Accused Card Activation Systems Deemed To Infringe As Sanction For Discovery Violations

In Alexsam, Inc. v. IDT Corp., Nos. 12-1063, -1064 (Fed. Cir. May 20, 2013), the Federal Circuit affirmed that claims 57 and 58 of U.S. Patent No. 6,000,608 ("the '608 patent") are not invalid. The Court reversed the jury's finding that IDT Corporation's ("IDT") Walgreens and EWI card activation systems infringed those claims, but affirmed that certain miscellaneous IDT systems infringed based on the district court's discovery sanctions. On cross-appeal, the Court affirmed that IDT's SafeNet systems did not infringe based on the license defense.

Claims 57 and 58 of the '608 patent recite a system for activating multifunction cards, such as prepaid phone cards and electronic gift cards, using a point-of-sale ("POS") terminal, such as a cash register or a free-standing credit card reader. IDT's products include phone cards and prepaid gift cards that are sold through major retail chains such as Walgreens, as well as at smaller retailers. Alexsam, Inc. ("Alexsam") owns the '608 patent and sued IDT for infringement.

After the close of discovery, Alexsam moved for sanctions under Fed. R. Civ. P. 37, alleging that IDT violated its discovery obligations by failing to disclose information suggesting that miscellaneous IDT activation systems infringed Alexsam's patents. The claims-at-issue require that the card's number include a bank identification number ("BIN"), and IDT was late in disclosing that the cards associated with the miscellaneous systems carried a BIN. The district court granted Alexsam's sanctions motion and instructed the jury at the close of trial that the miscellaneous systems infringed the asserted claims.

In addition, the district court held as a matter of law that DT's Walgreens system did not infringe claim 58. The jury found that the Walgreens system infringed claim 57, that IDT's EWI and SafeNet systems infringed both claims 57 and 58, and that neither claim was invalid. After trial, the district court granted IDT's motion for judgment of noninfringement with respect to the SafeNet system, concluding it was licensed under an agreement between Alexsam and MasterCard. The SafeNet system sent activation data first to a bank computer and then to IDT by way of a network maintained by MasterCard. The district court reduced the jury's award of reasonable royalties by subtracting royalties for the SafeNet system activations.

On appeal, IDT argued that Alexsam failed to present substantial evidence that the Walgreens and EWI systems...