In BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373, 1378-79 (Fed. Cir. 2007), the Federal Circuit held that direct infringement of a method claim requires a single party to perform every step of the claimed method. Where the actions of multiple parties combine to perform the steps of a claim, finding direct infringement can be more difficult. Specifically, as clarified by the court in BMC Resources, direct infringement exists in such cases only if one party exercised “control or direction” over the entire process such that every step is attributable to the controlling party.1 Notably, the BMC Resources court acknowledged that this is an imperfect standard, as parties can conceivably enter into arms-length agreements, in which no direction or control exists, to avoid infringement. As explained below, steps can be taken at the claim drafting stage to help avoid this undesirable possibility.
In BMC Resources, the plaintiff BMC alleged that the defendant Paymentech infringed two of its patents directed to methods for processing debit transactions. BMC conceded that Paymentech did not by itself perform each and every step of the claimed method, but argued that they should nonetheless be liable for infringement since they had allegedly combined with other parties to do so. The court found for Paymentech, affirming the district court’s grant of summary judgment of non-infringement. The court explained that, even if Paymentech did combine with various financial institutions and debit networks to perform the claimed method, they had not exercised “control or direction” over these third parties and thus could not be held liable for direct infringement.
In the BMC Resources opinion, Judge Rader pointed out the fatal flaw in the claims-in-suit – they were drafted to effectively require at least four different entities to carry out the claimed method. For example, one claim recited in part:
A method of paying bills…the method comprising the steps of:
[prompting a caller for various information]
accessing a remote payment network associated with the entered payment number, the accessed remote payment network determining, during the session, whether sufficient available credit or funds exist in an account associated with the entered payment number to complete the payment transaction,
and upon a determination that sufficient available credit or funds exist in the associated account, charging the entered payment amount against the account associated with the entered payment number…2
While not apparent from the claim’s plain language, infringement of this claim effectively requires action by as many as four autonomous parties. This is because of the way debit transactions are processed in the real-world. For example, the claimed steps of determining whether sufficient funds exist and charging an account would generally require both a debit network and an underlying card-issuing financial institution. Neither of these entities would typically perform the various prompting steps recited in the claim, and thus, practically speaking, a payee’s agent is also required. Finally, depending on how the claim is construed, a caller may also be needed. Thus, the claimed method would almost never be performed in the real world without action by four parties: (1) a caller, (2) a payee’s agent (i.e., the party that does the prompting), (3) a remote payment network (i.e., the debit network that checks for sufficient funds and initiates an account charge), and (4) a financial institution (i.e., the bank that informs the debit network whether sufficient funds exist and settles the charge). It is highly unlikely that all four of these parties would ever be under common direction or control such that a single entity could be held liable for infringing the claim.
As Judge Rader suggests, had the claim instead been drafted to focus on a single entity, infringement by a single party would be more easily captured. For example, instead of reciting “the accessed remote payment network determining,” the applicant in BMC Resources could have drafted the claim to recite steps such as “sending account information to a remote network” and “receiving a response from a remote network indicating sufficiency of funds.” Such a claim would presumably have been infringed by the defendant and thus have been significantly more valuable to BMC.
A similar claim drafting miscue was highlighted in Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318 (Fed. Cir. 2008). There, the patentee Muniauction, Inc. sued the defendant Thomson Corporation for infringement of its patent directed to methods for conducting bond auctions over the internet. Just like in BMC Resources, the plaintiff in Muniauction conceded that the defendant did not, by itself, perform each of the method steps. Reinforcing its BMC Resources holding, the Federal Circuit reversed the lower court’s finding of infringement and instead held that the defendant lacked the requisite exercise of direction or control over the third parties with whom it combined to perform each step of the claim. In other words, while Thomson performed most of the “auction” steps recited in the claim, it did not infringe because the recited “inputting” steps were performed by individual bidders over whom Thomson had no control.
Like in BMC Resources, the patentee in Muniauction had drafted claims that would require at least two parties to infringe in most instances. For example, one claim-in-suit3 recited “inputting data associated with at least one bid” (a step typically performed by a bidder sitting at their computer) and various other steps such as computing an interest cost value, submitting the bid over an electronic network, and displaying the bid on an issuer’s computer (all steps typically performed by an online auction system). Muniauction may have prevailed had they simply drafted the claim with only the online auction system’s perspective in mind, i.e., by reciting receiving bid data instead of inputting bid data.
To summarize, for the claims at issue in both BMC Resources and Muniauction, it would be extremely rare for any one entity to perform the entire claim. Accordingly, the claims in those cases are effectively only enforceable in the limited situation where multiple parties acting under common direction or control combine to perform the claim. Unfortunately for the patentees, any such parties could simply enter into arms-length agreements to avoid infringement liability. Had BMC and Muniauction drafted their claims to focus on a single entity, this undesirable result could likely have been avoided.
1 BMC Resources, 498 F.3d at 1380-81; see also Muniauction, 532 F.3d at 1329.
2 Claim 7 of U.S. Patent No. 5,870,456, combined here with the independent claim from which it depends and truncated for clarity. (Emphasis added).
3 Claim 1 of U.S. Patent No. 6,161,099.
This advisory was prepared by Nutter's Intellectual Property practice. For more information, please contact your Nutter attorney at 617-439-2000.This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.
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