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Archived updates for Thursday, September 20, 2007

Joint Infringement Requires Direction or Control

In BMC Resouces, Inc. v. Paymentech, L.P. (September 20, 2007), the Federal Circuit held that the proper standard for joint infringement by multiple parties of a single claim is "control or direction" by the infringer, and then went on to note that "concerns over a party avoiding infringement by arms-length cooperation can usually be offset by proper claim drafting."

According to the opinion by Circuit Judge Rader:

Two cases that have found that a party cannot be liable for direct infringement because the party did not perform all the steps are Fromson v. Advance Offset Plate, Inc., 720 F.2d 1565, 1568 (Fed. Cir. 1985) (finding no direct infringement by manufacturer who performed the first step of a process claim even where its customer performed the other step of the claim) and Cross Medical Products, 424 F.3d at 1311 (rejecting patentees’ efforts to combine the acts of surgeons with those of a medical device manufacturer to find direct infringement of an apparatus claim).

Courts faced with a divided infringement theory have also generally refused to find liability where one party did not control or direct each step of the patented process. See BMC Resources, Inc. v. Paymentech, L.P., (N.D. Tex. Feb. 9, 2006) ("No court has ever found direct infringement based on the type of arms-length business transaction presented here."); Faroudja Labs v. Dwin Elecs., Inc., 1999 U.S. Dist. LEXIS 22987 (N.D. Cal. Feb. 24, 1999); Mobil Oil Corp. v Filtrol Corp., 501 F.2d 282, 291-92 (9th Cir. 1974) (expressing doubt over the possibility of divided infringement liability).

A party cannot avoid infringement, however, simply by contracting out steps of a patented process to another entity. In those cases, the party in control would be liable for direct infringement. It would be unfair indeed for the mastermind in such situations to escape liability. District courts in those cases have held a party liable for infringement. See Shields v. Halliburton Co., 493 F. Supp. 1376, 1389 (W.D. La. 1980).

This court acknowledges that the standard requiring control or direction for a finding of joint infringement may in some circumstances allow parties to enter into arms-length agreements to avoid infringement. Nonetheless, this concern does not outweigh concerns over expanding the rules governing direct infringement. For example, expanding the rules governing direct infringement to reach independent conduct of multiple actors would subvert the statutory scheme for indirect infringement. Direct infringement is a strict-liability offense, but it is limited to those who practice each and every element of the claimed invention. By contrast, indirect liability requires evidence of "specific intent" to induce infringement. Another form of indirect infringement, contributory infringement under § 271(c), also requires a mens rea (knowledge) and is limited to sales of components or materials without
substantial noninfringing uses. Under BMC’s proposed approach, a patentee would
rarely, if ever, need to bring a claim for indirect infringement.

The concerns over a party avoiding infringement by arms-length cooperation can usually be offset by proper claim drafting. A patentee can usually structure a claim to capture infringement by a single party. See Mark A. Lemley et al., Divided Infringement Claims, 33 AIPLA Q.J. 255, 272-75 (2005). In this case, for example, BMC could have drafted its claims to focus on one entity. The steps of the claim might have featured references to a single party’s supplying or receiving each element of the claimed process. However, BMC chose instead to have four different parties perform different acts within one claim. BMC correctly notes the difficulty of proving infringement of this claim format. Nonetheless, this court will not unilaterally restructure the claim or the standards for joint infringement to remedy these ill-conceived claims. See Sage Prods. Inc. v. Devon Indus. Inc., 126 F.3d 1420, 1425 (Fed. Cir. 1997) ("[A]s between the patentee who had a clear opportunity to negotiate broader claims but did not do so, and the public at large, it is the patentee who must bear the cost of its failure to seek protection for this foreseeable alteration
of its claimed structure.")

Applying these standards to BMC’s charges against Paymentech properly results in a finding of no infringement. Although BMC proffered evidence to establish some relationship between Paymentech and the debit networks, the magistrate and the district court both concluded that this evidence was insufficient to create a genuine issue of material fact as to whether Paymentech controls or directs the activity of the debit networks. Specifically, the magistrate and district court found BMC’s evidence that Paymentech provides data (debit card number, name, amount of purchase, etc.) to the debit networks, absent any evidence that Paymentech also provides instructions or directions regarding the use of those data, to be inadequate. BMC argues that instructions or directions can be inferred from the provision of these data, or that the data themselves provide instructions or directions. But, having presented no evidence below to support either theory, BMC is not entitled to such an inference with respect to the debit networks that would allow it to survive summary judgment. The evidence before the magistrate and the district court to support direction or control of financial institutions by Paymentech was even scarcer. As the district court observed, the record contained no evidence even of a contractual relationship between Paymentech and the financial institutions.

Without this direction or control of both the debit networks and the financial institutions, Paymentech did not perform or cause to be performed each and every element of the claims. In this situation, neither the financial institutions, the debit networks, nor the payment services provider, Paymentech, bears responsibility for the actions of the other.

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April 07, 2009 1:32 AM  

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