Court Opinion

ID: 211007
Source: CourtListenerOpinion
Date Created: 2011-03-13 08:22:32+00
Date Added: 2024-06-11T17:28:04.139042
License: Public Domain

NOTE: Pursuant to Fed. Cir. R. 47.6, this disposition
                   is not citable as precedent. It is a public record.

 United States Court of Appeals for the Federal Circuit

                                        06-1182

                                   SAFECLICK, LLC,

                                                              Plaintiff-Appellant,
                                           v.

                VISA INTERNATIONAL SERVICE ASSOCIATION and
                              VISA U.S.A., INC.,

                                                              Defendants-Appellees.

                           __________________________

                           DECIDED: October 23, 2006
                           __________________________

Before BRYSON, Circuit Judge, CLEVENGER, Senior Circuit Judge, and GAJARSA,
Circuit Judge.

CLEVENGER, Senior Circuit Judge.

      Plaintiff-Appellant Safeclick, LLC ("Safeclick") filed this patent infringement suit

against Defendants-Appellees Visa International Service Assoc. and Visa USA, Inc.

(collectively, "Visa") on December 30, 2003, in the United States District Court for the

Northern District of California. Safeclick alleges that Visa's "Verified by Visa" service

infringes claims 6 and 7 of U.S. Patent No. 5,793,028 ("the '028 patent"). On July 19,

2005, Visa filed a motion for summary judgment of noninfringement. The motion was

granted on December 21, 2005, and judgment was thereafter entered in Visa's favor.

Safeclick appeals that judgment. We affirm.
                                              I

       The invention of the '028 patent is an "electronic transaction security system . . .

designed to substantially prevent the unauthorized use of transaction identification

codes such as credit card numbers for placing transaction requests electronically via

any suitable communication link, such as the Internet." '028 patent col.1 ll.43-48. So,

for example, when a card-holding consumer ("transactionor") wishes to make a

purchase over the Internet from an online merchant ("transactionee"), the invention

attempts to ensure that the parties to the transaction are who they purport to be.

       In order to make a verified purchase using the invention, the transactionor sends

a transaction initiation request from his or her computer to a computer operated by the

transactionee.    Before proceeding further with the transaction, the transactionee's

computer requests verification from a computer operated by an entity such as the bank

that issued the credit card ("verifier"). The verifier's computer does this by sending an

acknowledgement request to the transactionor's computer. In response, the verifier's

computer must receive a private identification code that uniquely identifies the

transactionor's computer. If the verifier's computer does not receive the code it expects,

the transaction will not be verified.

       Because claims 6 and 7 of the '028 patent are substantially similar, only claim 6

is reproduced here (with emphasis on the relevant claim limitation):

       6. A method comprising the steps of:

       transmitting a transaction initiation request requesting the initiation of an
       electronic transaction to a transactionee computer from a transactionor
       computer, the transaction initiation request including a public identification
       code uniquely identifying the transactionor computer, and a public
       identification code uniquely identifying a transactionee computer;

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      receiving by the transactionee computer the transaction initiation request;

      transmitting a verification request requesting verification of the transaction
      from the transactionee computer to a verifier computer in response to the
      transactionee computer receiving the transaction initiation request, the
      verification request including one of a private identification code and a
      public identification code uniquely identifying the transactionee computer
      and the public identification code uniquely identifying the transactionor
      computer;

      receiving the verification request by the verifier computer[;]

      transmitting an acknowledgement request requesting acknowledgement of
      the electronic transaction from the verifier computer to the transactionor
      computer in response to the verifier computer receiving the verification
      request;

      receiving the acknowledgement request by the transactionor computer;

      transmitting an acknowledgement response indicating one of a valid
      electronic transaction and an invalid electronic transaction from the
      transactionor computer to the verifier computer in response to the
      transactionor computer receiving the acknowledgement request, the
      acknowledgement response including the private identification code
      uniquely identifying the transactionor computer;

      receiving the acknowledgement response by the verifier computer;

      transmitting a verification response indicating one of a valid electronic
      transaction and an invalid electronic transaction from the verifier computer
      to the transactionee computer in response to the verifier computer
      receiving the acknowledgement response; and

      receiving the verification response by the transactionee computer and
      executing the electronic transaction in response to the transactionee
      computer receiving the verification response indicating a valid electronic
      transaction.

'028 patent col.23 l.60 – col.24 l.41 (emphasis added).

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                                            II

       More than a decade ago, Visa began development of an internet-transaction

protocol known as "3-D Secure" and marketed it under the name "Verified by Visa."

Like the invention of the '028 patent, Verified by Visa seeks to reduce fraud by verifying

the identity of an online consumer who attempts to make a purchase using a registered

Visa credit card.    The details of Visa's methodology are largely unimportant to the

present case. Suffice it to say, a consumer who attempts to make a purchase using the

Verified by Visa system must enter a password into his or her computer and send it to

the card-issuing bank's "Access Control Server" ("ACS"). Before that password is sent,

however, it goes through a process called "Secure Socket Layer" ("SSL") encryption.

