Netflix, Inc. v. Divx, LLC

• Court: Court of Appeals for the Federal Circuit
• Decided: March 1, 2023
• Docket: 22-1083
• Status: Unpublished

Opinion

Case: 22-1083 Document: 39 Page: 1 Filed: 03/01/2023

NOTE: This disposition is nonprecedential.

United States Court of Appeals for the Federal Circuit ______________________

NETFLIX, INC., Appellant

v.

DIVX, LLC, Appellee ______________________

2022-1083 ______________________

Appeal from the United States Patent and Trademark Office, Patent Trial and Appeal Board in No. IPR2020- 00558. ______________________

Decided: March 1, 2023 ______________________

MARK CHRISTOPHER FLEMING, Wilmer Cutler Pickering Hale and Dorr LLP, Boston, MA, argued for appellant. Also represented by LAUREN MATLOCK-COLANGELO, New York, NY; NORA N. XU, Washington, DC.

PARHAM HENDIFAR, Lowenstein & Weatherwax LLP, Santa Monica, CA, argued for appellee. Also represented by NATHAN NOBU LOWENSTEIN, KENNETH J. WEATHERWAX. ______________________

Before NEWMAN, REYNA, and TARANTO, Circuit Judges. Case: 22-1083 Document: 39 Page: 2 Filed: 03/01/2023

TARANTO, Circuit Judge. DivX, LLC owns U.S. Patent No. 10,225,588, which de- scribes and claims systems and methods for streaming me- dia. Netflix, Inc. and Hulu, LLC (petitioners) successfully sought institution of an inter partes review (IPR) to chal- lenge all claims of the ’588 patent as unpatentable for ob- viousness. In a final written decision, the Patent Trial and Appeal Board concluded that petitioners failed to prove ob- viousness because they did not demonstrate that a relevant artisan would have had a reasonable expectation of success in combining the asserted prior art to arrive at the inven- tions claimed in the ’588 patent. Petitioners appeal. Be- cause the Board legally erred in its obviousness analysis, and the error cannot be regarded as harmless, we vacate and remand. I A The patent describes streaming as “the playback of me- dia on a playback device, where the media is stored on a server and continuously sent to the playback device . . . .” ’588 patent, col. 1, lines 45–48. Media streams (e.g., audio, video, or subtitle streams) are sent to playback devices in segments, and the devices generally store a sufficient amount of received media so that playback can proceed without disruption, i.e., without interruption of playback to await receipt of the next needed portion of the media. Id., col. 1, lines 48–53. Adaptive bitrate streaming (ABS) is a form of streaming that uses diminution in quality of the media to prevent (or minimize) such disruption: When de- tected network bandwidth or other conditions indicate a constricting of possible throughput, a lower quality version of the media (requiring less data) is streamed, so that the playback continues without interruption, though at lower quality. Id., col. 1, lines 59–64. For ABS, the source media is encoded in multiple versions, each with a different bi- trate (amount of data transmitted per unit of time), and a Case: 22-1083 Document: 39 Page: 3 Filed: 03/01/2023

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playback device adjusts the stream quality by switching be- tween the different encodings depending on available re- sources, with a higher bitrate corresponding to higher quality. Id., col. 1, lines 64–67. The encoded source media is stored on a media server in one or more container files. Id., col. 2, lines 12–15. To stream media between a server and a playback device, ABS systems “typically” use Hyper- text Transfer Protocol (HTTP). Id., col. 2, lines 1–5. The ’588 patent claims systems and methods for per- forming ABS of media stored within Matroska container files using HTTP, where “frames” of the media (a relatively small segment in a hierarchy of segments) are partially en- crypted. Id., col. 1, lines 38–41; id., col. 4, lines 39–58. The patent makes clear that ABS (at least in some form), en- cryption, Matroska container files, and HTTP all pre-dated the ’588 patent. Id., col. 1, lines 59–67; id., col. 2, lines 1– 11, 35–46, 47–62. In contrast to pre-existing ABS and en- cryption systems, the patent says, “each of the alternative streams of protected video” in the ’588 patent’s claimed ABS system “includes partially encrypted video frames that are encrypted using a set of common keys.” Id., claim 1, col. 27, lines 37–40. Claim 1 is representative for present purposes: 1. A playback device for playing protected con- tent from a plurality of alternative streams, com- prising: a set of one or more processors; and a non-volatile storage containing an application for causing the set of one or more processors to per- form the steps of: obtaining a top level index file identifying a plu- rality of alternative streams of protected video, wherein each of the alternative streams of pro- tected video includes partially encrypted video frames that are encrypted using a set of common keys comprising at least one key, and wherein the Case: 22-1083 Document: 39 Page: 4 Filed: 03/01/2023

