Following a district court’s order granting full summary judgment against the plaintiff, the U.S. Court of Appeals for the Federal Circuit partially revived the plaintiff’s case, ruling that the district court had applied erroneous legal standards in dismissing the claims regarding contributory infringement and inducement. Ricoh Co., Ltd. v. Quanta Computer Inc., Case No. 07-1567 (Fed. Cir., Dec. 23, 2008) (Per curiam; Gajarsa, J., dissenting in part).

Ricoh is the owner of four patents, U.S. Patents Nos. 6,631,109 (the ’109 patent), 6,172,955 (the ’955 patent), 5,063,552 (the ’552 patent), and 6,661,755 (the ’755 patent), directed to various aspects of optical disc drive technology that can be used with recordable optical discs and disc drives and rewritable optical discs and disc drives. Recordable optical discs and disc drives allow a user to permanently record data; rewritable optical discs and disc drives allow a user to record, erase and overwrite data. 

The ’109 patent is directed to methods and apparatus for writing information to a rewritable optical disc. The ’955 patent is directed to methods and apparatus for formatting rewritable optical discs as a background process that can be interrupted to carry out a read or write command. The ’552 patent is directed to a method and apparatus for controlling the speed disc drive spins an optical disc to increase recording capacity. The ’755 patent is directed to methods of writing data to optical discs in multiple sessions in a manner that prevents read errors.

Quanta is a manufacturer of notebook computers and is a partial owner of a company that manufactures optical disc drives. Quanta does not sell its products directly to consumers, but does sell to U.S.-based customers that in turn sell to consumers. NU Technologies (NU) is one of Quanta’s customers that sells Quanta’s products directly to consumers in the United States. 

Ricoh filed a lawsuit against Quanta and NU for directly and indirectly infringing each of the Ricoh patents. In granting summary judgment in favor of Quanta and NU, the district court held that the asserted claims of the ’109 patent are obvious, that the asserted claims of the ’955 patent were not infringed and that issues of material fact existed as to whether the accused devices perform the methods of the asserted claims of the ’552 and ’755 patents. However, with respect to the ’552 and ’755 patents, the district court nevertheless dismissed Ricoh’s claims of infringement against Quanta and NU, ruling that Ricoh had failed to create material issues of fact as to direct and indirect infringement under the provisions of 35 U.S.C. § 271(a)-(c). Ricoh appealed.

The Court first considered the district court’s finding that the asserted claims of the ’109 patent were obvious in view of two European patents owned by Ricoh that taught a recording speed that overlapped with the claimed range. Ricoh argued that the European patents teach away from the claimed invention and that the claimed invention provides new and unexpected results. The Court rejected Ricoh’s argument, instead finding that there was no teaching away since the physical upper limit on the prior art recording speed did not teach away from higher speeds and that the claimed invention (recording at higher speeds) was the “quintessence of ‘ordinary skill’” and “common sense” rather than patentable innovation. The Court did not recognize material factual issue regarding unexpected results.

The Court next considered the district court’s decision that Ricoh had presented no evidence to create a material issue of fact as to infringement of the asserted claims of the ’955 patent, each of which requires a formatting process that begins as a background process. The Court found that because the accused devices start formatting as a foreground process (which is then in turn switched to a background process), the district court properly found that there was no material factual dispute that the accused devices did not infringe the ’955 patent.

Direct Infringement of the Claimed Method

The Court considered Ricoh’s claims of direct infringement for the ’552 and ’755 patents. With respect to Ricoh’s claims that Quanta directly infringed the ’552 and ’755 patents through the sale or offer for sale of software that causes the accused devices to perform the claimed methods, the Court addressed an issue that it recognized had been left undecided in NTP v. RIM (see IP Update, Vol. 8, No. 8). Citing the Supreme Court’s 2007 decision in Microsoft v. ATT (see IP Update, Vol. 10, No. 5), the Court held that the sale or offer to sell “software containing instructions to perform a patented method does not [directly] infringe the patent under § 271(a).” Rather, “the actual carrying out of the instructions is that which constitutes [direct infringement of] a process within the meaning of § 271(a).”

Contributory Infringement

On the issue of contributory infringement, the district court held that even though Quanta’s accused drives might be capable of being used to infringe the patented processes of the ’552 and ’755 patents, there could be no liability for contributory infringement because the drives were also capable of being used in a manner that did not infringe the patents. However, for the purposes of the appeal, the Federal Circuit accepted Ricoh’s evidence that the accused drives contain at least some distinct and separate components used only to perform the allegedly infringing methods.

