IP: In Joint Infringement Claims, Relationships Key Between Alleged Infringers

Under the patent statute, direct infringement generally requires a single entity to perform or use each and every step or element of a claimed method or product. Other entities that assist in the infringement may be liable for indirect infringement (i.e., contributory infringement or inducement to infringe), but there can be no indirect infringement without proof of direct infringement.

But suppose no single entity practices each and every element of a claimed invention. What if multiple parties are required to perform the various steps of a patented process, or a party employs others to perform one or more steps on its behalf? These scenarios are not uncommon, for example, in the context of software and internet business method patents. Does a patent holder have any recourse in these cases?

The answer is yes. Under the theory of joint infringement (also known as divided infringement), a party that "controls or directs" each step of the patented process may be liable as a direct infringer. See BMC Resources, Inc. v. Paymentech, 498 F.3d 1373 (Fed. Cir. 2007). In Paymentech, BMC asserted method claims for processing debit transactions without a personal identification number. The patented methods required the combined actions of multiple parties, including the payment services provider (e.g., Paymentech), debit networks and financial institutions. Despite evidence of some relationship between Paymentech and other participants, the Federal Circuit affirmed the district court's summary judgment of no infringement because the evidence was insufficient to show that Paymentech controlled or directed the activity of the debit networks or the financial institutions.

The court in Paymentech did not squarely address the amount of control or direction necessary for liability, but it held that a "mastermind" defendant cannot escape liability for direct infringement by engaging others to perform one or more of the claimed steps "on its behalf." The court acknowledged that limits on the "control or direction" standard for joint infringement may in some circumstances allow parties to avoid infringement by entering into arms-length agreements.

The Federal Circuit subsequently confirmed in Muniauction, Inc. v. Thomson Corp. and I-Deal, LLC, 532 F.3d 1318 (Fed. Cir. 2008) that the "control or direction" standard can be satisfied under traditional theories of vicarious liability. The court cited Paymentech for the proposition that joint infringement can be found only if one party exercises "control or direction" over the entire process such that every step is attributable to the controlling party, i.e., the "mastermind." In Muniauction, the asserted claims involved a method for conducting municipal bond auctions over the Internet, which required the coordinated actions of the auctioneer and the bidders. Despite the fact that Thomson as the auctioneer controlled access to its system and instructed bidders on its use, the court found that Thomson did not have the bidders perform the missing steps on its behalf and did not infringe.

When considering potential joint infringement claims, litigants should pay close attention to the relationships between the alleged infringers. Patent holders should be prepared to plead facts sufficient to allege "control or direction" by the named defendant over the other participants and to take discovery regarding any contractual and agency relationships and instructions for performing the claimed steps. Absent control or direction, courts appear more than willing to dismiss joint infringement claims.

Mircea Tipescu

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