A recent decision from the U.S. Court of Appeals for the Federal Circuit serves as an important reminder that those rules of evidence you studied during law school can prove critically important, including in connection with infringement issues in software patent litigation. In Wi-LAN v. Sharp Electronics, No. 1:15-cv-00379-LPS (Fed. Cir. April 6, 2021), the Federal Circuit affirmed a Delaware district court's ruling that the patentee's infringement evidence, which purported to contain the source code necessary to prove the defendant's infringement, was inadmissible because it contained hearsay and did not fall within the business record exception.

The decision is a reminder for both patent holders and accused infringers regarding the proofs that may be necessary in order to admit into evidence source code which, in software cases, can frequently be a critical part of the evidence—both at trial, and even before that as part of summary judgment motions.

The Rule Against Hearsay

Every former law student and practicing litigator will have some familiarity with the rule against "hearsay"— a statement that a declarant makes out of court, not while testifying at the current trial or hearing, and which a party offers into evidence to prove the truth of the matter asserted in the statement. Fed. R. Evid. 801, 802. This restriction on hearsay is based on the concern that it can be very difficult to establish the credibility and reliability of the statement when the person quoted (1) made the statement in a circumstance in which they were not under oath in the first place, and (2) is not present for cross examination, for example, as would be the case when a witness takes the stand at a trial and offers that same statement as their own live testimony. The importance of cross examination cannot be overstated; as was observed by John Henry Wigmore, it is "beyond any doubt the greatest legal engine ever invented for the discovery of truth." 3 Wigmore, Evidence §1367, p. 27 (2d ed. 1923).

The rule against hearsay does not only impact oral statements—it also applies to written documents, and, unless the proffered evidence falls within one of the multitude of hearsay exceptions or statements that are otherwise categorized as nonhearsay, it is inadmissible in court. One of the most well-known and frequently relied upon exceptions is the "business records exception" found in Federal Rule of Evidence 803(6). Under FRE 803(6), a business record is admissible if "(A) the record was made at or near the time by—or from information transmitted by—someone with knowledge; (B) the record was kept in the course of a regularly conducted activity of a business, organization, occupation, or calling, whether or not for profit; (C) making the record was a regular practice of that activity; (D) all these conditions are shown by the testimony of the custodian or another qualified witness, or by a certification that complies with Rule 902(11) or (12) or with a statute permitting certification; and (E) the opponent does not show that the source of information or the method or circumstances of preparation indicate a lack of trustworthiness."

In other words, first, the record cannot have been made in preparation for or as part of the litigation, because such records may likely be inherently untrustworthy or biased, and, second, the record's custodian must attest to this fact.

Even when a record is deemed to be inadmissible hearsay, though, its contents can sometimes still find their way into evidence through other mechanisms and for other purposes. For example, when an expert testifies at a trial, he or she may base an opinion on facts which would otherwise be inadmissible "[i]f experts in the particular field would reasonably rely on those kinds of facts or data in forming the opinion to be admitted." Fed. R. Evid. 703.

Evidence Presented in 'Wi-LAN'

Wi-LAN sued defendants Sharp Electronics and Vizio for infringement of two patents relating to television technologies, U.S. Patent Nos. 6,359,654 ("the '654 patent") 6,490,250 ("the '250 patent"). Wi-LAN at 3. According to Wi-LAN, smart TV products sold by the defendants infringed based on their use of "system-on-a-chip" components provided by third-party chip makers, which practice the deinterlacing and optimized bit streaming functions of the asserted claims.

With respect to the '654 patent in particular, Wi-LAN relied on source code documents from the third-party chipmakers, including both source code printouts and declarations from employees of those chipmakers purporting to authenticate the source code printouts. Id. at 7. The parties filed cross-motions for summary judgment, Chief Judge Stark held that the source code records proffered by Wi-LAN and the expert testimony relying on those records were inadmissible, and as a result granted the defendants' motions for summary judgment of no-infringement. Wi-LAN appealed to the Federal Circuit, focusing in part on the district court's finding of inadmissibility of the source code.

