Netflix, Inc. v. Divx, LLC

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NOTE: This disposition is nonprecedential.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.
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2 NETFLIX, INC. v. DIVX, LLC

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
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NETFLIX, INC. v. DIVX, LLC 3

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
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4 NETFLIX, INC. v. DIVX, LLC

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
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NETFLIX, INC. v. DIVX, LLC 5

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
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6 NETFLIX, INC. v. DIVX, LLC

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
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NETFLIX, INC. v. DIVX, LLC 7

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,
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8 NETFLIX, INC. v. DIVX, LLC

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.
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NETFLIX, INC. v. DIVX, LLC 9

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
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10 NETFLIX, INC. v. DIVX, LLC

(“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
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NETFLIX, INC. v. DIVX, LLC 11

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
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12 NETFLIX, INC. v. DIVX, LLC

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.
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NETFLIX, INC. v. DIVX, LLC 13

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