Net MoneyIN, Inc. v. VeriSign, Inc.

United States Court of Appeals for the Federal Circuit
2007-1565

NET MONEYIN, INC.,

Plaintiff-Appellant,

v.

VERISIGN, INC.,

Defendant-Appellee,

and

EPROCESSING NETWORK,

Defendant-Appellee,

and

BANKCARD CENTER, INC., WEBTRANZ, VALIDPAY.COM, INC.,
ORDERBUTTON.NET, INC., SECUREPAY.COM, INC., GLOBILL.COM LLC,
IB HOLDING COMPANY, LTD., E-COMMERCE EXCHANGE LLC, ITRANSACT.COM
INFOSPACE, INC., CITIBANK, and ELECTRONIC PAYMENT PROCESSING, INC.,

Defendants.

William A. Birdwell, Davis Wright Tremaine LLP, of Portland, Oregon, argued for
plaintiff-appellant. With him on the brief was Timothy R. Volpert. Of counsel on the
brief was Allen Field, Law Office of Allen Field, of Portland, Oregon.

J. Michael Jakes, Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, of
Washington, DC, argued for defendants-appellees. With him on the brief for Verisign,
Inc., were Thomas W. Winland and Scott A. Herbst, of Palo Alto, California.

Corby R. Vowell, Goldstein, Faucett & Prebeg, LLP, of Houston, Texas, for
defendant-appellee EProcessing Network.

Appealed from: United States District Court for the District of Arizona

Judge Raner C. Collins
 United States Court of Appeals for the Federal Circuit
2007-1565

NET MONEYIN, INC.,

Plaintiff-Appellant,

v.

VERISIGN, INC.,

Defendant-Appellee,

and

EPROCESSING NETWORK,

Defendant-Appellee,

and

BANKCARD CENTER, INC., WEBTRANZ, VALIDPAY.COM, INC.,
ORDERBUTTON.NET, INC., SECUREPAY.COM, INC., GLOBILL.COM LLC, IB
HOLDING COMPANY, LTD., E-COMMERCE EXCHANGE LLC, ITRANSACT.COM
INFOSPACE, INC., CITIBANK, and ELECTRONIC PAYMENT PROCESSING, INC.,

Defendants.

Appeal from the United States District Court for the District of Arizona in case no. 01-
CV-441, Judge Raner C. Collins.
__________________________

DECIDED: October 20, 2008
__________________________

Before LINN, CLEVENGER, and MOORE, Circuit Judges.

LINN, Circuit Judge.

Net MoneyIN, Inc. (“NMI”) appeals from a final judgment of the United States

District Court for the District of Arizona, which held the asserted claims of U.S. Patents

No. 5,822,737 (“the ’737 patent”) and No. 5,963,917 (“the ’917 patent”) invalid. NMI
also appeals from the district court’s denial of its motion for leave to amend its complaint

to assert a claim for inducement of infringement. Because the district court correctly

found claims 1, 13, and 14 of the ’737 patent and claim 1 of the ’917 patent, which

contain limitations in means-plus-function format, invalid under 35 U.S.C. § 112 ¶ 2 as

lacking corresponding structure, we affirm that portion of the judgment. Because the

district court did not abuse its discretion in denying NMI’s motion to amend, we also

affirm that ruling. Because the district court applied an incorrect standard of law in

finding claim 23 of the ’737 patent invalid as anticipated under 35 U.S.C. § 102(a),

however, we reverse the grant of summary judgment of anticipation. Thus, we affirm-in-

part, reverse-in-part, and remand for proceedings consistent with this opinion.

I. BACKGROUND

This case involves systems for processing credit card transactions over the

Internet and for addressing security concerns not present in direct retail transactions. In

the early days of Internet commerce, merchants recognized that one key to the success

of Internet sales would be the ability to provide customers with assurances of security in

the processing of financial transactions over the Internet using credit cards, bank

accounts, and other means of electronic payment. Responding to that need, the

industry investigated encryption techniques and architectures to protect sensitive data.

One such effort is reflected in a 1995 working document entitled “Internet Keyed

Payments Protocol (“the iKP reference”), published by the Internet Engineering Task

Force and IBM. That document sets forth standards on “how payments may be

accomplished efficiently, reliably[,] and securely.” J.A. at 1375. The iKP reference

explains that its goal was “to enable Internet-based secure electronic payments while

2007-1565 2
utilizing the existing financial infrastructure for payment authorization and clearance.

