The Impact of the CAFC’s Joint Infringement Conundrum on Protecting Interactive Technologies

By Eric Guttag
April 19, 2011

The conundrum created by the Federal Circuit’s joint infringement doctrine and its impact on protecting interactive computer-based technologies got worse last week with McKesson Technologies, Inc. v. Epic Systems Corp. McKesson Technologies involved a patented interactive electronic method for communicating between healthcare providers and patients about personalized web pages for doctors.  Judge Linn’s majority opinion (and a “thin” at majority at that) ruled that, because the initial step of the patented method was performed by the patient while the remaining steps were performed by the software provided by the healthcare provider, there was no infringement, direct, indirect, joint or otherwise of the patented method.

For reasons I’ll discuss below, Judge Linn’s ruling in McKesson Technologies is based on a faulty legal premise (going back to at least the 2007) that indirect infringement (e.g., inducing infringement) of a claimed method requires direct infringement of the claimed method by a single actor (or by two or more actors acting in “concert” that jointly infringe the claimed method).  Judge Linn’s ruling also didn’t sit well with the other two judges on this panel.  Judge Bryson’s short concurring opinion suggested that the precedent on which the majority opinion was based “may warrant review by the en banc court in an appropriate case.”  Dissenting Judge Newman was even more direct, detailed and vociferous about the “conflicting panel precedent,” as well as the impact McKesson Technologies would likely have on the ability to protect interactive computer-based technologies against infringement.

The “conflicting panel precedent” Judge Newman refers starts with the 2007 case of BMC Resources, Inc. v. Paymentech, L.P. In BMC Resources, the Federal Circuit ruled that, where no one infringer performs all of the steps of the patented method, actionable joint infringement (sometimes called “vicarious” infringement) requires “control or direction” by one infringer of the acts of the other infringer(s).  What then followed were several cases that reaffirmed the holding in BMC Resources that joint infringement of the patented method involving the acts of multiple actors requires “control or direction” by at least one of those actors.  These included the 2008 case of Muniauction, Inc. v. Thomson Corp. (no joint infringement of patented electronic method for conducting auctions of financial instruments where auctioneer and bidder each perform some but not all of the steps), and the 2010 case of Akamai Technologies, Inc. v. Limelight Networks, Inc. (no joint infringement of patented method for content delivery service where customer and provider of the service each perform some but not all steps).

By contrast, in the 2011 case of Centillion Data Systems, LLC v. Qwest Communications International, Inc., the Federal Circuit ruled that “use” (infringement) of a patented system occurs when a party puts that system “into service,” even if that party does not exercise “physical or direct control over each individual element of the” patented system.  Because there was a single user of the patented system in Centillion Data Systems, “there is no need for the vicarious liability analysis from” BMC Resources.  Or as Judge Newman characterized it, even more “conflicting panel precedent” to consider (and reconcile) for interactive computer-based technologies.

With this background of potentially “conflicting panel precedent” came the McKesson Technologies case.  The claimed method required four distinct steps.  The initial step involved “initiating a communication by one of the plurality of users to the [at least one health-care] provider for information, wherein the provider has established a preexisting medical record for each user.”  The alleged infringer (Epic) provided and licensed MyChart software to healthcare providers.  The heathcare providers then offered the option to their patient customers to use the MyChart software.

McKesson (the patentee) then sued Epic for inducing infringement of this claimed method as the supplier of the MyChart software.  It was undisputed by McKesson and Epic that no single actor performed each and every step of the claimed method.  In fact, this initial step (and apparently only this initial step) was performed by patients (“users”) of the MyChart software.  Epic then moved for summary judgment of noninfringement on the basis that no single actor directly infringed the claimed method.  The district court agreed and granted Epic’s motion for summary judgment of noninfringement.

Judge Linn’s ruling affirming the grant of summary judgment of noninfringement is based primarily on the holding in BMC Resources (a case also authored by Judge Linn) that a “method claim is directly infringed only if each step of the claimed method is performed by a single party.”  But as alluded to above, the premise for that holding in BMC Resources is based on a “foundation of legal sand.”  Specifically, BMC Resources relies primarily upon two cases for this premise:  the 1993 case of Joy Technologies, Inc. v. Flakt, Inc. (“[f]or a process patent or method patent claims, infringement occurs when a party performs all of the steps of the process”); and the 2004 case of Dynacore Holdings Corp. v. U.S. Philips Corp. (“[i]ndirect infringement requires, as a predicate, a finding that some party amongst the accused actors has committed the entire act of direct infringement).

