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Intellectual Ventures I LLC v. Erie Indemnity Co.

United States Court of Appeals, Federal Circuit

March 7, 2017

INTELLECTUAL VENTURES I LLC, INTELLECTUAL VENTURES II LLC, Plaintiffs-Appellants
v.
ERIE INDEMNITY COMPANY, ERIE INSURANCE EXCHANGE, ERIE INSURANCE PROPERTY & CASUALTY COMPANY, ERIE INSURANCE COMPANY, FLAGSHIP CITY INSURANCE COMPANY, ERIE FAMILY LIFE INSURANCE COMPANY, OLD REPUBLIC GENERAL INSURANCE GROUP, INC., OLD REPUBLIC INSURANCE COMPANY, OLD REPUBLIC TITLE INSURANCE GROUP, INC., OLD REPUBLIC NATIONAL TITLE INSURANCE COMPANY, Defendants-Appellees

         Appeals from the United States District Court for the Western District of Pennsylvania in Nos. l:14-cv-00220-MRH, 2:14-cv-01130-MRH, Judge Mark R. Hornak.

          Christian John Hurt, Nix Patterson & Roach LLP, Dallas, TX, argued for plaintiffs-appellants. Also represented by Derek Tod Gilliland, Daingerfield, TX.

          GREGORY H. Lantier, Wilmer Cutler Pickering Hale and Dorr LLP, Washington, DC, argued for defendants-appellees Erie Indemnity Company, Erie Insurance Exchange, Erie Insurance Property & Casualty Company, Erie Insurance Company, Flagship City Insurance Company, Erie Family Life Insurance Company. Also represented by Richard Anthony Crudo, James Quarles, III; Monica Grewal, Boston, MA; David Charles Marcus, Los Angeles, CA.

          Vernon M. Winters, Sidley Austin LLP, San Francisco, CA, argued for defendants-appellees Old Republic General Insurance Group, Inc., Old Republic Insurance Company, Old Republic Title Insurance Group, Inc., Old Republic National Title Insurance Company. Also represented by Alexander David Baxter; Erik John Carlson, Los Angeles, CA; RussellE. Cass, Chicago, IL.

          Before Prost, Chief Judge, WALLACH and Chen, Circuit Judges.

          PROST, CHIEF JUDGE

         Intellectual Ventures I LLC and Intellectual Ventures II LLC (collectively, "IV") appeal from a final decision of the United States District Court for the Western District of Pennsylvania finding all claims of U.S. Patent No. 6, 510, 434 ("'434 patent"), U.S. Patent No. 6, 519, 581 ("'581 patent"), and U.S. Patent No. 6, 546, 002 ("'002 patent") ineligible under 35 U.S.C. § 101, and dismissing IVs infringement claims of the '581 patent for lack of standing. For the reasons discussed below, we affirm-in-part, vacate-in-part, and remand-in-part.

         I

         IV sued Erie Indemnity Company, Erie Insurance Exchange; Erie Insurance Property & Casualty Company; Erie Insurance Company; Flagship City Insurance Company; Erie Family Life Insurance Company (collectively, "Erie"); Old Republic General Insurance Group, Inc.; Old Republic Insurance Company; Old Republic Title Insurance Group, Inc.; Old Republic National Title Insurance Company; Highmark, Inc.; Hm Insurance Group, Inc.; Hm Life Insurance Company; Highmark Casualty Insurance Company; and Hm Casualty Insurance Company (collectively, "Appellees"), alleging infringement of the '581 patent, the '434 patent, and the '002 patent (collectively, "patents-in-suit") in the United States District Court for the Western District of Pennsylvania. In response, Appellees moved to dismiss IV's '581 patent infringement claims under Rule 12(b)(1) for lack of standing. Appellees also moved under Rule 12(b)(6), arguing that the claims of the '581, '434, and '002 patents are directed to ineligible subject matter under 35 U.S.C § 101.

