Cloudofchange, LLC v. Ncr Corporation

23-1111Court of Appeals for the Federal CircuitDec 18, 2024

Full text

United States Court of Appeals
for the Federal Circuit
______________________
CLOUDOFCHANGE, LLC,
Plaintiff-Appellee
v.
NCR CORPORATION,
Defendant-Appellant
______________________
2023-1111
______________________
Appeal from the United States District Court for the
Western District of Texas in No. 6:19-cv-00513-ADA, Judge
Alan D. Albright.
______________________
Decided: December 18, 2024
______________________
J ERRY ROBIN SELINGER , Patterson & Sheridan LLP,
Dallas, TX, argued for plaintiff-appellee. Also represented
by K YRIE CAMERON, BARDEN T ODD P ATTERSON, J OHN
ALLEN YATES , Houston, TX.
P AUL WHITFIELD HUGHES , III, McDermott Will & Em-
ery LLP, Washington, DC, argued for defendant-appellant.
Also represented by ADAM WILLIAM BURROWBRIDGE ;
K ATHERINE M. P APPAS , Irvine, CA.
______________________
Before D YK, REYNA, and STOLL , Circuit Judges.
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CLOUDOFCHANGE, LLC v. NCR CORPORATION 2
STOLL , Circuit Judge.
This case asks us to consider again whether to attrib-
ute a customer’s use of a claimed system to the manufac-
turer of only part of the system. Appellant NCR
Corporation (“NCR”) appeals the United States District
Court for the Western District of Texas’s denial of judg-
ment as a matter of law (“JMOL”) of no direct infringe-
ment. NCR asserts it could not directly infringe the claims
of U.S. Patent Nos. 9,400,640 and 10,083,012 as a matter
of law because NCR itself does not use the claimed system;
rather, its merchants do. The district court found that the
merchants’ use of the system could be attributed to NCR
under our precedent involving divided infringement and
principles of vicarious liability. For the following reasons,
we reverse.
BACKGROUND
I
CloudofChange, LLC (“CloudofChange”) sued NCR, al-
leging infringement of the ’640 and ’012 patents (collec-
tively, the “Asserted Patents”). The Asserted Patents
share a specification and a priority date of February 5,
2008. The shared specification discloses an online web-
based point-of-sale-builder system that a non-expert busi-
ness operator can use to assemble a point of sale (“POS”)
system for managing their business operations. ’640 pa-
tent, col. 1 ll. 10–18. The specification explains that the
conventional process of assembling a POS system required
manually coding information, such as menu selections, and
defining the position and operation of touch screen keys
and their database correspondence. Id. at col. 1 ll. 20–32.
According to the specification, this process was time-con-
suming and prone to mistakes, only specially trained indi-
viduals could build or change POS screens, and store
owners tended to retain out-of-date POS screens to avoid
the editing process. Id. at col. 1 ll. 32–37.
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CLOUDOFCHANGE, LLC v. NCR CORPORATION 3
The disclosed object of the Asserted Patents is “to pro-
vide an online, web-based point of sale builder system,” id.
at col. 2 ll. 3–4, that a non-expert business operator can use
to assemble a POS system, which she could then use to
manage her business.
Figure 3 of the Asserted Patents, reproduced below, il-
lustrates an embodiment of the web-based POS system. Id.
Fig. 3; col. 3 ll. 38–49. As shown, “[t]here are N POS ter-
minals (POS 1, POS 2, . . . POS N) in ‘Store’ 31 and in
‘Store’ 32.” Id. at col. 3 ll. 37–40. “Each POS includes per-
sonal computer hardware and software,” and “[e]ach POS
operates with a hardware/software connection 35 to the In-
ternet.” Id. at col. 3 ll. 40–41, 43–44. Connection 35 allows
each POS to communicate via Hypertext Transfer Protocol
(HTTP) with Back-Office (“BO”) software implemented on
web servers 36. Id. at col. 4 ll. 16–19. “In addition, the BO
software and data can be viewed from any store employee
at any PC 33 who has Internet access 37 and a password.”
Id. at col. 4 ll. 20–22.
Id. Fig. 3.