The intent is to avoid completely, or at least minimize, changes to the existing financial

infrastructure outside the Internet.” Id. To that end, the iKP reference suggests two

standard models, or protocols. 1

In the first protocol, (1) the customer selects one or more items to purchase from

the merchant’s website; (2) the customer sends credit card information to the merchant;

(3) the merchant sends the credit card information and amount of the purchase to the

merchant’s bank; (4) the merchant’s bank seeks authorization for the purchase from the

issuing bank over the existing banking network; and (5) the merchant’s bank notifies the

merchant (but not the customer) of transaction approval. See id. at 1381 (flow

diagram); Appellant’s Br. at 7.

In the second protocol, (1) the customer selects one or more items to purchase

on the merchant’s website; (2) the customer sends an authorization request, along with

its credit card information and the amount of the purchase, to the merchant’s bank; (3)

the merchant’s bank seeks authorization from the issuing bank over the existing

banking network; (4) the merchant’s bank notifies the customer of transaction approval;

and (5) the customer sends the authorization response to the merchant. See J.A. at

1342, 1394; Appellant’s Br. at 8-9.

Unsatisfied with the early approaches taken by others, Mark Ogram, an inventor

and patent attorney, set out to create a new payment model to remedy what he

1
As illustrated by our colloquy with counsel at oral argument, it is not clear
whether the payment models disclosed in the iKP reference are mutually exclusive.
Viewing the facts in the light most favorable to NMI, however, as we must do at this
stage in the proceedings, the reference is properly construed to show two mutually
exclusive payment models.

2007-1565 3
perceived as two deficiencies in the prior art protocols: “the fact that the customer had

to send confidential information over the Internet to an unknown merchant; and the fact

that credit card issuers imposed onerous financial requirements on merchants.”

Appellant’s Br. at 10. Ogram’s idea was to add a fifth entity, a “payment processing” or

“financial processing” entity, to supplement the conventional model with four entities: the

customer, merchant, merchant’s bank, and issuing bank. According to Ogram, the new

financial processing entity would: “(1) receive credit card account information and an

amount to be charged from the customer when the customer placed the order; (2) seek

authorization from the card issuer over the existing banking network; and (3) notify both

the customer and the merchant of authorization.” Id.

On February 5, 1996, Ogram filed a patent application directed to a payment

model utilizing a financial processing entity. He formed NMI shortly thereafter to

implement the model as a business for processing credit card transactions over the

Internet. Ogram’s patent application resulted in the ’737 and ’917 patents, both of which

are assigned to NMI. Claim 1 of the ’737 patent is illustrative of the invention claimed:

1. A financial transaction system comprising:
a) a first bank computer containing financial data therein, said
financial data including customer account numbers and available
credit data, said first bank computer including means for generating
an authorization indicia in response to queries containing a
customer account number and amount;
b) a merchant computer containing promotional data;
c) a customer computer being linked with said merchant
computer and receiving said promotional data; and,
d) a financial processing computer remote from said merchant
computer and having means for:
1) receiving customer account data and amount data
from said customer computer,
2) querying said first bank computer with said customer
account data and said amount data,

2007-1565 4
 3) receiving an authorization indicia from said first bank
computer,
4) communicating a self-generated transaction indicia to
said customer computer, and,
5) communicating the self-generated transaction indicia
to said merchant computer.

According to their abstracts, the ’737 and ’917 patents relate to “[a]n automated

payment system particularly suited for purchases over a distributed computer network

such as the Internet.”

In 2001, NMI filed suit for infringement of the ’737 and ’917 patents against a

number of parties alleged to compete in the Internet credit card processing field,

including VeriSign, Inc. and eProcessing Network (collectively, “VeriSign”). Following a

claim construction hearing, the district court construed a number of terms in dispute.

Net MoneyIN, Inc. v. VeriSign, Inc., No. 01-CV-441 (D. Ariz. Oct. 18, 2005) (“Claim

Construction Decision”). As part of its construction of the claim terms, the district court

invalidated claims 1, 13, and 14 of the ’737 patent and claim 1 of the ’917 patent, which

contain limitations in means-plus-function format, as lacking corresponding structure

and thus indefinite under 35 U.S.C. § 112 ¶ 2.

