFC agreed with the district court and concluded that the jury’s verdict was supported by substantial evidence.

Award of Pre-Suit Damages

Initially, the CAFC noted that the availability of pre-suit damages for the ‘789 patent, which included apparatus claims, depended on whether Packet Intelligence’s licensee, Exar, properly marked its MeterFlow product. The CAFC explained that, at the time the district court instructed the jury, the CAFC had not yet ruled on which party was to proving compliance with the marking statute, but shortly thereafter, in Arctic Cat Inc. v. Bombardier Recreational Prods. Inc., the CAFC “held that an alleged infringer ‘bears an initial burden of production to articulate the products it believes are unmarked ‘patented articles’ subject to [the marking requirement]’”. Noting that the district court’s jury instructions appeared to place the burden on NetScout, the CAFC reasoned that pursuant to Arctic Cat “NetScout bore the preliminary burden of identifying unmarked products that it believed practice the ’789 patent” and “Packet Intelligence then bore the burden of proving that MeterFlow did not practice at least one claim of the ’789 patent.”

Packet Intelligence produced evidence that all references to the MeterFlow product were removed from the asserted patents prior to filing the non-provisional applications and also submitted testimony from a named inventor, Mr. Dietz, stating that the MeterWorks product (rather than the MeterFlow product) did not embody the invention. The CAFC reasoned that the evidence was “insufficient to carry Packet Intelligence’s burden of proving that the MeterFlow product does not practice the ’789 patent” because 1. the fact that the inventors chose not to reference the MeterFlow product in its patent applications does not support the conclusion that MeterFlow does not practice the ‘789 patent, and 2.) Mr. Dietz testified about the wrong Exar product and, regardless, “his conclusory testimony failed to address what claim limitations were purportedly missing from the product and would have been insufficient to carry Packet Intelligence’s burden of proving that MeterFlow did not practice the ’789 patent.”  Thus, the CAFC concluded that Packet Intelligence failed to present substantial evidence to support a conclusion that the MeterFlow product did not practice the ’789 patent and, therefore, NetScout was entitled to judgment as a matter of law that it is not liable for pre-suit damages based on infringement of the ’789 patent.

Packet Intelligence argued on appeal that that the pre-suit damages award can alternatively be supported by evidence of direct infringement of the ‘725 and ’751 method patents. However, the CAFC disagreed the Packet Intelligence. Quoting Joy Techs., Inc. v. Flakt, Inc., the CAFC stated that “method claims are ‘not directly infringed by the mere sale of an apparatus capable of performing the claimed process.’” The CAFC noted that there was no evidence to support Packet Intelligence’s theory that “NetScout’s internal testing, customer support, and customer training was pre-suit activity infringing the method patents. Thus, the CAFC concluded that because “neither the record nor the law support[ed] Packet Intelligence’s recovery of pre-suit damages for any of the asserted patents, NetScout [was] entitled to judgment as a matter of law” on the issue of pre-suit damages.

Willfulness

NetScout also appealed the district court’s willfulness judgment, arguing that its executives did not know of Packet Intelligence’s patents or of the infringing activity until after the suit was filed. However, the CAFC agreed with Packet Intelligence that the jury’s willfulness verdict was supported by substantial evidence. The CAFC noted that NetScout’s corporate representative, Mr. Kenedi, admitted at trial “that he did not read the patents but still testified that he believed Mr. Dietz lied and stole the claimed inventions.” Further, the CACF noted that “NetScout’s CEO, Mr. Singhal, testified that he could not recall ever reviewing the asserted patents and confirmed that, even though NetScout was phasing out the accused products, he would sell one to a customer if the product was demanded.” Thus, the CAFC explained that the jury was permitted to give credit to the testimony and conclude that NetScout willfully infringed the asserted patents. In conclusion, the CAFC affirmed the district court’s judgments as to infringement, validity, and willfulness, but reversed the district court’s award of pre-suit damages and vacated any enhancement thereof.

Judge Reyna Concurs-in-Part, Dissents-in-Part

Judge Reyna wrote a separate opinion concurring with the majority on all issues except the patentability of the asserted claims under Section 101. In Reyna’s view “the claims [were] directed to the abstract idea of identifying data packets as belonging to ‘conversational flows’ rather than discrete ‘connection flows.’” Noting that the claims recite a “general method of sorting data packets according to any flow, not a specific means of sorting packets by conversational flow”, Reyna explained that “the claim does not recite how the individual packets are actually ‘identified’ as belonging to a conversational flow beyond the functional requirement that ‘identifying information’ is used.” Reyna further noted that, while the specification explains processes and components for identifying a conversational flow, they are not recited in the claims and, therefore, the claims do not provide “the specificity required to transform a claim from one claiming only a result to one claiming a way of achieving it.” Distinguishing SRI, Reyna noted that the claims in SRI specifically recited how the claimed monitors accomplished a step of “detecting… suspicious network activity”, while the claims of the asserted patents do not recite how the “desired result of ‘identif[ying]’ packets as belonging to a conversational flow is achieved.”

Reyna further explained that the district court determined that “[t]aken together, the claims and the specification do teach how to identify that certain packets belong to the same conversational flow.” However, Reyna stated “the relevant inquiry for § 101 purposes is not whether the patent as a whole teaches a concrete means for achieving an abstract result, but whether such a concrete means is claimed.” Although not addressed by the majority, Reyna asserted that the district court’s reasons for distinguishing the claimed monitors from prior art monitors were “nothing more than the abstract idea itself, and thus [could not] serve as inventive concepts supporting patentability at Alice Step 2.”  Thus, Reyna concluded that the district court’s analysis was clearly erroneous, and the case should be remanded for proper analysis.