partially encrypted video frames contain encrypted portions and unencrypted portions of data; obtaining a copy of the set of common keys; detecting streaming conditions for the playback device; selecting a stream from the plurality of alterna- tive streams of protected video based on the de- tected streaming conditions; receiving a container index that provides byte ranges for portions of the selected stream of pro- tected video within an associated container file; requesting portions of the selected stream of protected video based on the provided byte ranges; locating encryption information that identifies encrypted portions of frames of video within the re- quested portions of the selected stream of protected video; decrypting each encrypted portion of the frames of video identified within the located encryption in- formation using the set of common keys; and playing back the decrypted frames of video ob- tained from the requested portions of the selected stream of protected video. Id., col. 27, lines 30–63. B On February 18, 2020, petitioners petitioned the Board to institute an IPR of all claims of the ’588 patent, asserting that the claims are unpatentable for obviousness over U.S. Patent Pub. No. 2011/0096828 (Chen) in view of U.S. Pa- tent Pub. No. 2007/0083467 (Lindahl) and U.S. Patent No. 8,683,066 (Hurst). Specifically, petitioners argued that a relevant artisan would have combined “Chen’s adaptive streaming teachings” with Lindahl’s encryption “teachings, including partial encryption and key management” and Hurst’s encryption and common key “teachings,” J.A. 11025, 11027, “to address piracy concerns and improve Case: 22-1083 Document: 39 Page: 5 Filed: 03/01/2023

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efficiency,” J.A. 11026. Petitioners also relied on another reference, U.S. Patent No. 8,243,924 (Chen-924), but only as support for the argued combination of Chen, Lindahl, and Hurst. J.A. 11027–28. Only the Board’s findings about the combination of Chen and Lindahl (the latter teaching the required partial-frame encryption) are presented for re- view in this appeal. Chen describes and claims a system (we may use the singular for present purposes) for block-request streaming using what the Board in this matter referred to as “scalable layers.” See Chen, abstract. In the Chen system, data are “organized as blocks that are transmitted and decoded as a unit, and the system is configured to provide and consume scalable blocks such that the quality of the presentation in- creases as more of the block is downloaded.” Id., ¶ 27. Chen also describes use of forward error correction (FEC) in its system. E.g., Id., ¶¶ 87–88. Before describing the asserted inventive system, Chen discusses already-existing ABS technology, including HTTP streaming, with the fol- lowing features: video is “encoded at multiple bitrates to form different versions” and “broken into smaller pieces . . . to form segments”; client devices request individual media segments, spliced together after receipt; and client devices “switch to different data rates based on available band- width” or other triggers, such as “buffer occupancy and net- work measurements, for example. ” Id., ¶¶ 63–64. Lindahl discloses partially encrypting media data us- ing “one or more encryption keys when encrypting each block” of data. Lindahl, abstract, ¶ 54. It teaches that a user may “receive a global key” for accessing the encrypted media. Id., ¶ 64; see id., ¶ 66. And it discloses partial en- cryption of frames. Id., ¶¶ 55–56, 61; Figures 5A–5C. Chen-924 (not one of the three references asserted as the combination that would have been obvious to a skilled artisan) describes ABS with partial frame encryption using various container file formats (none of which are the Case: 22-1083 Document: 39 Page: 6 Filed: 03/01/2023

Matroska file format). Chen-924, col. 1, lines 21–27; id., col. 2, line 66, through col. 3, line 6. The Chen-924 stream- ing system may “be configured and arranged to monitor network conditions over which the container is received and dynamically modify the downloading based on some predefined criteria of the network conditions.” Id., col. 14, lines 61–65. In the Chen-924 system, “encryption may be selectively applied to at least a portion of a video . . . stream . . . of the real-time streamed, progressively, or adaptively downloaded container . . . . Selective encryption may fur- ther include selectively encrypting at least a portion of [a frame] . . . within the container stream.” Id., col. 6, lines 1–9. The Board, in its final written decision, concluded that petitioners had not shown unpatentability of any of the claims. Netflix, Inc. v. DivX, LLC, 2021 WL 3729361, at *11 (P.T.A.B. Aug. 23, 2021). From the outset, the Board characterized petitioners as arguing for a combination of “the teachings of Lindahl and Hurst with Chen, such that the [digital rights management] processes, including par- tial encryption and key management, of Lindahl and Hurst, would have been employed in Chen’s adaptive streaming system.” Id. at *5 (emphasis added). The Board determined that petitioners “sufficiently established that an ordinarily skilled artisan would have had some motiva- tion to combine the teachings of Chen, Lindahl, and Hurst,” but that their “obviousness showing does not sufficiently demonstrate that one of ordinary skill in the art would have had a reasonable expectation of success, in view of all of the disclosure and teachings of Chen and Lindahl,” of making the combination with Chen’s “system” the Board was analyzing. Id. at *6. Specifically, the Board found that at least the scalability feature of the Chen system was in- compatible with Lindahl’s partial frame encryption and, with no showing of why a relevant artisan would imple- ment the Chen system without at least scalability, petition- ers failed to demonstrate a reasonable expectation of Case: 22-1083 Document: 39 Page: 7 Filed: 03/01/2023