The SSL protocol enables the two communicating computers to generate a secret key

for use during the communication session.         If the transmitted information is not

encrypted using this key, then the receiver will be unable to decrypt the information.

Consequently, the password sent from the consumer to the ACS must be the correct

password, and it must have been encrypted using the appropriate key. Upon its receipt

of the encrypted password, the ACS decrypts the password and cross references it with

the password on file. If the message containing the password cannot be decrypted—

indicating a possibility that it may have been changed accidentally or deliberately in

transit—or if the decrypted password does not match the one on file, then the

transaction will not be verified.

                                            III

       In the proceedings below, the district court construed "private identification code

uniquely identifying the transactionor computer" as "a nonpublic code that singularly

06-1182                                 4
identifies the computer used by the transactionor, but not only the transactionor himself

or herself." Within thirty days after the issuance of that order, Safeclick was permitted,

pursuant to the Northern District of California's Patent Local Rules, to serve Visa with its

Final Infringement Contentions (to replace its Preliminary Infringement Contentions,

discussed infra) in the form of "[a] chart identifying specifically where each element of

each asserted claim is found within each Accused Instrumentality." Patent Local Rules

3-1(c) and 3-6(a). Safeclick took advantage of the opportunity and timely served Visa

with a chart in which it is asserted that

       The private identification code uniquely identifying the cardholder
       computer is the authenticating information entered by the cardholder,
       which includes the cardholder's password, and, in some case[s], a
       personal identification statement.

(JA at A02948.)

       Visa subsequently filed a motion for summary judgment of noninfringement,

arguing that there could be no literal infringement because Safeclick had not adduced

any evidence that Verified by Visa meets the "private identification code" limitation as

construed by the court. Safeclick answered with a detailed explanation of its theory:

              In Verified by Visa, the cardholder enters a password into his or her
       computer to verify his or her identity. Before the cardholder sends the
       password, the cardholder computer and issuing bank computer (Access
       Control Server, or ACS) share a unique cryptographic key. (Tsudik Decl.
       ¶¶ 10-11) The cardholder computer uses this unique key to scramble, or
       encrypt, the typed-in password so that only the verifier computer can read
       the encrypted password. (Id. ¶ 11) This encrypted password is then sent
       to the ACS for authentication. (Visa Br. 11-12) The Verified by Visa
       password is a "private identification code" as defined by the Court. It is
       undisputedly "nonpublic" because it is not known to the merchant, and
       thus is not known to all of the parties to the transaction. (Tsudik Decl. ¶¶
       13 [sic, ¶ ]; Dominguez Dep. 133:18-25[;] Mortara Decl. Ex. 5) And this
       Verified by Visa password singularly identifies the cardholder computer
       because the ACS cannot successfully process the encrypted data unless
       it comes from the cardholder computer. (Tsudik Decl. ¶ 11)

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(JA at A03395) (footnote omitted). Visa objected to this theory of infringement under

Patent Local Rule 3-6(a) because it was, in Visa's opinion, a theory that had not been

set forth in Safeclick's Final Infringement Contentions. Specifically, Visa characterized

Safeclick's new theory that the encrypted version of the cardholder's password satisfies

the "private identification code" limitation as being materially different than Safeclick's

previous theory that the plaintext version of the cardholder's password (i.e., the

password "entered by the cardholder") satisfies that limitation. Accordingly, Visa, in its

reply, urged the court to preclude Safeclick from proceeding with its new theory.

Although the court entertained additional briefing on this issue, at no time did Safeclick

seek leave to amend its Final Infringement Contentions. See Patent Local Rule 3-7

(permitting amendment for good cause shown).

       The district court considered the summary judgment motion on the papers and

concluded that Safeclick had in fact violated the local rules by deviating from its Final

Infringement Contentions. In the court's view, Safeclick's old theory of infringement

only required the password entered by the cardholder to singularly identify the

transactionor computer, whereas Safeclick's new theory of infringement requires both

the password entered by the cardholder and the encryption information to singularly

identify the transactionor computer. In other words, "it is the entry and the sending of

[the password] in the manner that Visa has chosen that identifies the cardholder

computer." Safeclick, LLC v. Visa U.S.A., Inc., No. C 03-5865, slip op. at 15 (N.D. Cal.

Dec. 21, 2005) (emphasis in original).         Thus, the district court refused to consider

Safeclick's new theory, and summary judgment was granted in Visa's favor. On appeal,

Safeclick urges this court to find that the district court abused its discretion.

06-1182                                    6
                                            IV

      The Northern District of California, like every other district court, has its own set

of local rules for litigants. However, presumably due to the volume of patent cases

brought there, the Northern District also has a special set of Patent Local Rules.

