Headwater Research LLC v. AT&T Services Inc

I. Executive Summary and Procedural Information

• Parties & Counsel:
  • Plaintiff: Headwater Research LLC (Texas)
  • Defendant: AT&T Services, Inc. (Delaware), AT&T Mobility, LLC (Delaware), and AT&T Enterprises LLC (Delaware)
  • Plaintiff’s Counsel: Russ August & Kabat
• Case Identification: 2:25-cv-00693, E.D. Tex., 07/07/2025
• Venue Allegations: Plaintiff alleges venue is proper in the Eastern District of Texas because Defendant conducts substantial business in the district, has a regular and established place of business, and commits acts of infringement, including operating its cellular networks and selling devices and services within the district.
• Core Dispute: Plaintiff alleges that Defendant’s cellular networks, servers, services, and eSIM-enabled devices infringe six patents related to managing, monitoring, and billing for wireless communication services.
• Technical Context: The technology concerns device-assisted and network-based systems for implementing service policies and billing, a critical function for managing network capacity and creating flexible data plans in an era of high mobile data consumption.
• Key Procedural History: The complaint alleges a pre-suit history between Defendant and ItsOn Inc., a company founded by the patents' primary inventor that licensed the asserted intellectual property. This history allegedly includes meetings under a non-disclosure agreement beginning in 2009, detailed technical presentations by ItsOn, and Defendant's subsequent development of its own solutions allegedly based on the disclosed information, which may be central to the allegations of willful infringement.

Case Timeline

Date	Event
2009-01-20	ItsOn Inc. and AT&T allegedly enter into a non-disclosure agreement.
2009-01-28	Earliest Priority Date for all six Asserted Patents.
2009-07-07	ItsOn allegedly provides AT&T with information on issued or pending patents.
2010-05-03	Date of an AT&T presentation allegedly proposing an internal replacement for ItsOn's solution.
2011-01-01	Plaintiff Headwater Research LLC was formed.
2013-01-15	U.S. Patent No. 8,355,337 issues.
2013-09-03	U.S. Patent No. 8,527,630 issues.
2013-11-12	U.S. Patent No. 8,583,781 issues.
2014-01-14	U.S. Patent No. 8,630,617 issues.
2014-07-22	U.S. Patent No. 8,788,661 issues.
2014-12-30	U.S. Patent No. 8,924,549 issues.
2025-07-07	Complaint filed.

II. Technology and Patent(s)-in-Suit Analysis

U.S. Patent No. 8,355,337 - "Network based service profile management with user preference, adaptive policy, network neutrality, and user privacy"

• Issued: January 15, 2013

The Invention Explained

• Problem Addressed: The patent describes the need for more refined and flexible management of network services beyond simple, high-cost data plans, to provide consumers with greater choice and allow service providers to manage network capacity more efficiently (’337 Patent, col. 5:5-18).
• The Patented Solution: The invention discloses a system where both a device ("service processor") and a network element ("service controller") work together to manage data services (’337 Patent, Fig. 16). The system uses at least two different "usage measures" for different "classifications" of data to implement a service policy, which can include accounting for certain data usage to a "sponsor entity" instead of the end user (’337 Patent, Abstract; col. 7:1-8). This allows for granular control and billing based on the type of data being used.
• Technical Importance: This device-assisted approach to service policy enabled more sophisticated business models, such as sponsored data, which were critical for carriers to manage exploding data demand while creating new revenue streams from content partners (Compl. ¶¶11-13).

Key Claims at a Glance

• The complaint asserts independent claim 1 (Compl. ¶58).
• Claim 1 is a method claim with the following essential elements:
  • Receiving a first usage measure specifying an amount of use of a first classification of data communicated with the communications device over the access network.
  • Receiving a second usage measure specifying an amount of use of a second classification of data communicated with the communications device over the access network.
  • Identifying the first classification of data corresponding to the first usage measure.
  • Using the first and second usage measures and the first and second classifications of data to facilitate implementation of the service policy.
  • The service policy including one or more network service settings for the device to which the service policy corresponds.
  • The service policy for assisting in one or more of: (1) accounting, to a sponsor entity, at least a portion of the first usage measure; (2) presenting a notification to the communications device; or (3) controlling an attempted or successful usage by the communications device of at least one of the one or more network services.
• The complaint does not explicitly reserve the right to assert dependent claims for the ’337 Patent.