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success in “integrating partial frame encryption aspects of Lindahl, into Chen’s system that may utilize scalable lay- ers and FEC processes.” Id. at *10; see id. at *9–10. The Board also concluded that the need to modify standard file formats casts enough doubt (in particular, “significant doubt”) on “the efficacy of combining” Chen and Lindahl to defeat a conclusion of reasonable expectation of success in “combining the cited aspects of Lindahl into Chen’s sys- tem.” Id. at *10. Petitioners timely appealed. We have jurisdiction un- der 28 U.S.C. § 1295(a)(4)(A). II The parties in this case accept a familiar framework for proving obviousness. Under that framework, a challenger asserting obviousness based on a combination of prior-art references must demonstrate “‘that a skilled artisan would have been motivated to combine the teachings of the prior art references to achieve the claimed invention, and that the skilled artisan would have had a reasonable expecta- tion of success in doing so.’” Procter & Gamble Co. v. Teva Pharmaceuticals USA, Inc., 566 F.3d 989, 994 (Fed. Cir. 2009) (quoting Pfizer, Inc. v. Apotex, Inc., 480 F.3d 1348, 1361 (Fed. Cir. 2007)). There is a “clear distinction in our case law between a patent challenger’s burden to prove that a skilled artisan would have been motivated to com- bine prior art references and the additional requirement that the patent challenger also prove that the skilled arti- san would have had a reasonable expectation of success- fully achieving the claimed invention from the combination.” Eli Lilly & Co. v. Teva Pharmaceuticals In- ternational GmbH, 8 F.4th 1331, 1344 (Fed. Cir. 2021). Obviousness is an issue of law decided in light of nu- merous facts, with the ultimate issue and what legal stand- ards apply to be decided de novo on appeal and the fact- finding tribunal’s findings on underlying facts reviewed for substantial-evidence support. PersonalWeb Technologies, Case: 22-1083 Document: 39 Page: 8 Filed: 03/01/2023

LLC v. Apple, Inc., 917 F.3d 1376, 1381 (Fed. Cir. 2019); Belden Inc. v. Berk-Tek LLC, 805 F.3d 1064, 1073 (Fed. Cir. 2015). Whether a skilled artisan had a motivation to com- bine references in the way required to achieve the claimed invention and would have had a reasonable expectation of success in doing so are factual issues. PAR Pharmaceuti- cal, Inc. v. TWI Pharmaceuticals, Inc., 773 F.3d 1186, 1196 (Fed. Cir. 2014). “Substantial evidence review asks ‘whether a reasonable fact finder could have arrived at the agency’s decision and requires examination of the record as a whole, taking into account evidence that both justifies and detracts from an agency’s decision.’” Intelligent Bio- Systems, Inc. v. Illumina Cambridge Ltd., 821 F.3d 1359, 1366 (Fed. Cir. 2016) (quoting In re Gartside, 203 F.3d 1305, 1312 (Fed. Cir. 2000)). The Board in this case rejected petitioners’ obviousness challenge because it found no proof that a relevant artisan would have had a reasonable expectation of success in com- bining Lindahl with the Chen “system.” Petitioners, in ap- pealing that conclusion, do not argue that substantial evidence is lacking to support the Board’s finding of no proven reasonable expectation of success of the combina- tion with Chen’s “system.” Rather, they contend that the Board committed a fundamental legal error in defining the combination it was evaluating as Lindahl with Chen’s “sys- tem,” i.e., with the system Chen teaches as its advance over the prior art (its inventive system). We agree with peti- tioners that the Board committed this legal error. And we conclude that the error was prejudicial, so we vacate the Board’s decision and remand. Case: 22-1083 Document: 39 Page: 9 Filed: 03/01/2023

