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PICKHOLTZ v. RAINBOW TECHNOLOGIES

May 1, 2003

ANDREW PICKHOLTZ, PLAINTIFF,
v.
RAINBOW TECHNOLOGIES, INC.; SOFTWARE SECURITY, INC., AND DOES 1-10., DEFENDANTS.



The opinion of the court was delivered by: Charles R. Breyer, United States District Judge

MEMORANDUM AND ORDER

This suit involves the alleged infringement by defendants Rainbow Technologies, Inc. and Software Security, Inc. ("Rainbow") of U.S. Patent No. 4,593,353 ("the `353 patent") owned by plaintiff Andrew Pickholtz. Now before the Court is Rainbow's motion for summary judgment of non-infringement and Rainbow's motion for partial summary judgment regarding damages.

The `353 patent relates to a device used to protect against unauthorized access to computer software. The device includes a pseudorandom number ("PRN") generator that, when sent a first number, returns a second number. The second number is determined by an algorithm contained within the PRN generator; however, it appears random. The computer software to be protected is associated with two authorization codes stored on a memory device. One of the codes is sent to the PRN generator. The resulting number returned from the PRN generator is then compared with the second code. The number must match the second authorization code in order for access to the protected software to be allowed.

Rainbow sells several products for protecting access to computer software. Some of the products are only software based, meaning no additional hardware is required. Other products include a hardware key known as a "dongle" that plugs into one of the computer's external ports. Mr. Pickholtz alleges that these dongles contain a PRN generator and operate as claimed in the `353 patent.

Previously, Rainbow moved for summary judgment of non-infringement and Mr. Pickholtz cross-moved for summary judgment of infringement. This Court granted Rainbow's motion and denied Mr. Pickholtz's motion. Pickholtz v. Rainbow Techs. Inc., 125 F. Supp.2d 1156 (N.D. Cal. 2000). Mr. Pickholtz appealed. The Federal Circuit reversed the grant of Rainbow's motion on the grounds that the term "computer" had been misconstrued. Pickholtz v. Rainbow Techs. Inc., 284 F.3d 1365 (Fed. Cir. 2002). This Court had held that the term "computer" did not include peripherals. The Federal Circuit held that peripherals directly connected to the CPU circuit board within a reasonable proximity to the CPU and main memory were included in the meaning of "computer." They specifically held that Rainbow's dongles satisfy this requirement. Rainbow now brings a second motion for summary judgment of non-infringement.

DISCUSSION

I. Summary Judgment Standard

Summary judgment is appropriate when the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). An issue is "genuine" only if there is sufficient evidence for a reasonable fact finder to find for the non-moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986). A fact is "material" if the fact may affect the outcome of the case. See id. at 248. "In considering a motion for summary judgment, the court may not weigh the evidence or make credibility determinations, and is required to draw all inferences in a light most favorable to the non-moving party." Freeman v. Arpaio, 125 F.3d 732, 735 (9th Cir. 1997). A principal purpose of the summary judgment procedure is to identify and dispose of factually unsupported claims. See Celotex Corp. v. Cattrett, 477 U.S. 317, 323-24 (1986).

The party moving for summary judgment bears the initial burden of identifying those portions of the pleadings, discovery, and affidavits that demonstrate the absence of a genuine issue of material fact. See id. at 323. Where the moving party will have the burden of proof on an issue at trial, it must affirmatively demonstrate that no reasonable trier of fact could find other than for the moving party. See id. Once the moving party meets this initial burden, the non-moving party must go beyond the pleadings and by its own evidence "set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). The non-moving party must "identify with reasonable particularity the evidence that precludes summary judgment." Keenan v. Allan, 91 F.3d 1275, 1279 (9th Cir. 1996) (quoting Richards v. Combined Ins. Co., 55 F.3d 247, 251 (7th Cir. 1995), and noting that it is not a district court's task to "scour the record in search of a genuine issue of triable fact"). If the non- moving party fails to make this showing, the moving party is entitled to judgment as a matter of law. See Celotex, 477 U.S. at 323.

II. Direct Infringement

Mr. Pickholtz alleges that Rainbow directly and indirectly infringes the `353 patent. In order for Rainbow to be liable for indirect infringement, third party users, such as Rainbow's customers, must directly infringe the patent. See Aro Mfg. Co. v. Convertible Top Replacement Co., 365 U.S. 336, 341 (1961) (Aro I). Rainbow argues that its accused devices do not directly infringe the `353 patent, either when in the possession of Rainbow or its customers. Therefore, a threshold question is whether the `353 patent is infringed by any of Rainbow's accused devices.

A. "external memory device," "means for reading," and "processing means"

Claim 1 requires the combination of a PRN device with other elements of a computer, namely, an "external memory device," a "means for reading said external memory device," and a "processing means." Rainbow argues that its dongles and associated software do not read on Claim 1 because they do not include a computer. Rainbow does not manufacture computers or sell its devices with a computer. Furthermore, Rainbow argues that Mr. Pickholtz has not presented any evidence that third party users of Rainbow's products use them with computers.

With respect to third party users, Rainbow's argument is disingenuous. Rainbow's description of its own products indicate that their dongles have no use unless they are attached to a computer. Rainbow's marketing literature indicates that its devices connect to computer ports and lists minimum computer requirements. Pickholtz Decl. Ex. 7 and 8. The Federal Circuit stated that Rainbow's dongles "externally connect to a computer port" and that "the accused device in this case . . . indisputedly connects substantially directly to the CPU circuit board." Pickholtz, 284 F.3d at 1370-1371, 1374. Infringement may be established by circumstantial evidence. In Moleculon Research Corp. v. CBS, Inc., 793 F.2d 1261, 1272 (Fed. Cir. 1986), the court held that circumstantial evidence of product sales and instructions indicating how to use the product was sufficient to prove third party direct infringement in an inducement-to-infringe claim. The court stated that "[i]f [defendant] is arguing that proof of inducing infringement or direct infringement requires direct, as opposed to circumstantial evidence, we must disagree. It is hornbook law that direct evidence of a fact is not necessary." Id. The circumstantial evidence presented by Mr. Pickholtz supports a reasonable inference that third party users of Rainbow's products use them in combination with a computer having the claimed hardware elements. See Freeman, 125 F.3d at 735. Therefore, a genuine issue of material fact exists.

With respect to direct infringement by Rainbow, Mr. Pickholtz must demonstrate that there is a genuine issue as to whether Rainbow made, used, offered to sell, or sold the combination in Claim 1. 35 U.S.C. ยง 271 (a). There is no evidence, and Mr. Pickholtz has not argued, that Rainbow sells computers with their products. Therefore, Rainbow has not sold or offered to sell the combination in Claim 1. Instead, Mr. Pickholtz argues that Rainbow has used the combination in Claim 1. To support this assertion he points to a declaration submitted by Rainbow that describes how Rainbow's dongle products connect to a computer. Pickholtz Decl. Ex. 6. Included in that declaration are photographs depicting some of Rainbow's products connected to a laptop computer. Rainbow counters that this evidence does not demonstrate that Rainbow actually used the depicted combination of computer and ...


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