In what is almost certain to be viewed as a watershed decision, the U.S. Court of Appeals for the Federal Circuit rejected the theory that the activities of multiple different entities could be combined to find “joint infringement” of a patent. Rather, the Court reaffirmed the rule that for direct infringement, there must be one single person or entity that fulfills all limitations of the claim. BMC Resources, Inc. v. Paymentech, L.P.., Case No. 06-1503 (Fed. Cir., Sept. 20, 2007) (Rader, J.)

BMC owned a patent covering a method for processing debit transactions without a personal identification number (PIN). The claims described an end-to-end system involving a customer, a merchant, a payment processing company and affiliated financial institutions

It was undisputed that the defendant, Paymentech, did not itself perform all of the steps of the method claim. The sole issue on appeal was whether BMC could pursue a theory of “joint” or “divided” infringement to obtain damages based on the combined actions of Paymentech and the other entities involved in practice of the claimed method.

The Federal Circuit reiterated the rule that “direct infringement requires a party to perform or use each and every step or element of a claimed method or product.” The Court noted that a party may be vicariously liable for the actions of another only “in circumstances showing that the liable party controlled the conduct of the acting party.

The Court rejected the argument that language in a 2006 opinion, On Demand Machine Corp. (See IP Update, Vol. 9, No. 4), made broad “joint infringement” theories viable. The Court explained "[i]nfringement requires, as it always has, a showing that a defendant has practiced each and every element of the claimed invention. … Where a defendant participates in infringement but does not directly infringe the patent, the law provides remedies under principles of indirect infringement. However, this court has held that inducement requires a predicate finding of direct infringement.”

The Court then acknowledged “that the standard requiring control or direction for a finding of joint infringement may in some circumstances allow parties to enter into arms-lengths agreements to avoid infringement.” The Court observed, however, that these issues usually can be avoided by properly drafting the claims so that a single entity may infringe. Because there was no evidence that Paymentech controlled or directed all of the other steps of the method claim, summary judgment of non-infringement was affirmed.

Practice Note: The Federal Circuit reminds us of the importance of thoughtful claim drafting to make sure that the claims read on the activities of a single entity. The Court has already granted a stay of an injunction pending appeal in Muniauction Inc. v. Thomson Corp., a case that raises a similar issue.