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CLOUDOFCHANGE, LLC v. NCR CORPORATION 4
Claim 1 of the ’640 patent is illustrative of the asserted
claims and recites:
1. A web-based point of sale (POS) builder system
comprising:
one or more point of sale terminals, that display
POS screens,
an internet connection from said one or more point
of sale terminals to a web server,
one or more local or remote POS workstations, and
point of sale builder software that runs on said web
server, wherein said local or remote workstations
are utilized to build or edit said POS terminals in
real time, from anywhere in the world and over the
worldwide web,
wherein said web servers are provided as a vendor
subscription service wherein web server software
resides and is hosted on said vendor’s remote serv-
ers and wherein subscriber company’s POS termi-
nals access and repeatedly interact with said web
server software from said vendor’s remote servers,
in order to perform the subscriber’s desired termi-
nal function, over a network, wherein the network
comprises the Internet.
Id. at col. 6 ll. 11–28 (emphasis added). The claims ex-
pressly require two entities: a vendor and a subscriber.
The claims require the vendor’s remote servers to host the
web server software while subscribers possess the POS ter-
minals that access the web server software.
II
CloudofChange accused NCR’s product, NCR Silver, of
infringing several claims of the Asserted Patents. NCR Sil-
ver is a web-based POS solution designed for small and in-
dependent business owners. NCR Silver allows
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CLOUDOFCHANGE, LLC v. NCR CORPORATION 5
merchants1 to edit POS menus, perform transactions, and
build their own POS screens.
Relevant here, a merchant’s use of NCR Silver requires
application software, POS hardware—such as a tablet or
personal computer—and an Internet connection to NCR’s
backend servers. It is undisputed that NCR does not pro-
vide all the necessary components of the accused system.
Specifically, (1) NCR contractually makes users responsi-
ble for supplying and maintaining an Internet connection,
which is necessary to use NCR Silver; and (2) most users
supply their own POS hardware. While most merchants
supply the POS hardware, a small number of merchants
obtain the hardware from NCR. Hardware products avail-
able through NCR include tablets, display screens, pay-
ment processors, and cash drawers. Merchants download
NCR Silver software from an app store onto their POS
hardware.
III
In the district court, CloudofChange pursued a single
theory of infringement: that NCR directly used the
claimed system by putting it into beneficial use under this
court’s Centillion precedent. Centillion Data Sys., LLC
v. Qwest Commc’ns Int’l, Inc., 631 F.3d 1279 (Fed. Cir.
2011). Specifically, CloudofChange asserted that NCR con-
trols and benefits from each component recited in the
claimed system and thus, under Centillion, uses the sys-
tem. CloudofChange abandoned all other infringement
theories, including induced infringement, contributory in-
fringement, and direct infringement by importing, making,
or selling the claimed system. The district court observed
that CloudofChange’s “proof requirements are particularly
1 NCR refers to its customers as merchants. Appel-
lee’s Br. 10. This opinion refers to users, customers, and
merchants interchangeably.
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CLOUDOFCHANGE, LLC v. NCR CORPORATION 6
difficult” because CloudofChange “only asserts a direct in-
fringement theory of ‘use’ against NCR” and “abandoned
all other theories.” Cloudofchange, LLC v. NCR Corp.,
No. W-19-cv-00513-ADA, 2022 WL 15527756, at *5
(W.D. Tex. Oct. 27, 2022). Under CloudofChange’s theory
“[i]t’s the defendant [NCR] that uses the Internet connec-
tion as part of the system,” and thus has “control and ben-
eficial use of the system per Centillion.” J.A. 8195 (Pretrial
Conference Tr. 45:16–18).
At trial, CloudofChange’s technical expert, Gregory
Crouse, testified that a customer-merchant downloads the
NCR Silver software from an app store onto a POS termi-
nal such as a tablet. He explained that a merchant can use
NCR Silver, for example, to add new categories and add or
edit buttons on the merchant’s POS screens. He also testi-
fied that using NCR Silver requires an Internet connection
between the merchant’s POS terminal and NCR’s backend
server. Mr. Crouse concluded that use of NCR Silver in-
fringed claim 1 of the ’640 patent, but he did not discuss
how that use could be attributed to NCR, as opposed to the
merchants or users of NCR Silver.