         After concluding that IV did not own the rights to the '581 patent, the district court granted Appellees' motion under 12(b)(1) for lack of standing. In reaching this conclusion, the district court found that a particular assignor did not assign any rights in or to the then-pending application to the '581 patent, thus breaking a chain in ownership of the patent. J.A. 24. Moreover, the district court dismissed IV's infringement claims under Rule 12(b)(6), finding that all claims of the three patents-in-suit were ineligible under § 101. J.A. 77. In its appeal, IV argues that the district court erred in dismissing its claims under Rule 12(b)(1) and 12(b)(6). We have jurisdiction under 28 U.S.C. § 1295(a)(1).

         II

         On appeal, IV raises a number of issues regarding the proceedings below: (1) IV appeals the district court's dismissal of its infringement claims of the '581 patent for lack of standing and its determination that the '581 patent is directed to ineligible subject matter under § 101; (2) IV appeals the district court's determination that the '434 patent is directed to ineligible subject matter under § 101; and (3) IV appeals the district court's determination that the '002 patent is directed to ineligible subject matter under § 101. We take each issue in turn.

         A

         1

         First, we consider the district court's dismissal of IVs infringement claims under Rule 12(b)(1) as they relate to the '581 patent. Our review of the district court's dismissal for lack of standing under 12(b)(1) is de novo. Abbott Point of Care Inc. v. Epocal, Inc., 666 F.3d 1299, 1302 (Fed. Cir. 2012). We apply state law to contractual disputes and interpretations of the parties' patent assignment agreements.[1] Semitool, Inc. v. Dynamic Micro Sys. Semiconductor Equip. GmbH, 444 F.3d 1337, 1341 (Fed. Cir. 2006). For this particular dispute, California law applies. See Erie Resp. Br. 6 (noting that the parties executed the agreement underlying this matter in California); Appellants' Br. 18 (recognizing party agreement that California law governs). Because contract interpretation is a legal determination, the parties' contract dispute is reviewed without deference on appeal. Semi-tool, 444 F.3d at 1341.

         The '581 patent issued from a continuation patent application of U.S. Patent No. 6, 236, 983 ("'983 patent").[2]After a series of assignments, the rights to the '581 patent (then, a pending application) and the '983 patent were assigned to AUAdvantage.com. J.A. 837-54. This assignment agreement expressly assigned the '983 patent and any continuation of that patent to AllAdvantage.com. The parties do not dispute that this assignment covered the then-pending application to the '581 patent and that AllAdvantage.com owned both that application and its parent (the '983 patent) upon execution of this agreement. See, e.g., Erie Resp. Br. 5-6. Less than six months later, AllAdvantage.com assigned various patents (including the '983 patent) and certain pending applications to Alset. J.A. 805-06 ("the Alset Agreement"). Although this agreement expressly identified the various patents and pending applications subject to assignment-including the '983 patent and several of its pending foreign patent application counterparts-it did not explicitly list the '581 patent's then-pending application. Id.

         In addition to its express identification and assignment of particular assets, this agreement included a more general grant clause: "Assignor, does hereby assign unto Assignee, all right, including common law rights, title and interest in the United States of America ... in and to said patents together with the goodwill of the business symbolized by said patents and applications and registrations thereof." J.A. 806. Approximately one year after the execution of this agreement, the U.S. Patent and Trademark Office ("PTO") issued the '581 patent. Several years later, Alset assigned the '581 patent to an IV entity that later recorded that assignment with the PTO. J.A. 862-64. In light of this framework, the district court held that Alset did not convey title to the '581 patent. J.A. 24. We conclude that the Alset Agreement did not include an assignment of rights to the '581 patent and therefore affirm the district court's Rule 12(b)(1) dismissal on that ground.

