Divided patent infringement occurs when multiple parties act jointly in order to infringe a single patent claim. Thanks to the Federal Circuit's decision in BMC Resources, Inc. v. Paymentech, Ltd., a party accused of such infringement now knows exactly how far they need to go in order to escape liability - and the answer's easily within reach. According to BMC, as long as the parties act at "arm's length" - and no one entity performs or controls each and every step or element of a claimed invention - no joint infringement occurs.
BMC involved a method patent for a multi-step process allowing the use of debit cards in automated bill payment systems without the need for a PIN - a Personal Identification Number. Patent holder BMC's payment method combined steps from several different participants, including the payee's agent, a remote payment network (for example, an ATM network), and a card issuing financial institution. The relevant patent combined all necessary steps in a single claim.
Alleged infringer Paymentech, which processes financial transactions for clients of third parties, initiated a similar PIN-less debit card payment service. Like BMC, Paymentech's system utilized multiple participants. The parties agreed that Paymentech did not perform every step of the method at issue.
Still, BMC argued that Paymentech's conduct constituted infringement under the decision in On Demand Machine Corp. v. Ingram Industries. BMC claimed that On Demand created a new standard for infringement by multiple parties whereby a showing of participation and combined action sufficed to prove joint liability. BMC staked its position on language within On Demand which seemed to offer protection for patents issued to new and useful invention that cannot be performed by one person.
Both the trial court and the Federal Circuit rejected this reading of On Demand - and with it any suggestion of the existence of a conspiracy to infringe cause of action. Instead, the Federal Circuit firmly restated the well-established rules for joint liability in patent law: Without evidence that a single party controlled or directed each step of the patented process there's no viable divided infringement action.
Direct infringement claims continue to require a showing that the party accused of infringement has violated each and every element of the claimed method or product in order to be held liable for infringement. Similarly, indirect infringement - which occurs when a defendant participates in or encourages infringement but does not directly infringe the patent - requires a finding that some party among the accused actors has committed the entire act of direct infringement.
An alleged infringer cannot escape liability for direct infringement by having someone else carry out one or more of the claimed steps on its behalf. Such vicarious liability will only attach, however, upon a showing that the party charged with infringement had direct control of the conduct of the acting party.
The rule holds true when the alleged divided infringement involves multiple parties. In Cross Medical Products v. Medtronic Sofamor Danek (a case in which we represented Medtronic Sofamor Danek), we successfully argued that the acts of surgeons implanting the accused apparatus shouldn't be attributed to the medical device manufacturer simply because the medical device manufacturer's representative appeared in the operating room. Without the requisite level of direct control of the multiple parties, no direct infringement occurs just because of the involvement of multiple parties.
The BMC court recognized that the established rules may allow parties acting in concert to enter into arm's length transactions to avoid infringement, but felt that such concerns could be offset by proper claims drafting. Certainly, proper upfront evaluation of claims will help determine the scope of patents and a party's potential liability.
But we believe that analysis of divided infringement claims will now hinge on the relationship between the parties - particularly in business method patents. Advice from experienced patent litigation counsel is essential. BMC clarifies that no joint direct infringement occurs simply because the party's combined actions serve to meet every element or step of a method claim. Accordingly, a detailed assessment of the nature of the relationship between those taking the joint action becomes the key determinative - whether deciding to sue or in the defending against allegations of divided infringement.
Now that's something we like - a standard you can, almost, reach out and touch.
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