Following construction of the claims, the district court entertained two motions for

summary judgment that are relevant to this appeal. First, VeriSign moved for summary

judgment that it did not induce infringement of NMI’s patents. In response to that

motion, NMI moved for leave to amend its complaint to add a claim for inducement of

infringement. The district court granted VeriSign’s motion for summary judgment and

denied NMI’s motion for leave to amend. Net MoneyIN, Inc. v. VeriSign, Inc., No. 01-

CV-441 (D. Ariz. June 8, 2006) (“Amendment Decision”). Second, VeriSign moved for

summary judgment of invalidity, arguing that the iKP reference anticipated claim 23 of

2007-1565 5
the ’737 patent under 35 U.S.C. § 102(a). The district court granted VeriSign’s motion.

Net MoneyIN, Inc. v. VeriSign, Inc., No. 01-CV-441 (D. Ariz. July 13, 2007) (“Summary

Judgment Decision”). The district court then entered final judgment in favor of VeriSign.

NMI timely appealed. We have jurisdiction under 28 U.S.C. § 1295(a)(1).

II. DISCUSSION

A. Standard of Review

Claim construction is a question of law, Markman v. Westview Instruments, Inc.,

52 F.3d 967, 970-71 (Fed. Cir. 1995) (en banc), aff’d, 517 U.S. 370 (1996), over which

we exercise plenary review. Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1456

(Fed. Cir. 1998) (en banc). Indefiniteness under 35 U.S.C. § 112 ¶ 2 is also a question

of law subject to plenary review. SmithKline Beecham Corp. v. Apotex Corp., 403 F.3d

1331, 1338 (Fed. Cir. 2005).

We review a grant of summary judgment de novo, reapplying the standard that

the district court employed. Rodime PLC v. Seagate Tech., Inc., 174 F.3d 1294, 1301

(Fed. Cir. 1999). Drawing all reasonable inferences in favor of the nonmovant,

“[s]ummary judgment is appropriate only when ‘there is no genuine issue as to any

material fact and . . . the moving party is entitled to a judgment as a matter of law.’” Id.

(quoting Fed. R. Civ. P. 56(c)).

The denial of a motion to amend is a procedural question not unique to patent

law and thus is reviewed under the law of the regional circuit. Kalman v. Berlyn Corp.,

914 F.2d 1473, 1480 (Fed. Cir. 1990). In the Ninth Circuit, the denial of a motion to

amend is reviewed for abuse of discretion. Chappel v. Lab. Corp. of Am., 232 F.3d 719,

725 (9th Cir. 2000).

2007-1565 6
 B. Analysis

1. Indefiniteness

The district court concluded that claims 1, 13, and 14 of the ’737 patent and claim

1 of the ’917 patent were indefinite under 35 U.S.C. § 112 ¶ 2, and thus invalid.

Because each of these patents raises different issues, we address them separately.

a. the ’737 patent

Claim 1 of the ’737 patent recites a financial transaction system comprising,

among other things, “a first bank computer containing financial data therein, said

financial data including customer account numbers and available credit data, said first

bank computer including means for generating an authorization indicia in response to

queries containing a customer account number and amount” (emphasis added). 2 The

district court construed the generating means element in claim 1 as a means-plus-

function element. The parties agreed that the function of the claimed means was

“generating an authorization indicia in response to queries containing a customer

account number and amount.” The district court found, however, that the specification

failed to disclose any corresponding structure to perform the claimed function.

Accordingly, it deemed the claim invalid under 35 U.S.C. § 112 ¶ 2.

NMI argues that the generating means element is not a means-plus-function

element under 35 U.S.C. § 112 ¶ 6 “because the claim itself discloses sufficient

structure which performs the function of ‘generating an authorization indicia in response

to queries containing a customer account number and amount.’” Appellant’s Br. at 21

2
NMI does not make arguments with respect to claims 13 or 14, which
contain language similar to that in claim 1. We view this as a concession that these
claims rise or fall with claim 1.

2007-1565 7
(emphasis omitted). Alternatively, NMI contends that if the generating means claim

element is properly construed as a means-plus-function element, then the specification

recites sufficient structure to make the claim definite. VeriSign counters that the district

court correctly concluded both that the claim does not recite sufficient structure to rebut

the means-plus-function presumption and that the specification contains insufficient

structure to perform the claimed function.

Section 112, paragraph 6, of title 35 provides that:

An element of a claim for a combination may be expressed as a means or
step for performing a specified function without the recital of structure,
material, or acts in support thereof, and such claim shall be construed to
cover the corresponding structure, material, or acts described in the
specification and equivalents thereof.

A claim element that contains the word “means” and recites a function is presumed to

be drafted in means-plus-function format under 35 U.S.C. § 112 ¶ 6. Envirco Corp. v.