Appeal to the Federal Circuit

On appeal, Wi-LAN argued that the district court erred in excluding the source code because, according to Wi- LAN, the source code was admissible under the business records exception to hearsay, and, in any event, its expert witness could properly have testified as to the source code under Federal Rule of Evidence 703.

At the outset, the court noted that for the source code to be admissible, Wi-LAN would have to prove through a trustworthy source, such as a custodian of the records or another qualified witness, that the business record exception requirements of 803(6) are met. To authenticate the records, Wi-LAN offered declarations from employees of the chip manufacturer. The Federal Circuit agreed with the district court, however, and found that the requirements of 803(6)(D) were not met because a declaration is a proper substitute for testimony only if the declarant is available for trial. Here, because Wi-LAN conceded it could not force the third-party chip manufacturer's employees to testify— and in fact because those chip manufacturers were not cooperating—the declarants would be unavailable for trial. Wi-LAN at 9. Therefore, even if the other requirements of the business records exception had been met in this case, the court found that the source code would still not be admissible.

Wi-LAN argued that the declarations themselves should have been admissible as business records under Rule 803(6). However, the touchstone of the business records exception is that the proffered evidence is created in the normal course of business, and not in anticipation of or otherwise as part of litigation. The court found, and Wi-LAN conceded that, in this case, the declarations were received from the chip manufacturers' employees only after Wi-LAN sued those companies, and as a direct result of that litigation. Id. at 10. Therefore, the court found the declarations failed to meet the requirements of at least Rule 803(6)(B) because they were not generated in the course of regular business activities.

Alternatively, Wi-LAN also argued that the source code should have been admitted under Federal Rule of Evidence 703 in two ways. First, Wi- LAN argued that its expert should have been allowed to opine on the source code, even if it were hearsay, and that this testimony should have been admissible. Second, as a consequence, Wi-LAN argued that the source code itself could have been provided to the jury in support of that expert testimony. On the first issue, the court held that Wi-LAN did not prove "that experts in the field 'reasonably rely' on unauthenticated source code." Id. at 14. The court explained that experts may be permitted to rely on inadmissible data in forming their opinions, in circumstances in which experts would reasonably rely on such data.

Here, the Federal Circuit accepted Wi-LAN's argument that experts often rely on source code in support of infringement opinions, but explained that experts do not reasonably rely on such source code that is unauthenticated. Id. at 17. Thus, the opinions of Wi-LAN's infringement expert relying on the source code were deemed inadmissible.

On the second issue, the court rejected Wi-LAN's argument that evidence became admissible if an expert could rely on it to support his or her opinion. Id. at 14. In fact, the court explained, the opposite is true: Even if an expert relies on inadmissible evidence to support an opinion, that evidence may be admitted only if, in the trial judge's discretion, the evidence's probative value substantially outweighs its prejudicial effect—and even then, only as non-substantive evidence subject to an appropriate limiting instruction to the jury. As part of this analysis, the court warned against the use of experts as "mouthpieces" for inadmissible hearsay and criticized Wi-LAN for its effort to "backdoor" the hearsay through the expert. Id. at 16.

Conclusion

Because the Federal Circuit agreed with the district court that the source code constituted inadmissible hearsay, Wi-LAN ultimately had insufficient evidence to prove infringement. The court also agreed with the district court that Wi-LAN "had ample time and opportunities over years of litigation to obtain evidence of infringement from the [system-on-chip] manufacturers." Id. at 18. While IP trial lawyers often focus on hearsay issues and other nuances in the rules of evidence in the lead-up to a trial, the decision provides a reminder that patent litigators should be thinking about these issues far earlier, including during discovery and with a laser focus as part of summary judgment motions. In the end, the case presents a cautionary tale for patent plaintiffs—do everything within your power, and then some, to ensure your evidence of infringement will not be excluded as hearsay—but also a potential opportunity for an accused infringer to defend a software case based on the important but sometimes overlooked (especially at the summary judgment stage) restrictions on hearsay in the rules of evidence.

*This article was previously published in the New York Law Journal on May 26, 2021.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.