Pursuant to those rules, a party claiming patent infringement—generally the plaintiff—

must provide the following:

              Not later than 10 days after the Initial Case Management
      Conference, a party claiming patent infringement must serve on all parties
      a "Disclosure of Asserted Claims and Preliminary Infringement
      Contentions." Separately for each opposing party, the "Disclosure of
      Asserted Claims and Preliminary Infringement Contentions" shall contain
      the following information:
      ...
              (c) A chart identifying specifically where each element of each
      asserted claim is found within each Accused Instrumentality, including for
      each element that such party contends is governed by 35 U.S.C. § 112(6),
      the identity of the structure(s), act(s), or material(s) in the Accused
      Instrumentality that performs the claimed function;

               (d) Whether each element of each asserted claim is claimed to be
      literally present or present under the doctrine of equivalents in the
      Accused Instrumentality[.]

Patent Local Rule 3-1.

      The plaintiff is not locked into these Preliminary Infringement Contentions.

The Patent Local Rules allow for amendment in two ways:

             If a party claiming patent infringement believes in good faith that
      (1) the Court's Claim Construction Ruling or (2) the documents produced
      pursuant to Patent L.R. 3-4 so requires, not later than 30 days after
      service by the Court of its Claim Construction Ruling, that party may serve
      "Final Infringement Contentions" without leave of court that amend its
      "Preliminary Infringement Contentions" with respect to the information
      required by Patent L.R. 3-1(c) and (d).

Patent Local Rule 3-6(a).

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            Amendment or modification of the Preliminary or Final Infringement
      Contentions or the Preliminary or Final Invalidity Contentions, other than
      as expressly permitted in Patent L.R. 3-6, may be made only by order of
      the Court, which shall be entered only upon a showing of good cause.

Patent Local Rule 3-7.

      Our standard of review for a district court's application of such rules is very

deferential. In Genentech, Inc. v. Amgen, Inc., we stated:

      "[U]nlike the liberal policy for amending pleadings, the philosophy behind
      amending claim charts . . . is decidedly conservative and designed to
      prevent the 'shifting sands' approach to claim construction." Atmel
      Corp. v. Info. Storage Devices, Inc., 1998 U.S. Dist. LEXIS 17564, 1998
      WL 775115, at *2 (N.D. Cal. Nov. 5, 1998). Furthermore, this court defers
      to the district court when interpreting and enforcing local rules so as not to
      frustrate local attempts to manage patent cases according to prescribed
      guidelines. In reviewing a district court's exercise of discretion, this court
      determines "whether (1) the decision was clearly unreasonable, arbitrary,
      or fanciful; (2) the decision was based on an erroneous conclusion of law;
      (3) the court's findings were clearly erroneous; or (4) the record contains
      no evidence upon which the court rationally could have based its
      decision." In re Cambridge Biotech Corp., 186 F.3d 1356, 1369, 51
      USPQ2d 1321, 1329 (Fed. Cir. 1999). . . . [Even where] the record
      shows ample reasons for the district court to permit [a party] to amend its
      claim chart, our standard of review on this issue does not require reversal
      in the presence of reasons to permit amendments. Even a determination
      that the district court's ruling was erroneous does not require reversal.
      Only if the ruling is found to be clearly erroneous is reversal mandated.

Genentech, 289 F.3d 761, 774 (Fed. Cir. 2002).

      Safeclick argues that the district court clearly erred in finding that "Safeclick did

not disclose the act of 'sending' the password in its Final Infringement Contentions"

because the claim language itself provides for the act of "transmitting" the private

identification code, and furthermore, because Safeclick explained in its contentions that

"the cardholder enters required authentication information and presses the 'Purchase' or

similar button in the browser window to transmit that information." Appellant's Br. at 37-

38 (emphasis amended).

06-1182                                 8
       Safeclick's argument mischaracterizes the district court's reasoning. The act of

transmitting (or sending) the information is not the part of the theory that changed after

service of the Final Infringement Contentions, but rather it was the content of what gets

transmitted (or sent) that changed.        Safeclick explained in its Final Infringement

Contentions that information entered by the user (e.g., a password) is transmitted. In

subsequent briefing, however, Safeclick went beyond the statement in its final

contentions.   It explained that the private identification code was not merely the

password entered by the user but that password as mathematically transformed for

transmission by the SSL features of the user's web browser. This new argument had

the advantage of indicating how the merchant's computer could in some sense

"identify[]" the consumer's computer as required by the claim. When the password is

considered outside its SSL wrapping, the only entity identified is the cardholder, not any

particular computer.    While it might have been reasonable for the district court to

interpret Safeclick's latest infringement contentions as a restatement of its earlier

infringement contention with a mere change of "scope and clarity," see Orion IP, LLC v.