Clestra Cleanroom, Inc., 209 F.3d 1360, 1364 (Fed. Cir. 2000). The presumption is

rebutted, however, “if the claim itself recites sufficient structure to perform the claimed

function.” Id.; see also Sage Prods., Inc. v. Devon Indus., Inc., 126 F.3d 1420, 1427-28

(Fed. Cir. 1997) (“[W]here a claim recites a function, but then goes on to elaborate

sufficient structure, material, or acts within the claim itself to perform entirely the recited

function, the claim is not in means-plus-function format.”).

We first address NMI’s contention that the presumption triggered by the presence

of the word “means” in claim 1 is rebutted by the recitation of sufficient structure for

performing entirely the recited function of “generating an authorization indicia.” NMI

contends that the language, “first bank computer containing financial data therein, said

financial data including customer account numbers and available credit data, said first

bank computer . . . generating an authorization indicia in response to queries containing

2007-1565 8
a customer account number and amount,” is sufficient structure to rebut the means-

plus-function presumption. NMI argues that an ordinary artisan would understand the

“bank computer” “to be a commonly known structure for generating authorization indicia

in response to queries containing a custom account number and amount.” Appellant’s

Br. at 21, 22. VeriSign responds that the claim does not recite sufficient structure to

rebut the presumption “because of the wide variety of types and classes of computers in

existence, each being configurable in a variety of different ways using many different

programming languages.” Appellees’ Br. at 28 (internal quotation marks and citations

omitted).

We agree with VeriSign that the recitation in claim 1 of the “bank computer” is not

sufficient to rebut the means-plus-function presumption. The bank computer is not

linked in the claim as the “means” for generating an authorization indicia. Rather, the

bank computer is recited as “including” those means. NMI’s argument that the first bank

computer constitutes sufficient structure would require the first bank computer to include

a first bank computer, which is both redundant and illogical. Because the claimed

generating means is a subset of the bank computer, there must be a recitation of

structure that is a component of the bank computer to rebut the presumption. The claim

contains no such recitation. As a result, the district court correctly concluded that the

presumption of means-plus-function treatment had not been overcome.

Having concluded that the generating means recited in claim 1 is drafted in

means-plus-function format, we turn to whether the specification includes a disclosure

of structure sufficient to accomplish the recited function. NMI argues that “the

specification does disclose a ‘bank computer’ and this Court’s precedents do not require

2007-1565 9
a description of the ‘internal structure’ of the ‘bank computer.’” Appellant’s Br. at 27

(emphasis omitted); see also id. at 31 (“Here, claim 1(a) itself states that the ‘bank

computer’ contains ‘financial data’ including ‘customer account numbers and available

credit data.’ A person skilled in the art would know that such a computer would be

programmed to compare account data and amount data to those data structures and

generate an authorization indicia if credit were available.”). VeriSign counters that the

district court correctly determined that the ’737 patent specification fails to disclose the

“structure corresponding to what, in the claimed first bank computer, performs the

claimed generating function.” Appellees’ Br. at 51 (internal quotation marks omitted).

A patent applicant who employs means-plus-function language “must set forth in

the specification an adequate disclosure showing what is meant by that language. If an

applicant fails to set forth an adequate disclosure, the applicant has in effect failed to

particularly point out and distinctly claim the invention as required by the second

paragraph of section 112.” In re Donaldson Co., 16 F.3d 1189, 1195 (Fed. Cir. 1994)

(en banc). To avoid purely functional claiming in cases involving computer-

implemented inventions, we have “consistently required that the structure disclosed in

the specification be more than simply a general purpose computer or microprocessor.”

Aristocrat Techs. Austl. Pty Ltd. v. Int’l Game Tech., 521 F.3d 1328, 1333 (Fed. Cir.

2008). “Because general purpose computers can be programmed to perform very

different tasks in very different ways, simply disclosing a computer as the structure

designated to perform a particular function does not limit the scope of the claim to ‘the

corresponding structure, material, or acts’ that perform the function, as required by

section 112 paragraph 6.” Id. “Thus, in a means-plus-function claim ‘in which the

2007-1565 10
disclosed structure is a computer, or microprocessor, programmed to carry out an

algorithm, the disclosed structure is not the general purpose computer, but rather the

special purpose computer programmed to perform the disclosed algorithm.’” Id.

(quoting WMS Gaming, Inc. v. Int’l Game Tech., 184 F.3d 1339, 1349 (Fed. Cir. 1999)).

