  United States Court of Appeals
      for the Federal Circuit
                 ______________________

                   ALEXSAM, INC.,
                Plaintiff-Cross Appellant,

                            v.

                 IDT CORPORATION,
                  Defendant-Appellant.
                 ______________________

                    2012-1063, -1064
                 ______________________

   Appeals from the United States District Court for the
Eastern District of Texas in No. 07-CV-0420, Magistrate
Judge Charles Everingham.
                 ______________________

                 Decided: May 20, 2013
                 ______________________

    TIMOTHY P. MALONEY, Fitch, Even, Tabin & Flannery,
LLP, of Chicago, Illinois, argued for the plaintiff-cross
appellant. With him on the brief were ALISON AUBRY
RICHARDS and NICOLE L. LITTLE; and STEVEN C. SCHROER,
of Boulder, Colorado.

    GLEN E. SUMMERS, Bartlit Beck Herman Palenchar &
Scott, LLP, of Denver, Colorado, argued for the defendant-
appellant. With him on the brief were SEAN C. GRIMSLEY
and DANIEL R. BRODY. Of counsel on the brief was
STANLEY L. AMBERG, of Chappaqua, New York.
2                                       ALEXSAM   v. IDT CORP
                  ______________________



     Before DYK, MAYER, and MOORE, Circuit Judges.
    Opinion for the Court filed by Circuit Judge DYK.
    Dissenting opinion filed by Circuit Judge MAYER.
DYK, Circuit Judge.
    Defendant IDT Corporation appeals from the judg-
ment of the District Court for the Eastern District of
Texas determining that certain of IDT’s systems infringed
claims 57 and 58 of U.S. Patent No. 6,000,608 (“the ’608
patent”), and that these claims were not invalid. Plaintiff
Alexsam, Inc. cross-appeals from the court’s judgment
determining that certain other systems were licensed
under claims 57 and 58 of the ’608 patent.
    We affirm the judgment of no invalidity. We reverse
the jury’s finding of infringement with regard to IDT’s
Walgreens and EWI systems, but affirm the judgment of
infringement with regard to IDT’s miscellaneous systems
based on the district court’s discovery sanction. On the
cross-appeal, we affirm the judgment of noninfringement
with regard to IDT’s SafeNet systems based on the license
defense.
                       BACKGROUND
                       I. The Claims
    Alexsam owns the ’608 patent, which discloses a sys-
tem for activating and using “multifunction card[s].”
These cards include prepaid phone cards, used to pay for
long-distance telephone calls, and electronic gift certifi-
cate cards. Such cards are typically distributed to retail-
ers and displayed in stores in an inactive state, in order to
deter theft, and are activated and assigned a cash value
at the retailer’s check-out counter.
 ALEXSAM   v. IDT CORP                                     3
    The claims at issue in this appeal are drawn to a sys-
tem for activating multifunction cards using a point-of-
sale (“POS”) terminal, such as a cash register or a free-
standing credit card reader. Claim 57 of the ’608 patent
recites:
       A multifunction card system comprising:
       a. at least one card having a unique identifica-
   tion number encoded on it, said identification
   number comprising a bank identification number
   approved by the American Banking Association for
   use in a banking network;
       b. a transaction processor receiving card acti-
   vation data from an unmodified existing standard
   retail point-of-sale device, said card activation da-
   ta including said unique identification number;
       c. a processing hub receiving directly or indi-
   rectly said activation data from said transaction
   processor; and
       d. said processing hub activating an account
   corresponding to the unique identification num-
   ber, thereby permitting later access to said ac-
   count.
’608 patent col. 18 ll. 35-49 (emphases added). Dependent
claim 58 further requires that the card consist of “an
electronic gift certificate card, a phone card,” or another
enumerated type of card. Id. at ll. 50-53.
    The critical limitations for purposes of this appeal are
the requirements that the card’s number include a bank
identification number (“BIN”), and that the activation
make use of “an unmodified existing standard retail
point-of-sale device.” The district court defined a BIN as
“a numeric code [that] identifies a card-issuing financial
institution and that is sanctioned by the American Bank-
ers Association.” See J.A. 1328-29. The parties stipulated
4                                       ALEXSAM   v. IDT CORP
that the unmodified POS device limitation requires the
use of “[a] terminal for making purchases at a retail
location of the type in use as of July 10, 1997 that has not
been reprogrammed, customized, or otherwise altered
with respect to its software or hardware for use in the
card system.” J.A. 1325.
                 II. The Accused Systems
    IDT is a telecommunications and financial services
company whose products include both phone cards and
prepaid gift cards. IDT’s cards are sold through major
retail chains such as Walgreens, as well as at smaller
retailers. Like the cards disclosed in the ’608 patent,
IDT’s cards must be activated at a POS terminal before
they can be used. Alexsam’s infringement contentions are
premised on the allegation that IDT controls the systems
by which its cards are activated. 1
    Four accused activation systems, or groups of sys-
tems, are at issue in this appeal. The first system was
used to activate cards sold by Walgreens. In this system
(“the Walgreens system”), card activation data travelled
from the POS terminal to an intermediate host computer
owned by Walgreens, and from there over a dedicated line
to IDT’s host computer.
     The second accused system resembled the Walgreens
system, except that it used an intermediate host computer
owned by a third party named EWI in place of a retailer-
owned host computer. This system (“the EWI system”)
was used to activate cards sold by various smaller retail-
ers.


