CAFC Affirms District Court Invalidation of Controller Patent

The U.S. Court of Appeals for the Federal Circuit (CAFC) issued a precedential decision Tuesday in Definitive Holdings, LLC v. Powerteq LLC, affirming the United States District Court for the District of Utah’s grant of summary judgment of invalidity of Definitive Holdings’ patent.  The district court found that the asserted claims of the patent owned were invalid under the pre-America Invents Act (AIA) version of 35 U.S.C. § 102(b). The opinion was authored by Judge Cunningham and joined by Chief Judge Moore and Judge Dyk.

The dispute centered on U.S. Patent No. 8,458,689, which claims methods and apparatuses for upgrading software in an engine controller. The patent describes connecting a device to an engine controller, where the device can replace portions of the stock engine control software with new data blocks while retaining an image of the stock engine control software. The patent has a priority date of March 30, 2001, making the critical date for the on-sale bar March 30, 2000. Definitive Holdings filed a lawsuit against Powerteq for infringement of claims 1, 12, 21, 23, 27, 28, 31, and 32 of the patent.

Powerteq moved for summary judgment of invalidity under pre-AIA 35 U.S.C. §§ 101, 102(b), and 112. With respect to 35 U.S.C. § 102(b), Powerteq argued that, by at least 1996, non-party Hypertech Inc. sold a device named the Hypertech Power Programmer III that embodied all limitations of the asserted claims. Definitive Holdings “d[id] not dispute any of Powerteq’s alleged undisputed facts” but instead contended that “the facts upon which the motion [was] based” relied on “inadmissible evidence.” Definitive objected to the admissibility of the deposition testimony of the CEO and owner of Hypertech Inc., Mr. Ramsey, as well as the source code of the Hypertech Power Programmer III and an expert declaration relying on that source code.

On appeal to the CAFC, Definitive Holdings “the district court erroneously relied on inadmissible hearsay and that the 35 U.S.C. § 102(b) on-sale bar should be limited to sales expressly disclosing the prior art device’s functionality.” Definitive Holdings contended that Mr. Ramsey’s testimony regarding the sales of the device and the source code was inadmissible because it was not based on personal knowledge, violating Federal Rule of Evidence 602. The CAFC held that Mr. Ramsey’s firsthand testimony sufficiently demonstrated his ability to authenticate the device’s sales records, which in turn showed that the device had been on sale before the critical date. It also found that “a rational juror could conclude based on Mr. Ramsey’s testimony that he had personal knowledge of Hypertech’s record-keeping practices.”

Definitive Holdings also challenged the admissibility of the source code itself, arguing it was inadmissible hearsay. The CAFC disagreed, explaining that hearsay is an out-of-court statement offered for the truth of the matter asserted. It also stated that an order or instruction is, by its nature, neither true nor false and thus cannot be offered for its truth. Moreover, the CAFC concluded that “while comments and descriptions in source code may include statements that could be offered for their truth, the actual source code commands themselves are not offered for their truth and thus are not hearsay.” Since the source code commands are not hearsay, the district court did not abuse its discretion in considering expert testimony about source code commands in granting summary judgment.

Furthermore, Definitive Holdings contended that even if the sales records and the source code were admissible, summary judgment was inappropriate because there was insufficient evidence of sales of the device. The CAFC found that the sales records, together with Mr. Ramsey’s firsthand testimony demonstrates that the device was sold as early as 1996, well before the critical date. The Federal Circuit noted that the sales records indicated that the devices were sold in the 1990s for certain car models, and an installation guide found in a 1996 package contained installation instructions for the same models. It also determined that “from this evidence, no reasonable jury could conclude that the source code was not implemented in the PP3 by March 30, 2000.”

Definitive Holdings further argued that the district court improperly considered the clear and convincing evidence standard. The CAFC rejected this argument, noting that “circumstantial evidence is not second-class to direct evidence” and that “either direct or circumstantial evidence corroborating public use may be sufficient for a party to meet its burden of proof.” It also pointed out that Definitive Holdings provided no contrary evidence and did not dispute the statement of undisputed material facts except to argue that it was based on inadmissible evidence.

Furthermore, Definitive Holdings argued that even if Hypertech Inc. sold the device embodying the asserted claims of the patent more than one year before the priority date, summary judgment was inappropriate because the device was not prior art. Definitive Holdings contended that under pre-AIA 35 U.S.C. § 102(b), prior art must disclose to the public how to perform the patented method. The CAFC explained that “triggering the on-sale bar does not ‘require that the sale make the details of the invention available to the public.’” It also stated that the question is not whether the sale discloses the invention at the time of sale, but whether the sale relates to a device that embodies the invention. In this case, the CAFC found that Hypertech Inc. was “directly selling to the public the ability to perform the claimed method and to use the claimed apparatus.” Ultimately, the CAFC found all of Definitive Holdings’s arguments unpersuasive and affirmed the district court’s judgment of invalidity under pre-AIA 35 U.S.C. § 102(b).