Consequently, a means-plus-function claim element for which the only disclosed

structure is a general purpose computer is invalid if the specification fails to disclose an

algorithm for performing the claimed function. See id. at 1337-38.

There is no dispute in this case that the specification fails to disclose an

algorithm by which a general purpose bank computer “generat[es] an authorization

indicia.” 3 As a result, the district court correctly concluded that claims 1, 13, and 14 are

indefinite under 35 U.S.C. § 112 ¶ 2. We therefore affirm that part of the judgment.

b. the ’917 patent

Claim 1 of the ’917 patent recites a financial transaction system comprising,

among other things, “a financial processing computer . . . having automatic means

responsive to [the] order for . . . receiving customer account data and amount data from

[the] customer computer and [the] merchant computer.” The parties do not dispute the

district court’s construction of this claim element as a means-plus-function element.

The parties do dispute, however, the nature of the function. The district court construed

the function as “the financial processing computer receives both the customer account

data and amount data from both the customer computer and the merchant computer.”

3
At oral argument, counsel for NMI conceded that “[t]here is nothing in the
written description that expressly states what is going on inside that bank computer.”
Oral Arg. at 20:10-20:15, available at http://oralarguments.cafc.uscourts.gov/mp3/2007-
1565.mp3.

2007-1565 11
Claim Construction Decision at 11. NMI argues that the district court’s construction of

the function is erroneous. According to NMI, the ordinary meaning of the claim

language requires that the function be construed more broadly: “[I]n response to an

order, the financial processing computer: (1) receives customer account data from the

customer computer, the merchant computer, or both; and (2) it also receives amount

data from the customer computer, the merchant computer, or both.” Appellant’s Br. at

46-47. VeriSign counters that the district court correctly construed the function

according to the ordinary meaning of the claim language.

The language of the function at issue was construed by the district court as

specifying that both the amount data and the account data must come from both the

customer computer and the merchant computer. That construction comports with and is

fully supported by the language of the claim itself. NMI argues that the function is

subject to a different construction, which would permit the amount data and the account

data to come from the merchant computer, the customer computer, or both. The

problem with NMI’s proffered construction, however, is that it is different from, and

broader in scope than, the construction it asserted in the district court. See J.A. at 1046

(arguing to the district court that “the meaning of this element is: ‘the financial

processing computer receives the customer account data from the customer computer

and the amount data from the merchant computer via the customer computer’”). This is

not merely a new argument in support of a previously presented construction, but

instead is a new and more expansive construction, which may not properly be asserted

on appeal. See Interactive Gift Express, Inc. v. Compuserve Inc., 256 F.3d 1323, 1347

(Fed. Cir. 2001). Because NMI’s new construction is not proper on appeal, and

2007-1565 12
because we see no basis on which to overturn the district court’s construction, that

construction is affirmed.

NMI concedes that under the district court’s construction, no structure is

disclosed in the specification to perform the claimed function. Appellant’s Br. at 46. As

a result, the claim is indefinite under 35 U.S.C. § 112 ¶ 2. See Donaldson, 16 F.3d at

1195. Consequently, we affirm the district court’s determination that claim 1 of the ’917

patent is invalid.

2. Anticipation

Claim 23 of the ’737 patent recites an Internet payment system comprising five

“links”:

a) a first link between a customer computer and a vending
computer for communicating promotional information from said vending
computer to said customer computer;
b) a second link, initiated by said customer computer, between
said customer computer and a payment processing computer, remote
from said vending computer, for communicating credit card information
and amount from said customer computer to said payment processing
computer;
c) a third link, initiated by said payment processing computer
with a credit card server computer for communicating said credit card
information and said amount from said payment processing computer to
said credit card server computer, and for communicating, in response, an
authorization indicia from said credit card server computer to said
payment processing computer; []
d) a fourth link between said payment processing computer and
said customer computer for communicating a transactional indicia[;]
* * *
[e)] a fifth link between the payment processing computer and
said vending computer for communicating said transactional indicia.

The district court, after finding all five of these links in the iKP reference, albeit in two

separate disclosed examples, concluded that claim 23 was anticipated under 35 U.S.C.

§ 102(a) and therefore invalid. Specifically, the district court concluded:

2007-1565 13
 All of the limitations of claim 23 can be found within the iKP reference. A
simple combination would produce the system described in claim 23 of the
’737 patent. That no specific example within iKP contains all five links
does not preclude a finding of anticipation.

