Court Opinion

ID: 6320774
Source: CourtListenerOpinion
Date Created: 2022-03-07 17:01:25.072341+00
Date Added: 2024-06-11T09:02:38.647616
License: Public Domain

Case: 21-1785   Document: 44     Page: 1   Filed: 03/03/2022

        NOTE: This disposition is nonprecedential.

   United States Court of Appeals
       for the Federal Circuit
                 ______________________

                   ALEXSAM, INC.,
                   Plaintiff-Appellant

                            v.

          MASTERCARD INTERNATIONAL
                INCORPORATED,
                 Defendant-Appellee
              ______________________

                       2021-1785
                 ______________________

    Appeal from the United States District Court for the
 Eastern District of New York in No. 1:15-cv-02799-ILG-
 VMS, Senior Judge Israel Leo Glasser.
                  ______________________

                 Decided: March 3, 2022
                 ______________________

     HUNTER T CARTER, Arent Fox LLP, New York, NY, ar-
 gued for plaintiff-appellant.     Also represented by
 JACQUELINE KNAPP BURT, Heninger Garrison Davis, LLC,
 Atlanta, GA; TIMOTHY C. DAVIS, W. LEE GRESHAM, III, Bir-
 mingham, AL; JONATHAN ROBERT MILLER, Rozier Hardt
 McDonough PLLC, Atlanta, GA, STEVEN WHITEFIELD
 RITCHESON, Insight, Chatsworth, CA.

    ELIOT DAMON WILLIAMS, Baker Botts LLP, Palo Alto,
Case: 21-1785     Document: 44     Page: 2    Filed: 03/03/2022

 2                                        ALEXSAM, INC. v.
                   MASTERCARD INTERNATIONAL INCORPORATED

 CA, argued for defendant-appellee. Also represented by
 MICHAEL HAWES, Houston, TX; CHRISTOPHER PATRICK,
 ROBERT C. SCHEINFELD, JENNIFER COZEOLINO TEMPESTA,
 New York, NY
                 ______________________

     Before NEWMAN, LOURIE, and STOLL, Circuit Judges.
 STOLL, Circuit Judge.
     In this appeal, we consider MasterCard International
 Inc.’s charge that AlexSam, Inc. took inconsistent positions
 before the Patent and Trial Appeal Board, on the one hand,
 and at the U.S. District Court for the Eastern District of
 New York, on the other, concerning the implications of a
 covenant not to sue on standing. The district court found
 that AlexSam had taken inconsistent positions and thus
 held it estopped and granted summary judgment dismiss-
 ing AlexSam’s complaint with prejudice. On appeal,
 AlexSam argues that the district court abused its discre-
 tion by crediting AlexSam with a position it never actually
 took before the Board. We agree. We therefore reverse the
 district court’s summary judgment and remand for further
 proceedings.
                         BACKGROUND
     AlexSam is the owner of U.S. Patent Nos. 6,000,608
 and 6,189,787 (the “licensed patents”), both titled “Multi-
 function Card System.” Generally speaking, the licensed
 patents are directed to pre-paid cards (like a gift card) that
 can be used with point-of-sale devices. See ’608 patent, Ab-
 stract.
     Back in 2005, AlexSam and MasterCard entered into a
 non-exclusive license agreement permitting MasterCard
 “to process and enable others to process” certain licensed
 transactions, J.A. 200 ¶ 2.1, that are “covered by one of the”
 licensed patents, id. ¶ 1.3. MasterCard, in exchange,
 agreed to pay AlexSam royalties for each licensed
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 transaction and to provide AlexSam with monthly reports
 itemizing the number of licensed transactions and the cor-
 responding royalties owed for the relevant time period.
 J.A. 202–03 ¶¶ 4.1–4.2.
     A couple of years later, AlexSam contacted Master-
 Card, complaining that the monthly reports did not ac-
 count for all of the applicable licensed transactions and, as
 a result, MasterCard had not paid all the royalties it owed
 under the license. MasterCard disagreed. In May 2015,
 AlexSam sued MasterCard in the Eastern District of New
 York for breach of contract, seeking the allegedly unpaid
 royalties. MasterCard filed counterclaims seeking (among
 other things) a declaratory judgment that the licensed pa-
 tents are invalid and not infringed.
      AlexSam moved to dismiss MasterCard’s patent-re-
 lated declaratory judgment counterclaims, arguing that a
 covenant not to sue contained in the license agreement
 stripped MasterCard of standing to sue for declaratory re-
 lief. The covenant recites:
     Alex[S]am hereby agrees and covenants to not at
     any time initiate, assert, or bring any claim (in any
     court, administrative agency, or other tribunal, an-
     ywhere in the world) against MasterCard, for any
     claim or alleged liabilities of any kind and nature,
     at law, in equity, or otherwise, known and un-
     known, suspected and unsuspected, disclosed and
     undisclosed, relating to Licensed Transactions
     arising or occurring before or during the term of
     this Agreement.
 J.A. 201 ¶ 2.2.
     In AlexSam’s view, this covenant prevented AlexSam
 from suing MasterCard for patent infringement and, ac-
 cordingly, MasterCard could have no reasonable apprehen-
 sion of a patent infringement suit. Continuing, AlexSam
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 4                                       ALEXSAM, INC. v.
                  MASTERCARD INTERNATIONAL INCORPORATED

