Centillion Data Systems, LLC v. Quest Corp., Appeal No. 2010-1110 (Fed. Cir. 2010)(now on appeal).
Centillon’s patent No. 5,287,270 covers a system used to present user-specified pre-processed summary reports of billing information. In 2004, Centillon sued Qwest for infringement – arguing that the communications company offered this type of functionality to its customers. (LOGIC, eBill Companion, and Insite). The major problem with Centillon’s claims is that they require activity on both a system computer and a customer’s personal computer. This is a situation often termed divided-infringement.
Section 271 of the Patent Act creates a cause of action for unauthorized “use” of a patented invention. Centillon argued that Qwest used its invention by offering the service to its customers. However, in a 2009 ruling, the district court held that Qwest could not be liable because the company did not use each and every element of the asserted claims. Rather, some of the elements of the system were used only by Qwest customers.
In NTP v. RIM, 418 F.3d 1282 (Fed. Cir. 2005), the Federal Circuit broadly defined “use” of a patented system to focus on control and beneficial use of the system as a whole. Although that case defined use within the context of determining whether a system was used “within the United States” the district court found that a similar definition applies when determining whether a single entity used the invention. However, instead of looking at use of the system as a whole, the district court felt bound to consider “use” on an element-by-element basis. Thus:
[A] party is liable for direct infringement for the “use” of a system claim under § 271(a) if it, by itself or in combination with a third party directed by it, put each and every element of the system claim into service, i.e. exercised control over, and benefited from, the application of each and every element of the system claim.
A real trick in divided-infringement situations is that an accused infringer’s actions of intentionally inducing another party to use some of the elements will not create a cause of action for infringement unless the accused infringer is shown to have control over the use of each element.
Centillion submits that the accused systems satisfy the ‘270 patent’s limitation “said personal computer data processing means being adapted to perform additional processing” because the e-Bill client application, for example, is designed to adapt the customers’ personal computers, the customers download the application following Qwest’s instructions and user guide, and the customers “further manipulate” the billing data they receive from Qwest. However, as the Court noted earlier, as a general rule, to hold Qwest liable for direct infringement Centillion must demonstrate that Qwest, by itself, practiced each and every limitation of the system claim. Here, however, Qwest relies on its customers to satisfy this limitation. Although the eBill client application may have been designed to adapt the customer’s personal computer, the designated evidence demonstrates that it does not actually adapt the customers computer until the customer executes the application. Moreover, Qwest does not control whether its customers load the Logic or eBill Companion client applications on their personal computers. . . . Centillion admits Qwest’s customers are not obligated or contractually bound to perform additional processing on individual transaction records provided by Qwest. Rather, Qwest’s customers independently determine whether or not to perform additional processing on individual transaction records by Qwest. Moreover, Qwest does not control whether its customers load the Logic or eBill Companion client applications on their personal computers. Therefore, the Court concludes that Centillion has failed to raise genuine issues of material fact regarding whether Qwest directly infringed independent claims 1 and 8, and dependent claims 10 and 46.
From a practical standpoint, the baseline solution to this problem is to properly draft patent claims to ensure that the claims focus on the operations of a single entity. Here, however, the crux of the invention was way that data from the server was communicated to the PC. The most natural way to describe the invention is to include both of those elements in the claim.
The appeal is now pending although no briefs have been filed yet. On appeal, the Federal Circuit should hold that the district court too narrowly focused its agency doctrine analysis. The courts have never held that strict control over a third-party’s actions is necessary. This case is similar to ones where the actions of doctors & patients have been conflated and the court then determined whether the combined actions constituted infringement. See, for example, Eli Lilly and Co. v. Actavis Elizabeth LLC, — F.Supp.2d —-, 2009 WL 5159650 (D.N.J. 2009)(“The actions of the doctors and patients will be treated together, and will be considered a directly infringing act.”); AstraZeneca LP v. Apotex, Inc., 623 F.Supp.2d 579, 598-600 (D.N.J.2009); Alza Corp. v. Andrx Pharms., LLC, 607 F.Supp.2d 614, 623 (D.Del.2009)
Notes:
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Read more about this case at PaTracer (where I originally learned of the case).
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A reexamination of the asserted patent was requested by Quest and granted by the PTO. However, after a full reexamination, the PTO confirmed the patentability of all 85 claims in the patent. (Ex. Parte Reexamination Certificate No. 7267).
You want to fix the system? You need to put the Examiners in groups. If 3 or 4 heads are way better than one or two, and not this over your back watchful eyes crap.
You have to start there. You put all on the same application. each putting their own special ability to work. Assigning each in the group a different area to search from. Talk about cutting the search time and area of search down. well, enough said.