Summary Judgment Decision at 3. NMI contends that the district court’s combination of

two disclosed examples in order to find all elements of the claim was erroneous. 4

VeriSign responds that the district court did not improperly rearrange the links in the iKP

reference, but rather “merely relied on various express teachings from a single

document that together completely disclose the five claimed links.” Appellees’ Br. at 61.

Under VeriSign’s theory, this was sufficient to establish anticipation, because all that is

required is “that the four corners of a single, prior art document describe every element

of the claimed invention.” Id. at 61-62 (quoting Xerox Corp. v. 3Com Corp., 458 F.3d

1310, 1322 (Fed. Cir. 2006)). We disagree with VeriSign, and take this opportunity to

clarify what a reference must show in order to anticipate a claimed invention.

Section 102(a) provides that an issued patent is invalid if “the invention [therein]

was . . . described in a printed publication . . . before the invention thereof by the

applicant.” Section 102 embodies the concept of novelty—if a device or process has

been previously invented (and disclosed to the public), then it is not new, and therefore

the claimed invention is “anticipated” by the prior invention. As we have stated

numerous times (language on which VeriSign relies), in order to demonstrate

anticipation, the proponent must show “that the four corners of a single, prior art

document describe every element of the claimed invention.” Xerox, 458 F.3d at 1322

(quoting Advanced Display Sys., Inc. v. Kent State Univ., 212 F.3d 1272, 1282 (Fed.

4
Because it is on this ground that we decide this issue, we do not reach
NMI’s alternative grounds for reversing the district court’s anticipation conclusion.

2007-1565 14
Cir. 2000)). This statement embodies the requirement in section 102 that the

anticipating invention be “described in a printed publication,” and is, of course,

unimpeachable. But it does not tell the whole story. Because the hallmark of

anticipation is prior invention, the prior art reference—in order to anticipate under 35

U.S.C. § 102—must not only disclose all elements of the claim within the four corners of

the document, but must also disclose those elements “arranged as in the claim.”

Connell v. Sears, Roebuck & Co., 722 F.2d 1542, 1548 (Fed. Cir. 1983). 5

The meaning of the expression “arranged as in the claim” is readily understood in

relation to claims drawn to things such as ingredients mixed in some claimed order. In

such instances, a reference that discloses all of the claimed ingredients, but not in the

order claimed, would not anticipate, because the reference would be missing any

disclosure of the limitations of the claimed invention “arranged as in the claim.” But the

“arranged as in the claim” requirement is not limited to such a narrow set of “order of

limitations” claims. Rather, our precedent informs that the “arranged as in the claim”

requirement applies to all claims and refers to the need for an anticipatory reference to

show all of the limitations of the claims arranged or combined in the same way as

5
VeriSign points to language in Glaxo Group Ltd. v. Apotex, Inc., 376 F.3d
1339, 1348 (Fed. Cir. 2004), on which the district court relied, which states: “Apotex is
of course correct that anticipation requires that all limitations of the claimed invention
are described in a single reference, rather than a single example in the reference.” This
does not say what VeriSign wishes it did, nor could it. This language, when read in
context, stands for the unremarkable proposition that courts are not constrained to
proceed example-by-example when reviewing an allegedly anticipating prior art
reference. Rather, the court must, while looking at the reference as a whole, conclude
whether or not that reference discloses all elements of the claimed invention arranged
as in the claim.

2007-1565 15
recited in the claims, not merely in a particular order. The test is thus more accurately

understood to mean “arranged or combined in the same way as in the claim.”

For example, in Lindemann Maschinenfabrik GmbH v. American Hoist & Derrick

Co., 730 F.2d 1452 (Fed. Cir. 1984), we reviewed a district court’s determination that a

patent directed to a hydraulic scrap shearing machine was anticipated by a prior patent

directed to a method for shearing spent nuclear fuel bundles. Because the district court

had “treated the claims as mere catalogs of separate parts, in disregard of the part-to-

part relationships set forth in the claims and that give the claims their meaning,” we

reversed. Id. at 1459. Although the prior art reference could be said to contain all of the

elements of the claimed invention, it did not anticipate under 35 U.S.C. § 102 because it

“disclose[d] an entirely different device, composed of parts distinct from those of the

claimed invention, and operating in a different way to process different material

differently.” Id. at 1458. The reference thus was deficient because it did not disclose

the elements of the claimed invention “arranged as in the claim” as required by 35

U.S.C. § 102. Id.

In Ecolochem, Inc. v. Southern California Edison Co., 227 F.3d 1361 (Fed. Cir.

