Patent and Trademark Law

Consequently, practitioners and district courts have taken notice, with several courts in the last few months addressing the joint infringement defense and often dismissing the patentee’s claim for failing to satisfy the Federal Circuit’s “single entity” requirement. This article analyzes these cases.

Federal Circuit Guidance

In BMC, the patents involved a business method for debit bill payment involving the combined action of four participants.¹ Paymentech was granted summary judgment of non-infringement by the district court because it was only one of the four necessary participants in the claimed method, and therefore could not be a direct infringer. The Federal Circuit affirmed the grant of summary judgment.

Although the court took note of a potential “loophole” that would permit a party to avoid liability by “having a third party carry out one or more of the claimed steps on its behalf,” it dismissed this concern in view of a patent applicant’s ability to draft claims to capture infringement by a single entity and in light of case law imposing “vicarious liability” on a party for the acts of another where the circumstances show that the liable party was the “mastermind” and “controlled the conduct of the acting party.”²

The court therefore adopted a standard “requiring control or direction for a finding of joint infringement.”³ The Federal Circuit recognized that the “control or direction” standard it was adopting might allow parties “to enter into arms-length agreements to avoid infringement,” but reasoned that “expanding the rules of direct infringement to reach independent conduct of multiple actors would subvert the statutory scheme for direct infringement.”⁴

In applying the standard to the facts in the case, the court held that BMC Resources’ proffered evidence that Paymentech had “some relationship” with, and provided data to, the debit networks, without any evidence that Paymentech also provided “instructions or directions regarding the use of the data,” was inadequate to create a genuine issue of fact as to whether Paymentech “controls or directs the activity of the debit networks.”⁵ The court further noted that the evidence regarding Paymentech’s “direction or control” of the accused financial institutions “was even scarcer” as there was no evidence “even of a contractual relationship” between Paymentech and those financial institutions.⁶

The BMC Resources opinion clearly establishes that, on the one hand, a party cannot avoid infringement “simply by contracting out steps of a patented process to another entity” but that, on the other hand, “independent conduct of multiple actors” via “arms-length cooperation” will not support an infringement claim.

In Muniauction, the patent at issue involved a method for an electronic auction, the first step of which was performed by a bidder while the remainder of the steps were carried out by an auctioneer system.⁷ At the conclusion of trial, the district court gave the jury an instruction regarding joint infringement that asked the jury to consider whether there was “one party teaching, instructing, or facilitating the other party’s participation in the electronic auction process.”⁸

The jury thereafter returned a verdict of infringement against the auctioneer-defendant. The Federal Circuit, applying the test from BMC Resources, reversed. The court first held that “none of the questions identified by the jury instruction are relevant to whether [defendant] satisfies the ‘control or direction’ standard.”⁹ It held that the auctioneer’s controlling access to its system and instructing bidders on use of its system, including how to perform the initial step of the claimed method, “is not sufficient to incur liability for direct infringement.” The court went on to note that the defendant “neither performed every step of the claimed methods nor had another party perform steps on its behalf” and there was no identified legal theory “under which [defendant] might be vicariously liable for the actions of the bidders.”

The Federal Circuit’s holding in Muniauction appears to make it more difficult for patentees to prove infringement by joint activity. Perhaps most surprising is the court’s statement that “instructing” another party regarding their activities is not “relevant” to the control or direction test. It therefore arguably appears that patentees must now prove that the “mastermind” of the infringing activities arranged for the other actor or actors to perform the claimed steps “on its behalf” or is otherwise vicariously liable for the actions of the other actors.

District Courts Follow

Since the Muniauction decision, many district court rulings, addressing “the direction and control” test, have followed. For instance, in Keithley v. The Homestore.com, 2008 WL 4962885 (N.D. Cal., Nov. 19, 2008), the patent-in-suit was directed to an information processing method for acquiring and displaying real estate information utilizing an information processing system containing file server means and database storage means. The method required (in summary) (a) receiving real estate related information; (b) storing digitized real estate data; (c) receiving digital information from a first [end] user; (d) selectively providing digital electronic information; (e) accessing data files by said first end users; (f) generating a demographics information database; and (g) providing a second end user with the demographic information.

The Keithley court found the evidence presented insufficient to raise a triable issue of fact regarding the defendants’ direction or control over the first end user consumers. As in Muniauction, the accused in Keithley allowed users access to its Web sites, but did not cause those users to access any particular information. Moreover, unlike Muniauction, where the defendants required bidders to install and configure software in order to access the defendants’ server and where all bidders were assigned a password, the Keithley defendants had no such requirements. The court concluded that no one party performed every step of the claim and that the defendant did not “have another party perform steps on its behalf.”

Similarly, in Friday Group v. Ticketmaster, 2008 WL 5233078 (E.D. Mo., Dec. 12, 2008), the district court granted defendant Ticketmaster’s motion to dismiss the complaint for failing to state a claim upon which relief can be granted. There, the patent-in-suit was directed to a method for “providing an opportunity to purchase a recording of a live event” including the steps of conducting the live event, recording it, manufacturing copies and distributing copies. Accordingly to Ticketmaster, “Friday’s complaint does not allege facts identifying which single party practices each and every step, or alternatively which single party is the ‘mastermind’ that directs or controls the performance of each and every step, of the claimed method.” In response, Friday contended that each defendant carries out all the steps or is a joint infringer. The court disagreed that this was sufficient:

Most recently, in Golden Hour Data Systems, Inc. v. emsCharts, Inc., 2009 WL 943273 (E.D. Tex., April 3, 2009), the Eastern District of Texas extended the Federal Circuit’s “direction and control” test to a system claim. After trial and a jury’s verdict of infringement, Judge T. John Ward granted defendant emsCharts’ motion for judgment as a matter of law that there was no legally sufficient evidentiary basis to find that emsCharts and co-defendant Softtech LLC jointly infringed.

The system claim at issue read: