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No Liability for Joint Infringement Where Party Did Not Control or Direct Each Step of the Claimed Method

06-1503
September 20, 2007

Decision icon Decision

Last Month at the Federal Circuit - October 2007

Judges: Rader (author), Gajarsa, Prost

[Appealed from: N.D. Tex., Judge Lynn]

In BMC Resources, Inc. v. Paymentech, L.P., No. 06-1503 (Fed. Cir. Sept. 20, 2007), the Federal Circuit affirmed the district court’s grant of SJ of noninfringement to Paymentech, L.P. (“Paymentech”) because Paymentech did not perform each step of the asserted method claims and did not direct or control the performance of each step of the asserted method claims.

BMC Resources, Inc. (“BMC”) is the assignee of U.S. Patent Nos. 5,718,298 (“the ’298 patent”) and 5,870,456 (“the ’456 patent”), which claim methods for processing debit card transactions without the use of a Personal Identification Number (“PIN”), also called PIN-less debit bill payment (“PDBP”). As claimed, these methods require action by different actors, including a remote payment card network, an agent of a payee, and a financial institution. For example, one asserted claim requires (1) “prompting the caller to enter a payment amount for [a] payment transaction,” (2) “accessing a remote payment network,” (3) “the accessed remote payment network determining . . . whether sufficient available credit or funds exist,” and (4) “charging the entered payment amount against [an] account.”

Paymentech processes PDBP transactions for clients in conjunction with merchants, debit networks, and financial institutions. Specifically, after a customer calls a merchant to pay a bill and the merchant collects payment information, the merchant sends the payment information to Paymentech, which routes the information to a participating debit network. The debit network then forwards the information to a financial institution for authorization. If authorized, the financial institution charges the customer’s account according to the payment information collected by the merchant. The financial institution communicates status information about the transaction to the debit network, and then, through Paymentech, to the merchant, who provides the customer with information about the transaction’s status.

After BMC approached Paymentech and offered a license to its patents, Paymentech filed suit seeking a DJ of noninfringement. The district court granted SJ of noninfringement on the grounds that Paymentech did not itself perform all of the claimed method steps, and there was no evidence that Paymentech directed or controlled the behavior of the financial institutions that performed those claimed method steps that Paymentech did not perform. Nor was there any connection between Paymentech and the firms performing the additional claimed steps. Lacking any evidence of direct infringement, the district court further dismissed BMC’s claims for contributory infringement and inducement.

On appeal, BMC argued that the district court’s decision was contrary to On Demand Machine Corp. v. Ingram Industries, Inc., 442 F.3d 1331 (Fed. Cir. 2006). BMC argued that in that case, the Federal Circuit sanctioned a finding of infringement by a party who performs some, but not all, steps of a method claim in cases where a patent claims an invention that cannot be performed by one person. BMC further argued that On Demand adopted a “participation and combined action” standard as the type of connection a plaintiff must show to prove joint infringement.

The Federal Circuit disagreed. Although in On Demand, the Court did not find any error in a jury instruction that merely required “participation and combined action,” it did so without any analysis of the issues presented relating to divided infringement. Instead, On Demand primarily addressed a claim construction issue that governed the outcome of the case. The Federal Circuit thus agreed with the district court that On Demand did not change the traditional standard requiring a single party to perform all steps of a claimed method.

The Federal Circuit further explained that infringement requires, as it always has, a showing that a defendant has practiced each and every element of the claimed invention. Although indirect infringement provides liability for parties that participate but do not directly infringe a patent, indirect infringement, such as induced infringement, requires a predicate finding of direct infringement. 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.

While acknowledging that the standard requiring control or direction may, in some cases, allow parties to avoid infringement by arms-length agreements, the Federal Circuit reasoned that this concern does not outweigh concerns over expanding direct infringement to reach independent conduct of multiple actors. Direct infringement is a strict liability offense; indirect infringement under 35 U.S.C. § 271(b) and (c) requires a further showing of knowledge (contributory infringement) or specific intent (induced infringement). Applying BMC’s proposed interpretation of On Demand, the Court added, a patentee would rarely, if ever, need to bring a claim for indirect infringement.

The Federal Circuit also emphasized that any concerns that a party can avoid infringement by arms-length cooperation can usually be offset by proper claim drafting. Specifically, the Federal Circuit reasoned that a patentee can usually structure a claim to capture infringement by a single party. Although BMC chose to have four different parties perform different acts within one claim, the Court refused to “unilaterally restructure the claim or the standards for joint infringement to remedy these ill-conceived claims.” Slip op. at 13.

The Federal Circuit then reviewed the factual record and the relationships between Paymentech and the debit networks and financial institutions. According to the Federal Circuit, although BMC offered some evidence to establish a relationship between Paymentech and the debit networks, BMC did not provide sufficient evidence to create a genuine issue of material fact that Paymentech directed or controlled the debit networks’ actions. Specifically, the record indicated that Paymentech merely provided data (e.g., the payee’s debit card number, name, amount of purchase) to the debit networks without providing any instructions or directions regarding how to use the data. The Federal Circuit found this was insufficient evidence of direction or control of the debit networks and further rejected BMC’s unsupported argument that instructions could be inferred. Moreover, the Federal Circuit observed, BMC proffered even less evidence of Paymentech’s direction or control of the financial institutions and did not establish that a contractual relationship existed between the two.

Accordingly, the Federal Circuit refused to hold Paymentech liable for the actions independently taken by the debit networks, financial institutions, and the payment services providers, and affirmed the district court’s grant of SJ.