2000), we reviewed a district court’s decision that a prior art reference directed to

“Saving Energy by Catalytic Reduction of Oxygen in Feedwater” anticipated a claim

reciting the use of hydrazine with a mixed resin bed to deoxygenate water. In finding

that the reference anticipated the claim, the district court considered a figure and

accompanying text, which taught the use of hydrogen with a mixed bed to deoxygenate

water, in conjunction with a separate passage discussing deoxygenating water with,

among other things, hydrazine. Id. at 1369. We reversed. After determining that the

2007-1565 16
relevant figure and accompanying text described only the use of hydrogen to

deoxygenate water, we concluded that the reference could not anticipate the claimed

invention because there was no link between that figure and the general discussion of

hydrazine as a deoxygenating agent. Id. In other words, we concluded that although

the reference taught all elements of the claim, it did not contain a discussion suggesting

or linking hydrazine with the mixed bed in the figure, and thus did not show the invention

arranged as in the claim.

Recently, in Finisar Corp. v. DirecTV Group, Inc., 523 F.3d 1323 (Fed. Cir. 2008),

we reversed a district court’s denial of a motion for judgment as a matter of law because

the jury could not have reasonably concluded that the prior art reference relating to the

Videotex architecture did not anticipate the claimed invention directed to systems and

methods for scheduling transmission of database tiers on demand at varying repetition

rates. Although the anticipation issue dealt largely with the interpretation of the prior art

reference, id. at 1335-37, we reemphasized the importance of the requirement that the

reference describe not only the elements of the claimed invention, but also that it

describe those elements “arranged as in the claim”:

To anticipate a claim, a single prior art reference must expressly or
inherently disclose each claim limitation. . . . But disclosure of each
element is not quite enough—this court has long held that “[a]nticipation
requires the presence in a single prior art disclosure of all elements of a
claimed invention arranged as in the claim.”

Id. at 1334 (quoting Connell, 722 F.2d at 1548). In all of these cases, the prior art

reference had to show the claimed invention arranged or combined in the same way as

recited in the claim in order to anticipate. We thus hold that unless a reference

discloses within the four corners of the document not only all of the limitations claimed

but also all of the limitations arranged or combined in the same way as recited in the

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claim, it cannot be said to prove prior invention of the thing claimed and, thus, cannot

anticipate under 35 U.S.C. § 102.

Here, the iKP reference discloses two separate protocols for processing an

Internet credit card transaction. Neither of these protocols contains all five links

arranged or combined in the same way as claimed in the ’737 patent. Thus, although

the iKP reference might anticipate a claim directed to either of the two protocols

disclosed, it cannot anticipate the system of claim 23. The district court was wrong to

conclude otherwise.

The district court was also wrong to combine parts of the separate protocols

shown in the iKP reference in concluding that claim 23 was anticipated. Granted, there

may be only slight differences between the protocols disclosed in the iKP reference and

the system of claim 23. But differences between the prior art reference and a claimed

invention, however slight, invoke the question of obviousness, not anticipation. See 35

U.S.C. § 103(a) (“A patent may not be obtained though the invention is not identically

disclosed or described as set forth in section 102 of this title, if the differences between

the subject matter sought to be patented and the prior art are such that the subject

matter as a whole would have been obvious at the time the invention was made to a

person having ordinary skill in the art to which said subject matter pertains.” (emphasis

added)); see also In re Arkley, 455 F.2d 586, 587 (CCPA 1972) (“[R]ejections under 35

U.S.C. § 102 are proper only when the claimed subject matter is identically disclosed or

described in the prior art.” (emphasis and internal quotation marks omitted)). Thus, it is

not enough that the prior art reference discloses part of the claimed invention, which an

ordinary artisan might supplement to make the whole, or that it includes multiple, distinct

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teachings that the artisan might somehow combine to achieve the claimed invention.

See Arkley, 455 F.2d at 587 (“[T]he [prior art] reference must clearly and unequivocally

disclose the claimed [invention] or direct those skilled in the art to the [invention] without

any need for picking, choosing, and combining various disclosures not directly related to

each other by the teachings of the cited reference.”).

Because the parties do not contend that the iKP reference discloses all of the

limitations recited in claim 1 arranged or combined in the same way as in the claim, and

because it was error for the district court to find anticipation by combining different parts

of the separate protocols in the iKP reference simply because they were found within

the four corners of the document, we reverse the district court’s grant of summary

judgment of invalidity.

