EDTX & WDTX Monthly Wrap-Up — May 2019

This post summarizes some of the significant developments in the Eastern District of Texas and the Western District of Texas for the month of May 2019. One recent order from the Eastern District of Texas strongly suggests all expert opinion must be served at the Patent Rule 4-3 deadline. The patent docket in the Western District of Texas is growing quickly, and Judge Albright recently issued an order denying a defendant's 35 U.S.C. § 101 motion to dismiss. This is one of only a few orders by the new judge on patentable subject matter. These orders are discussed below.

Fractus, S.A. v. AT&T Mobility LLC: What must experts disclose at the P.R. 4-3 deadline?

In Fractus, S.A. v. AT&T Mobility LLC, Judge Gilstrap provided new guidance on Patent Rule 4-3(b) ("Joint Claim Construction and Prehearing Statement"). Civil Action No. 2:18-cv-135-JRG, Mem. Op. and Order, ECF 223 (E.D. Tex. March 19, 2019). The court ruled that, after disclosure of expert testimony pursuant to P.R. 4-3(b), "[l]ater supplements may elaborate upon, but may not change, an expert's opinion that itself was sufficiently disclosed under P.R. 4-3." Id. at 3. Subsequent expert testimony may not introduce "entirely new topics": topics that "were not raised or disclosed to any degree in the prior P.R. 4-3 disclosures." Id. Parties failing to completely disclose expert opinion at the 4-3(b) deadline risk preclusion from later supplementing expert opinions on undisclosed matters. Id. at 5.

Defendants moved to strike the declaration of Plaintiff Fractus's expert, Dr. Stuart Long, in support of Plaintiff's claim constructions. Id. at 1. The parties exchanged P.R. 4-3 disclosures in January that included a declaration from Dr. Long (the "First Long Declaration"). Id. at 2. The next month, Plaintiff attached a new declaration from Dr. Long (the "Second Long Declaration") to its opening claim construction brief. Id. Defendants objected to the Second Long Declaration and argued that it offered new opinions on terms and presented new prior art evidence. Id. Plaintiff argued that these portions of the Second Long Declarations were permissible explanations and elaborations on opinions properly disclosed in compliance with P.R. 4-3. Id.

The court began its analysis by stating that P.R. 4-3 "was amended to clarify that the rule '€˜requires a complete statement of all opinions the witness will express and the basis and reasons for them, as well as the facts or data considered by the witness in forming them.'" Id. at 3 (quoting Gen. Order 18-10, Cmt. To P.R. 4). "[P]arties may then confidently and flexibly use expert witness testimony . . . to support later claim construction briefing or hearing presentations, provided the testimony is within the scope of the earlier disclosure." Id. (internal quotations omitted) (emphasis in original). Importantly, initial "disclosures must contain a complete statement of all the opinions the witness will express, the basis and reasons for them, and the facts or data considered by the witness in forming them." Id. (internal quotations omitted) (emphasis added).

This is not to say that experts are limited to their P.R. 4-3 disclosures in expressing their opinions. "Rather, it is expected, if not inevitable, that the experts will continue to develop and refine their opinions," especially after reviewing opposing expert opinion. Id. But it is impermissible for subsequent expert testimony to introduce "entirely new topics for the first time" that were not at all mentioned in initial 4-3 disclosures. Id. The court is concerned about any "surprise" to a party from subsequent expert testimony when viewed in light of P.R. 4-3 disclosures. Id.

In Fractus, the court found that the "new" opinions and prior art offered in the Second Long Declaration were a "fair and unsurprising elaboration" upon the First Long Declaration. Id. at 4. Instead of presenting entirely new topics, the expert merely rebutted the opinions made by the opposing expert in his initial opinions. Id. ("A party whose expert's opinions place a subject at issue cannot claim surprise or prejudice when an opposing expert responds to those opinions."). Dr. Long properly clarified and defended his positions in light of opposing expert Dr. Mohammod Ali's opinions, a "predictable response." Id. at 4.

The court further found that the new prior art evidence from the Second Long Declaration properly expounded upon initial opinions in response to challenges from opposing experts. Id. at 5. "[I]t is unlikely that a party could credibly claim prejudice" where an expert adds facts, like new prior art, to support their rebuttal opinions. Id. Were the rule interpreted otherwise, experts would have to "foresee…rebuttal and address it in advance as part of [a party's] initial disclosures." Id.

However, P.R. 4-3 does not allow experts "to include only bare-bones expert opinions" and then "later supplement[] those opinions." Id. Parties still must "completely disclose the expert opinions upon which it intends to rely," or risk preclusion of later opinions. Id. "Rather, the purpose of Patent Rule 4 is to encourage open and candid discussions, from both sides, in order to streamline issues for claim construction." Id.

Eceipt LLC v. Homegoods, Inc.: The newest of only a few orders Judge Albright of the Western District of Texas has issued on the subject of patent eligibility.