 argued, if there is no threat of infringement suit, there is
 no justiciable case or controversy and thus no standing.
      In November 2015, the district court, citing the Su-
 preme Court’s decision in MedImmune, Inc. v. Genentech,
 Inc., 549 U.S. 118 (2007), denied AlexSam’s motion. The
 court determined that MasterCard’s counterclaims met the
 requirements to bring claims for declaratory relief under
 the Declaratory Judgment Act, 28 U.S.C. § 2201. J.A. 3–4
 ¶ 2. It went on to explain, however, that whether declara-
 tory relief would ultimately be appropriate would “depend,
 in part, on how the [c]ourt (or a jury) interprets” the par-
 ties’ license agreement, something the court could not do
 “as a matter of law in the context of” AlexSam’s motion. Id.
      A couple of years later, in March 2017, MasterCard pe-
 titioned for covered business method (CBM) review of the
 licensed patents. AlexSam opposed institution in its pre-
 institution patent owner response, arguing that Master-
 Card lacked standing under 37 C.F.R. § 42.302(a)—a re-
 quirement for CBM review. In particular, AlexSam
 asserted that standing was not established under
 § 43.302(a) because AlexSam had not “sued” or “charged”
 MasterCard with patent infringement. Section 43.302(a)
 states:
     A petitioner may not file with the Office a petition
     to institute a covered business method patent re-
     view of the patent unless the petitioner, the peti-
     tioner’s real party-in-interest, or a privy of the
     petitioner has been sued for infringement of the pa-
     tent or has been charged with infringement under
     that patent. Charged with infringement means a
     real and substantial controversy regarding in-
     fringement of a covered business method patent ex-
     ists such that the petitioner would have standing
     to bring a declaratory judgment action in Federal
     court.
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 Id. 1 (emphases added). As it had argued to the district
 court, AlexSam argued to the Board that it had not actually
 sued MasterCard for patent infringement. AlexSam also
 argued that it had not “charged” MasterCard with patent
 infringement, asserting that the covenant not to sue pre-
 vented AlexSam from doing so.
     The Board requested supplemental briefing on the
 question of MasterCard’s standing to petition for CBM re-
 view, specifically regarding the effect of the covenant not to
 sue. Ultimately, in September 2017, the Board denied in-
 stitution for both patents, determining that MasterCard
 did not have CBM standing under § 43.302(a). See Master-
 card Int’l Inc. v. Alexsam, Inc., No. CBM2017-00041,
 2017 WL 4221401 (P.T.A.B. Sept. 21, 2017). 2

     1   The U.S. Patent and Trademark Office promul-
 gated § 42.302(a) in 2012, citing Section 18 of the
 Leahy–Smith America Invents Act, Pub. L. No. 112–29,
 125 Stat. 284, 329 (2011) as authority. See Changes to Im-
 plement Inter Partes Review Proceedings, Post-Grant Re-
 view Proceedings, and Transitional Program for Covered
 Business Method Patents, 77 Fed. Reg. 48,680, 48,727,
 48,731 (Aug. 14, 2012). AIA Section 18(a)(1)(B) relates to
 standing and recites:
     A person may not file a petition for a transitional
     proceeding with respect to a covered business
     method patent unless the person or the person’s
     real party in interest or privy has been sued for in-
     fringement of the patent or has been charged with
     infringement under that patent.
 125 Stat. at 330.
     2   The Board issued a nearly identical decision deny-
 ing institution for the ’608 patent. See Mastercard Int’l Inc.
 v. Alexsam, Inc., No. CBM2017-00042, 2017 WL 4221130
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 6                                       ALEXSAM, INC. v.
                  MASTERCARD INTERNATIONAL INCORPORATED