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A Two legal principles are key to petitioners’ appeal. First, in an IPR, “the petitioner’s contentions . . . define the scope of the litigation all the way from institution through to conclusion.” SAS Institute, Inc. v. Iancu, 138 S. Ct. 1348, 1357 (2018). Second, a prior-art reference “must be consid- ered for everything it teaches by way of technology and is not limited to the particular invention it is describing and attempting to protect.” EWP Corp. v. Reliance Universal Inc., 755 F.2d 898, 907 (Fed. Cir. 1985); see also Belden, 805 F.3d at 1076 (same); In re Applied Materials, Inc., 692 F.3d 1289, 1298 (Fed. Cir. 2012) (“A reference must be consid- ered for everything that it teaches, not simply the de- scribed invention or a preferred embodiment.”); In re Kahn, 441 F.3d 977, 990 (Fed. Cir. 2006) (“[T]he teaching of the . . . reference is not limited to the specific invention dis- closed.”); In re Heck, 699 F.2d 1331, 1333 (Fed. Cir. 1983) (“The use of patents as references is not limited to what the patentees describe as their own inventions or to the prob- lems with which they are concerned. They are part of the literature of the art, relevant for all they contain.” (internal quotation marks omitted) (quoting In re Lemelson, 397 F.2d 1006, 1009 (C.C.P.A. 1968))); In re Boe, 355 F.2d 961, 965 (C.C.P.A. 1966) (“All of the disclosures in a reference must be evaluated for what they fairly teach one of ordi- nary skill in the art.”). The Board violated those principles in its ruling in this matter. The Board relied for its ruling on a combination of Lindahl with Chen’s “system,” i.e., what Chen said was the inventive advance described and claimed, rather than a combination of Lindahl with disclosures in Chen of back- ground art. But in their petition, petitioners argued that a relevant artisan would have combined Lindahl (and Hurst) with Chen’s “teachings,” and they pointed to the portions in Chen describing pre-Chen art, without scalability or FEC features that were part of what Chen describes as as- pects of its own inventive system. See, e.g., J.A. 11025 Case: 22-1083 Document: 39 Page: 10 Filed: 03/01/2023

(“Chen’s adaptive streaming teachings”); J.A. 11026 (“The teachings of Chen relied on here”); J.A. 11026–27 (citing Chen, ¶¶ 24, 26–27, 63–65); see also J.A. 11077–78. Those pre-Chen-art portions were what the petition relied on, as relevant here, and they were fully available as teachings for petitioners’ obviousness challenge. The Board’s re- definition, pervasively substituting a focus on Chen’s own inventive “system” for the petition’s focus on particular Chen disclosures about pre-Chen art, see Netflix, 2021 WL 3729361, at *6–11, was a fundamental legal error. B The Board’s error was prejudicial, i.e., not harmless. See 5 U.S.C. § 706 (requiring “due account” to be “taken of the rule of prejudicial error” in review under the Adminis- trative Procedure Act); Shinseki v. Sanders, 556 U.S. 396, 406, 409 (2009) (explaining that this rule is a harmless-er- ror rule). Petitioners, seeking relief on appeal, have the burden to show that the error at issue warrants vacatur and was not harmless. Shinseki, 556 U.S. at 409. We con- clude that vacatur is indeed warranted. We may “affirm if an erroneous portion of an agency’s ruling is ultimately non-prejudicial, i.e., not material to the bottom-line result given other portions of the agency’s rul- ing. . . . But we must not ourselves make factual and dis- cretionary determinations that are for the agency to make.” Ariosa Diagnostics v. Verinata Health, Inc., 805 F.3d 1359, 1365 (Fed. Cir. 2015) (relying on, e.g., In re Chapman, 595 F.3d 1330, 1338 (Fed. Cir. 2010), In re Watts, 354 F.3d 1362, 1369 (Fed. Cir. 2004), and Securities & Exchange Commission v. Chenery Corp., 332 U.S. 194, 196–97 (1947)). Under that standard, we find prejudice here. The Board rejected petitioners’ challenge based on its finding of no proven reasonable expectation of success, and that find- ing was clearly based on the Board’s consideration of ele- ments of the Chen “system” such as scalable layers. And the Board did not make other determinations that were Case: 22-1083 Document: 39 Page: 11 Filed: 03/01/2023