CloudofChange’s direct infringement theory turned on
its argument that “NCR controls and benefits from its Sil-
ver system, including the requirement that customers who
use the system supply an internet connection and network
access to do so.” J.A. 11059. In support of this argument,
CloudofChange pointed to Mr. Crouse’s testimony that a
merchant who purchases NCR Silver must supply their
own Internet access to use NCR Silver. CloudofChange
also introduced into evidence NCR Silver’s Merchant
Agreement, which directs the merchant to “maintain Inter-
net access at your own expense” to use the service.
J.A. 15490. For its part, NCR did not dispute that its Mer-
chant Agreement makes Internet access the merchant’s re-
sponsibility; rather, NCR argued that this does not
demonstrate control of the merchant’s use of NCR Silver.
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CLOUDOFCHANGE, LLC v. NCR CORPORATION 7
On cross-examination, CloudofChange’s technical ex-
pert, Mr. Crouse, agreed that it is NCR’s customer-mer-
chants who put NCR Silver into service and benefit from
using it. J.A. 9049 (Trial Tr. 469:6–25); J.A. 9051 (Trial
Tr. 471:17–25). The following exchange from NCR’s cross-
examination of Mr. Crouse is illustrative:
Q. And so as part of the merchant agreement, NCR
tells customers that they need to get their own In-
ternet access, correct?
A. Yes, sir.
Q. Okay. And so it’s the consumers, the merchants
that actually use NCR Silver, correct, in their retail
operations?
A. Yes, sir.
Q. Okay. So you admit that a merchant who pur-
chases the NCR Silver has to obtain their own In-
ternet access, don’t you?
A. Yes, sir.
Q. Okay. You admit that the merchants put NCR
Silver into service, don’t you?
A. Yes, sir.
. . . .
Q. You admit that merchants benefit from the use
of NCR Silver, don’t you?
A. Yes, sir. I do.
J.A. 9049 (Trial Tr. 469:6–25). Citing this testimony, NCR
timely moved for JMOL under Federal Rule of Civil Proce-
dure 50(a), arguing that no reasonable jury could find in-
fringement.
After a four-day trial, the jury found that NCR directly
infringed all asserted claims, including claims 1, 3, 4, 5, 6,
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CLOUDOFCHANGE, LLC v. NCR CORPORATION 8
11, 12, and 13 of the ’640 patent and claims 1–4 of the
’012 patent (collectively the “Asserted Claims”). The jury
also found that NCR had not proven that the Asserted
Claims were invalid. Finally, the jury found NCR’s in-
fringement willful and awarded CloudofChange lump sum
damages totaling $13.2 million.
NCR then renewed its motion for JMOL under
Rule 50(b) or, in the alternative, moved for a new trial un-
der Rule 59. NCR’s renewed motion challenged the verdict
for five principal reasons: (1) the jury was erroneously in-
structed; (2) the district court erred by failing to interpret
the claim term “builder”; (3) the Asserted Claims are inva-
lid; (4) NCR does not use the claimed system (and thus
does not infringe) as a matter of law; and (5) the jury’s
award of damages under the entire market value rule was
erroneous.
Most relevant to this opinion, NCR argued it was enti-
tled to JMOL of no infringement because CloudofChange
did not offer substantial evidence that NCR (as opposed to
its merchant customers) controls and benefits from every
element of the claimed system as required by Centillion.
Specifically, NCR argued that “[s]imilar to Qwest [the ac-
cused infringer in Centillion], NCR does not infringe the
asserted system claim because ‘the entire system is not
used until a customer loads software on its personal com-
puter and processes data.’” J.A. 10781 (quoting Centillion,
631 F.3d at 1287). NCR pointed to CloudofChange’s ex-
pert’s admission that NCR’s merchants, not NCR, put NCR
Silver into service, control their use of NCR Silver, and
benefit from the use of NCR Silver.
The district court held that substantial evidence sup-
ported the jury’s infringement findings and denied NCR’s
JMOL motion. In so holding, the court acknowledged that
NCR is liable for direct infringement for “use” only if it con-
trols the system and obtains benefit from it. But the court
explained that the “sticking point is whether
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CLOUDOFCHANGE, LLC v. NCR CORPORATION 9
[CloudofChange] provided substantial evidence to support
a theory of vicarious liability as to certain claim elements.”
