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.