U.S. Patent No. 8,527,630 - "Adaptive ambient services"

• Issued: September 3, 2013

The Invention Explained

• Problem Addressed: The patent addresses the challenge of providing a useful device experience "at the time the device is sold in the event the user has not yet signed up for a service plan" (’630 Patent, col. 3:1-5).
• The Patented Solution: The invention describes a method for providing "adaptive ambient services," which are a set of baseline network services (e.g., access to an app store or sponsored content) available without a full data plan (’630 Patent, col. 3:5-11). The system inspects a device's data traffic, determines if the requested access falls within a predefined service profile, and if so, creates a record to account for that usage to a sponsor entity that subsidizes the access (’630 Patent, Abstract; Fig. 3).
• Technical Importance: This technology allowed carriers and device manufacturers to offer "out-of-the-box" connectivity for specific functions, improving the initial user experience and enabling business models where partners could sponsor data to promote their services (Compl. ¶14).

Key Claims at a Glance

• The complaint asserts independent claim 1 (Compl. ¶70).
• Claim 1 is a method claim with the following essential elements:
  • Inspecting a traffic flow associated with a device.
  • Identifying a requested access within the traffic flow.
  • Determining whether the requested access is within a profile associated with a first service available to the device over a wireless network, the profile identifying a network destination, an application on the device, or a content type.
  • A first usage associated with the service being accounted for separately from a second usage associated with a second service available to the device.
  • If the requested access is within the profile, creating or modifying a record for assisting in accounting for a measure of the first usage to a sponsor entity responsible for at least subsidizing at least a portion of the first usage.
• The complaint does not explicitly reserve the right to assert dependent claims for the ’630 Patent.

U.S. Patent No. 8,583,781 - "Simplified service network architecture"

• Issued: November 12, 2013
• Technology Synopsis: This patent describes a network architecture where device-assisted service policy and control functions are moved out of the core network and closer to the end-user device. This "flattened" architecture aims to simplify data path processing and reduce network infrastructure costs by combining device-based service control with network-based monitoring.
• Asserted Claims: Independent claim 1 is asserted (Compl. ¶82).
• Accused Features: The accused features are Defendant's cellular networks, servers, and services that manage service policies and data traffic for mobile devices (Compl. ¶41).

U.S. Patent No. 8,630,617 - "Device group partitions and settlement platform"

• Issued: January 14, 2014
• Technology Synopsis: This patent focuses on a system for partitioning devices into groups (e.g., by enterprise, device type, or service plan) and providing a "settlement platform." The platform uses usage information from these device groups to generate accounting and facilitate financial settlement between different entities, such as a carrier and a device manufacturer or content partner.
• Asserted Claims: Independent claim 1 is asserted (Compl. ¶94).
• Accused Features: The accused features are Defendant's network platforms that manage billing and settlement for different services and partners across groups of devices on its network (Compl. ¶41).

U.S. Patent No. 8,788,661 - "Device assisted CDR creation, aggregation, mediation and billing"

• Issued: July 22, 2014
• Technology Synopsis: This patent describes a method where a device monitors its own service usage to create "micro-CDRs" (Charging Data Records). This device-generated data is then transmitted to the network, where it is aggregated and mediated with network-based data to create final billing records, allowing for more granular and accurate billing.
• Asserted Claims: Independent claim 1 is asserted (Compl. ¶106).
• Accused Features: The accused features are Defendant's systems for creating, aggregating, and mediating billing records for its cellular services, allegedly using information from both the network and end-user devices (Compl. ¶41).

U.S. Patent No. 8,924,549 - "Network based ambient services"

• Issued: December 30, 2014
• Technology Synopsis: This patent describes a network-operated system that monitors a device's traffic to identify access to a "first application" within a plurality of applications. The system identifies data transfers associated with that application, obtains an accounting of the usage, and allocates an offset to an account associated with a sponsor, enabling sponsored data models from a network-centric perspective.
• Asserted Claims: Independent claim 1 is asserted (Compl. ¶118).
• Accused Features: The accused features are Defendant's network systems that provide and account for sponsored data services, where traffic is monitored and billing offsets are applied for sponsoring partners (Compl. ¶41).