But neither Joy Technologies, nor Dynacore Holdings supports the “one actor must perform all steps” premise in BMC Resources.  In Joy Technologies, the Federal Circuit lifted an injunction because the alleged inducing infringement was based on sales of plants that might be capable of practicing the patented method, not because multiple actors were required to perform all of the method steps.  (Although unclear from the Joy Technologies decision, the Federal Circuit may have also lifted the injunction based on the theory that the alleged infringer only planned to import the equipment for the plant from outside the United States.)  In Dynacore Holdings, the Federal Circuit ruled against vicarious infringement liability (under either an inducing or contributory infringement theory) of alleged infringing networks, but again not because multiple actors were required to perform all of the method steps.  Instead, the patentee in Dynacore Holdings had failed to show that any of the infringing networks would meet a central limitation recited in the claims, i.e., there was no direct infringement whether it be single or multiple actors.

In fact, what’s startling about this faulty “one actor must perform all steps” premise in BMC Resources is the further reliance upon the 1985 case of Fromson v. Advance Offset Plate, Inc. (an opinion authored by the late Chief Judge Markey).  As correctly stated by BMC Resources, Fromson held that liability for direct infringement requires one party to perform all steps of the claimed method.  But what Chief Judge Markey also made clear in Fromson was that liability for indirect infringement (e.g., contributory infringement) could be predicated on direct infringement of the claimed method, even if different steps were performed by different actors (e.g., in a two step method, the manufacturer performed the initial step, while the customer performed the remaining step).  In other words, what Fromson says is that, as long as all steps of the claimed method were performed (no matter how many actors performed those steps), the direct infringement predicate necessary for indirect infringement liability was satisfied.

The significance and relevance of the holding in Fromson for such multi-actor direct infringement being the basis for indirect infringement of a claimed method was not lost in Judge Newman’s dissent.  (With all due respect, her reliance upon her dicta in the 2006 case of On Demand Machine Co. v. Ingram Industries, Inc. regarding the jury instruction there allegedly summarizing the “state of the law of joint infringement” isn’t nearly as persuasive to me.)  In fact, Judge Newman’s opinion that BMC Resources, as well as its progeny in Muniauction and Akamai Technologies, are based on an “aberrant” premise is well-founded in view of what actually Fromson holds.  Her view that treating direct/indirect infringement of interactive methods (per McKesson Technologies) differently from direct/indirect infringement of interactive systems (per Centillion Data Systems) creates a “confusing contrast” is also valid concern.  And as Judge Bryson’s concurring opinion correctly observes, the validity of the “one actor must perform all steps” premise in the BMC Resources through McKesson Technologies cases simply begs for en banc ruling on how direct/indirect infringement of interactive computer-based methods which are likely to be performed by multiple actors should be judged.

In defense of Judge Linn, his opinion in BMC Resources does warn that the conundrum of proving joint infringement could be “offset by proper claim drafting” so that all steps in the claimed interactive method are performed by one actor only.  For example, the four step method in McKesson Technologies might have been written such that the claimed method was performed either by the patient or by the provider of the MyChart software.  Or per Centillion Data Systems, the claims to the interactive technology in McKesson Technologies might also have been written as system.

But Judge Linn’s warning is small solace to those patentees who are stuck with existing interactive method claims which require multiple actors to perform each step.  One can also sympathize with Judge Newman’s concern that allowing an alleged infringer of an interactive method to get of the liability hook simply because one step is performed by a different actor seems to exalt form over substance.  But that’s what the joint infringement conundrum of BMC Resources (now perpetuated by McKesson Technologies) causes when you simply look at the form of the alleged infringement, not its substantive impact.

*© 2011 Eric W. Guttag.

The Author

Eric Guttag

Eric Guttag  
Mr. Guttag has over 38 years of corporate and private intellectual property law experience on patent, trademark, copyright, trade secret and unfair competition matters, computer and Internet law, including patent application drafting, prosecution, and patentability studies; infringement and validity studies; international patent prosecution; patent and know-how licensing; consulting, confidentiality, clinical study and research agreements; trademark searches and opinions; trademark registration and prosecution; trademark freedom-to-use studies and trademark litigation and dispute resolution.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 19 Comments comments.

  1. Blind Dogma April 19, 2011 1:16 pm

    For a change, the Patently-O blog has some reasoned articulated posts on this topic.