Christine, from my reading of the district court order, the district court decided the “use” of the system claims and the infringement of claim 47, the method claim, in the same way, which it should. The court specifically relied on BMC, the holding Muniaction followed, and Muniauction itself to decide the method claim issue; and BMC, CMP and NPT to decide the “use” issue.
As I noted above, it would be illogical to decide that a single actor was required to infringe a method claim, but not to infringe by use an identically worded system claim. The very same issues are involved. I was not surprised when I read the case that the district court saw it the same way.
It would be interesting to see just how Dennis or anyone else would rewrite this claims here to eliminate the multi-actor problem.
Are any proponents of “partial infringement” [in which different parties independently perform different parts of a claim] also proposing partial damages recoveries against the various partial infringers? How would that work?
This case is now on appeal to the Federal Circuit. It involves a question of direct infringement of a method claim relating to computer software, where one entity does not perform all of the steps of the claim. It will also be interesting to see what the Fed. Cir. has to say about the district court’s invalidity analysis.
I’m with PDNEI and Ned. Where’s the discussion of Muniauction, the Fed. Circuit’s glaring precedent?
“For 271(b) you still need to find direct infringers even if you don’t sue them.”
JV,
Good point.
Dennis On appeal, the Federal Circuit should hold that the district court too narrowly focused its agency doctrine analysis. The courts have never held that strict control over a third-party’s actions is necessary.
I don’t get it. The law requires that the accused infringer control the actions of the 3rd party. Are you saying the distinction is “control” versus “strict control”? The facts here look like more like “no control” so I don’t see how that helps the patentee.
For 271(b) you still need to find direct infringers even if you don’t sue them.
My initial reaction is that Centillion (the patentee) isn’t going to win this appeal, at least not by arguing infringement under 35 USC 271(a). The NTP v. RIM case that Centillion relies upon still requires that the accused infringer (Qwest) carry out all aspects of the claimed system (directly or by control of others) to prevail under 35 USC 271(a). In NTP v. RIM, RIM performed all elements of the claimed system (i.e., was a direct infringer); the only point of contention was whether RIM’s interface switch being located in Canada changed that result (the Federal Circuit ruled it didn’t under 35 USC 271(a)).
By contrast, Qwest didn’t perform all elements of the claimed system. Instead, customers of Qwest had to perform one of those elements. Centillion also conceded that Qwest’s customers weren’t obligated to perform that element (in other words Qwest didn’t “control” the customer’s action regarding performance of that element). That puts this case squarely into the fact pattern of Cross Medical Products (no direct infringement if accused infringer doesn’t perform and/or control performance of all elements of claimed invention), and thus Qwest cannot be an infringer under 35 USC 271(a).
What is curious is whether Centillion might have had a case for inducting infringement under 35 USC 271(b). From the reported facts, it isn’t clear whether Centillion might have been able to make a case for inducing infringement under 35 USC 271(b).
That’s funny, the personal computer is not a postively recited element of either claim 1 or claim 8.
Ned–
I’m wondering what exactly you mean by a “multi-party use claim”.
Dennis is probably talking about massaging the wording of claims such that the actions they characterize are properly attributed to a single actor. I personally believe that both the post-massage and the pre-massage wording should be included, in separate claims.
Of course explicitly contemplating multiple actors would probably never be a good idea.
Ned, how can you make the statement that “method claims require one actor”? Do you deny the doctrines of contributory infringement and induced infringement?
Ned–
I’m wondering what exactly you mean by a “multi-party use claim”, and how such “claims” could “be an infringement.”
Dennis is probably talking about massaging the wording of claims such that the actions they characterize are properly attributed to a single actor. I personally believe that both the post-massage and the pre-massage wording should be included, in separate claims.
Of course explicitly contemplating multiple actors would probably never be a good idea.
Ned, how can you make the statement that “method claims require one actor”? Do you deny the doctrines of contributory infringement and induced infringement?
I second the notion of PDNEI. Method claims require one actor. It would be inconsistent to permit multi-party use claims to be an infringement.
Dennis, I emailed you a few weeks back on this same issue as it occured also in the Phoenix-DTV litigation: link to law360.com
This case is also on appeal right now. At first glance the Phoenix facts look much stronger; in fact if the latter case is NOT reversed I think you will see a huge number of patents become effectively neutered.
How do you distinguish Muniauction, Dennis?
I think that a better approach is to draft a set of claims where SOME focus on the actions of a single entity, while others do not, in order to enable specific infringement by one entity while preserving the possibility of divided infringement by multiple entities.
There will be those who, with the benefit of retrospection, will wonder how these claims might have been drafted to avoid divided-infringment.
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