BMC Resources, Inc. owns two patents that claim a method for processing debit transactions without a personal identification number (PIN). As described by the Court:
The patented invention provides an interface between a standard touch-tone telephone and a debit card network. On this interface, a customer may perform real-time bill payment transactions with only a telephone keypad. The invention includes an interactive voice response unit (IVR) that prompts the caller to enter an access code, account number, debit card number, and payment amount. This information, in turn, passes to a debit network and on to a banking or financial institution. Each of these entities participates in approving and carrying out the transaction. Using the invention, the caller may also obtain information regarding authorization for the transaction, and inquire about previously processed transactions. Thus, BMC's patents disclose a method for PIN-less debit bill payment (PDBP) featuring the combined action of several participants, including the payee's agent (for example, BMC), a remote payment network (for example, an ATM network), and the card-issuing financial institutions.
BMC filed suit for patent infringement against Paymentech, L.P., which processes financial transactions for its clients. According to the Court, Paymentech processes a PDBP transaction according to the following sequence:
1. the customer calls the merchant to pay a bill using an IVR;
2. the merchant collects payment information from the customer and sends it to Paymentech;
3. Paymentech routes the information to a participating debit network;
4. the debit network forwards the information to an affiliated financial institution;
5. the financial institution authorizes or declines the transaction, and if authorized, charges the customer's account according to the payment information collected by the merchant; and
6. information regarding the status of the transaction moves from the financial institution to the debit network and then, through Paymentech, to the merchant who informs the customer of the status of the transaction.
The district court granted summary judgment of noninfringement for Paymentech, holding that Paymentech had not infringed the claims because it performed some but not all of the steps of the asserted method claims. The Court of Appeals affirmed: "Because the record contains no basis to hold Paymentech vicariously responsible for the actions of the unrelated parties who carried out the other steps, this court affirms the finding of non-infringement."
As framed by the Court, "the case presents the issue of the proper standard for joint infringement by multiple parties of a single claim.... As the parties agree, Paymentech does not perform every step of the method at issue in this case. With other parties performing some claimed method steps, this court must determine if Paymentech may nonetheless be liable for direct infringement under 35 U.S.C. §271(a) (2000).
Section 271(a) states:
Except as otherwise provided in this title, whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.
According to the Court, "direct infringement requires a party to perform or use each and every step or element of a claimed method or product." Warner-Jenkinson Co., Inc. v. Hilton Davis Corp., 520 U.S. 17, 117 S.Ct. 1040, 137 L.Ed.2d 146 (1997). "For process patent or method patent claims," according to the Court, "infringement occurs when a party performs all of the steps of the process." Joy Techs., Inc. v. Flakt, Inc., 6 F.3d 770, 773 (Fed.Cir.1993).
The Court noted that "when a defendant participates in or encourages infringement but does not directly infringe a patent, the normal recourse under the law is for the court to apply the standards for liability under indirect infringement." But according to the Court, "indirect infringement requires, as a predicate, a finding that some party amongst the accused actors has committed the entire act of direct infringement." Dynacore Holdings Corp. v. U.S. Philips Corp., 363 F.3d 1263, 1272 (Fed.Cir.2004).
The Court observed that "these rules for vicarious liability might seem to provide a loophole for a party to escape infringement by having a third party carry out one or more of the claimed steps on its behalf." But "to the contrary," according to the Court, "the law imposes vicarious liability on a party for the acts of another in circumstances showing that the liable party controlled the conduct of the acting party."
In the context of patent infringement, a defendant cannot thus avoid liability for direct infringement by having someone else carry out one or more of the claimed steps on its behalf. In [Cross Med. Prods. v. Medtronic Sofamor Danek, 424 F.3d 1293 (Fed.Cir., 2005)], this court refused to attribute the acts of surgeons in making the claimed apparatus to the medical device manufacturer because the medical device manufacturer representative, who appeared in the operating room and identified instruments for the surgeons, did not direct the surgeons' actions. The Court remanded the case for a determination of whether the surgeons directly infringed by making the claimed apparatus and whether the medical device manufacturer could be held vicariously liable for such infringing acts. 424 F.3d at 1312.
BMC argued that the district court erred in dismissing the argument that On Demand Machine Corp. v. Ingram Industries, Inc., 442 F.3d 1331 (Fed.Cir., 2006) sanctioned a finding of infringement by a party who performs some steps of a claim in cases where a patent claims an invention that cannot be performed by one person. In that case, the jury was instructed that —
It is not necessary for the acts that constitute infringement to be performed by one person or entity. When infringement results from the participation and combined action(s) of more than one person or entity, they are all joint infringers and jointly liable for patent infringement. Infringement of a patented process or method cannot be avoided by having another perform one step of the process or method. Where the infringement is the result of the participation and combined action(s) of one or more persons or entities, they are joint infringers and are jointly liable for the infringement.
Although the Court of Appeals affirmed, according to the Court, "it did so without any analysis of the issues presented relating to divided infringement." The district court discounted On Demand because the "decision did not in any way rely on the relationship between the parties," and the Court of Appeals concluded that "the district court properly analyzed the law and this court's cases."
As Paymentech succinctly noted in its brief, "it is unlikely the Court intended to make a major change in its jurisprudence in the On Demand [statement] that was not even directly necessary to its decision in the case."… In other words, BMC's interpretation of On Demand goes beyond settled law. On Demand did not change this court's precedent with regard to joint infringement.
According to the Court, "infringement requires, as it always has, a showing that a defendant has practiced each and every element of the claimed invention."
This holding derives from the statute itself, which states "whoever without authority makes, uses, offers to sell, or sells any patented invention within the United States, or imports into the United States any patented invention during the term of the patenttherefor, infringes the patent." 35 U.S.C. §271(a) (2000). Thus, liability for infringement requires a party to make, use, sell, or offer to sell the patented invention, meaning the entire patented invention.
Where a defendant participates in infringement but does not directly infringe the patent, the law provides remedies under principles of indirect infringement. However, this court has held that inducement of infringement requires a predicate finding of direct infringement. Dynacore, 363 F.3d at 1272.
However, according to the Court, "a party cannot avoid infringement… 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.
The Court acknowledged 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." However, "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 Court pointed out that "the concerns over a party avoiding infringement by arms-length cooperation can usually be offset by proper claim drafting." According to the Court, "a patentee can usually structure a claim to capture infringement by a single party." The Court suggested that "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.
Applying the rule to the instant case, the Court concluded that "BMC's charges against Paymentech properly results in a finding of no infringement." The Court held that while BMC offered evidence of some relationship between Paymentech and the debit networks, the "evidence was insufficient to create a genuine issue of material fact as to whether Paymentech controls or directs the activity of the debit networks."
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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