         Under Title 35, only patentees and their successors in title to a patent may bring an action for infringement. 35 U.S.C. §§ 261, 281. IV argues that although the Alset Agreement did not expressly identify the '581 patent's then-pending application, the agreement transferred title because the parties intended for the assignment to cover this asset. To demonstrate intent, IV identifies two portions of the agreement's general grant clause it believes support its positon (reproduced below with emphasis added to the two areas of IVs focus): "Assignor, does hereby assign unto Assignee, all right, including common law rights, title and interest in the United States of America . . . in and to said patents together with the goodwill of the business symbolized by said patents and applications and registrations thereof." J.A. 806. Specifically, IV argues that the "in and to said patents" and "goodwill of the business symbolized by said patents" portions of this clause each-individually and independently-support its position. We disagree.

         Under California law, "[a] contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful." Cal. Civ. Code § 1636 (West 2016). "The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity." Id. § 1638. When (as here) "a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible." Id. § 1639. A court also may consider evidence extrinsic to a contract under certain circumstances. See, e.g., Wolf v. Superior Court, 8 Cal.Rptr.3d 649, 656 (Cal.Ct.App. 2004) (citing the California Supreme Court).

         At the outset, first we must determine whether and to what extent the parties' extrinsic evidence affects the meaning of these two portions of this clause. "Where the meaning of the words used in a contract is disputed, the . . . court must provisionally receive any proffered extrinsic evidence which is relevant to show whether the contract is reasonably susceptible of a particular meaning." Id. at 655 (citation and internal quotation marks omitted) (citing the California Supreme Court). Thus, contract interpretation under California law is a two-step process. "First the court provisionally receives (without actually admitting) all credible evidence concerning the parties' intentions to determine 'ambiguity, ' i.e., whether the language is 'reasonably susceptible' to the interpretation urged by a party." Id. at 656 (citation omitted). "If in light of the extrinsic evidence the court decides the language is 'reasonably susceptible' to the interpretation urged, the extrinsic evidence is then admitted to aid in the second step-interpreting the contract." Id. (citation omitted).

         IV identifies extrinsic evidence that it contends shapes the meaning of the "in and to" and the "goodwill of the business symbolized" language and demonstrates that the parties originally intended to assign the '581 patent. Specifically, IV observes that upon execution, Alset recorded the assignment at the PTO and represented in its terminal disclaimer that it owned all the rights to the '581 patent. Moreover, IV notes that Alset filed updated power of attorneys and paid the '581 patent's issuance fee.

         Upon provisional consideration of the extrinsic evidence IV proffered, we agree with the district court's conclusion that there is no ambiguity within the Alset Agreement that could render it reasonably susceptible to IVs interpretation. The assignment itself expressly listed the seventeen patents and applications that the parties intended to transfer, with clear language that conveyed the rights, "in and to, " and "goodwill of the business symbolized by, " those explicitly identified assets. J.A. 806. In the context of this agreement, IVs proffered evidence neither resolves any ambiguity nor shapes the meaning of the words contained within the general grant clause. Although this evidence may lead one to reasonably conclude that Alset believed it owned the '581 patent at some later point in time, it would be error for us to rewrite the parties' agreement to include that which was plainly not included. Indeed,

[i]f the plain language of the instrument is unambiguous, a court may not "read into" the document additional terms in order to conform its meaning to what the court's "intuition" tells it the parties must have intended. Rather, the court "is simply to ascertain and declare what is in terms or in substance contained therein, not to insert what has been omitted, or to omit what has been inserted . . . ."

PVLittle Italy, LLC v. MetroWork Condo. Assn., 210 Cal.App.4th 132, 135 (2012) (citing Cal. Civ. Proc. Code § 1858 (West 2016)). Taken together, the Alset Agreement is not reasonably susceptible to IV's proffered interpretation and, thus, we need not consider the extrinsic evidence advanced by IV.[3] See Producers Dairy Delivery Co. v. Sentry Ins. Co., 718 P.2d 920, 925 (Cal. 1986) (explaining that a court should not consider extrinsic evidence "if the evidence offered would not persuade a reasonable man that the instrument meant anything other than the ordinary meaning of its words" (alternations, citation, and internal quotation marks omitted)). Because we conclude that IV's extrinsic evidence does not lend this clause reasonably susceptible to IV's interpretations, we move to IV's two specific arguments applying a plain meaning interpretation to the contract. See Wolf, 114 Cal.App.4th at 1356.