    Your thoughts, EG?

  2. EG April 19, 2011 2:17 pm

    BD,

    The debate started reasonably on Patently-O (Ned Heller appears to see it like I do that there’s the fundamental flaw in premise that BMC Resources is based on). Unfortunately, it then digressed into the fairly typical “brick bat” throwing match between ping and MM. (BTW, I don’t disagree with MM that the McKesson claim has problems but for a different reason: too many steps in the claim, as well as making it difficutl for one actor to carry out all the steps, thus making liability for direct infringement just about nigh impossible).

    What Judge LInn isn’t picking up on is the subtle difference noted in Fromson between liability for direct infrigement (which requires all steps to be performed by one actor) and direct infringement required to be a predicate for inducing/contributory infringement (requires only that all steps of the claimed method be performed, no matter how many actors that requires). That dawned on me as I reviewed the BMC Resources case and what it was citing Joy Technologies and Dynacore for, and after reading Fromson (which Judge Newman clearly understands undermines the whole premise that BMC Resources is based on). Hope that provides a useful insight for you.

  3. Blind Dogma April 19, 2011 5:18 pm

    Thanks EG,

    Some good cases to review. In my spare time. Eventually.

  4. Steve M April 19, 2011 7:20 pm

    Thanks for another insightful article EG.

    Appreciate your time & efforts.

  5. EG April 20, 2011 8:05 am

    Steve M.,

    My pleasure, thanks for the kind words.

  6. Blind Dogma April 20, 2011 10:31 am

    Hal Wegner has an interesting email this morning on this topic.

    EG, are you on Hal’s email list?

  7. EG April 20, 2011 1:49 pm

    BD,

    I’m not on Hal’s e-mail list, but have known him for many years. What did Hal have to say?

  8. Blind Dogma April 20, 2011 1:58 pm

    EG,

    I do not wish to risk mischaracterizing Hal’s writing (if you know him, then you know how difficult it can be at times to “translate” his humor.

    It is easy enough to be added, just drop him a request at: hwegner@foley.com

  9. Blind Dogma April 22, 2011 11:53 am

    EG,

    Can you provide a cite to back up your view of Fromson?

    I reviewed the 1985 case (755 F.2d 1549) but found no discussion whatsoever re:
    made clear in Fromson was that liability for indirect infringement (e.g., contributory infringement) could be predicated on direct infringement of the claimed method, even if different steps were performed by different actors (e.g., in a two step method, the manufacturer performed the initial step, while the customer performed the remaining step). In other words, what Fromson says is that, as long as all steps of the claimed method were performed (no matter how many actors performed those steps), the direct infringement predicate necessary for indirect infringement liability was satisfied.

    Perhaps I have the wrong case.

  10. EG April 22, 2011 2:54 pm

    BD,

    Here’s the key sentence in Fromson (with my bracketed explanation):

    “It is undisputed that Advance manufactured and sold “wipe-on” plates comprising an anodized aluminum sheet that had been treated with an aqueous solution of sodium silicate [step 1 of the claimed method], and that its customers applied a diazo coating to those plates [step 2 of the claimed method]. Because the claims include the application of a diazo coating or other light sensitive layer and because Advance’s customers, not Advance, applied the diazo coating, Advance cannot be liable for direct infringement [because they only practiced step 1] with respect to those plates but could be liable for contributory infringement.

    This sentence only makes sense if indirect (contributory) infringement can be predicated on direct infringement by multiple actors.

  11. Blind Dogma April 22, 2011 3:09 pm

    EG,

    That key sentence is not in 755 F.2d 1549.

    Like I said – perhaps I have the wrong case. Can you provide a pincite?

  12. EG April 22, 2011 3:52 pm

    BD,

    No wonder you’re having trouble. The correct case cite for Fromson is 720 F.2d 1565 (I got the case off the Internet, so I can’t give you a pin cite). Hope that helps.

  13. Blind Dogma April 23, 2011 9:51 am

    Thanks EG,

    You are correct, plain as day the indication is as you indicate.

    Two items however make the 720 F.2d 1565 1983 case a little murky.

    1) The decisions arguably states that all the parties are assumed to be one entity (all suits were consolidated and the lawsuit claims are assumed to be the same as against Advance as to the three Advance customers

    2) The issues on appeal are segregated into two questions and it is the unanswered second question (presented as a matter of fact – not law) that subsumes the dicta you want to reach. The appeal court in fact explicitly states that it is making no determination as to infringement and contributory infringement, making that dicta even less persuasive.