    1   Because of our disposition of the other issues on
appeal, we do not reach IDT’s contention that a judgment
of noninfringement is warranted because Alexsam failed
to prove that IDT directs or controls each element of the
claimed system.
 ALEXSAM   v. IDT CORP                                        5
    The third accused system, known as “the SafeNet sys-
tem,” was also used to activate cards sold by various
retailers. Instead of sending card activation data first to a
host owned by the retailer or by EWI and then to IDT by
way of a dedicated line, though, the SafeNet system sent
activation data first to a bank computer, and then to IDT
by way of a network maintained by MasterCard for use in
credit card transactions.
    The fourth system was actually a group of systems
that are considered together for purposes of this appeal.
This group (“the miscellaneous systems”) included a
system used at Sears stores to activate cards over the
Sears network; a system used at 7-Eleven stores to acti-
vate cards over a network managed by InComm; and
systems used at various stores to activate cards over
networks managed by Blackhawk and PaySpot.
                     III. The Litigation
   In September 2007, Alexsam filed a complaint in the
United States District Court for the Eastern District of
Texas, accusing IDT of infringing, inter alia, claims 57
and 58 of the ’608 patent.
     In January 2011, following the close of discovery,
Alexsam moved for sanctions pursuant to Rule 37 of the
Federal Rules of Civil Procedure, alleging that IDT had
failed to disclose information suggesting that the miscel-
laneous systems infringe Alexsam’s patents, in violation
of IDT’s discovery obligations. Alexsam asked the court to
deem these card products to be infringing “for purposes of
the action.” J.A. 7726.
   Midway through trial, the court granted Alexsam’s
motion for sanctions regarding the miscellaneous systems.
The court announced, outside the presence of the jury:
         I find that [the court] had ordered the Defend-
    ant to fully and completely respond to the Plain-
    tiff’s interrogatories . . . , [and] that the Defendant
6                                        ALEXSAM   v. IDT CORP
    failed to do so. The Defendant also stated in its
    response to the Motion for Sanctions that [some of
    this information] had been [previously] disclosed.
    I find that that statement was false. To cure the
    prejudice to the Plaintiff and to prevent this con-
    duct from occurring in the future, I am declaring
    or deeming established that the Blackhawk cards,
    the InComm cards, the PaySpot cards, and the
    Sears cards, [that is, the cards activated using the
    miscellaneous systems,] infringe the patents-in-
    suit. The jury will be so instructed. They will also
    be instructed that the only issues they need to de-
    cide, with respect to those cards, relate to invalidi-
    ty and damages.
J.A. 13,820. The court denied IDT’s request either to
lessen the sanction or to apply the determination of
infringement after the jury’s verdict in order to avoid
prejudicing the jury’s consideration of the remaining
issues. At the close of trial, the court instructed the jury
that “it has previously been determined that IDT’s [mis-
cellaneous systems] infringe the asserted claims of the
’608 and ’787 patents,” and directed the jury to “limit [its]
consideration to issues of invalidity and damages as to
those [systems].” J.A. 14,827-28. 2
    The jury found for Alexsam on all remaining ques-
tions. Specifically, the jury found that the Walgreens,


    2   The effect of the sanction was that the miscellane-
ous systems were adjudged to have infringed not only
claims 57 and 58 of the ’608 patent, the only two claims
regarding which infringement contentions were presented
to the jury, but also claim 60 of the ’608 patent and claim
14 of a continuation patent, U.S. Patent No. 6,189,787
(“the ’787 patent”), both of which the district court deter-
mined were not infringed by any of the other accused
systems.
 ALEXSAM   v. IDT CORP                                   7
EWI, and SafeNet systems infringed claim 57 of the ’608
patent; that the EWI and SafeNet systems infringed
claim 58 of the ’608 patent; 3 and that neither claim 57 nor
claim 58 was invalid as anticipated or obvious. The jury
awarded Alexsam $9,065,476 in reasonable royalties.
    Prior to trial, IDT had moved for partial summary
judgment that the SafeNet system was covered by a
licensing agreement between Alexsam and MasterCard,
and the court had denied this motion. 4 After trial, the
court granted IDT’s motion for judgment of noninfringe-
ment with respect to the SafeNet systems, concluding on
further consideration that this system was licensed under
the terms of the Alexsam-MasterCard agreement. The
court reduced the jury’s award by the number of activa-
tions that took place over the SafeNet system multiplied
by the royalty rate sought by Alexsam, entering judgment
in the amount of $8,712,293.75. The court also issued an
order clarifying the basis for its sanction, and granted
Alexsam’s motion to sever its claim for future royalties
into a new case.
    IDT appeals the determinations of infringement and
no invalidity. Alexsam cross-appeals the district court’s
license determination. We have jurisdiction under 28
U.S.C. § 1295(a)(1).




