Case 2:12-cv-03662-MRP-JC Document 132 Filed 07/17/13 Page 1 of 30 Page ID #:9047 Links: 90, 93, 105, 113, 114, 115, 129 UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA WESTERN DIVISION JVC Kenwood Corporation, Case No. 2:12-CV-3662 MRP (JCx) Plaintiff, Order Granting Defendant Nero’s v. Motion for Partial Summary Arcsoft, Inc.; Nero, Inc., Judgment of Noninfringement and Granting Defendant Nero’s Defendants. Motions to Strike the Declarations of Tetsuro Fuse, James Chang, and Faramarz Azadegan I. Introduction Defendant Nero, Inc. (“Nero”) seeks partial summary judgment of noninfringement due to patent exhaustion and express release with respect to a subset of the patents-in-suit asserted by Plaintiff JVC Kenwood Corporation (“JVC”) in this patent infringement case. The patents-in-suit relate to recording and playback of optical discs conforming to standards specified as essential by either the DVD6C or the One-Blue licensing consortiums. In its motion, Nero 1 Case 2:12-cv-03662-MRP-JC Document 132 Filed 07/17/13 Page 2 of 30 Page ID #:9048 argues that JVC has failed to provide evidence of an unlicensed direct infringer and therefore cannot show indirect infringement. JVC opposes the motion. The Court heard oral argument on April 23, 2013. Having read and considered all of the briefs and arguments of the parties, the Court concludes that under the doctrines of patent exhaustion and express release, Nero’s software products do not infringe U.S. Patent Nos. 5,535,008 (“the ’008 Patent”); 6,141,491 (“the ’491 Patent”); 6,212,329 (“the ’329 Patent”); 6,490,404 (“the ’404 Patent”); 6,522,692 (“the ’692 Patent”); 6,768,711 (“the ’711 Patent”); 6,788,881 (“the ’881 Patent”); 7,023,790 (“the ’790 Patent”); and 7,102,970 (“the ’970 Patent”) (collectively, “the Patents”). The Court GRANTS Nero’s Motion for Partial Summary Judgment of Noninfringement. II. Background The Court takes the following allegations as true and draws all reasonable inferences in the plaintiff’s favor. Plaintiff JVC is a Japanese corporation and owns each of the Patents by assignment. First Amended Complaint (Docket No. 31) ¶¶ 2, 11, 22, 33, 44, 53, 62, 73, 84, 95, 106, 117, 128, 139, 150 (“Compl.”). JVC licenses the Patents both through individual licenses and through the DVD6C and One-Blue patent pools. The DVD6C and One-Blue patent pools have each respectively “commissioned an independent analysis to determine which patents owned by the consortium 2 Case 2:12-cv-03662-MRP-JC Document 132 Filed 07/17/13 Page 3 of 30 Page ID #:9049 members,” including JVC, “include claims” that are necessarily infringed, or for which there is no realistic or reasonable alternative for infringing, when implementing DVD or Blu-ray industry standards. JVC’s Opposition to Nero’s Motion to Strike JVC’s Infringement Contention (Docket No. 56) at 4-5. Each of the Patents has been deemed essential to make or use products complying with the DVD or Blu-ray specification standards. JVC’s Response to Nero’s Statement of Uncontroverted Facts (Docket No. 101) ¶¶ 15, 17, 23, 28, 32, 36, 39-40, 45, 48, 50-51 (“UF”). JVC states that its “right to relief is asserted, in part on . compliance with industry standard specifications” for DVD and Blu-ray. Compl ¶ 9. Although each of the Patents has been deemed essential to the DVD6C and One-Blue licensing pools, some of the Patents are essential to one pool but not another. JVC’s Brief in Opposition to Nero’s Motion for Partial Summary Judgment (Docket No. 93) at 5 (“JVC Resp. Brief”). In addition, licensees authorized to produce a specific product by the licensing pool may not be licensed under a Patent that is not deemed essential to that specific product. Id. at 5-6. For example, a manufacturer licensed to produce a playable pre-recorded DVD disc would not have a license to the ’711 Patent since the claims of the ’711 Patent are directed to a rewritable optical disc and an apparatus for recording to an optical disc. Id. The DVD and One-Blue licensing pools also offer regional licenses, 3 Case 2:12-cv-03662-MRP-JC Document 132 Filed 07/17/13 Page 4 of 30 Page ID #:9050 which grant licenses to patent rights corresponding to a specific country or geographical region. Id. Defendant Nero, a Delaware corporation, sells software applications designed to allow end users to play, copy, and record data on DVD and Blu-ray optical discs. Compl. ¶ 7. JVC’s infringement allegations against Nero are