BMC Resources, Inc. v. Paymentech

(Fed. Cir. 2007)

When a claim includes multiple steps and no single party performs all of the steps claimed, a party that performs some steps must direct or control the actions of the other entity or entities that perform the other steps of the claim for joint infringement to exist.

BMC owns two patents that claim a method for processing debit transactions without a personal identification number (PIN). The patents relate to a method for a PIN-less debit bill payment (PDBP) that requires the combined action of several participants, including the customer, the payee’s agent (e.g., BMC), a remote payment network (e.g., an ATM network) and the card-issuing financial institution. Each entity participates in approving and carrying out the transaction. Defendant Paymentech offers PDBP services that require the participation of all these entities.

The district court determined that Paymentech did not infringe the two patents because it did not perform all of the steps of the asserted method claims. The District Judge stated, “Because the record contains no basis to hold Paymentech vicariously responsible for the actions of the unrelated parties who carried out the other steps, this court affi rms the fi nding of non-infringement.”

In appealing this decision, BMC agreed that Paymentech did not perform every step of the method claims at issue. The Federal Circuit was asked to determine if Paymentech could nonetheless be liable for direct infringement under 35 U.S.C. § 271(a), which states:

Except as otherwise provided in this title, whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.

The Federal Circuit stated that direct infringement requires a party to perform or use each and every step or element of a claimed method or product. For method patent claims, infringement occurs when a party performs each of the steps of the process. When a defendant does not directly infringe but encourages others to perform the remaining steps, courts evaluate a theory of indirect infringement. Indirect infringement requires a fi nding that some party amongst the accused actors has committed the entire act of direct infringement.

To ensure that a party does not simply sidestep liability by having a third party carry out one or more of the claimed steps, the law imposes vicarious liability on a party for the acts of another in circumstances showing that the liable party controlled the conduct of the acting party.

The Federal Circuit recognized the potential concern of parties entering into arms-length agreements to avoid infringement. However, it was more concerned that expanding the rules governing direct infringement to reach independent conduct of multiple actors would subvert the statutory scheme for indirect infringement. The Federal Circuit noted that concerns over a party avoiding infringement by arms-length cooperation can usually be offset by proper claim drafting, e.g., by structuring the claim to capture infringement by a single party.

The court found that although BMC proffered evidence to establish some relationship between Paymentech and the debit networks, the magistrate and the District Court Judge both concluded that this evidence was insuffi cient to create a genuine issue of material fact as to whether Paymentech controlled or directed the activity of the debit networks. Without the direction and control of both the debit networks and the fi nancial institutions, Paymentech did not perform or cause to be performed each and every element of the claims. Thus, none of the involved parties bears responsibility for the actions of the other, and the Federal Circuit therefore affi rmed the ruling of the district court.

Practice Tip: When drafting claims for a new patent application, and especially for method or process claims, extra time should be taken to carefully consider whether different limitations may be or are likely to be performed by more than one party without at least one party being in control of the other parties. By ensuring that the claims do not require the combined actions of multiple parties, parties are less likely to avoid infringement.