   3   The district court had determined that the
Walgreens system did not infringe claim 58 as a matter of
law.
   4    The court granted IDT’s motion to bar Alexsam
from invoking the doctrine of equivalents with regard to
the “unmodified existing standard retail point-of-sale
device” limitation, however.
8                                        ALEXSAM   v. IDT CORP
                        DISCUSSION
                      I. Infringement
           A. The Walgreens and EWI Systems
    IDT argues that the district court erred in denying its
motion for judgment of noninfringement with regard to
the Walgreens and EWI systems because Alexsam failed
to present substantial evidence that the Walgreens and
EWI systems included “an unmodified existing standard
retail point-of-sale device.” See ’608 patent, col. 18 ll. 41-
44. We review de novo the denial of a motion for judgment
as a matter of law (“JMOL”). Transocean Offshore Deep-
water Drilling, Inc. v. Maersk Drilling USA, Inc., 699 F.3d
1340, 1347 (Fed. Cir. 2012); Med. Care Am., Inc. v. Nat’l
Union Fire Ins. Co., 341 F.3d 415, 420 (5th Cir. 2003).
    In order to carry its burden of proof on infringement
of claim 57 (and thus of dependent claim 58) under the
parties’ stipulated claim construction, Alexsam needed to
prove both that these systems made use of terminals “of
the type in use as of July 10, 1997,” and also that those
terminals “ha[d] not been reprogrammed, customized, or
otherwise altered with respect to [their] software . . . for
use in the card system.” J.A. 1325 (emphasis added).
      Alexsam’s main witness on infringement was Robert
Baker, an expert on payment systems. Baker testified on
two occasions, without elaboration, that the terminals
used in IDT’s card activations were “unmodified.” See J.A.
13,797, 13,861. When asked by Alexsam’s counsel to
elaborate, Baker testified that “Walgreens’ terminals are
similar to or the same as terminals in use in July of 1997”
with regard to their “basic functions”; that the terminals
“are the same as terminals that existed in July of 1997
from the standpoint that they are able to read a standard
. . . card”; and that “no modification was required” because
IDT’s system “requires the same capabilities as reading a
standard credit card or debit card.” J.A. 13,840, 13,847-48
 ALEXSAM   v. IDT CORP                                  9
(emphases added). He also testified that the terminals
used to activate IDT’s phone cards are “the same as
terminals that existed in July of ’97 with respect to the
ability to read a magnetic stripe and send that infor-
mation on to the next step without any modifications
made to that terminal in that respect.” J.A. 13,855-56.
    At no point did Baker testify, except in the cursory
manner described above, that no modifications were
actually made to the terminals’ software in order to allow
them to activate IDT’s cards. Indeed, Baker admitted on
cross-examination that his testimony was limited to what
was “required” in order to activate an IDT card, and that
he had not expressed an opinion as to whether the actual
POS terminals used in the IDT systems had been “repro-
grammed, customized, or otherwise altered” in any way.
See J.A. 13,901-03. He further testified that he had not
spoken with IDT’s retail or intermediary partners or with
POS suppliers about the terminals used in Alexsam’s
systems. Finally, when pressed further, he admitted that
he was “not an expert on terminals.” J.A. 13,924.
    Alexsam’s other witness, Brent Hranicky, testified
that no modifications were “necessary” to allow a stand-
ard POS terminal to read an IDT card, and that terminals
in use in 1997 could perform “the same basic functions for
use in a card system that are performed by point-of-sale
devices today.” See J.A. 13,685-87, 13,707-08. On cross-
examination, however, Hranicky admitted that he was
not an expert on the “specific feature functionality of the
various terminals.” See J.A. 13,715-16. Hranicky also
admitted that POS terminals can receive software up-
dates, but stated that he is not an expert on these up-
dates, and that he did not “know for sure whether
modifications have, in fact, been made for any reason to”
the terminals. See J.A. 13,728-30.
     We conclude that Alexsam failed to present substan-
tial evidence that the terminals used in IDT’s Walgreens
10                                       ALEXSAM   v. IDT CORP
and EWI systems “ha[d] not been reprogrammed, custom-
ized, or otherwise altered with respect to [their] software
. . . for use in the card system.” See J.A. 1325. The district
court therefore erred in denying Alexsam’s motion for
JMOL of noninfringement as to the Walgreens and EWI
systems.
              B. The Miscellaneous Systems
     The district court deemed the miscellaneous systems
to have infringed Alexsam’s patents as a sanction for
IDT’s failure to disclose the fact that certain of its card
products contained BINs in their card numbers. A district
court’s decision to sanction a litigant under Rule 37 is
reviewed for abuse of discretion. ClearValue, Inc. v. Pearl
River Polymers, Inc., 560 F.3d 1291, 1304 (Fed. Cir. 2009);
Chilcutt v. United States, 4 F.3d 1313, 1319-20 (5th Cir.
1993). Under Fifth Circuit law, which governs here, the
propriety of severe sanctions such as dismissing a claim
or entering default judgment depends on whether the
discovery misconduct “result[ed] from wilfulness or bad
faith”; “the deterrent value of Rule 37 cannot be substan-
tially achieved by the use of less drastic sanctions”; “the
other party’s preparation for trial was substantially
prejudiced”; and the misconduct was “plainly attributable
to an attorney rather than a blameless client,” or to
“confusion or sincere misunderstanding of the court’s
orders.” See Batson v. Neal Spelce Assocs., 765 F.2d 511,
514 (5th Cir. 1985); see also ClearValue, 560 F.3d at 1306.
    For less severe sanctions, however, including deeming
certain facts established for purposes of the litigation, the
Fifth Circuit applies a less-rigorous standard, requiring
only that the sanction be “[j]ust and [f]air,” that it have a
“substantial relationship” to the facts sought to be estab-
lished by the discovery, and that it meet Rule 37’s goals of
punishment and deterrence. See Chilcutt, 4 F.3d at 1319-
21 (citing Ins. Corp. of Ir. v. Compagnie des Bauxites de
 ALEXSAM   v. IDT CORP                                     11
Guinee, 456 U.S. 694 (1982) and Nat’l Hockey League v.
Metro. Hockey Club, Inc., 427 U.S. 639 (1976)).
    We conclude that the sanction imposed on IDT falls
within the category of less-severe sanctions described in
Chilcutt. As in Chilcutt, the court “deemed that the liabil-
ity facts of the plaintiff[’s] case [(in this case, infringe-
ment)] were established,” while “allow[ing] the
[defendant] to present evidence of its affirmative defenses
[(in this case, invalidity)] and requir[ing] the plaintiff to
prove damages.” Chilcutt, 4 F.3d at 1315, 1319. Therefore,
we need only ask whether the sanction was just and fair,
whether it bore a substantial relationship to the facts
sought to be established by Alexsam, and whether it met
Rule 37’s goals of punishment and deterrence. See id. at
1319-21.
    At the start of the litigation, the district court issued a
discovery order requiring both parties to produce “a copy
of all documents . . . relevant to the pleaded claims or
defenses” by October 15, 2008. J.A. 170. This order obli-
gated IDT to disclose which of its cards bore card numbers
that included “a bank identification number approved by
the American Banking Association for use in a banking
network”—an element of each of the claims at issue. See
’608 patent col. 18 ll. 36-39; U.S. Patent No. 6,189,787 col.
13 ll. 56-60. 5 IDT’s production in response to this order
was minimal, however, and did not include documents
disclosing that the cards activated over the miscellaneous
systems were encoded with BINs.
    In March 2010, Alexsam served on IDT an interroga-
tory (“Interrogatory 6”) requesting that IDT “identify the