         First, regarding "in and to said patents, " IV argues that the agreement automatically incorporated rights to the then-pending '581 application because as a continuation, it is necessarily bound to the same inventive subject matter of its parent. IV predicates its argument on the patents' familial relationship because the grant clause conveyed rights "in and to" the subject matter of the parent patent (not simply just title to it). We conclude that the "in and to said patents" language does not support IV's position. Patents, applications for patents, or any interest therein, must be assigned by an instrument in writing. 35 U.S.C. § 261. In assigning ownership rights here, the parties limited their written instrument to the seventeen patents and applications expressly listed in that agreement. J.A. 805-06 (including the '983 patent, but not the then-pending '581 patent's application). It does not mention either the application that led to the '581 patent or the '581 patent itself, J.A. 805-06, a point that IV concedes, Appellants' Br. 22. It does not disclose that continuation applications or other family members of the enumerated patents are assigned. J.A. 805-06. That several patent applications appear in the Alset Agreement suggests that, if AllAdvantage intended to convey the application leading to the '581 patent to Alset, it knew how to do so.

         Turning to the broader language of the agreement, IV has not demonstrated that the rights "in and to" a particular patent automatically include its child applications. Rather, IV seems to conflate the meaning of the word "patent, " as used in the agreement, with "invention"; the latter which we held conveyed rights to continuation applications. See DDB Techs., 517 F.3d at 1290. Thus, this language did not convey any rights, and a conclusion otherwise would directly conflict with the plain language of the agreement. For example, if the "in and to said patents" language automatically conveyed the rights to all applications within the family of those expressly identified, the agreement need not list the '983 patent's foreign counterpart applications either. But as Erie correctly observes, the agreement listed three of the '983 patent's foreign applications. J.A. 805; Erie Resp. Br. 31. The agreement did not, however, list the then-pending '581 patent application. J.A. 805-06. We thus conclude that the "in and to said patents" language did not convey any rights to the '581 patent.

         Second, regarding the "goodwill of the business symbolized by said patents and applications" portion of the agreement, IV argues the goodwill assigned here includes the right to commercialize or license the patented invention through the expiration of the '983 patent as part of its patent monopoly. To support this contention, IV refers again to the terminal disclaimer Alset filed and cites Scott Paper Co. v. Marcalus Manufacturing Co., 326 U.S. 249 (1945). IV relies on this case to support its position that the exclusion of the '581 patent would necessarily devalue this goodwill if it were unable to commercialize the invention without risk of infringing the '581 patent. IV maintains if legal title to the common inventive subject matter were severed, Alset could not receive the goodwill relating to the enjoyment of the patent monopoly in the '983 patent unless it received rights to the '581 patent as well.

         Similar to the "in and to said patents" portion discussed above, we conclude that the agreement's "goodwill of the business symbolized by said patents and applications" portion did not transfer title to the '581 patent as well. IV largely predicates its arguments on the assumption that the agreement assigned the goodwill of the '983 patent itself. It did not. Rather, the plain language of the agreement assigned the "goodwill of the business symbolized by [the '983 patent]." J.A. 806 (emphasis added). At best, this portion of the Alset Agreement assigned the goodwill of the resulting commercial exploitation of the patent. Indeed, IVs citation to Scott Paper actually supports the conclusion that goodwill is something other than the patent instrument itself. In that case, the Supreme Court referred to the goodwill in the context of "the patented article or product." Scott Paper, 326 U.S. at 256. In other words, goodwill here refers to the goodwill resulting from the commercial exploitation of the products covered by the '983 patent. But IV's commercial exploitation of the ...


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