3. Motion to Amend

During the course of this litigation, NMI filed a Second Amended Complaint in

which it clarified that it was asserting, among other things, a claim for inducement of

infringement under 35 U.S.C. § 271(b). In a Third Amended Complaint filed in August

2003, however, NMI abandoned its claim for inducement of infringement, stating that it

had “elected not to assert a cause of action for inducement.” In answering NMI’s Third

Amended Complaint, although some of the defendants reasserted counterclaims for

declaratory judgment of noninfringement by inducement, VeriSign did not. J.A. at 1251.

In May 2005, VeriSign moved for partial summary judgment on inducement of

infringement. In response, NMI moved, pursuant to Federal Rule of Civil Procedure

15(b), for leave to file a Fourth Amended Complaint to add a claim for inducement of

infringement. According to NMI, VeriSign had consented to litigate the issue by moving

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for summary judgment on that basis. The district court granted VeriSign’s motion for

partial summary judgment and denied NMI’s motion to amend.

NMI argues that the district court abused its discretion by denying the motion to

amend. According to NMI, the district court had no discretion to deny amendment

under Rule 15(b) because VeriSign consented to litigate the issue. VeriSign argues

that, while it did seek partial summary judgment on the issue of inducement, it did so on

the ground of waiver, not on the merits. Thus, according to VeriSign, it was within the

district court’s discretion to deny amendment.

A district court generally enjoys broad discretion when assessing the propriety of

a motion to amend. See Chappel, 232 F.3d at 725. It does not enjoy such discretion,

however, and amendment is mandatory, when an issue is tried with the express or

implied consent of the parties. See Fed. R. Civ. P. 15(b) (“When an issue not raised by

the pleadings is tried by the parties’ express or implied consent, it must be treated in all

respects as if raised in the pleadings.”); cf. Wallin v. Fuller, 476 F.2d 1204, 1210 (5th

Cir. 1973) (“Amendment is thus not merely discretionary but mandatory in such a

case.”).

Thus, the first issue we must address is whether VeriSign consented, either

expressly or impliedly, to litigate inducement. We agree with the district court that it did

not. VeriSign’s motion for partial summary judgment stated, in pertinent part,

NMI’s failure to assert any claim of contributory infringement under
Section 271(c) in its Third Amended Complaint, its express disavowal in
that pleading of any claim of inducement under Section 271(b), its failure
to disclose any indirect infringement theories or supporting evidence in its
Supplemental Disclosure to VeriSign, and its failure to disclose any
evidence that would establish indirect infringement, including its failure to
identify any alleged direct infringer or any acts by VeriSign alleged to

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 constitute contributory infringement, compels entry of partial summary
judgment in favor of VeriSign.

J.A. at 7330. This is not an attempt by VeriSign to litigate induced infringement on the

merits. Given NMI’s repeated amendment of its complaint, including its history of

dropping inducement claims only to later add them, as well as VeriSign’s understanding

that NMI planned to resurrect the claim at trial, it is apparent that VeriSign’s motion was

made to foreclose NMI’s ability to later raise inducement (again). Notably, this is

precisely how the district court construed NMI’s motion:

Plaintiff uses the argument that by filing [a] motion for summary judgment
on this issue, the Defendants are consenting to its litigation. This is not
the case. Defendants are merely attempting to formally discharge this
theory as a claim (as has already been indicated by Plaintiffs counsel) so
that the case can be focused on the theory of direct infringement.

Amendment Decision at 7. Thus, the district court was not without discretion to deny

the requested amendment.

The question thus becomes whether the district court’s denial of the motion was

an abuse of that discretion. In denying the motion, the district court observed that NMI

was requesting leave “to amend [its] Complaint for a fourth time in order to allege a

claim (inducement of infringement) which [it] ha[s] expressly disavowed, twenty months

after the deadline to amend pleadings and four months after the close of discovery.” Id.

at 6-7. It also observed that granting NMI’s motion would result in “extreme delay,” id.

at 10, and severe prejudice to VeriSign, id. at 11. Under these circumstances, we

cannot find that the district court’s denial was an abuse of discretion. See Chappel, 232

F.3d at 725-26 (“A district court acts within its discretion to deny leave to amend when

amendment would be futile, when it would cause undue prejudice to the defendant, or

when it is sought in bad faith.”).

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 III. CONCLUSION

For the foregoing reasons, we AFFIRM-IN-PART, REVERSE-IN-PART, and

REMAND for proceedings consistent with this opinion.

COSTS

No costs.

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