    5    As noted earlier, the district court defined a bank
identification number, or “BIN,” as “a numeric code [that]
identifies a card-issuing financial institution and that is
sanctioned by the American Bankers Association.” See
J.A. 1328-29.
12                                        ALEXSAM   v. IDT CORP
BINs associated with” each “Accused Card.” J.A. 7741. In
May, Alexsam served another interrogatory (“Interrogato-
ry 8”), requesting that “[f]or each Accused IDT Card
product, [IDT] identify . . . the name of the card product
[and] the BIN[(s)] associated with the card product.” J.A.
7774 (emphasis added). The second request explicitly
defined “Accused IDT Cards” as including “all” IDT gift,
debit, phone, and multifunction cards, and third-party
phone cards activated by IDT, whose “associated identifi-
cation number[s] . . . include[] a BIN.” See J.A. 7770-71
(emphasis added). IDT’s responses to these interrogato-
ries did not identify the cards that were activated over the
miscellaneous systems as BIN-encoded.
     In May and July 2010, Alexsam filed motions to com-
pel complete responses to these interrogatories. Alexsam
noted in particular that IDT had not provided “a complete
list of names of its [BIN-encoded] products or associated
BIN[s],” as required by Interrogatory 8. See J.A. 1339-40.
While Alexsam pointed out that IDT had failed to provide
BINs for several cards about which Alexsam had inquired
by name, Alexsam did not specifically point out IDT’s
failure to disclose the cards activated over the miscellane-
ous system, because Alexsam was not aware at that time
that these cards fell within the scope of IDT’s obligation to
disclose.
     On August 12, the court granted Alexsam’s motions to
compel responses to Interrogatories 6 and 8, finding that
IDT had “repeatedly failed to provide ‘sufficient detail to
enable [Alexsam] to locate and identify’ the answers to
[its] interrogatories.” J.A. 6 (quoting Fed. R. Civ. P. 33(d)).
The court also sanctioned IDT for violating its original
discovery order by prohibiting IDT from producing busi-
ness records in response to interrogatories, and requiring
it instead to “provide written answers to each interrogato-
ry ‘separately and fully in writing under oath.’” J.A. 6-7
(quoting Fed. R. Civ. P. 33(b)(3)). Finally, the court
warned IDT that it faced further sanctions “of increased
 ALEXSAM   v. IDT CORP                                     13
severity,” including a possible striking of its defenses, if it
failed to respond fully to Alexsam’s interrogatories within
twenty-one days. See J.A. 6-7, 2217.
    On September 2, IDT told the court that it had “pro-
vided supplemental and complete responses to all inter-
rogatories.” See J.A. 2222. Nonetheless, four days later,
IDT filed a fourth supplemental response to Interrogatory
6. This supplemental response did not mention the cards
associated with the miscellaneous systems. IDT did not
supplement its previous response to Interrogatory 8. On
September 15, the court held another hearing, at which it
warned of further sanctions if it developed that IDT had
not complied fully with its discovery orders.
    On November 10, Alexsam sent IDT a letter asking it
to describe the encoding schemes used to assign card
numbers to ten specific types of cards that IDT had not
previously identified as bearing BINs, including the cards
that were activated using the miscellaneous systems.
IDT responded by directing Alexsam to a set of documents
produced in the wake of the court’s August 2010 order,
which revealed that several of the cards included BINs in
their card numbers. On December 20, the final day of
discovery, an IDT witness produced documents revealing
that several other cards also carried a BIN. The BIN-
encoded cards disclosed on these two occasions were,
collectively, the cards associated with the miscellaneous
systems.
    Following the close of discovery, Alexsam moved for
sanctions pursuant to Rule 37, alleging that IDT had
violated the court’s discovery orders by failing to disclose
these BIN-encoded cards in a timely manner. The court
granted Alexsam’s motion, sanctioning IDT by deeming
the miscellaneous systems to have infringed Alexsam’s
patents.
     On review, we consider first whether the sanction was
“[j]ust and [f]air.” Chilcutt, 4 F.3d at 1321-24. As part of
14                                      ALEXSAM   v. IDT CORP
this inquiry, the Fifth Circuit considers factors including
(1) whether the sanctioned party was warned of the
impending sanctions, (2) whether the party made
“[e]mpty [p]romises” that it would “comply with its dis-
covery obligations,” (3) whether the claim being pursued
through discovery was not so “frivolous” that the use of
discovery amounted to “an abuse of judicial process,” (4)
whether the sanctioned party bore some degree of culpa-
bility, and (5) whether the court had previously sanc-
tioned the same party. See id. Here, all five factors
support the district court’s sanction.
     Regarding the first factor, IDT received ample warn-
ing on August 12, when the court informed it that
“[f]urther non-compliance will result in sanctions of
increased severity,” up to and including “strik[ing IDT’s]
defenses.” J.A. 7, 2217. As for “[e]mpty [p]romises,” sub-
stantial evidence supports the court’s finding that IDT not
only “misled Alexsam through its [incomplete] discovery
responses,” but also “made false representations to the
court concerning the extent to which it had disclosed its
Blackhawk encoding scheme.” J.A. 17. Regarding the
third factor, Alexsam’s claims were not frivolous, even
though we conclude that Alexsam failed to present sub-
stantial evidence in support of its infringement claims.
With respect to culpability, IDT argues that its failure to
comply with the motions to compel was innocent because
it was simply unaware that the numbers on the late-
disclosed cards included BINs; IDT offers no reason why it
could not have examined the encoding schemes at an
earlier date, though, and determined that they included
BINs. 6 Finally, IDT was previously sanctioned on August