III. The Accused Instrumentality

Product Identification

The Accused Instrumentalities are identified as AT&T's cellular networks, servers, services, and eSIM-enabled devices that operate on AT&T's network (Compl. ¶41). Specific network components cited include those for eSIM provisioning and management (e.g., SM-DP+, SM-DP, RSP), Authentication, Authorization, and Accounting (AAA), and Policy and Charging Rules Function (PCRF/PCF) entities (Compl. ¶41).

Functionality and Market Context

The complaint alleges these instrumentalities collectively function to provide cellular data services to a massive subscriber base, which exceeded 196 million as of March 2022 (Compl. ¶48). The relevant functionality involves managing network access, implementing service policies, monitoring data usage by type and application, and generating billing records that can differentiate between user-paid data and data subsidized by third parties (Compl. ¶¶30, 41). The complaint includes a map showing AT&T's advertised 5G and 4G LTE network coverage in the Eastern District of Texas to support its allegations of Defendant's business operations and infringement in the district (Compl. p. 12).

IV. Analysis of Infringement Allegations

The complaint references, but does not attach, claim chart exhibits. The following summary is based on the narrative infringement allegations and the descriptions of the accused instrumentalities.

8,355,337 Patent Infringement Allegations

Claim Element (from Independent Claim 1)	Alleged Infringing Functionality	Complaint Citation	Patent Citation
a method comprising: receiving a first usage measure specifying an amount of use of a first classification of data... and receiving a second usage measure specifying an amount of use of a second classification of data...	AT&T's networks and devices allegedly collect different types of usage data, such as data associated with a sponsored service ("first classification") and data associated with a user's general data plan ("second classification") (Compl. ¶¶41, 58).	¶¶41, 58	col. 162:1-12
identifying the first classification of data corresponding to the first usage measure...	AT&T's network systems, including its PCRF/PCF entities, allegedly identify and distinguish between different data types, such as sponsored versus non-sponsored data traffic (Compl. ¶¶41, 58).	¶¶41, 58	col. 162:13-15
using the first and second usage measures and the first and second classifications of data to facilitate implementation of the service policy...	AT&T's network allegedly uses the collected and classified usage data to apply different billing and service rules, such as zero-rating the sponsored data while debiting the non-sponsored data from a user's allowance (Compl. ¶¶41, 58).	¶¶41, 58	col. 162:16-24
wherein the service policy is for assisting in... (1) accounting, to a sponsor entity that is not a user of the communications device or a subscriber associated with the communications device... at least a portion of the first usage measure...	AT&T's billing and service management systems allegedly create accounting records that attribute the cost of the sponsored data usage to a third-party sponsor entity rather than to the end-user's account (Compl. ¶¶41, 58).	¶¶41, 58	col. 162:25-col. 166:11

• Identified Points of Contention:
  • Scope Questions: A central question may be whether AT&T's system actually uses two distinct "usage measures" for two "classifications" as required by the claim. The defense could argue that its system uses a single, unified data stream and a complex policy engine that does not map onto the claim's sequential, two-part structure.
  • Technical Questions: What evidence does the complaint provide that a "first usage measure" is distinct from a "second usage measure" in AT&T's actual implementation? The defense may contend that all relevant usage measurement and classification occurs solely within the network core, which may not align with the device-and-network cooperative architecture described in the patent's specification.

8,527,630 Patent Infringement Allegations

Claim Element (from Independent Claim 1)	Alleged Infringing Functionality	Complaint Citation	Patent Citation
a method comprising: inspecting a traffic flow associated with a device; identifying a requested access within the traffic flow...	AT&T's network, through components such as its PCRF/PCF entities, allegedly inspects data traffic from user devices to identify the destination or application being accessed (Compl. ¶¶41, 70).	¶¶41, 70	col. 35:10-14
determining... whether the requested access is within a profile associated with a first service available to the device over a wireless network, the profile identifying a network destination, an application...	AT&T's policy control systems allegedly determine if the identified access corresponds to a service profile for a sponsored or "ambient" service, such as a data-free streaming application (Compl. ¶¶41, 70).	¶¶41, 70	col. 35:15-21
a first usage associated with the service being accounted for separately from a second usage associated with a second service...	AT&T's systems allegedly account for usage of the sponsored "first service" separately from the user's general data usage under their primary service plan (the "second service") (Compl. ¶¶41, 70).	¶¶41, 70	col. 35:22-25
if the requested access is within the profile, creating or modifying a record for assisting in accounting for a measure of the first usage to a sponsor entity...	When traffic is identified as belonging to a sponsored service, AT&T's billing systems allegedly create or modify an accounting record to attribute the cost of that data usage to the third-party sponsor, rather than the user (Compl. ¶¶41, 70).	¶¶41, 70	col. 35:26-32