     In its decision, the Board began by noting that Master-
 Card had not actually been sued with patent infringement,
 and thus focused its inquiry on whether MasterCard had
 been “charged with infringement” under § 42.302(a). The
 Board explained that § 42.302(a)’s “charged with infringe-
 ment” inquiry requires consideration of whether a party
 has “the ability to seek relief in Federal court” for patent
 infringement. Id. at *4. Accordingly, the Board considered
 “case law addressing when a party might have Article III
 standing to bring a declaratory judgment action,” including
 the Supreme Court’s decision in MedImmune. Id. Ulti-
 mately, in determining that MasterCard had not been
 “charged with infringement” under § 42.302(a), the Board
 determined that “the broad language of the covenant not to
 sue provision” in the parties’ license agreement “remove[d]
 any imminent possibility that [AlexSam] could bring an in-
 fringement action against [MasterCard].” Id. at *5. In the
 Board’s view, MasterCard faced no “imminent” threat of in-
 fringement, and thus had no standing to petition for CBM
 review under § 42.302(a).
      In July 2018, MasterCard moved for summary judg-
 ment in the district court, asserting that AlexSam’s argu-
 ments to the Board regarding the covenant not to sue and
 MasterCard’s standing to petition for CBM review judi-
 cially estopped AlexSam from pursuing its breach of con-
 tract claim against MasterCard. In MasterCard’s view,
 because AlexSam argued that the breadth of the covenant
 not to sue removed any threat of a suit for patent infringe-
 ment (thus depriving MasterCard of standing to petition
 for CBM review), AlexSam’s decision to press forward with
 its breach of contract claim and claim for royalties despite
 the breadth of the covenant amounted to an inconsistent
 position warranting judicial estoppel.

 (P.T.A.B. Sept. 21, 2017). For brevity, we cite only the de-
 cision denying institution for the ’787 patent.
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 MASTERCARD INTERNATIONAL INCORPORATED

     The magistrate judge recommended denying Master-
 Card’s motion for summary judgment. The district court,
 however, agreed with MasterCard and entered judgment
 dismissing AlexSam’s complaint with prejudice and dis-
 missing MasterCard’s patent-related counterclaims with-
 out prejudice. Alexsam, Inc. v. Mastercard Int’l Inc., 15-
 CV-2799 (ILG) (SMG), 2020 WL 3286785 (E.D.N.Y.
 June 17, 2020) (Judgment Op.).
    AlexSam appeals.          We have jurisdiction under
 28 U.S.C. § 1295(a)(1).
                           DISCUSSION
      We review the district court’s summary judgment un-
 der the law of the regional circuit, here the Second Circuit.
 See Convolve, Inc. v. Compaq Comput. Corp., 812 F.3d
 1313, 1317 (Fed. Cir. 2016). The Second Circuit reviews
 the grant or denial of summary judgment de novo. Ash-
 more v. CGI Grp., Inc., 923 F.3d 260, 271 (2d Cir. 2019).
 We also apply regional circuit law to questions of judicial
 estoppel. Egenera, Inc. v. Cisco Sys., Inc., 972 F.3d 1367,
 1378 (Fed. Cir. 2020). The Second Circuit reviews a “dis-
 trict court’s decision to invoke judicial estoppel . . . for
 abuse of discretion.” Ashmore, 923 F.3d at 271. “While def-
 erential, abuse of discretion review is not a rubber stamp.
 A district court may not do inequity in the name of equity.”
 Id. (quoting Clark v. All Acquisition, LLC, 886 F.3d 261,
 266 (2d Cir. 2018)). In addition, a district court’s decision
 to invoke judicial estoppel is an abuse of discretion when it
 rests on an error of law or clearly erroneous factual find-
 ings. See, e.g., id. at 277, 283.
     The Supreme Court in New Hampshire v. Maine out-
 lined several factors that “typically inform the decision
 whether to apply” judicial estoppel. 532 U.S. 742, 750
 (2001). The Second Circuit has adopted the so-called New
 Hampshire factors, explaining that “[j]udicial estoppel is
 properly invoked where: (1) a party’s later position is
 clearly inconsistent with its earlier position, and (2) the
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 8                                        ALEXSAM, INC. v.
                   MASTERCARD INTERNATIONAL INCORPORATED

