The Federal Circuit’s recent decision in Golden Hour Data Systems, Inc. v. emsCharts, Inc. to affirm a ruling that two co-defendants did not jointly infringe a patent because neither party directed or controlled all of the infringing steps provides additional guidance to practitioners on the evolving doctrine of joint infringement. 2010 U.S. App. LEXIS 16455, at *44 (Fed. Cir. Aug. 9, 2010).
It has long been the case that in order to infringe a patented process, a defendant must practice each and every step of the invention. Warner-Jenkinson Co., Inc. v. Hilton Davis Corp., 520 U.S. 17, 40 (1997). Traditionally, the infringer must be a single party, although that party cannot avoid infringement by contracting out certain steps of the process to another entity. BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373, 1380 (Fed. Cir. 2007). Joint infringement therefore requires one party to exercise “control or direction” over the entire infringing process “such that every step is attributable to the controlling party, i.e., ‘the mastermind.’” Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318 (Fed. Cir. 2008) (quotation omitted). The Federal Circuit recognized in BMC Resources that such a standard may in some circumstances allow parties to “enter arms-length agreements to avoid infringement.” The question is where proper arms-length dealing ends and where improper contracting to avoid infringement begins.
The Golden Hour case sheds some light on this issue, but with little analysis. Golden Hour involved a patent directed to a computerized data management system for emergency medical transportation. Plaintiff Golden Hour sued emsCharts Inc., maker of a web-based billing program, and Softtech LLC, maker of flight dispatch software for alleged “joint infringement” of several claims. Although neither of defendants’ products alone infringed the claims at issue, Golden Hour claimed that the products in combination met the claim elements. The jury agreed, finding that emsCharts and Softtech jointly infringed claims of the patent-in-suit.
EmsCharts, however, argued for judgment as a matter of law on the grounds that there was insufficient evidence presented at trial to prove the requisite “control” or “direction” needed to find joint infringement of any of the asserted claims. The district court agreed with emsCharts and, despite the jury’s verdict, entered judgment as a matter of law for defendants on the issue of joint infringement. Golden Hour Data Systems Inc. v. emsCharts Inc., No. 2:06 CV 381, 2009 U.S. Dist. LEXIS 30108 (E.D. Tex. April 3, 2009).
The Federal Circuit affirmed the district court’s ruling but devoted only two paragraphs to the joint infringement issue, with very little analysis. The Federal Circuit first reaffirmed the joint infringement standard from Muniauction, stating that “[w]here the combined actions of multiple parties are alleged to infringe process claims, the patent holder must prove that one party exercised ‘control or direction’ over the entire process such that all steps of the process can be attributed to the controlling party, i.e., the ‘mastermind.’” The court then went on to explain, “[w]e agree with the district court that the evidence here was insufficient for jury to infer control or direction. We see no need for extended discussion of this issue . . ."
Judge Pauline Newman dissented, criticizing the majority for overturning the jury verdict without discussion even though the majority acknowledged that the defendants' collaboration infringed the claims. Judge Newman found the majority opinion incorrect as a matter of law:
As the majority opinion reports, here the defendants ‘formed a strategic partnership, enabled their two programs to work together, and collaborated to sell the two programs as a unit.’ Maj. Op. at 8. The court now holds that such a relationship avoids all liability for infringement, even where the defendants collaborate to practice every limitation of the claims. That ruling is incorrect as a matter of law.
More specifically, Judge Newman posited that “a ‘strategic partnership’ to sell the infringing system as a unit, is not immune from infringement simply because the participating entities have a separate corporate status.” Judge Newman cited specific evidence that the defendants integrated the functions of their software programs and sold the ensuing system as a package, including citation of a press release announcing a “partnership” and promoting the resultant “seamless transition.” “On this and other evidence,” Judge Newman explained, “a reasonable jury could have found that this collaborate activity infringed the various claims, as shown in the verdict form.”
Because the majority opinion relies on the district court’s analysis, any response to Judge Newman’s criticism must be gleaned from the district court’s order. In that order, the district court cited evidence that the agreement between the defendants was “a non-exclusive distributorship agreement that lasted about a year,” “the agreement defined the relationship as not creating ‘any agency, partnership, joint venture, or employer/employee relationship,’” “[t]he agreement stated that emsCharts was ‘receiving no rights in or to the . . . Software under the Agreement other than the right to promote the Software to prospective end users pursuant to the Terms of [t]he Agreement,’” and that there was testimony that the agreement in no way caused Softtech “to give up control of the [software] program.” The district court rejected arguments that the making of sales on another’s behalf, urging a party to stay diligent in closing sales, joint sales and information sessions, and joint price quotes were legally sufficient to show direction or control. Rather, the district court, quoting Emtel, Inc. v. Lipidlabs, Inc., 583 F. Supp. 2d. 811, 839 (S.D. Tex. 2008), held that “[m]aking information available to the [other party], prompting the [other] party, instructing the [other] party, or facilitating or arranging for the [other] party’s involvement in the alleged infringement is not sufficient [to find direction or control].” With respect to joint submission of a bid, the district court found that emsCharts did not direct Softtech to submit the bid, but rather the two companies discussed and agreed to submit the bid.
The Golden Hour case is significant since it represents an instance where there was evidence of collaboration by the parties resulting in a finding of joint infringement by the jury, but where the district court and Federal Circuit nevertheless found the evidence insufficient as a matter of law and overturned the jury’s verdict. Practitioners on both sides of the argument should carefully consider the district court’s opinion and review the evidence to identify factors important to establishing or rebutting a joint infringement claim. Patent prosecutors should also draft claims with this decision in mind. Wherever possible, claims should be drafted in a way that would make it difficult for two or more parties to collaborate to avoid infringement by dividing the steps of a method or process claim between them.
This article was originally published by Bingham McCutchen LLP.