Cloudofchange, 2022 WL 15527756, at *5.
The district court first held “that NCR, although it
owns and operates the Back Office, does not put the ac-
cused system into service because it does not itself control
the network.” Id. at *7. Instead, the court concluded that
NCR’s merchants were analogous to the accused infringer’s
customers in Centillion because the merchants benefit
from and put the system into service by initiating demand
for service at the front-end. Accordingly, the district court
held that NCR’s customers—not NCR—“put the accused
system into service by obtaining internet access” and
“therefore, control this portion of the accused system.” Id.
The court then turned to whether the merchants’ use
of NCR Silver could be attributed to NCR under Centillion
and Akamai Technologies, Inc. v. Limelight Networks, Inc.,
797 F.3d 1020 (Fed. Cir. 2015) (en banc) (per curiam). Re-
lying on the legal framework for direct infringement of
method claims in Akamai, the court held that substantial
evidence supported the jury’s finding that NCR directed or
controlled its merchants’ use of the claimed system. In so
holding, the court distinguished the facts in this case from
those in Centillion, noting that in Centillion there was “no
vicarious liability because ‘Qwest in no way direct[ed] its
customers to perform nor d[id] its customers act as its
agents.’” Cloudofchange, 2022 WL 15527756, at *7 (quot-
ing Centillion, 631 F.3d at 1287). The court concluded that
“[u]nlike Qwest in Centillion, NCR ‘directs its customers to
perform’ by requiring its merchants to obtain and maintain
internet access.” Id. at *8. To support its conclusion, the
court pointed to the NCR Silver Merchant Agreement as
evidence that “NCR ‘contracts with [merchants] to perform
one or more’ of the claimed elements, i.e., internet or net-
work access.” Id. (quoting Akamai, 797 F.3d at 1023) (al-
teration in original).
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CLOUDOFCHANGE, LLC v. NCR CORPORATION 10
NCR appeals, arguing inter alia that the district court
erred in denying JMOL of noninfringement. We have ju-
risdiction under 28 U.S.C. § 1295(a)(1).
D ISCUSSION
We review the grant or denial of a motion for JMOL
under the law of the regional circuit. Kaufman v. Microsoft
Corp., 34 F.4th 1360, 1368 (Fed. Cir. 2022). The Fifth Cir-
cuit reviews the grant or denial of JMOL de novo. Janvey
v. Dillon Gage, Inc. of Dallas, 856 F.3d 377, 384 (5th Cir.
2017). Under the Fifth Circuit’s standard for JMOL, a
jury’s determination on infringement must be upheld un-
less it is not supported by substantial evidence. ACCO
Brands, Inc. v. ABA Locks Mfrs. Co., Ltd., 501 F.3d 1307,
1311 (Fed. Cir. 2007).
I
Because this case turns on the application of Centillion
and principles of vicarious liability, we begin by discussing
our precedent and the relevant legal framework.
This court first addressed the issue of infringement for
“use” of a system claim that includes elements in the pos-
session of more than one actor in Centillion. We held that
a party “uses” a system for purposes of infringement when
it “control[s] the system as a whole and obtain[s] benefit
from it.” Centillion, 631 F.3d at 1284. The control contem-
plated is not direct or physical control over each individual
element of the system, but rather the ability to make the
system elements “work for their patented purpose” and
thus use “every element of the system by putting every el-
ement collectively into service.” Id.
At a high level, the claims at issue in Centillion in-
volved a system for presenting information to an end user
related to transaction records and summary reports from
those records. Id. at 1281. The system claims included
both a back-end system, maintained by the service pro-
vider, and a front-end system with a personal computer,
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CLOUDOFCHANGE, LLC v. NCR CORPORATION 11
maintained by the end user. Id. The accused systems also
included two parts: (i) Qwest’s back-office system that pro-
cessed data and (ii) Qwest’s customers’ front-end client ap-
plication with a personal computer for managing billing
information. Id. The parties disputed whether it was
Qwest or its customers that “used” the claimed system for
purposes of direct infringement.