     6  To the extent that IDT asserts that it did not con-
sider the six-digit numbers encoded on these cards to be
BINs because only a number that is actually used to route
a transaction over a banking network can be a BIN, this
defense is foreclosed by the district court’s claim construc-
 ALEXSAM   v. IDT CORP                                   15
12 for incomplete responses to the same interrogatories.
The court’s sanction was therefore just and fair.
     In addition to considering the justice and fairness of
the sanction, we consider whether it bore a “substantial
relationship” to the facts sought to be established by
Alexsam, and whether it met Rule 37’s goals of punish-
ment and deterrence. See Chilcutt, 4 F.3d at 1324-25.
Alexsam sought to discover which cards bore BINs in
order to establish that the systems associated with those
cards infringed the patents in suit. The district court
found that IDT’s “failure to timely produce th[is] infor-
mation . . . caused Alexsam severe prejudice in preparing
its case for trial,” J.A. 17, and as such, a sanction deeming
the concealed systems to infringe clearly bore a “substan-
tial relationship” to the attempted discovery.
    Finally, while IDT argues that lesser sanctions such
as an award of attorneys’ fees would have been sufficient
to meet the purposes of Rule 37, we see no abuse of dis-
cretion in the district court’s sanction, especially in light
of the failure of its earlier sanctions to secure compliance.
We therefore affirm the district court’s judgment deeming
the miscellaneous systems to infringe as a sanction for
IDT’s discovery violations. 7


tion order, entered on June 29, 2010, which defined a BIN
simply as “a numeric code [that] identifies a card-issuing
financial institution and that is sanctioned by the Ameri-
can Bankers Association.” See J.A. 1328-29. The court had
applied this same construction in an earlier litigation
involving the same patent. See id.
    7   Because we reverse the jury’s finding of infringe-
ment as to the Walgreens and EWI cards, we need not
address IDT’s contention that the way in which the court
applied the sanction prejudiced the jury’s consideration of
those cards.
16                                      ALEXSAM   v. IDT CORP
                  C. The SafeNet System
    Alexsam cross-appeals the district court’s decision on
JMOL that the SafeNet system was sublicensed under the
terms of the agreement between Alexsam and Master-
Card. We review a district court’s interpretation of a
contract de novo. Rembrandt Data Techs., LP v. AOL,
LLC, 641 F.3d 1331, 1336 (Fed. Cir. 2011). We agree with
the district court that the activations taking place over
the SafeNet system were sublicensed under the plain
language of the agreement, and therefore affirm the grant
of JMOL.
     The Alexsam-MasterCard agreement defined a “Li-
censed Transaction” as “each process of activating . . . an
account or subaccount which is associated with a transac-
tion that utilizes MasterCard’s network . . . wherein data
is transmitted between a [POS] Device and MasterCard’s
financial network . . . , provided that such process is
covered by one of the Licensed Patents.” J.A. 12,755. The
agreement further stipulated that “Licensed Transac-
tions” include “the entire value chain and all parts of the
transaction and may involve other parties including . . .
processors [and] card vendors.” Id. The contract provided
that “[t]o the extent that these other parties participate in
a Licensed Transaction, they will also be licensed under
this Agreement,” and specified that “[u]nless otherwise
sublicensed as permitted hereunder, all Licensed Trans-
actions shall be deemed sublicensed under an implied
sublicense granted hereunder to all participating parties.”
J.A. 12,755-56 (emphasis added). MasterCard was obli-
gated to report the total number of licensed transactions
to Alexsam at the end of each month, and to pay a fee for
each transaction.
    The district court correctly found that under the plain
terms of this agreement, any activation transaction
covered by the patents in suit and taking place over the
MasterCard network was automatically “deemed subli-
 ALEXSAM   v. IDT CORP                                   17
censed,” without regard to the intent of either Alexsam or
MasterCard regarding that particular transaction. Be-
cause the license was not conditioned on the royalty
payments, the fact that MasterCard refused to pay
Alexsam royalties for IDT’s SafeNet activations did not
retroactively revoke the sublicense under which those
transactions took place. This case is governed by Tessera,
Inc. v. International Trade Commission, 646 F.3d 1357
(Fed. Cir. 2011), 8 and there were no disputed issues of
material fact to be submitted for determination by the
jury.
                         II. Validity
    A patent claim is invalid if “the differences between
the subject matter [of the claim] 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.” 35 U.S.C. § 103(a)
(2006). The party challenging the patent bears the burden
of proving invalidity by clear and convincing evidence.
Microsoft Corp. v. i4i Ltd. P’ship, 564 U.S. __, __, 131 S.
Ct. 2238, 2242 (2011). 9 While obviousness is a question of