based upon Nero’s “compliance with [the] industry standard.” Compl. ¶ 9. JVC alleges that Nero has infringed twenty-six claims of the Patents. Each of the asserted claims are one of three types: (1) a claim directed to an optical disc or recording medium; (2) a claim directed to an apparatus for recording to or reproducing data on an optical disc or recording medium; or (3) a claim directed to a method for recording, reproducing, protecting, or decoding an optical disc or recording medium. The ’970 Patent, for example, provides a representative claim of each of the three types. Claim 1 of the ’970 Patent claims an optical disc, claim 3 claims an apparatus for recording and reproducing on a disc, and claim 4 claims a method of recording and reproducing on a disc. JVC’s theory of infringement of these claims is that when Nero software is used “to take a blank recordable disk or rewritable disk and write certain types of data to it,” the user is “infringing a number of the patent claims.” Transcript of Hearing on Nero’s Motion for Partial Summary Judgment (Docket No. 127) at 4:17-22 (“Hearing”). Likewise, when Nero software is used to “read back that information” 4 Case 2:12-cv-03662-MRP-JC Document 132 Filed 07/17/13 Page 5 of 30 Page ID #:9051 or “edit audio data or video data,” the user is again infringing “a number” of the patent claims. Id. at 4:23-5:2. To summarize, when a user burns or plays back a DVD or Blu-ray disc by “implement[ing] the Nero software,” some claims of the Patents are necessarily directly infringed. See Transcript of Hearing on Claim Construction (Docket No. 74) at 5:3-6, 5:14-6:7. III. Legal Standard A. Legal Standard for Summary Judgment The Court shall grant summary judgment if: (1) the movant shows that there is no genuine dispute as to any material fact; and (2) the movant is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). The Court must: (1) identify material facts by reference to the governing substantive law, Anderson, 477 U.S. at 248; (2) disregard irrelevant or unnecessary factual disputes, id.; and (3) view facts and draw reasonable inferences in favor of the nonmoving party, Scott v. Harris, 550 U.S. 372, 378 (2007). The Court cannot grant summary judgment if the dispute about a material fact is one as to which a reasonable jury could return a verdict for the nonmoving party. Anderson, 477 U.S. at 248. Faced with a properly supported summary judgment motion, the nonmoving party may not rest upon mere allegations or denials of its pleading but must set forth specific facts showing a genuine issue for trial. Id. 5 Case 2:12-cv-03662-MRP-JC Document 132 Filed 07/17/13 Page 6 of 30 Page ID #:9052 “Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Unsupported assertions alone are not sufficient to create a genuine dispute about a material fact. See Davis v. Brouse McDowell, L.P.A., 596 F.3d 1355, 1364 (Fed. Cir. 2010); Hansen v. United States, 7 F.3d 137, 138 (9th Cir.1993) (per curiam) (acknowledging the well- settled principle that “[w]hen the non-moving party relies only on its own affidavits to oppose summary judgment, it cannot rely on conclusory allegations unsupported by factual data to create an issue of material fact”). B. Legal Standard for the Affirmative Defense of Patent Exhaustion Patent exhaustion is an affirmative defense to patent infringement. Tessera, Inc. v. ITC, 646 F.3d 1357, 1367, 1369 (Fed. Cir. 2011). “The longstanding doctrine of patent exhaustion provides that the initial authorized sale of a patented item terminates all patent rights to that item.” Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617, 625 (2008). Patent exhaustion applies to method claims when the patented item substantially embodies the method. Id. at 633. After an initial authorized sale of a patented item, the patent exhaustion doctrine operates as a bar to infringement claims against subsequent users because the “authorized sale . places [the] product beyond the reach of the patent.” Intel Corp. v. ULSI Corp., 995 F.2d 1566, 1568 (Fed. Cir. 1993). 6 Case 2:12-cv-03662-MRP-JC Document 132 Filed 07/17/13 Page 7 of 30 Page ID #:9053 Nero argues that a different standard applies for a claim of indirect infringement, rather than direct infringement. According to Nero, when an authorized purchaser uses the patented item, no act of direct infringement occurs because patent exhaustion has placed that item beyond the reach of the patent.