Intellectual Property Law

Potentially dangerous precedent can arise from passing comments casually made by appellate courts.  This is what seems to have happened in case decided last week by the Federal Circuit, On Demand Machine v. Ingram and Amazon.com (No. 05?1074)(Fed. Cir. 2006, March 31, 2006).  Although reversing a judgment of infringement, the court endorsed a jury instruction that read in part ?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.  (Emphasis added).  Endorsement of this jury instruction was not necessary to the decision, and therefore may be characterized as dicta.  Nonetheless, since the panel quoted a full paragraph of the instruction and blessed it as an accurate ?statement of the law,? no doubt plaintiffs will cite the decision in future cases.

The problem is that, as recognized by another Federal Circuit panel a few months before, the On Demand Machine instruction goes beyond settled law.  Direct infringement of a method or process patent requires that all steps of the claimed method are performed.  Courts have recognized the common sense principle that direct infringement cannot be sidestepped by delegating to another performance of one more steps of the process or method claimed.  A defendant who performs some steps and directs or controls others in carrying out the remaining steps can still be liable for infringement.  A rule to the contrary would open up a gaping hole in protection for method patents.  But what should happen when the patented claims require conventional steps to be preformed by already existing entities, such as claims reading on a system or networked shared by many industry players?  Two recent court decisions slightly predating On Demand Machine illustrate the danger of expanding joint liability for patent infringement in such situations.

First, in December 2005, in an unpublished order in the Freedom Wireless appeal that is now being briefed on the merits, the lower court gave the following jury instructions:

if separate companies work together to perform all the steps of a claim of a patent, the companies are jointly responsible, that is, responsible as a group for the infringement of the patent.  Even if no single company performs all the steps of the claim, the companies are jointly responsible.
Freedom Wireless, Inc. v. Boston Communications Group (Fed Cir. No. 06-1020, December 15, 2005).  In the lower court, based on these instructions, the jury found infringement.  The motions panel granted a stay of the injunction primarily because of the questionable theory of joint infringement, noting that ?This court has not directly addressed the theory of joint infringement and there is relatively little precedent on that issue.?

Second, in BMC Res., Inc. v. Paymentech, L.P., 2006 U.S. Dist. LEXIS 4961, No. 3-03-CV-1927-M (N.D. Texas, Feb. 9,2006)(Magistrate Recommendation), the court granted summary judgment of non-infringement because several of the patented steps (approving a debit transaction and crediting and debiting the corresponding accounts) were carried out by the affected debit network and financial institution(s) who merely had an arms-length contractual relationship with defendant, a payment processor.  The court concluded categorically:  ?No court has ever found direct infringement based on the type of arms-length business transaction present here.? 

Finally, and most significantly, in On Demand Machine the Federal Circuit approved, without any discussion or analysis a rather sweeping jury instruction that does not appear to require that one defendant direct or control the actions of the other alleged infringers:

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. . .
The appellate panel stated without further elaboration that it ?discern[ed] no flaw in this instruction as a statement of law,? but went on to reverse because of claims construction errors.

What do you think?  Has the standard for joint infringement been changed in passing?  The IP Blawg will keep you informed.

Today's Blogger:  Rod Thompson