    8   See 646 F.3d at 1370 (“[T]here is nothing in any of
the license agreements to even remotely suggest that the
existence of a condition subsequent, namely, the payment
of royalties, operates to convert . . . authorized sales into
unauthorized sales . . . . That some licensees subsequently
renege or fall behind on their royalty payments does not
convert a once authorized sale into a non-authorized sale.
Any subsequent non-payment of royalty obligations
arising under the . . . Licenses would give rise to a dispute
with [the patent owner’s] licensees, not with its licensees’
customers.”).
    9   IDT argues that because the parties stipulated
that the jury should be instructed on a preponderance-of-
the-evidence standard, we should apply that standard, as
18                                      ALEXSAM   v. IDT CORP
law, it is based on several underlying questions of fact,
including “the scope and content of the prior art” and the
nature of any “differences between the prior art and the
claims at issue.” Transocean, 699 F.3d at 1347 (citing
Graham v. John Deere Co. of Kan. City, 383 U.S. 1, 17-18
(1966)).
    IDT argues first that claims 57 and 58 of the ’608 pa-
tent would have been obvious in light of U.S. Patent No.
5,477,038 (“Levine”). Levine discloses a system for acti-
vating electronic travelers’ check cards using “a terminal
(which could be a telephone).” Levine col. 4 ll. 35-36. The
parties dispute whether this disclosure satisfies the
“unmodified existing standard retail point-of-sale device”
limitation of the ’608 patent. Levine teaches that the
activation terminal must transmit not only the card’s
“serial number” and the amount of money to be loaded
onto the card, but also certain “customer data,” including
“the customer’s name and other identifying information.”
Levine col. 2 ll. 31-35; id. col. 4 ll. 31-36. At trial,
Alexsam’s witness testified that “a person of ordinary skill
would clearly understand” that a standard, unmodified
POS terminal cannot transmit such customer data. See
J.A. 14,707; see also J.A. 14,711. IDT’s own witness con-
ceded as much, but suggested that Levine in fact discloses
two embodiments, one of which uses a standard POS
terminal and does not involve the transmission of the full
set of data recited in the specification. In reviewing the
jury’s verdict of nonobviousness, “we must presume that
the jury resolved all factual disputes in favor of the pre-
vailing party.” Transocean, 699 F.3d at 1347. We there-
fore presume that the jury rejected IDT’s two-embodiment

well. We reject this argument. Courts are “not bound to
accept, as controlling, stipulations as to questions of law.”
Estate of Sanford v. Comm’r, 308 U.S. 39, 51 (1939);
Technicon Instruments Corp. v. Alpkem Corp., 866 F.2d
417, 421-22 (Fed. Cir. 1989).
 ALEXSAM   v. IDT CORP                                   19
theory, and concluded that Levine’s reliance on additional
“customer data” is incompatible with a disclosure of the
use of an “unmodified existing standard retail point-of-
sale device.” 10
    In the alternative, IDT argues that claims 57 and 58
would have been obvious over a combination of Levine
and either one of two other patents, both of which suppos-
edly supply the missing element of a standard, unmodi-
fied POS terminal. Even if these references do disclose
this element, IDT would still need to show that a person
having ordinary skill in the art would have been motivat-
ed to combine one of these patents with Levine in order to
achieve the claimed invention. See Wyers v. Master Lock
Co., 616 F.3d 1231, 1238-40, 1243-45 (Fed. Cir. 2010).
Even though IDT bore the burden of proving this fact by
clear and convincing evidence, it did not introduce any
expert testimony about whether a skilled artisan would
have been motivated to combine the various references to
achieve the claimed invention.
    On appeal, IDT asserts that expert testimony was not
necessary and that the introduction of the references
themselves was sufficient. IDT cites our decision in Wyers
for the proposition that “expert testimony is not required
when the references and the invention are easily under-
standable.” See id. at 1242; Perfect Web Techs., Inc. v.
InfoUSA, Inc., 587 F.3d 1324, 1329 (Fed. Cir. 2009). In
Wyers, however, we also noted that “‘expert testimony


   10   Because substantial evidence supports the jury’s
finding that Levine does not disclose this limitation, we
necessarily reject IDT’s argument that Levine anticipates
these claims, as well. See In re Robertson, 169 F.3d 743,
745 (Fed. Cir. 1999) (“Anticipation . . . requires that each
and every element [of] the claim is found, either expressly
or inherently described, in a single prior art reference.”
(quotation marks omitted)).
20                                      ALEXSAM   v. IDT CORP
regarding matters beyond the comprehension of layper-
sons is sometimes essential,’ particularly in cases involv-
ing complex technology.” Wyers, 616 F.3d at 1240 n.5
(quoting Centricut, LLC v. Esab Grp., Inc., 390 F.3d 1361,
1369-70 (Fed. Cir. 2004)); see also Perfect Web, 587 F.3d at
1330 (“If the relevant technology were complex, the court
might require expert opinions.”); Proveris Sci. Corp. v.
Innovasystems, Inc., 536 F.3d 1256, 1267 (Fed. Cir. 2008)
(affirming the district court’s requirement of expert
testimony to prove invalidity where “th[e] subject matter
[wa]s sufficiently complex to fall beyond the grasp of an
ordinary layperson”).
    In this case, the technology was complex and the pri-
or-art references were not easily understandable without
expert testimony. The claim that the technology is simple
is belied by the fact that both sides believed it necessary
to introduce extensive expert testimony regarding the
content of the prior art. Expert testimony was required
not only to explain what the prior-art references disclosed,
but also to show that a person skilled in the art would
have been motivated to combine them in order to achieve
the claimed invention. IDT provided no such expert
testimony.
    Substantial evidence therefore supports the jury’s
finding that claims 57 and 58 are not invalid.
                       CONCLUSION
    We affirm the jury’s finding of no invalidity regarding
claims 57 and 58 of the ’608 patent, as well as the district
court’s judgments regarding the miscellaneous and
SafeNet systems. We reverse the judgment of infringe-
ment regarding the Walgreens and EWI systems. We
remand for the district court to recalculate Alexsam’s
damages accordingly.
     AFFIRMED-IN-PART, REVERSED-IN-PART,
               AND REMANDED
ALEXSAM   v. IDT CORP           21
                        COSTS
  Costs to neither party.
  United States Court of Appeals
      for the Federal Circuit
                 ______________________

