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ePlus, Inc. v. Lawson Software, Inc.

United States Court of Appeals, Federal Circuit

July 25, 2014

EPLUS, INC., Plaintiff-Appellee,
v.
LAWSON SOFTWARE, INC., Defendant-Appellant

Appeals from the United States District Court for the Eastern District of Virginia in No. 09-CV-0620, Senior Judge Robert E. Payne.

MICHAEL G. STRAPP, Goodwin Procter LLP, of Boston, Massachusetts, argued for plaintiff-appellee. With him on the brief were JENNIFER A. ALBERT and DAVID M. YOUNG, of Washington, DC.

MARK A. PERRY, Gibson, Dunn & Crutcher, LLP, of Washington, DC, argued for defendant-appellant. With him on the brief were BLAINE H. EVANSON; and JOSH A. KREVITT, DANIEL J. THOMASCH, RICHARD W. MARK, of New York, New York. Of counsel on the brief were DONALD R. DUNNER and ERIKA H. ARNER, Finnegan, Henderson, Farabow, Garrett & Dunner LLP, of Washington, DC.

Before, PROST, Chief Judge,[*] DYK and O'MALLEY, Circuit Judges. OPINION filed by Circuit Judge DYK. Dissenting opinion filed by Circuit Judge O'Malley. O'MALLEY, Circuit Judge, dissenting.

OPINION

Page 1351

Dyk, Circuit Judge.

ePlus, Inc. (" ePlus" ), the assignee of U.S. Patent Nos. 6,023,683 (the " '683 patent" ) and 6,505,172 (the " '172 patent" ),

Page 1352

sued Lawson Software, Inc. (" Lawson" ) for infringement. The district court found two of the asserted system claims and three of the asserted method claims not invalid, and a jury found that Lawson infringed those claims. In an earlier appeal, we reversed in part on the ground that the system claims were invalid and that two of the asserted method claims were not infringed. We affirmed only the infringement verdict as to one method claim--claim 26--of the '683 patent. We remanded to the district court to make necessary modifications to the injunction.

On remand, the district court modified the injunction in one respect and found Lawson in civil contempt for violating the injunction. Lawson appealed both the injunction and contempt order. During the pendency of Lawson's appeals, the United States Patent and Trademark Office (" PTO" ) completed a reexamination of the '683 patent and determined that claim 26 was invalid. In a separate appeal, we affirmed the PTO's invalidity determination, and the PTO cancelled claim 26. We now vacate the injunction and contempt order because both were based on claim 26, which the PTO has now cancelled.

Background

This case raises two issues. The first is whether an injunction can continue after the PTO has cancelled the only claim on which the injunction was based. The second is whether civil contempt remedies based on the violation of an injunction are appropriate when the injunction has been overturned on direct appeal.

I

ePlus owns the '172 patent and the '683 patent, which both relate to methods and systems for electronic sourcing. See ePlus v. Lawson, 700 F.3d 509, 512 (Fed. Cir. 2012) (" ePlus I" ). The claimed methods and systems are directed to using electronic databases to search for product information and ordering selected products from third-party vendors. The only claim now at issue in this appeal, claim 26 of the '683 patent, recites a " method comprising the steps of" : " maintaining at least two product catalogs on a database," " selecting product catalogs to search," " searching for matching items," " building a requisition," " processing the requisition to generate one or more purchase orders," and " determining whether a selected matching item is available in inventory." '683 patent col. 26 l. 61 to col. 27 l. 7.

In 2009, ePlus sued Lawson for infringement of the '683 patent and the '172 patent in the Eastern District of Virginia.[1] Lawson sells computer software to institutional customers. Its products are modular--customers decide which individual software components to purchase based on their needs. As a result, different customers use different combinations, or configurations, of software modules. The different configurations generally let users search for, select, and order products electronically, but the nature and extent of those capabilities vary depending on the particular modules a customer selects. When ePlus sued Lawson, the basic software component (" Core Procurement" ) allowed users to load products into an internal database (" Item Master" ), search that database for products, create a requisition listing multiple selected products, and generate individual purchase orders to transmit to vendors. Requisition Self-Service

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(" RSS" ) was a module that provided a user interface for the Core Procurement unit. The Procurement Punchout module (" Punchout" ) let users search third-party vendors' databases for products and put those vendors' products on requisitions along with products stored in the internal Item Master database.

Given the modular nature of Lawson's products, ePlus asserted different patent claims against five distinct configurations of software modules (" Configurations 1-5" ). With respect to the asserted claims of the '683 patent and the '172 patent, the jury found that three of the five accused configurations infringed. Configurations 3 and 5 were found to infringe two system claims (claim 1 of the '172 patent and claim 3 of the '683 patent) and three method claims (claims 26, 28, and 29 of the '683 patent). Configuration 2 was found to infringe one system claim (claim 1 of the '172 patent). Configurations 1 and 4 were found not to infringe any of the claims asserted against them.

Pursuant to the jury verdicts, the district court permanently enjoined Lawson from

directly or indirectly making, using, offering to sell, or selling within the United States or importing into the United States any of the [adjudged infringing] product configurations and/or installation, implementation, design, configuration, consulting, upgrade, maintenance and support and training and other related and associated services and any colorable variations thereof (the " Infringing Products and Services" ).

