CAFC Denies Joint Infringement Claim and Maps Out Infringement Avoidance Schemes

BMC v. Paymentech (Fed. Cir. 2007)

BMC’s patents cover a method for processing a debit transaction without using a PIN. The payment industry is divided so that there is no single party that infringes an entire claim. However, when combined, the effort of a payee’s agent, an ATM network, and a financial institution

The usual rule is that direct infringement occurs only when a single actor performs “each and every element” of an asserted claim. Likewise, inducement requires proof of underlying single-actor direct infringement.  Under a doctrine akin to agency, all actions ‘controlled’ by the single actor are considered to be performed by the single actor.  Thus, courts have long held that you cannot avoid liability by simply “having someone else carry out one or more of the steps” on your behalf. 

Here, BMC acts for an extension of the law in cases where parties are cooperating in a manner that infringes the patent – even though no single party controls the others. The CAFC, however, refused to extend the law — even while admitting that its decision paves a clear pathway for would-be infringers to avoid liability:

“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.”

The CAFC’s concern, of course is that allowing this type of joint infringement would greatly increase potential liability of many many companies. For instance, here, BMC would like to hold ATM networks liable even though their actions do not involve any novel part of BMC’s invention. Without any controlling party, BMC’s claim of infringement fails.

As part of its justification, the court cited Mark Lemley’s divided infringement article. In that article, Lemley argues that patent drafters can avoid most potential joint infringement problems by drafting claims that focus on one party at a time.

Notes:

• The doctrine of control is certainly not as strict as typical agency doctrine.  And, in this opinion the court gives some positive language to capture bad behavior. For instance, the court noted approvingly that district courts have held parties liable for who ‘mastermind’ a scheme of contracting-out steps of a patented process.  As a strict liability claim, the CAFC is correct to avoid undue expansion of the class of potential defendants. However, the hole created by the CAFC is potentially quite large — I have proposed a new cause of action for conspiratorial infringement that would not require a single controlling entity, but would require a mens rea requirement similar to that of inducement.  
• Related Material:
• 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)
• 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).
• An expanded joint infringement notion is supported by the CAFC's recent On Demand decision where the court noted that "[i]t is not necessary for the acts that constitute infringement to be performed by one person or entity."
• In PharmaStem, the CAFC did not decide the issue, but noted that the “viability and scope of [the theory of joint infringement] liability is a subject of considerable debate.”
• Applied Interact, LLC v. Vermont Teddy Bear Co., Inc.  2005 WL 2133416 (S.D.N.Y.,2005), the district court noted that infringement by separate entities requires “some connection” between the entities.
• Free Standing Stuffer, Inc. v. Holly Dev. Co., 187 U.S.P.Q. 323 (N.D. Ill. 1974), requires a “sufficient connection to, or control over” third party entities performing some of the elements.
• Cordis Corp. v. Medtronic AVE, Inc., 194 F. Supp. 2d 323 (D. Del. 2002) (requiring close relationship between defendant and the doctors performing part of the patented process).
• Shields v. Halliburton Co., 493 F.Supp. 1376 (W.D. La. 1980) (finding defendants liable for infringement based on the combined actions of two entities).
• Wegner well thought viewpoint from 2001
• Sriranga Veeraraghavan, Joint Infringement of Patent Claims: Advice for Patentees, 23 Santa Clara Computer & High Tech L.J. 211 (2006).
  

 

Comments

[Steven Sereboff]

How does this holding impact the patent in LCA v Metabolite? The patent in that case had joint-actor claims, with some steps performed by the lab and others performed by the doctors.

[Stephan Kinsella]

Who has proposed the "conspiratorial infringement" cause of action? You, Crouch? Where? Link? I think it's absolutely terrible to propose further patent infringement liability. Things are bad enough.

[Stephan Kinsella]

So does this mean that a company that wants to practice a patented method could in some cases establish separate corporate subsidiaries to each perform only part of the method, having arms-length agreement between them (and with the parent?), and thereby avoid infringement? If so, this is brilliant.

[John Osborne]

The statement "BMC would like to hold ATM networks liable even though their actions do not involve any novel part of BMC’s invention" appears to be irrelevant to the rationale of the actual decision. The decision did not rely on novelty, or the lack thereof, of any particular claimed step to reach its decision. While this line of reasoning may implicitly be a basis for the holding, and also has relevance to the extraterritorial infringement and patent exhaustion contexts, the CAFC did not make it explicit, which is unfortunate for courts and practitioners seeking clarity in these areas.

[Anon]

Dennis, you should provide a cite for your "conspiratorial infringement" cause of action, in case a court wants to pick up on it.

[defector]

Dennis -- the punchline is missing at the end of the first paragraph. Let me guess: "a payee’s agent, an ATM network, and a financial institution" walk into a bar. The bartender says to the ATM network, "are you looking for work?" The ATM network says, "sure! I'd love to help you sell booze!" The financial institution says, "he can't help you, I need him." The payee's agent says, "just give me a drink!"

Its funny cause it's true.