    Your thoughts?

  14. EG April 25, 2011 4:37 pm

    BD,

    My read is that Markey in Fromson didn’t have enough of a factual record (given that district court erred in its interpretation of the claim scope to ) to rule whether or not the accused plates had a “layer that is water insoluble, hydrophilic and organophobic” to say whether there was direct infringement and thus potentially contributory infringement. That’s my take from Markey’s concluding “the determination of infringement and contributory infringement msut await complete findings in the first instance by the district court.” If Markey didn’t feel that contributory infringement could be based on direct infringement by muliple actors, I doubt he would said so earlier in the opinion if the claims, as correctly construed, couldn’t be directly infringed by multiple actors. My 2 cents for what it’s worth.

  15. EG April 26, 2011 8:07 am

    BD,

    BTW, the discussion on this case has digressed further on Patently-O as far as ping is concerned. He took umbrage at my comment above about his verbal “ad hominem” sparring with MM. I also stand accused of “making up case law to fit a theory” regarding the Fromson. I know what dicta is and what Markey said in Fromson isn’t dicta. Even if what Markey said dicta, how Linn treats it as the premise for BMC Resources isn’t correct, and that’s my primary point.

  16. Blind Dogma April 26, 2011 9:22 am

    EG,

    Ping is indeed crass, and the sparring detracts from his points.

    However,…

    After separating out the voluminous chaff, I find that there is wheat, that he often has valid points.

    For example, what Markey says in Fromson is dicta, so we might have to agree to disagree on this point, which is too bad, because it is a central point to your position.

    In that 1983 case, Markey lays out that the issue is not being addressed in his opinion and that an assumption of the joining the parties together as one was made (an assumption that is not further reviewed because that assumption was not critical to the issue actually being reviewed). This is the epitome of dicta. Markey clearly segragates the issues and focuses on one and only one of those issues. You are placing a lot of emphasis on a point that first was merely assumed and second was not germaine to the decision.

    I have not looked at BMC Resources and how Linn treats the line of Fromson cases yet, So I will have to reserve comment on the evolution of the argument after Fromson.

  17. EG April 26, 2011 12:39 pm

    BD,

    Yes, ping can be crass and I too find that what he says makes sense to me most of the time.

    I also concur that we’ll have to “agree to disagree” as to whether Markey’s statement that contributory infringement can be predicated on direct infringement by more than one actor is dicta. You and ping apparently read what Markey said differently from me, and perhaps view was is dicta differently from how I view it. The district court had ruled that there was no infringement (contributory or direct) based on an erroneous claim interpretation. In fact Fromson said the issue on appeal was whether there was direct or contributory infringement. Markey was simply unable to rule in the appeal that there was contributory or even direct infringement because there was not findings of fact relating to the language in the claims that was misinterpreted by the district court.

    In addition, Judge Newman’s dissent in McKesson treats what Markey said in Fromson as holding, not dicta: “the court held that contributory infringement was possible when a step of a method claim was practiced by the customer, and explained that “because [the manufacturer’s] customers, not [the manufacturer], applied the diazo coating, [the manufacturer] cannot be liable for direct infringement with respect to those plates but could be liable for contributory infringement.” Id. at 1568. This has been the law. It has never had en banc reversal.” Also, Judge Linn’s reliance on Fromson in BMC Resources implies that what Markey said in Fromson was being treated as more than just dicta. And again, as I said above, even if what Markey said is dicta in Fromson, Linn has misconstrued what Markey said to support the premise that BMC Resources squarely relies upon (liability for indirect infringement requires direct infringement by one actor).

  18. Blind Dogma April 26, 2011 1:21 pm

    EG,

    As I have indicated, I have not had the time to review the history after Fromson.

    However, I am perfectly capable of understanding both of the Fromson cases that I have read (the 1983 and the 1985 cases). Understanding what is dicta is not difficult – no matter how any other judge decides to label it. Judges do make mistakes and judges do purport what is dicta as not dicta (although labeling such as a holding is rare – and such should be exceedingly rare), these types of mistakes do happen.

    We should be able to recognize mistakes as such and we should not blindly base our positions on those mistakes and carry on as if nothing is amiss. Where, as here, what is clearly dicta in Fromson stays dicta (in Fromson) no matter how applied in subsequent cases.

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