J.A. 4263. The court defined the " Infringing Products and Services" to include the three software configurations (Configurations 2, 3, and 5) adjudged infringing by the jury. The court also enjoined Lawson from " [c]irculating, publishing or disseminating within the United States any literature or information that encourages the use, sale or importation of any of the Infringing Products and Services," and from " [a]iding and abetting, actively inducing, or in any way contributing to the making, use, sale or importation of any of the Infringing Products and Services." J.A. 4264. Lawson appealed.

On this first appeal, we determined that the two asserted system claims (claim 1 of the '172 patent and claim 3 of the '683 patent) were invalid, and that two of the three asserted method claims (claims 28 and 29 of the '683 patent) were not infringed. We affirmed only the infringement finding as to method claim 26. Only Configurations 3 and 5 were found to infringe that claim. As a result of our holding on appeal, Configuration 2 was no longer infringing. We remanded " for the district court to consider what changes are required to the terms of the injunction, consistent with this opinion." ePlus I, 700 F.3d at 523.

After our ruling, the district court ordered the parties to file statements of position on the effect of our decision on the injunction. These were filed before Lawson's Rule 60(b) motion discussed below. Most importantly, Lawson challenged the very provisions of the injunction that led to the contempt sanctions sought by ePlus--namely, the bar against sales of particular software products. Originally, these provisions concerning software sales were supported by the jury's findings of infringement of the system claims (claim 1 of the '172 patent and claim 3 of the '683

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patent).[2] After our decision vacated those findings, Lawson argued that infringement of a single method claim (claim 26 of the '683 patent) could not support the injunction against product sales (and hence, contempt sanctions based on such sales) and that our opinion distinguished " sales" of software from " installation" and other services provided to customers.[3] This court upheld the finding of induced infringement of claim 26 not based on sales, but based on Lawson's providing customer services, including software installation, demonstrations, and maintenance.[4] Lawson also urged that, in light of this court's narrowing of the jury's infringement findings, the enjoined software products were capable of significant non-infringing uses and sales of such software should not be enjoined. Additionally, Lawson argued that under eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 126 S.Ct. 1837, 164 L.Ed.2d 641 (2006), the balancing of equities no longer supported any injunction. ePlus argued that the only modification required was the removal of Configuration 2 from the list of enjoined products. Lawson thereafter filed a Rule 60(b) motion to modify the injunction.

The district court agreed with ePlus's position and ordered that the injunction be " modified by deleting from its scope the product . . . colloquially known as 'Configuration 2,'" and " remain in effect in all other respects." J.A. 1.

On remand, in addition to reconsidering the injunction, the district court also instituted contempt proceedings. Following the jury verdicts, Lawson had decommissioned and stopped selling products with RSS, the user interface module for Core Procurement, the basic building block of Lawson's system. Lawson had also redesigned its software in two pertinent respects. First, it redesigned Configurations 3, and 5 by developing a new module, Requisition Center (" RQC" ) to replace the RSS user interface module. As redesigned, RQC prevented a user from simultaneously putting items from both the internal Item Master database and a third-party vendor's database (accessible via Punchout) on the same requisition. Second, Lawson redesigned Configurations 3 and 5 by developing downloadable software (" Patch 1" ) that limited the functionality of Punchout in Configurations 3 and 5. As modified by Patch 1, those configurations no longer allowed users to put items from multiple third-party vendors on the same requisition when using Punchout. As a result, users could only build requisitions with products from the internal Item Master database or from a single third-party database.

Page 1355

ePlus alleged that Lawson was in contempt for violating the injunction with respect to the redesigned software, arguing that the changes did not make the software more than colorably different from Configurations 3 and 5, and that the redesigned software infringed claim 26. Lawson argued that it was not violating the injunction because the redesigned software was more than colorably different from the originally accused software and that ePlus could not show that the redesigned software continued to infringe claim 26. The court held Lawson in contempt for violating the injunction, finding that the redesigned products were no more than colorably different and infringed. The court ordered Lawson to pay a compensatory fine of $18,167,950 and coercive daily fines of $62,362 until it could show compliance with the injunction. It declined to award enhanced damages or attorneys' fees. Lawson appealed the district court's modified injunction and contempt order. We stayed the accumulation of fines during the pendency of the appeals.

While Lawson's appeals were pending, in another case, we affirmed the PTO's reexamination decision invalidating claim 26 of the '683 patent. In re ePlus, Inc., 540 F.App'x 998 (Fed. Cir. 2013) (per curiam). Our mandate issued, and the PTO cancelled claim 26 in April 2014.

We have jurisdiction over the appeal of the injunction pursuant to 28 U.S.C. § 1292(a)(1) & (c)(1) and over the appeal of the contempt order pursuant to 28 U.S.C § 1291. We review a grant, denial, or modification of an injunction in a patent case for abuse of discretion. Int'l Rectifier Corp. v. Samsung Elecs. Co., 361 F.3d 1355, 1359 (Fed. Cir. 2004) (citing Carborundum Co. v. Molten Metal Equip. Innovations, Inc., 72 F.3d 872, 881 (Fed. Cir. 1995)). We review a contempt order based on an injunction against infringement for abuse of ...


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