 party’s former position has been adopted in some way by
 the court in an earlier proceeding.” Ashmore, 923 F.3d
 at 272 (citing New Hampshire, 532 U.S. at 750–51). The
 Second Circuit also “often, but not always, require[s] a
 showing that the party asserting the two inconsistent posi-
 tions would derive an unfair advantage against the party
 seeking estoppel.” Id. (citing New Hampshire, 532 U.S.
 at 751).
      On appeal, AlexSam argues that the district court
 abused its discretion by invoking judicial estoppel. At its
 core, AlexSam’s argument is that its position has been con-
 sistent throughout: the covenant not to sue precludes
 AlexSam from suing MasterCard for patent infringement,
 thus depriving MasterCard of standing to petition for CBM
 review and to bring declaratory judgment counterclaims of
 patent noninfringement and invalidity. At the same time,
 AlexSam contends that the covenant not to sue does not
 preclude it from suing for breach of contract and seeking
 royalties for the breach. We agree that AlexSam’s argu-
 ments have been consistent. The district court’s contrary
 finding—crediting AlexSam with a position that it never
 actually took before either the Board or district court—is
 clearly erroneous, and therefore its decision to invoke judi-
 cial estoppel was an abuse of discretion.
      In its decision, the district court stated: “When
 Alex[S]am argued before the [Board] that the covenant not
 to sue eliminates MasterCard’s standing for declaratory re-
 lief, it also necessarily took the position that the same cov-
 enant prohibits a claim for royalties under the license
 agreement.” Judgment Op., 2020 WL 3286785, at *5 (em-
 phasis added). This conclusion is wholly inconsistent with
 the record.
      In response to the Board’s request for supplemental
 briefing on the effect of the covenant, MasterCard (who
 filed its brief first) argued that AlexSam’s decision to sue
 for breach of contract voided the covenant not to sue.
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 According to MasterCard, this was so because the covenant
 was broad enough to bar AlexSam for suing for any claim
 relating to the licensed transactions arising out of the par-
 ties’ agreement, including a breach of contract claim.
 J.A. 1485–86. AlexSam pushed back on this in its respon-
 sive supplemental brief. Specifically, AlexSam argued that
 the covenant prevented AlexSam from suing for patent in-
 fringement (and only patent infringement), stating: “On
 the one hand, the [covenant] was included to provide [Mas-
 terCard] with assurance that it would not be sued for pa-
 tent infringement. On the other hand, [AlexSam] intended
 to enter into a [l]icense [a]greement and have the ability to
 enforce its terms.” J.A. 1502. Thus, AlexSam argued, the
 covenant was “further evidence” that AlexSam could not
 sue MasterCard for patent infringement. J.A. 1500; see
 also J.A. 1503 (“The [covenant not to sue] further clarifies
 that [AlexSam] cannot sue [MasterCard] for patent in-
 fringement.”). None of this supports the district court’s
 conclusion that AlexSam “necessarily took” the position
 that the covenant prohibits a claim for royalties under the
 license agreement. AlexSam argued only that the covenant
 barred it from suing MasterCard for patent infringement.
     In defense of the district court’s conclusion, Master-
 Card repeatedly quotes (without context) a single sentence
 from AlexSam’s supplemental briefing before the Board.
 According to Mastercard, this single sentence shows that
 AlexSam argued that the covenant was broad enough to
 bar it from suing for royalties. E.g., Appellee’s Br. 13, 16,
 24–28, 35. The sentence is not limited to “infringement”
 and states: “The [covenant] is also sufficient to moot a
 claim for declaratory relief.” J.A. 1501 (citing Already,
 LLC v. Nike, Inc., 568 U.S. 85, 93 (2013)). This sentence
 comes from a section of AlexSam’s supplemental brief di-
 rectly responding to what it characterized as MasterCard’s
 “misleading” arguments. MasterCard argues that this
 statement, in combination with the Supreme Court’s deci-
 sions in MedImmune and Already, shows AlexSam should
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                    MASTERCARD INTERNATIONAL INCORPORATED