We held that Qwest’s customers (not Qwest) used the
claimed system as a matter of law. Id. at 1285. Because
the customers chose when to put the system into service
either by (1) creating queries, which in turn resulted in the
back-end processing by Qwest; or (2) by subscribing to re-
ceive monthly electronic billing information from Qwest’s
back-office system, we concluded the customer controlled
the system. We reasoned that if the customer did not make
the request or subscribe, then the back-end processing
would not be put into service. Id. We further explained
that this was “use” because “but for the customer’s actions,
the entire system would never have been put into service”
and “the customer clearly benefit[ed] from this function.”
Id.
We next considered whether Qwest was vicariously li-
able for the actions of its customers such that the custom-
ers’ use may be attributed to Qwest. We looked to our
precedent on vicarious liability regarding both method
claims and system claims. Id. at 1286–87 (collecting
cases). Applying this precedent, we held that because
Qwest “in no way directs its customers to perform nor do
its customers act as its agents,” Qwest was not vicariously
liable for the actions of its customers. Id. at 1287.
II
Turning to the facts of this case, we hold that the dis-
trict court correctly determined that it is NCR’s merchants
(not NCR) that use the claimed system. See id. at 1284. As
the district court explained “NCR, although it owns and op-
erates the Back Office, does not put the accused system into
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CLOUDOFCHANGE, LLC v. NCR CORPORATION 12
service.” Cloudofchange, 2022 WL 15527756, at *7. Like
the customers in Centillion, NCR’s merchants put the sys-
tem into service because they initiate at the POS terminal
a demand for service (for example, building or editing a
POS) and benefit from the back end providing that service.
NCR’s merchants therefore “control the system as a whole
and obtain benefit from it.” Centillion, 631 F.3d at 1284.
In other words, the merchants make the system parts
“work for their patented purpose,” and thus use “every ele-
ment of the system by putting every element collectively
into service.” Id.
That NCR occasionally provides the POS hardware
used by the customer-merchants does not change our view.
J.A. 8195–96. CloudofChange admitted that, in most
cases, NCR’s merchants provide their own hardware. And
CloudofChange did not present different infringement ar-
guments based on whether NCR merely provided the soft-
ware or provided both the POS hardware and the software.
Because in most cases NCR provides only the software to
the merchant and CloudofChange forfeited any argument
for those few circumstances where NCR provides the POS
hardware, we see little daylight between this case and Cen-
tillion. Moreover, as CloudofChange’s own expert agreed,
it is NCR’s merchants who put NCR Silver into service,
control their own use of NCR Silver, and benefit from the
use of NCR Silver.
CloudofChange next argues that, in fact, NCR “benefits
from” the entire NCR Silver system from the monthly sub-
scription fee, product improvements through testing and
evaluation, product ideas, transaction data, revenues from
third-party products and services, marketing rights associ-
ated with the merchant’s use, and advertising. Appellee’s
Br. 26–27. But these are not the kind of benefits on which
Centillion focuses. See, e.g., Intell. Ventures I LLC
v. Motorola Mobility LLC, 870 F.3d 1320, 1329 (Fed. Cir.
2017) (rejecting notion that an accused infringer need only
derive a benefit from a claimed component of the claimed
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CLOUDOFCHANGE, LLC v. NCR CORPORATION 13
system to directly infringe). Centillion asks whether a
party uses the entire claimed system by putting that sys-
tem to use and receiving the benefit (i.e., the recited pur-
pose or result) of that use. Here, we agree with the district
court that it is NCR’s merchants, not NCR, who initiate the
use of NCR Silver at the POS terminals and benefit from
the POS builder software at the web server building or ed-
iting the POS terminals.
III
We now turn to whether NCR is vicariously liable for
its merchant-customers’ use of the claimed system. As the
district court correctly recognized, Centillion’s analysis did
not end after concluding that Qwest’s customers used the
claimed invention. Instead, we considered whether “Qwest
is vicariously liable for the actions of its customers such
that ‘use’ by the customers may be attributed to Qwest.”
Centillion, 631 F.3d at 1286. Answering this question, we
held that because Qwest “in no way directs its customers
to perform nor do its customers act as its agents,” Qwest
was not vicariously liable for the actions of its customers.