In order to resolve the question concerning the scope of liability for contributory infringement the Federal Circuit focused its inquiry on the interpretation of the Supreme Court’s decision in Sony Corp. of America v. Universal Studios. (concluding that VCRs capable of and widely used for non-infringing did not constitute contributory infringement) and Metro-Goldwyn-Mayer Studios v. Grokster (finding infringement where a component adapted for use in a patented process and with no substantial non-infringing use would be “good for nothing else” but infringement of the patented process). 

Considering the issue thus raised to “present . . . an important and previously unresolved question” as to “the scope of liability for contributory infringement” the Federal Circuit, based on the rulings in Sony and Grokster, held that a competitor who sells a device that enables infringement of a patented process “should not be permitted to escape liability as a contributory infringer by embedding that [device] in a larger product with some additional, separable feature.” The Court noted that if it were to hold otherwise, then so long as the product as a whole has substantial non-infringing uses, no contributory liability would exist despite the presence of a component that, if sold alone, would plainly incur liability. The Court thus vacated the district court’s grant of summary judgment and remanded for a determination of whether the accused products contain components that have no substantial non-infringing use other than to practice the claimed method.

Active Inducement

Finally, the Court considered the district court’s ruling that Ricoh had not presented evidence as to Quanta’s intent to induce infringement by its customers (i.e., retailers) as well as the end-users of the drives. The district court reasoned that a finding of active inducement required an affirmative act that is communicated to the direct infringer. In granting summary judgment, the district court considered several types of evidence of Quanta’s intent, including a presentation given by Quanta to a customer touting the advantages of the accused products. Based on this evidence, the district court concluded that while the evidence might show that Quanta may have known that its customers would perform the patented method, it did not show that Quanta encouraged infringement by its customers.

The Federal Circuit concluded that the district court incorrectly applied the law of active inducement. Turning again to Grokster, the Federal Circuit noted that a showing of intent did not require that the accused indirect infringer communicate a message of encouragement to the alleged direct infringer. Rather, “liability for active inducement may be found ‘where evidence goes beyond a product’s characteristics or the knowledge that it may be put to infringing uses, and shows statements or actions directed to promoting infringement.’”

There was no dispute that Quanta knew of Ricoh patents. Thus, in the context of the inducement analysis, the Federal Circuit reasoned that the district court improperly discounted relevant evidence regarding a presentation Quanta made to a customer that was probative of whether Quanta possessed the requisite intent under DSU (see IP Update, Vol. 9, No. 12) that its drives would be used to perform the infringing methods and that was relevant to the issue of whether it encouraged the customer to use the drives in an infringing manner. The fact that the presentation may have failed to communication any information regarding the patented methods does not render it irrelevant as to Quanta’s intent since, as the Court noted, circumstantial evidence may be sufficient to prove the required intent under DSU.

The Federal Circuit also held that the district court incorrectly analyzed other circumstantial evidence presented by Ricoh. Specifically, Ricoh argued that Quanta’s specific intent is shown by the affirmative act of incorporating components whose sole purpose is to cause the drives to operate in a manner that infringes the ’552 and ’755 patents. The Federal Circuit held that to the extent the drives contain components that are separable from those used to implement non-infringing functions and to the extent those components have no purpose under normal use other than to perform infringing functions, such evidence creates a material issue of fact regarding Quanta’s intent that that drives be used to infringe the ’552 and ’755 method patents. Therefore, the Court remanded for further proceedings the issue of active inducement.

Dissent

Judge Gajarsa dissented as to the panel’s decision on contributory infringement, arguing that under controlling Federal Circuit precedent (Hodosh v. Block Drug), the Court must analyze the accused product as it is actually sold and not in terms of its constituents or component. Thus, Judge Gajarsa would focus the § 271 (c) inquiry on whether the accused product, as actually sold, is suitable for substantial non-infringing use. To do otherwise, argues Judge Gajarsa, would “block the wheels of commerce.” 

Practice Note: In the wake of the Federal Circuit decision in Seagate (see IP Update, Vol. 10, No. 8) mere knowledge of a patent is not relevant to the issue of willfulness. However, according to the Court here, such knowledge may be relevant circumstantial evidence of intent to induce infringement (under DSU).