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independent of the infected reasonable-expectation-of-suc- cess finding, of the error in framing the combination more generally, and of other errors and that suffice to make the legal error here immaterial to the bottom line. The Board did not separately find that there was no proven motivation to make the petition-alleged combina- tion of Chen’s disclosures with Lindahl. Indeed, the Board “agree[d]” with petitioners that “the Petition provides am- ple motivation to combine” and stated that petitioners “suf- ficiently established . . . some motivation to combine the teachings of Chen, Lindahl, and Hurst.” Netflix, 2021 WL 3729361 at *6. We recognize that, later in its decision, the Board did make several remarks about what a relevant ar- tisan would have reason to do. See, e.g., id. at *7 (discuss- ing what features a relevant artisan “would have sought to incorporate into Chen”); id. at *8 (stating that petitioners have “not demonstrated why [ordinarily skilled artisans] would jettison features [used in Chen’s system] that are disclosed as useful”); id. at *10 (suggesting, though not clearly declaring, agreement with DivX’s argument that a relevant artisan “would not have been motivated to com- bine Chen and Lindahl without many of the disclosed fea- tures of Chen because that would have reduced efficiency, rather than improve it”). But those remarks at most create some confusion about the Board’s motivation finding. The Board, having stated a motivation finding favorable to pe- titioners, never stated that it was finding against petition- ers on the motivation component of the obviousness analysis, a component distinct from the reasonable-expec- tation-of-success component, Eli Lilly, 8 F.4th at 1344. In these circumstances, the Board’s overall discussion of mo- tivation tends to confirm prejudice, not support a harmless- error determination under the Chenery-respecting stand- ard we apply. We leave to the Board on remand the decision whether to reconsider the issue of motivation to combine, now with a specific focus on the petition-asserted combination with Case: 22-1083 Document: 39 Page: 12 Filed: 03/01/2023

Chen disclosures (not with the Chen “system”). If such re- consideration is undertaken, then the Board should ad- dress the Chen-924 reference, on which the petition relies to show the motivation to combine, unless the reference is superfluous because petitioners independently established the required motivation—as the Board may have thought in quickly finding for petitioners on the motivation issue, with no mention of Chen-924. 1 If reconsideration of the motivation issue is undertaken, then the Board also should address any properly raised argument about the standards for assessing whether a relevant artisan would, in the first place, have selected a particular disclosure in one reference (here, Chen, a patent application) for combination with an- other reference. See, e.g., In re Kotzab, 217 F.3d 1365, 1371 (Fed. Cir. 2000); In re Rouffet, 149 F.3d 1350, 1357 (Fed. Cir. 1998); In re Sang Su Lee, 277 F.3d 1338, 1343 (Fed. Cir. 2002). Those standards are not limited to, but include, the principle that it is “not necessary to show that a combi- nation is ‘the best option, only that it be a suitable option.’” Intel Corp. v. Qualcomm Inc., 21 F.4th 784, 800 (Fed. Cir. 2021) (quoting Par Pharmaceuticals, 773 F.3d at 1197–98); see also In re Mouttet, 686 F.3d 1322, 1334 (Fed. Cir. 2012); Kahn, 441 F.3d at 990. The Board’s discussion of a relevant artisan’s ability to make needed modifications to file formats disclosed in Chen (to introduce partial encryption of frames from Lin- dahl) does not render harmless the legal error we have

1 Petitioners argue in this court that Chen-924 sup- ports their position on the reasonable-expectation-of-suc- cess issue, once focused on the petition-asserted combination. The Board cited petitioners’ mention of Chen-924 for such a purpose in their Reply before the Board. Netflix, 2021 WL 3729361 at *10. DivX has raised a question of forfeiture. On remand, the Board should con- sider these contentions to the extent necessary. Case: 22-1083 Document: 39 Page: 13 Filed: 03/01/2023

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identified. The Board noted agreement between the par- ties “that some types of modifications would be necessary to standard file format in any resulting system of Chen and Lindahl.” Netflix, 2021 WL 3729361 at *10. But the Board concluded that it “need not decide whether [a relevant ar- tisan] could and would have modified existing file formats to accomplish the goal of partial frame encryption,” be- cause it was focusing on “combining aspects of Lindahl into Chen’s system,” as to which it had already found insuffi- cient proof on the reasonable-expectation issue, making “significant doubt” about a relevant artisan’s ability to make needed format modifications just a “further con- tribut[ion]” to the Board’s conclusion on that issue. Id. That discussion is itself framed around the combination we have held to be legally incorrect. We leave for remand any clarification of the analysis of file-format modification in this matter. III For the foregoing reasons, we vacate the Board’s final written decision and remand the case for further proceed- ings consistent with this opinion. The parties shall bear their own costs. VACATED AND REMANDED