                   ALEXSAM, INC.,
                Plaintiff-Cross Appellant,

                            v.

                 IDT CORPORATION,
                  Defendant-Appellant.
                 ______________________

                    2012-1063, -1064
                 ______________________

   Appeals from the United States District Court for the
Eastern District of Texas in No. 07-CV-0420, Magistrate
Judge Charles Everingham.
                 ______________________
MAYER, Circuit Judge, dissenting.
    I respectfully dissent. There can be no infringement
of U.S. Patent No. 6,000,608 (the “’608 patent”) because it
is invalid. Asserted claims 57 and 58 disclose nothing
more than an abstract idea for making a business run
more efficiently, thereby failing to meet the subject mat-
ter eligibility requirements set forth in 35 U.S.C. § 101.
    Whether claims are directed to statutory subject mat-
ter is a “threshold” question, Bilski v. Kappos, 130 S. Ct.
3218, 3225 (2010), which must be addressed before this
court can consider subordinate issues related to obvious-
ness and infringement. See Parker v. Flook, 437 U.S. 584,
593 (1978) (“Flook”) (emphasizing that “[t]he obligation to
determine what type of discovery is sought to be patent-
2                                      ALEXSAM   v. IDT CORP
ed” so as to determine whether it falls within the ambit of
section 101 “must precede the determination of whether
that discovery is, in fact, new or obvious” (emphasis
added)); In re Comiskey, 554 F.3d 967, 973 (Fed. Cir.
2009) (“Only if the requirements of § 101 are satisfied is
the inventor allowed to pass through to the other re-
quirements for patentability, such as novelty under § 102
and . . . non-obviousness under § 103.” (citations and
internal quotation marks omitted)). The ’608 patent falls
outside the ambit of section 101 because it discloses no
“inventive concept,” Mayo Collaborative Servs. v. Prome-
theus Labs., Inc., 132 S. Ct. 1289, 1294 (2012) (citations
and internal quotation marks omitted), that would even
arguably confer subject matter eligibility.
     The ’608 patent is directed to a system for activating
gift and pre-paid telephone cards at the time that they are
purchased. In the past, retailers often installed dedicated
“activation terminals” in their stores in order to activate
such cards. Robert Dorf, the named inventor on the ’608
patent, decided that the activation process could be made
more efficient and less expensive if gift and pre-paid
telephone cards could be activated using the point-of-sale
terminals that are commonly used for processing credit
card transactions. Thus, instead of activating a card by
swiping it through a dedicated activation terminal, a store
employee could simply swipe it through the terminal used
for processing credit card transactions.
    Significantly, the ’608 patent makes clear that no new
technology is required in order to allow standard point-of-
sale devices to activate gift and pre-paid telephone cards.
To the contrary, claim 57 recites that the cards can be
activated using “unmodified existing standard retail
point-of-sale device[s].” ’608 patent col.18 ll.42-43 (em-
phasis added). During prosecution, Dorf asserted that his
claimed system allowed cards to be activated using the
“ubiquitous existing banking network” and that no “cus-
tom software” was required. J.A. 16981. Dorf empha-
 ALEXSAM   v. IDT CORP                                     3
sized that the “great benefit” of his system over the prior
art was that existing point-of-sale devices could be used to
activate cards with “no additional programming.” Id.
Accordingly, the trial court’s claim construction—which
was agreed to by all parties—requires use of a terminal
“that has not been reprogrammed, customized, or other-
wise altered with respect to its software or hardware for
use in the card system.” J.A. 14822.
    This appeal thus presents the anomalous situation in
which a patentee attempts to preserve the validity of his
claims by arguing that they contain nothing new. * In-
stead, the “great benefit,” J.A. 16981, of the ’608 patent is


