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Archived updates for Thursday, August 16, 2007

The Latest on Joint Patent Infringement from East Texas

Thanks to "Peter Zura's 271 Patent Blog" for pointing out AdvanceMe Inc v. RapidPay LLC, (6:05-cv-424, ED Tex.), August 14, 2007 where, although the patent was held to be invalid, the court held that both Reach and MMT directly infringe the asserted claims of the ‘281 patent because all of the elements of the patent claims are performed either by Reach or MMT, the merchants that enter into contracts with Reach or MMT, the merchant processors that enter into contracts with Reach or MMT, or agents or instrumentalities of these entities.

Claim 1 of the ‘281 patent reads:

A method for automated payment, comprising:

at a merchant, accepting a customer identifier as payment from the customer and
electronically forwarding information related to the payment to a computerized merchant processor;

at the computerized merchant processor, acquiring the information
related to the payment from the merchant, authorizing and settling the
payment, and forwarding at least a portion of the payment to a computerized
payment receiver as payment of at least a portion of an obligation made by
the merchant; and

at the computerized payment receiver, receiving the portion of the payment
forwarded by the computerized merchant processor and applying that portion to the outstanding obligation made by the merchant to reduce such obligation.

According to the Memorandum and Order by Judge Davis:
. . . Liability for direct infringement cannot be avoided by interposing an agent or independent contractor between the defendant and the infringing acts. Free Standing Stuffer, Inc. v. Holly Dev. Co., 187 U.S.P.Q. 323, 335 (N.D. Ill. 1974) (citing Crowell v. Baker Oil Tools, Inc., 143 F.2d 1003 (9th Cir. 1944)). Even if a defendant does not perform all patented method steps, the defendant is still liable for direct infringement where it is demonstrated by a preponderance of the evidence that (1) the steps of the patented method are being performed, and (2) defendant has a sufficient connection to, or control over, the entity or entities performing part of the patented method. Id. (finding defendant liable for direct infringement where it instructed its advertising agency to perform or have performed certain steps of the patented process); Cordis Corp. v. Medtronic AVE, Inc., 194 F. Supp. 2d 323, 349 n.19 (D. Del. 2002) (finding defendant liable for direct infringement where there was a close relationship between defendant and the doctors performing part of the patented process); Shields v. Halliburton Co., 493 F.Supp. 1376, 1389 (W.D. La. 1980), aff’d, 667 F. 2d 1232 (5th Cir. 1982) (finding defendants liable for infringement based on the combined actions of two entities); Metal Film Co. v. Melton Corp., 316 F. Supp. 96, 110 (S.D.N.Y. 1970) (finding defendant liable for direct infringement because it arranged for other entities to perform the first step of the patented method); Marley Mouldings, Ltd. v. Mikron Indus., Inc., No. 02 C 2855, 2003 WL 1989640, at *2-3 (N.D. Ill. Apr. 30, 2002) (denying motion for summary judgment of noninfringement where two entities performed steps of patented process); Charles E. Hill v., Inc., No. Civ. A. 2:02-CV-186, 2006 WL 151911, at *2 (E.D. Tex. Jan. 19, 2006) (Ward, J.) (denying motion for summary judgment of noninfringement where two entities performed steps of patented process and were in the same vendor-customer relationship claimed in the invention).

A showing of “agency” or “working in concert” is not required in order to
establish a sufficient connection between the defendant and the third party or
parties performing the patent method’s steps. Charles E. Hill, 2006 WL 151911,
at *2. The sufficient connection can be shown through a contractual relationship between the defendant and the third party or parties performing the steps of the patented method. Id.

When evaluating whether a defendant has sufficient connection to, or control over, the entity or entities performing part of the patented method, courts look to the inventions claimed in the patent and the relationships described therein. Id. at *2. That the relationships described in the patent are the same relationships relied upon to establish sufficient connection to, or control over, the entity or entities performing part of the patented method is probative. Id. at *3.

