On January 20, 2011, the Federal Circuit addressed for the first time direct infringement of a “system” claim based on “use” where multiple actors are in physical possession of different elements of the system. Centillion Data Sys., LLC v. Qwest Comm. Int’l, Inc., No. 2010-1110, -1131, slip op. at 7 (Fed. Cir. Jan. 20, 2011).
In a number of recent decisions, the Federal Circuit held that a patented process cannot be directly infringed through use by multiple actors, absent one actor controlling or directing the performance of each step of the claimed process. See, e.g., Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318, 1328-29 (Fed. Cir. 2008). Relying on the definition of “use” from NTP, Inc. v. Research in Motion, Ltd., 418 F.3d 1282, 1317 (Fed. Cir. 2005), the Federal Circuit held that a directly infringing “use” of a system requires that “a party must put the invention into service, i.e., control the system as a whole and obtain benefit from it.” Centillion, slip op. at 8. Applying this definition, the court reversed-in-part the district court’s grant of summary judgment of noninfringement, finding that the defendant’s customers, but not the defendant itself,“used” the system as a matter of law. Id. at 10-14.
The patent-at-issue disclosed a system for collecting, processing, and delivering information from a service provider, such as a telephone company, to a customer. The patent claims required both a “back-end system” maintained by a service provider (“storage means,” “data processing means” and “transferring means”) and a “front-end system” maintained by an end user (“personal computer data processing means”). Id at 3.
The accused system included Qwest’s back-end system and front-end software installed on a customer’s personal computer. Id. Qwest argued and the district court agreed that no single party practiced all of the limitations of the asserted claims. See id. at 4-5. Specifically, the district court held that Qwest did not direct or control the front-end’s “personal computer processing means,” and Qwest’s customers did not direct or control the back-end’s “data processing means.” See id.
Liability for “Use”
On appeal, the case turned on what constitutes “use” of a system or apparatus claim under § 271(a) of the Patent Act. The Federal Circuit explained that it had “never directly addressed the issue of infringement for ‘use’ of a system claim that includes elements in the possession of more than one actor.” Id. at 7. It then turned to NTP, in which the court had addressed “use” of a system claim in the context of the site of the “use” for purposes of determining whether infringement occurred “in the United States.” Id. Adopting the definition of “use” set forth in NTP (i.e., the place where control of the system is exercised and beneficial use of the system obtained), the court held that “to ‘use’ a system for purposes of infringement, a party must put the invention into service, i.e., control the system as a whole and obtain benefit from it.” Id. at 8 (citing NTP, 418 F.3d at 1317).
Having adopted this definition, the Federal Circuit held that the district court erred by holding that the “use” of a system required “a party [to] exercise physical or direct control over each individual element of the system.” Id. at 8. It explained that the “control” contemplated in NTP is the ability to place the system as a whole into service – not direct, physical control of each element – because a requirement of direct, physical “control” would effectively overturn NTP. Id.
Applying this standard, the Federal Circuit held Qwest’s customers “used” the system as a matter of law because the customer “caused” and “controlled” the back-end processing by activating its account or initiating a download. Id. at 10-11. Thus, the back-end processing occurred “in response” to a user-initiated demand. Id. As the court explained, “but for the customer’s actions, the entire [Qwest] system would never have been put into service.” Id. at 11. Hence, the court concluded a user has “sufficient control” over the system under NTP and “clearly benefits from this function.” Id. Because the user is a “single user” of the system, the court explained it did not need to analyze whether liability could be vicariously imputed to Qwest. Id. at 10.
Though the court determined the user had sufficient control over the system, the court decided that Qwest lacked such control as a matter of law. Id. at 12. Although Qwest supplied the front-end software to the user, the court viewed “use” of the entire system as not occurring “until a customer loads software on its personal computer and processes data.” Id. at 12-13. Turning then to vicarious liability, the Federal Circuit ruled as matter of law that Qwest was not liable for the actions of its end users. Id. at 13-14. Though Qwest provided the software and related technical assistance to the user, the court found it was “entirely the decision of the customer” whether to install and operate the software. Id. at 14. The court therefore found that Qwest did not act as an agent for its customers or direct its customers to perform the actions. Id.
Liability for “Making”
The Federal Circuit also addressed whether Qwest could alternatively be liable under 35 U.S.C. § 271(a) for “making” the claimed system. Id. at 15. The Federal Circuit rejected Centillion’s argument that Qwest “makes” the patented invention under Section 271(a) by building all parts of the system, including the client-side software, or acting as the “mastermind” of the system by directing and controlling its customers’ actions to install the software. Id. at 15-16. The court held that “making” required combining all of the claim elements, which Qwest did not do. Id. The court found that it was the customer who “completed” the system by providing the “personal computer data processing means” and installing the client software. Id. Qwest, the court explained, “manufactures only part of the claimed system.” Id. at 15.
Next Steps on Remand
Having determined as a matter of law that Qwest’s customers may “use” the claimed system, the Federal Circuit stated that several questions relevant to the issue of infringement remained. The court remanded for an analysis of whether all of the claim limitations had been met by the Quest customer. Id. at 11. Further, the Federal Circuit declined to determine on appeal whether any customer actually downloaded and installed the accused front-end software, whether the accused system had any substantial noninfringing uses (relevant to analysis of contributory infringement), and whether Qwest had induced infringement by a customer. Id. at 11-12.
This decision continues the evolution of the Federal Circuit’s doctrine on direct infringement of claims involving multiple parties. By concluding that a system claim may be “used” by a company’s customer, but not the company itself, the decision potentially brings to the forefront the importance of indirect infringement of system claims under Sections 271(b) and (c) of the Patent Act.
This article was prepared by George W. Jordan, III (email@example.com or 713 651 5423) and Richard S. Zembek (firstname.lastname@example.org or 713 651 5283) from Fulbright’s Intellectual Property and Technology Practice Group.