BMC/Muniauction Decisions Sink Global Patent Holdings Joint Infringement Claim

Global Patent Holdings, LLC v. Panthers BRHC LLC, No. 9:08-cv-80013-KAM, August 12, 2008

Global Patent Holdings (GPH) sued Panthers for infringing U.S. Patent Number 5,253,341, known as the “Remote Query Communication System” patent (also known as the "JPEG patent"). In its complaint, GPH alleged that infringement takes place through the joint action of both Defendant and the website user, because Defendant’s website “controls and directs the performance of each of the method steps of claim 17 which are not performed” by Defendant itself.

The Panthers moved to dismiss the complaint as insufficient to state a claim for direct
infringement under FRCP 12(b)(6). Judge Marra granted the motion.

[I]t appears that the level of “direction or control” the Federal Circuit intended was not mere guidance or instruction in how to conduct some of the steps of the method patent. Instead, the court indicates that the third party must perform the steps of the patented process by virtue of a contractual obligation or other relationship that gives rise to vicarious liability in order for a court to find “direction or control.” Without this kind of relationship, the Court does not believe that a finding of “joint infringement” is warranted under BMC Resources.

The parties agree that the ‘341 patent requires two individuals or entities to complete all of the method’s steps (at least in terms of Defendant’s alleged infringement) – a remote computer user, and the website server. Further, at oral argument, Plaintiff conceded that the patented method does not begin until a computer user visits Defendant’s website. If no person ever visited Defendant’s website, then Plaintiff’s patent would never be infringed. The initial step of the ‘341 patent calls for action on the part of the remote computer user. Plaintiff claims that this action is “controlled” by Defendant because Defendant puts Javascript programs on the remote user’s computer to allow the process to begin. Nevertheless, the Court does not believe this “control” is sufficient “direction or control” over the remote computer user. Plaintiff has, in no way, alleged that remote users are contractually bound to visit the website, it has not alleged that the remote users are Defendant’s agents who visit the website within the scope of their agency relationship nor has it alleged any facts which would render Defendant otherwise vicariously liable for the acts of the remote user. Using Plaintiff’s analogy, Defendant may give home users the keys to the truck, but home users have no obligation to use those keys to start the truck and drive away.

In this case, the patented process cannot start until the remote user visits Defendant’s website. Plaintiff has not alleged that these individuals visit Defendant’s website under Defendant’s “direction or control.” Therefore, the Court cannot conclude that Defendant and the remote users are “joint infringers” under BMC Resources. Since Plaintiff has not alleged sufficiently that Defendant is a joint infringer, and Plaintiff has not alleged that Defendant carries out all the steps of the patented method, Plaintiff’s claim for direct patent infringement must be dismissed as inadequate.

Read/download the opinion here (link)


Hal Wegner has also just circulated a new paper addressing this issue titled "E-Commerce Claims: The Single Actor Direct Infringer." In the paper, Wegner states:

In view of Muniauction, recently granted patents with claims that do not have a single actor direct infringer should be resubmitted for reissue to fix the problem before expiration of the two year broadening deadline for a reissue and, of course, pending claims should be carefully considered for amendment.

Download Wegner's paper, along with a copy of IPO's amicus brief for Muniauction here (link)

CAFC: Web-Based Implementation Deemed Obvious; Joint Infringement Nixed

Muniauction, Inc. v. Thomson Corp., July 14, 2008 (2007-1485)

After a jury trial, the district court ruled that Thomson wilfully infringed Muniauction's patent related to conducting original issuer auctions of financial instruments. The district court awarded enhanced damages, and entered a permanent injunction against Thomson. Shortly after trial, the Supreme Court issued KSR International Co. v. Teleflex, Inc., however the district court did not modify their finding that Muniauction's patent was not obvious.

While the appeal was pending, the CAFC issued two opinions relevant to this case: (1) In re Seagate (changing the standard of willful infringement from one akin to negligence to that of objective recklessness) and (2) BMC Resources (where steps of a method claim are performed by multiple parties, the entire method must be performed at the control or direction of the alleged direct infringer). Thomson argued that these cases rendered the patent invalid and/or established that Thomson did not infringe as a matter of law.

Obviousness

On the issue of obviousness, the CAFC found that Muniauction's patent was disclosed in the prior art, except that the prior art did not discuss the use of a web browser for performing the claimed features.

The CAFC noted that the patent specification identified the invention as using a "conventional Internet browser" and "conventional web browsing software." Accordingly, the CAFC acknowledged that this terminology "denotes a reference to web browsers in existence at the time of the alleged invention."

The CAFC also cited various patent and prior art publications that generally disclosed the use of Internet browsers for electronic auctions, and thus, indicated the obviousness of the claimed combination. Furthermore, citing Leapfrog Enterprises, the CAFC found that "adapting existing electronic processes to incorporate modern internet and web browser technology was similarly commonplace at the time the [] patent application was filed."

On secondary considerations, the CAFC noted that "[a] nexus between the merits of the claimed invention and evidence of secondary considerations is required in order for the evidence to be given substantial weight in an obviousness decision." Finding that Muniauction's evidence of secondary considerations lacked the requisite nexus to the claims, the CAFC ruled the patent was obvious as a matter of law.

Noninfringement

The only theory of infringement put forward by Muniauction was that of so-called joint infringement, which was addressed in BMC Resources v. Paymentech:

[W]here the actions of multiple parties combine to perform every step of a claimed method, the claim is directly infringed 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." . . . At the other end of this multi-party spectrum, mere "arms-length cooperation" will not give rise to direct infringement by any party.