In Eceipt LLC v. Homegoods, Inc., Judge Albright of the Western District of Texas denied a defendant's motion to dismiss for claiming ineligible subject matter under 35 U.S.C. § 101. Civil Action No. W-19-cv-32-ADA, Order Denying Defs. Mot. to Dismiss, ECF 25 (W.D. Tex. May 20, 2019). Plaintiff Eceipt LLC asserted U.S. Patent No. 8,643,875 against Defendant Homegoods, Inc., alleging that Homegoods's method of emailing receipts to customers from its point-of-sale computer systems infringes. Id. at 1. Homegoods moved to dismiss the action alleging that the '875 Patent is directed towards ineligible subject matter. Id. The '875 Patent has only one independent claim:

1. A method of processing receipts, comprising

[a] obtaining transaction data from a point-of-sale (POS) computer system at a store location, the transaction data including a plurality of categories of information necessary to describe a purchasing transaction of a customer at the store location;

[b] obtaining image data from the POS system at a store location, the image data representing a receipt corresponding to the purchasing transaction of the customer at the store location;

[c] obtaining an e-mail address of the customer from a customer information database persistently associated with the POS system;

[d] providing, to a display device at the store location, an option to print the receipt at the store location and an option to e-mail the receipt to the customer;

[e] obtaining a selection of at least one of the provided options;

[f] if the option to print is selected, initiating printing of the image data at the store location; and

[g] if the option to e-mail is selected, e-mailing the receipt to the customer, including:

[i] providing the e-mail address obtained from the customer information database to a display device at the store location;

[ii] obtaining customer confirmation whether the e-mail address is correct;

[iii] if the e-mail address is not correct, obtaining a corrected e-mail address of the customer;

[iv] transmitting the image data and the transaction data to a server in communication with one or more POS systems at one or more store locations, including generating a data file, the data file including the transaction data, the correct e-mail address of the customer and a file name corresponding to the image data;

[v] assigning an e-mail template based on the data file transmitted to the server; and

[vi] sending an e-mail to the correct customer e-mail address, wherein the content of the email is based on the assigned e-mail template, where the email provides the image data obtained by the server.

Id. at 6–€“7.

At Alice step 1, Homegoods argued that Claim 1 "describes nothing more than generic equipment generically disposed performing the generic steps of obtaining receipt and customer information, asking whether the customer would prefer a printed or emailed receipt, and providing a printed or emailed receipt in response." Id. at 7. Eceipt responded that the "claims are directed to a specific computer-centric problem of receipt handling systems for POS computer systems and provides a solution comprised of ordered steps." Id. at 8.

The court found that the '875 Patent solves problems in the prior art and claims an approach that is a "specific, practical, and useful improvement to the existing POS computer-aided processes." Id. Particularly, the inventors improved POS systems by creating a method that could be implemented on existing POS machines. Id. at 9. Analogizing to Enfish, the court found that the disclosed POS system allows receipts to be emailed to customers, a process not available in the prior art. Id. at 10 (citing Enfish LLC v. Microsoft Corp., 822 F.3d 1327, 1336 (Fed. Cir. 2016)). The claim recited specific steps for achieving the desired result instead of only focusing on the result itself like the claims in Finjan. Id. at 11 (citing Finjan, Inc. v. Blue Coat Sys., Inc., 879 F.3d 1299, 1305–06 (Fed. Cir. 2018)). Thus, the '875 Patent's claims are not directed to an abstract idea. Id.

At Alice step 2, Homegoods argued that the asserted claims are "too generic and broad to be patent eligible," merely added generic computer equipment to an already abstract idea, and only identified a non-exhaustive list of hardware for implementing the invention." Id. at 11–€“12. Eceipt responded that the claims were inventive "because they provide a limited and specific solution to a technology-related problem." Id. at 12.

The court found that Homegoods did not provide clear and convincing evidence that the operation of the claimed POS system is routine or conventional. Id. at 12–€“13. The '875 Patent's claims each contained an inventive concept and raised disputed issues of material fact. Id. at 12. Siding with Eceipt, the court concluded that the '875 Patent contains "specific technologic modifications to solve a problem or improve the functioning of a known system" because it provides a specific technological method of processing receipts that allows a customer to have their receipt emailed to them. Id. at 11–€“12 (quoting Trading Techs. Int'l Inc. v. CQG, Inc., 675 F. App's. 1001, 1004–05 (Fed. Cir. 2017)). Also, there remained a fact question regarding whether the claims were actually routine and conventional. Id. at 13 (citing Berkheimer v. HP Inc., 881 F.3d 1360, 1368 (Fed. Cir. 2018)). The '875 Patent's claims therefore remain eligible under Alice step two.

Finding that the '875 Patent claims eligible subject matter under both steps of the Alice test, the court denied Homegoods's Motion to Dismiss.