 be judicially estopped from pursuing its breach of contract
 claim because it was taking inconsistent positions.
     Specifically, relying on MedImmune, MasterCard ar-
 gues that it has declaratory judgment standing to chal-
 lenge the licensed patents (either in district court or by
 petitioning for CBM review), Appellee’s Br. 23–24, and that
 AlexSam can defeat that standing only by “moot[ing]” Mas-
 terCard’s declaratory claim, id. at 25–26. According to
 MasterCard, AlexSam attempted to do just that, likening
 the covenant not to sue in the license agreement to the cov-
 enant at issue in Already.          As MasterCard put it:
 “Alex[S]am’s PTAB argument presented a broad, uncondi-
 tional and irrevocable covenant not to sue – as was the case
 in Already – broad enough to prohibit Alex[S]am from
 bringing any claim or making any demand against Mas-
 ter[C]ard related to its IP, i.e., for disputed patent royal-
 ties.” Id. at 26. MasterCard argues that because it would
 have declaratory judgment standing under MedImmune in
 the absence of AlexSam’s assertion that the covenant was
 broad enough under Already to “moot a claim for declara-
 tory relief,” J.A. 1501, AlexSam’s assertion amounted to
 taking a position that would estop it from pursuing its roy-
 alty claims. See id. at 35 (“[B]y arguing that the . . . cove-
 nant was ‘sufficient to moot a claim for declaratory relief,’
 Alex[S]am could not collect disputed royalties.”)
     The problem with MasterCard’s argument is that it
 reads too much into a single sentence, stripping it of any
 context. Here’s that same sentence in context:
      The payment of royalties is Petitioner’s obligation
      under the License Agreement – not a condition of
      the [covenant]. Petitioner’s intentional, and admit-
      ted, refusal to pay royalties it owes supports a
      claim for breach, not patent infringement. Fur-
      ther, the [covenant] provides no explicit means for
      its revocation. The [covenant] also is sufficient to
      moot a claim for declaratory relief. . . . The facts do
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 MASTERCARD INTERNATIONAL INCORPORATED

     not support the conclusion that the [covenant] was,
     or could be, revoked by the filing of Patent Owner’s
     breach of contract claim. Finally, Petitioner con-
     tends that the [covenant] is both “not uncondi-
     tional” and “void and not irrevocable.” Petitioner
     provides no evidence or support for its position that
     the parties intended the [covenant] to be condi-
     tional or revocable. Petitioner simply lacks stand-
     ing and its attempts to manufacture it are wrong.
     Petitioner has not been sued for infringement and
     the [covenant] is further evidence that Patent
     Owner cannot sue Petitioner, who is a licensee, for
     infringement.
 J.A. 1501–02 (citation omitted) (emphasis altered). Read-
 ing this sentence in context, it is abundantly clear that
 AlexSam was continuing to argue only that the covenant
 precluded a claim for patent infringement, a position which
 the Board adopted and which AlexSam maintained in dis-
 trict court. AlexSam did not argue that the covenant also
 precluded its breach of contract claim. The district court’s
 finding to the contrary was clearly erroneous.
     As such, the district court’s conclusion that AlexSam
 “necessarily took” an inconsistent position was clearly er-
 roneous in view of the record, and accordingly its invoca-
 tion of judicial estoppel was an abuse of discretion. 3

     3   To be sure, the district court may be entirely cor-
 rect that the broadly worded covenant not to sue “prohibits
 a claim for royalties under the license agreement.” Judg-
 ment Op., 2020 WL 3286785, at *5. But that question—one
 which requires contract interpretation under the applica-
 ble law—is not before us. Indeed, the district court has not
 had briefing or the opportunity to consider this unresolved
 question but can do so on remand. All we decide today is
 that the district court erred in crediting AlexSam with a
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                   MASTERCARD INTERNATIONAL INCORPORATED

                        CONCLUSION
      We have considered the parties’ remaining arguments
 and find them unpersuasive. 4 For the above reasons, we
 agree with AlexSam that the district court abused its dis-
 cretion by invoking judicial estoppel based on an erroneous
 fact finding unsupported by the record. We therefore re-
 verse the district court’s summary judgment and remand
 for further proceedings.
                REVERSED AND REMANDED

 position it never took, thus abusing its discretion in invok-
 ing judicial estoppel.
      4   We specifically note that AlexSam argues on ap-
 peal that it was improper for the district court to construe
 the claims of the licensed patents prior to determining
 whether MasterCard breached the terms of the license
 agreement. We disagree. The license specifically defines
 licensed transactions as those “covered” by one of the li-
 censed patents. J.A. 200 ¶ 1.3. The district court correctly
 determined that claim construction was a necessary pre-
 requisite for determining whether any alleged transaction
 was a licensed transaction for which MasterCard owed roy-
 alties. We are not, however, reviewing the legal question
 of claim construction, which may affect the amount of roy-
 alties MasterCard owes as well as the validity of the li-
 censed patents. Because this appeal is focused on the
 threshold issue of whether AlexSam can bring its suit in
 the first instance, the question of claim construction is not
 subject to interlocutory review.