Id. at 1287. In so holding, we emphasized that while Qwest
provided application software and technical assistance, it
was entirely the decision of the customer whether to install
and operate the software on its personal computer data
processing means. Id.
So too here. NCR does not direct or control its mer-
chants to subscribe to the NCR Silver system, download
the NCR Silver app on their POS terminals, or put the NCR
Silver system into use by initiating action at the POS ter-
minals to cause the NCR Silver software to modify its POS
terminals. NCR’s merchants take these actions of their
own accord. That NCR’s Merchant Agreement makes mer-
chants responsible for obtaining and maintaining Internet
access does not equate to contractually obligating mer-
chants put the entire accused NCR Silver system into use.
We thus conclude as a matter of law that NCR does not
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CLOUDOFCHANGE, LLC v. NCR CORPORATION 14
direct or control its merchants’ use of the claimed system,
nor do its merchants act as NCR’s agents.
In concluding otherwise, the district court erred by fo-
cusing its direction or control analysis on one element of
the system—Internet access. Because NCR’s Merchant
Agreement makes merchants responsible for obtaining and
maintaining Internet access, the district court determined
“NCR ‘contracts with [merchants] to perform one or more’
of the claimed elements.” Cloudofchange, 2022 WL
15527756, at *8 (alteration in original) (quoting Akamai,
797 F.3d at 1023). Based on this conclusion, the district
court held that NCR directed or controlled its merchant-
customers’ use of the claimed system. But, in the context
of this case, directing the merchants to perform one ele-
ment of a system claim is not the proper test for analyzing
vicarious liability for use of a system claim.
Specifically, the district court’s analysis conflates use
of a method claim (which was at issue in Akamai) with use
of a system claim (which was at issue in Centillion). “Un-
der section 271(a), the concept of ‘use’ of a patented method
or process is fundamentally different from the use of a pa-
tented system or device.” NTP, Inc. v. Rsch. In Motion,
Ltd., 418 F.3d 1282, 1317 (Fed. Cir. 2005). “[T]he use of a
process necessarily involves doing or performing each of
the steps recited,” while the “use of a system as a whole”
involves putting that entire system to use and benefitting
from it. Id. at 1318.
In Akamai, the accused infringer, Limelight, per-
formed every step of the claimed method except one, which
was performed by its customer. Akamai, 797 F.3d at 1024.
It was in this unique context that this court focused on one
claim element (the one that Limelight itself did not per-
form) and considered whether Limelight directed or con-
trolled its customers’ performance of this claim step. Id.
at 1024. After answering this question in the affirmative,
the court held that Limelight was vicariously liable for the
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CLOUDOFCHANGE, LLC v. NCR CORPORATION 15
performance of all the steps of the method claim because it
either performed or directed or controlled the performance
of all of the claim elements. Id. at 1024–25.
Applying the vicarious liability principles from Akamai
to this case, the appropriate question is whether NCR di-
rected or controlled or should otherwise be vicariously lia-
ble for its customers’ use of the system claim. Specifically,
the issue is whether NCR directed or controlled its mer-
chant-customer’s actions in putting the entire claimed sys-
tem to service to build or edit POS systems. As the
contractual obligation to supply an Internet connection
does not amount to direction or control of a merchant’s use
of the claimed system to build POS systems, we hold that
NCR is not vicariously liable for that infringing use.
CONCLUSION
Because we conclude the district court erred in denying
JMOL of no infringement, we do not reach the other issues
presented on appeal.2 For the reasons discussed above, we
reverse the district court’s denial of JMOL and vacate the
jury verdict.3
REVERSED
2 At oral argument, NCR contingently abandoned its
counterclaim for declaratory judgment of invalidity should
this court reverse the infringement verdict. Oral Arg.
at 8:03–8:57, https://oralarguments.cafc.uscourts.gov/de-
fault.aspx?fl=23-1111_06042024.mp3. Accordingly, we do
not reach the issue of invalidity.
3 In light of our disposition on the merits, we deny as
moot Appellant NCR’s Renewed Motion Regarding IPR De-
cisions asking us to take judicial notice of inter partes re-
view decisions related to the Asserted Patents (ECF
No. 67).
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