    *
         At the time of Dorf’s application, existing point-of-
sale terminals were pre-programmed to read bank identi-
fication numbers (“BINS”) associated with different card-
issuing institutions. J.A. 13464-71; 14504. Dorf simply
added BINS to gift and pre-paid telephone cards, thereby
allowing them to be read by “unmodified existing stand-
ard retail point-of-sale device[s].” ’608 patent col. 18 ll.
35-43; see J.A. 13466. The practice of encoding various
types of cards with identification numbers for processing
by banks and other card-issuing institutions was well-
known in the art at the time Dorf filed his application.
See U.S. Patent No. 5,477,038 (“The card has a magnetic
stripe with an encoded card number including a bank
identification number (BIN) and an account number.”);
see also U.S. Patent No. 6,270,012 col. 5 ll. 10-15 (describ-
ing a debit card which functions as a prepaid telephone
card and which contains a magnetic stripe that is swiped
through “well-known magnetic stripe reading equipment
. . . common in retail establishments for credit card trans-
actions”). Indeed, Alexsam’s expert, Robert Baker, con-
ceded that every element of claims 57 and 58 was already
in the prior art or “available in the industry” prior to the
effective filing date of the ’608 patent. J.A. 14738-42.
4                                       ALEXSAM   v. IDT CORP
that it discloses no new hardware or software, but instead
relies on the use of unmodified existing terminals for
activating gift and pre-paid telephone cards. In essence,
the ’608 patent discloses nothing more than the “abstract
idea” that it is less expensive and more efficient to acti-
vate pre-paid cards on the point-of-sale devices used to
process credit cards.
     “[T]he patent system represents a carefully crafted
bargain that encourages both the creation and the public
disclosure of new and useful advances in technology, in
return for an exclusive monopoly for a limited period of
time.” Pfaff v. Wells Elecs., Inc., 525 U.S. 55, 63 (1998). A
patentee does not uphold his end of this bargain if he
seeks broad monopoly rights over a fundamental concept
or basic idea without a concomitant contribution to the
existing body of scientific and technological knowledge. In
Bilski, an application was rejected as patent ineligible
because it did not “add” anything to the basic concept of
hedging against economic risk. 130 S. Ct. at 3231 (em-
phasizing that the application applied the concept of
hedging using “well-known random analysis techniques”).
In Mayo, likewise, process claims were invalidated under
section 101 because they simply described a law of nature
and applied it using “well-understood, routine, [and]
conventional” means. 132 S. Ct. at 1294. A similar
analysis applies here. The asserted claims of the ’608
patent fall outside section 101 because they simply de-
scribe the idea that it would be less expensive to use the
terminals that are already present in retail locations to
activate gift and pre-paid telephone cards, and then apply
that idea using existing technology. See Bilski, 130 S. Ct.
at 3230 (“[T]he prohibition against patenting abstract
ideas ‘cannot be circumvented by’ . . . adding ‘insignificant
postsolution activity.’” (quoting Diamond v. Diehr, 450
U.S. 175, 191-92 (1981)); Flook, 437 U.S. at 590 (rejecting
“[t]he notion that post-solution activity, no matter how
 ALEXSAM   v. IDT CORP                                    5
conventional or obvious in itself, can transform an un-
patentable principle into a patentable process”).
     The analysis of subject matter eligibility under section
101 often turns on the extent to which a patentee seeks to
preempt future use of a fundamental concept or basic
idea. See Mayo, 132 S. Ct. at 1294 (concluding that claims
failed to disclose statutory subject matter where “uphold-
ing the patents would risk disproportionately tying up the
use of the underlying natural laws, inhibiting their use in
the making of further discoveries”); Bilski, 130 S. Ct. at
3231 (“Allowing petitioners to patent risk hedging would
preempt use of this approach in all fields, and would
effectively grant a monopoly over an abstract idea.”).
Here, the asserted claims disclose no new technology, and
yet have the potential to wield enormous preemptive
power. ** Alexsam, Inc. (“Alexsam”) has filed suit against
a wide array of merchants, seeking damages for infringe-
ment whenever a conventional or online retailer uses the
existing banking network to process gift and other pre-
paid cards. See, e.g., Alexsam, Inc. v. Best Buy Stores L.P.,
No. 2:10CV93, 2012 U.S. Dist. LEXIS 49511, at *8-9 (E.D.
Tex. April 9, 2012) (describing Alexsam’s claims against
parties such as Barnes & Noble, Inc., The Gap, Inc., J.C.
Penney Company, Inc., McDonald’s Corporation, Best Buy
Stores LP, and The Home Depot, U.S.A., Inc.). Alexsam’s
broad claims—which cover not only gift cards and pre-
paid telephone cards, but also customer “loyalty” cards
and “medical information” cards—threaten to preempt
some of the “basic tools” of modern commerce. See
Gottschalk v. Benson, 409 U.S. 63, 67 (1972) (“Phenomena

    **
        The ’608 patent covers a broad range of point-of-
sale devices, including a card swipe device, a cash regis-
ter, and a computer terminal. ’608 patent col.4 ll.28-35.
6                                       ALEXSAM   v. IDT CORP
of nature, though just discovered, mental processes, and
abstract intellectual concepts are not patentable, as they
are the basic tools of scientific and technological work.”);
see also Bilski, 130 S. Ct. at 3229 (“If a high enough bar is
not set when considering [business method] patent appli-
cations . . ., patent examiners and courts could be flooded
with claims that would put a chill on creative endeavor
and dynamic change.”).
    The ’608 patent, like the application seeking patent
protection for a method of hedging against risk in Bilski,
130 S. Ct. at 3230-31, describes an idea for making busi-
ness run more efficiently, but it does not disclose any
technological advance sufficient to confer patent eligibil-
ity. Because the asserted claims “simply append[] con-
ventional steps” to an otherwise abstract idea, they fall
outside the ambit of section 101. Mayo, 132 S. Ct. at 1300
(“[S]imply appending conventional steps, specified at a
high level of generality, to laws of nature, natural phe-
nomena, and abstract ideas cannot make those laws,
phenomena, and ideas patentable.”); see also Flook, 437
U.S. at 594 (concluding that claims were barred by section
101 where they described an algorithm, but disclosed no
“inventive concept in in its application”).