Staples, Inc., 407 F. Supp. 2d 815 (E.D. Tex. Jan. 9, 2006), it was also reasonable for

the district court to interpret Safeclick's latest contentions as impermissibly different than

its previous contentions. Consequently, we are unable to conclude that the district court

erred by adopting one of two reasonable interpretations. See Genentech, 289 F.3d at

774 ("[Even where] the record shows ample reasons for the district court to permit [a

party] to amend its claim chart, our standard of review on this issue does not require

reversal in the presence of reasons to permit amendments.").

06-1182                                   9
       Safeclick argues in the alternative that even if it did violate the Patent Local

Rules, "a case-ending sanction is not appropriate when the opposing party suffers no

prejudice." Appellant's Br. at 42. According to Safeclick, the Patent Local Rules at

issue here are intended to supplement the disclosures required by Fed. R. Civ. P. 26,

and because it is impermissible for local rules to conflict with the Federal Rules of Civil

Procedure, the district court should have looked to Rule 37—which is the mechanism by

which courts enforce Rule 26—for the proper remedy to Safeclick's infraction. Rule 37

provides in relevant part:

               A party that without substantial justification fails to disclose
       information required by Rule 26(a) or 26(e)(1), or to amend a prior
       response to discovery as required by Rule 26(e)(2), is not, unless such
       failure is harmless, permitted to use as evidence at a trial, at a hearing, or
       on a motion any witness or information not so disclosed.

Fed. R. Civ. P. 37(c)(1) (emphasis added). Had the district court followed the mandates

of this rule, Safeclick contends that it would have been able to show that Visa was not

prejudiced by Safeclick's failure to disclose its new theory of infringement. As such, the

district court would not have struck Safeclick's theory. Safeclick further argues that the

district court was required to provide notice that it was considering striking Safeclick's

theory altogether.

       The court need not address the Rule 37 issue because Safeclick did not present

that argument to the district court. Sage Prods., Inc. v. Devon Indus., Inc., 126 F.3d

1420, 1426 (Fed. Cir. 1997) (explaining that "this court does not 'review' that which was

not presented to the district court"); Ecological Rights Found. v. Pac. Lumber Co.,

230 F.3d 1141, 1154 (9th Cir. 2000) ("It is to assure two-level consideration that issues

usually cannot be raised in appellate courts in the first instance, but instead are waived

06-1182                                  10
(or reviewed only for plain error) if not raised before the district court."). To be sure,

Safeclick did point out in its sur-reply brief that "Visa does not even allege that it

suffered prejudice in this respect." (JA at A04132.) This single sentence simply does

not suffice to show that Safeclick raised Rule 37 before this appeal.         At best, that

sentence was merely a make-weight argument to support the broader argument that

Visa was on notice of Safeclick's theory of infringement. Moreover, although we do not

decide here whether Safeclick had a duty to seek leave to amend its Final Infringement

Contentions pursuant to Patent Local Rule 3-7, we do note that Safeclick's failure to do

so was another foregone opportunity make its Rule 37 argument to the district court.

       The Ninth Circuit precedent cited by Safeclick stating that purely legal issues

may sometimes be considered for the first time on appeal is of no consequence in this

case. See, e.g., In re Am. W. Airlines, Inc., 217 F.2d 1161, 1165 (9th Cir. 2000);

Bolker v. C.I.R., 760 F.2d 1039, 1042 (9th Cir. 1985). Assuming arguendo that we

would abide by our sister circuit's precedent in this context, the question of whether

there must be a showing of prejudice (or, to be more precise, a showing of

harmlessness) is a factual issue that is not appropriate for us to resolve on appeal. The

plain language of Rule 37 requires the district court to first find that the offending party

was "without substantial justification" for its noncompliance with the discovery rules.

Although Safeclick certainly attempted to shift the blame by arguing that Visa's

discovery responses were inadequate (JA at A04132-33), the district court's written

opinion is devoid of any findings with regard to substantial justification. Therefore, it

would be inappropriate for us to make findings regarding the question of prejudice

06-1182                                  11
(harmlessness) when that highly factual issue has not been presented to, or addressed

by, the district court.

       As to Safeclick's further argument that the district court should have provided

notice that it was considering striking Safeclick's theory altogether, we disagree.

Safeclick was provided with notice. On August 26, 2005, Visa argued in its reply brief

that the district court should not consider Safeclick's latest infringement contentions for

failure to comply with the local rules. Safeclick was then given an opportunity to file a

sur-reply brief, which it did on November 8, 2005. Thus, Safeclick's claim that the

district court's action was somehow "out of the blue" is demonstrably false.

                                              V

       Accordingly, we hold that the district court did not abuse its discretion by refusing

to consider Safeclick's new infringement contention. The judgment of the district court

is affirmed.

06-1182                                  12