• Identified Points of Contention:
  • Scope Questions: A key dispute may arise over the definition of "ambient service." The patent specification suggests this may relate to a limited set of services available before a user signs up for a full plan (’630 Patent, col. 3:1-5). The defense could argue that sponsored data programs offered to existing, fully subscribed customers do not constitute "ambient services" under the patent's definition.
  • Technical Questions: Does the complaint provide evidence that AT&T's system "creates or modifies a record" in the specific manner claimed for the purpose of sponsor accounting? The actual mechanism of how AT&T accounts for and bills partners for sponsored data may differ from the process contemplated by the claim.

V. Key Claim Terms for Construction

• The Term: "first usage measure" and "second usage measure" (’337 Patent, Claim 1)

• Context and Importance: Claim 1 requires receiving these two distinct measures for two different classifications of data. The definition and source of these "measures" are critical. Infringement may depend on whether AT&T's system uses two distinct data inputs as claimed, or a single, more complex data source that is analyzed against a policy. Practitioners may focus on this term because it appears to require a specific two-part data collection architecture.

• Intrinsic Evidence for Interpretation:

  • Evidence for a Broader Interpretation: The claim language itself does not specify the origin of the measures (e.g., one from device, one from network), which may support an interpretation that they can be any two distinct sets of usage data collected by the system, regardless of source (’337 Patent, col. 162:1-12).
  • Evidence for a Narrower Interpretation: The specification repeatedly describes a cooperative system involving a "service processor" on the device and a "service controller" in the network, with the device providing detailed usage data (’337 Patent, col. 7:59-67; Fig. 16). This may support an argument that the "first usage measure" must originate from the device and be distinct from a "second usage measure" originating from the network.

• The Term: "ambient service" (’630 Patent, Claim 1)

• Context and Importance: This term is central to the scope of the ’630 patent. The dispute may turn on whether AT&T's sponsored data programs, which are offered to existing subscribers, fall within the definition of an "ambient service."

• Intrinsic Evidence for Interpretation:

  • Evidence for a Broader Interpretation: The abstract describes the invention more generally as a method for identifying a requested access within a profile and accounting for its usage to a sponsor, without strictly limiting it to pre-subscription scenarios (’630 Patent, Abstract).
  • Evidence for a Narrower Interpretation: The "Background of the Invention" and "Detailed Description" sections frame the concept in the context of the user experience "at the time the device is sold in the event the user has not yet signed up for a service plan" (’630 Patent, col. 1:45-col. 2:9; col. 3:1-5). This language could support a narrower construction limited to services offered to non-activated or pre-paid users.

VI. Other Allegations

• Indirect Infringement: The complaint alleges that Defendant induces infringement by actively encouraging its customers to use the accused services and devices in a manner that directly infringes the asserted patents (Compl. ¶¶ 57, 62, 69, 74).
• Willful Infringement: The complaint makes detailed allegations to support willfulness. It alleges that Defendant had pre-suit knowledge of the patented technology and the patent applications that led to the Asserted Patents through a series of meetings and technical disclosures under an NDA with the inventor's company, ItsOn Inc., between 2009 and 2011 (Compl. ¶¶16-28, 59, 71). The complaint further alleges that ItsOn's own software, which AT&T allegedly evaluated, included patent marking notices listing the asserted patents (Compl. ¶¶59, 71).

VII. Analyst’s Conclusion: Key Questions for the Case

• A central issue will be one of historical conduct: How will the detailed allegations of pre-suit interactions between AT&T and the inventor's company, ItsOn, including the alleged use of confidential information, impact the proceedings, particularly the claim for willful infringement which seeks enhanced damages?
• A key evidentiary question will be one of architectural correspondence: Do the complex, multi-faceted systems that comprise AT&T's modern cellular network actually operate according to the specific, sequential steps recited in the patent claims, or will discovery reveal a fundamental mismatch between the claimed methods and the real-world implementation of the accused instrumentalities?
• A core legal issue will be one of definitional scope: Can terms like "ambient service," which the patent specification links to a pre-service plan user experience, be construed broadly enough to cover modern sponsored data programs offered by AT&T to its fully subscribed customers?