. . . MMT and Reach’s programs satisfy each of these claims either literally or
under the doctrine of equivalents. For example, the forwarding step in the
second element of Claim 1 is literally performed under both a split funding
method recited in the Reach Financial documentation and under the back-to-back
ACH variation as described in certain testimony of Reach Financial witnesses. The back-to-back ACH variation performs the same forwarding step, but employs an
additional intervening step. However, an accused method does not avoid literally infringing a method claim having the transitional phrase “comprising” simply
because it employs additional steps. Suntiger, Inc. v. Scientific Research Funding Group, 189 F.3d 1327, 1336 (Fed. Cir. 1999) (citation omitted). To the extent the back-to-back ACH variation does not constitute literal performance of the forwarding step, it constitutes an equivalent step under the doctrine of equivalents.

Peter notes that "Interestingly, the opinion did not mention BMC v. PaymenTech, where the lower court dismissed BMC's joint-infringement claims. This case is currently before the CAFC (No. 2006-1503), and was recently noted in the [Federal Circuit's] PharmaStem case [at footnote 1, on July 20, 2007]:"

The parties and the district court discussed the issue of joint infringement in the context of determining whether there was infringing conduct sufficient to serve as a predicate for a finding of contributory infringement. PharmaStem did not argue before the district court, and does not argue here, that liability could be premised on a theory of "joint" or "divided" infringement, even in the absence of a finding of contributory infringement under 35 U.S.C. § 271(c). Under that theory, two related parties are both deemed liable for direct infringement of a method patent when each performs some steps of the claimed method. The viability and scope of that theory of liability is a subject of considerable debate; it has been addressed in a number of district court cases, adverted to in a few of this court’s cases, and discussed at some length by commentators. See On Demand Mach. Corp. v. Ingram Indus., Inc., 442 F.3d 1331, 1334 (Fed. Cir. 2006); Cross Med. Prods., Inc. v. Medtronic Sofamor Danek, Inc., 424 F.3d 1293, 1311 (Fed. Cir. 2005); Kristin E. Gerdelman, Subsequent Performance of Process Steps by Different Entities: Time to Close Another Loophole in U.S. Patent Law, 53 Emory L.J. 1987 (2004); Mark A. Lemley et al., Divided Infringement Claims, 33 AIPLA Q.J. 255 (2005); Sriranga Veeraraghavan,Joint Infringement of Patent Claims: Advice for Patentees, 23 Santa Clara Computer & High Tech L.J. 211 (2006). That issue is squarely presented in a case now pending before this court, BMC Resources, Inc. v. Paymentech, L.P., No. 2006-1503. In this case, PharmaStem’s theory of liability was that the defendants were liable under section 271(c) for contributory infringement, not under section 271(a) for direct infringement, and PharmaStem has continued to press that theory on appeal. We therefore are not presented with the question whether the defendants could have been held liable under section 271(a) under a theory of joint direct infringement through their activities in conjunction with the transplanters.

"While "joint infringement" is established where one party performs all but one step of a patented process and the other step is performed at his direction, the prevailing view is that a claim should be drafted in a manner that all steps can be performed by a single actor," writes Professor Wegner. "Failure to draft such a claim leaves the patentee powerless. For an extensive review of this subject, see Harold C. Wegner, E-Business Patent Infringement: Quest for a Direct Infringement Claim Model, presented to the SOFTIC 2001 Symposium, A more recent treatment is provided by Mark A. Lemley et al., Divided Infringement Claims, 33 AIPLA Q. J. 189 (2005)." Realsource, Inc. v. Best Buy Co., Inc., 2007 WL 1484544 (W.D.Tex. 2007); and Muniauction, Inc. v. Thomson Corp., __ F.Supp.2d __, 2007 WL 2225847 (W.D.Pa. 2007), "manifest the continued confusion in the law."

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