Muniauction's patent recited the feature of "inputting data associated with at least one bid for at least one fixed income financial instrument into said bidder’s computer via said input device." Since Thomson did not "input" data, nor "control" or "direct" users to perform the acts, the CAFC found there to be no infringement as well:

Under BMC Resources, the control or direction standard is satisfied in situations where the law would traditionally hold the accused direct infringer vicariously liable for the acts committed by another party that are required to complete performance of a claimed method . . . In this case, Thomson neither performed every step of the claimed methods nor had another party perform steps on its behalf, and Muniauction has identified no legal theory under which Thomson might be vicariously liable for the actions of the bidders. Therefore, Thomson does not infringe the asserted claims as a matter of law.

REVERSED-IN-PART AND VACATED-IN-PART

From the footnotes:

Footnote 3:

Because the ’099 patent is itself silent regarding how to actually implement the methods claimed therein with a web browser, Muniauction’s argument therefore might suggest that the claims present an enablement issue, rather than support a
conclusion of nonobviousness. See, e.g., Sitrick v. Dreamworks, LLC, 516 F.3d 993, 999 (Fed. Cir. 2008) ("The ‘enablement requirement is satisfied when one skilled in the art, after reading the specification, could practice the claimed invention without undue experimentation.’")

Footnote 4:

We further note that our conclusion as to the nexus between this award and the claims is consistent with the long-established rule that "[c]laims which are broad enough to read on obvious subject matter are unpatentable even though they also read on nonobvious subject matter." In re Lintner, 458 F.2d 1013, 1007 (CCPA 1972) (citing In re Mraz, 455 F.2d 1069, 1073 (CCPA 1972)).

The "KSR Effect" Hits the E.D. Texas, Joint Infringement Liberally Applied

AdvanceMe Inc v. RapidPay LLC, (6:05-cv-424), August 14, 2007

AdvanceMe filed suit against multiple defendants, including RapidPay, alleging infringement of U.S. Patent No. 6,941,281 (“the ‘281 patent”). Claim 1 from the '281 patent reads as follows:

1. A method for automated payment, comprising:

at a merchant, accepting a customer identifier as payment from the customer and electronically forwarding information related to the payment to a computerized merchant processor;

at the computerized merchant processor, acquiring the information related to the payment from the merchant, authorizing and settling the payment, and forwarding at least a portion of the payment to a computerized payment receiver as payment of at least a portion of an obligation made by the merchant; and

at the computerized payment receiver, receiving the portion of the payment forwarded by the computerized merchant processor and applying that portion to the outstanding obligation made by the merchant to reduce such obligation.

INVALIDITY:

During litigation, a number of prior art references were put forward, and one of the references was found to anticipate. Nevertheless, Judge Davis went further in pointing out that the claims were obvious as well:

The patent-in suit, simply put, is a computerized method for securing debt with future credit card receivables. While the patent inventor, Barbara Johnson, implemented an aggressive marketing and business development program that brought this financing method to widespread use, she did not invent a new business method. Rather, Johnson built on long-established prior art, packaged the idea in a
new way, and marketed it aggressively.

There are multiple prior art references, not considered by the PTO when issuing the
patent, that render the patent invalid, especially in light of the Supreme Court’s recent ruling in KSR Int’l Co. v. Teleflex, Inc. In KSR, the Supreme Court opined “[w]hen a work is available in one field of endeavor, design incentives and other market forces can prompt variations of it, either in the same field or a different one. If a person of ordinary skill can implement a predictable variation, § 103 likely bars its patentability.” 127 S. Ct. 1727, 1740 (2007). The [prior art was] available in the field at the time of the purported invention. Johnson merely implemented a predictable variation of these existing methods in establishing her invention. While Johnson’s work exhibits excellent entrepreneurship, it does not entitle AdvanceMe to a legal monopoly on this method of providing financing to small businesses. Rather AdvanceMe must continue to compete in the marketplace for its share of the market, which will benefit the economy and consumers as a whole.

JOINT INFRINGEMENT

The claims in the '281 patent require actions by multiple parties (merchant, merchant processor, payment receiver). The defendants argued that, since none of them alone performed all the steps of the claims, they could not be liable for direct infringement. Taking the more liberal approach to joint infringement, the court stated that

A showing of “agency” or “working in concert” is not required in order to establish a
sufficient connection between the defendant and the third party or parties performing the patent method’s steps . . . The sufficient connection can be shown
through a contractual relationship between the defendant and the third party or parties performing the steps of the patented method.

* * *

Both Reach and MMT [co-defendants] directly infringe the asserted claims of the ‘281 patent. Under Reach and MMT’s programs, all of the elements of the patent claims are performed either by Reach or MMT, the merchants that enter into contracts with Reach or MMT, the merchant processors that enter into contracts with Reach or MMT, or agents or instrumentalities of these entities.

Interestingly, the opinion did not mention BMC v. PaymenTech, where the lower court dismissed BMC's joint-infringement claims. This case is currently before the CAFC (No. 2006-1503), and was recently noted in the PharmaStem case ("The viability and scope of that theory of liability is a subject of considerable debate.")

• Download the (54-page) opinion here (link)

• Michael Smith just tracked this case for his "Recent Rulings for Defendants" list, and notes: "For those of you keeping score, that drops the 2007 win rate for plaintiffs to 33% and the two-year win rate to 57%."

• David Goldin is the President & CEO of AmeriMerchant, who was one of the defendants in this case. David is a blogger as well, and used the blog to solicit prior art against the '281 patent(link), which apparently was a big help in the case (link).