Direct Infringement Liability May Be Possible Without Possession of All the Claimed Elements

Following a recent Federal Circuit decision, a patentee might now be able to assert a system claim against a single infringer for operating a distributed system, rather than naming joint infringers hosting portions of the distributed system. This is significant for entities that do business on-line, particularly enterprises with a cloud computing business model. Whereas in the past a patentee may have had to allege direct infringement among joint infringers (e.g., individual users, enterprises, and information technology system providers), and perhaps prove vicarious liability, now it may be possible to bring a direct infringement action against a sole infringer that might not be in possession of the complete system. E-commerce businesses, web-based providers of business services, providers of software as a service, electronic market makers, and other enterprises that use third-party server farms to host part, or all, of their system might now be named as the sole infringer. A patentee could perhaps now sue a competitor for infringement without having to sue the infringer’s IT provider. This could be particularly advantageous in cases where the patentee and the infringer share providers, and will permit the patentee to sue without jeopardizing its own business relationship with the provider.

In Centillion Data Systems (Centillion Data Sys., LLC v. Quest Commc’ns Int’l, Inc. et al., No. 2010-1110, -1131, slip op. (Fed. Cir. Jan. 20, 2011)), the Federal Circuit addressed direct infringement for use of a system claim where a single actor was not in possession of all the claimed system elements. Id. at 7. Here the court extended its analysis of the control and beneficial use doctrine, which the court applied in its Blackberry® opinion (NTP, Inc. v. Research in Motion, Ltd. 418 F.3d 1282 (2005)). In NTP, the court extended the extraterritoriality of U.S. patent law by finding that the location of use is “the place at which the system as whole is put into service” by exercise and beneficial use of the system. Id. at 1317.

Centillion Data Systems, Inc. accused Quest Communications International and other Quest companies of infringing U.S. Patent No. 5,287,270. The claims-in-suit are directed to a system for presenting cost-of-service information to a customer, and recite server-side elements (a storage means, a data processing means, a transferring means) and a client-side element (a personal computer data processing means). Quest’s customer phone call transaction records are stored on the server-side storage means, and the data processing means generates a summary report as specified by the customer. The transferring means transfers the transaction records and summary reports to a customer, where the personal computer data processing means perform additional processing on the transaction records.

Centillion held that the customer “puts the system as a whole into service, i.e., controls the system and obtains benefit from it.” Centillion at 10. It did not matter to the court that the back-end processing was “physically possessed” by Quest and not the customer. What did matter to the court was that “but for the customer’s actions, the entire system would never have been put into service.” Id. at 11. The court reasoned that “[b]y causing the system as a whole to perform [server-side] processing and obtaining the benefit of the result, the customer has ‘used’ the system under [35 U.S.C.] § 271(a).” Id. at 10. The Federal Circuit held that the district court erred as a matter of law when it concluded that no single party could be liable for use of the patented invention. Id. at 11.

Prior to this decision, a patentee would likely have thought it necessary to name both a web-based enterprise and the enterprise’s third-party server farm host as joint infringers. By extending Centillion, the patentee could now assert that the web-based enterprise alone controls the claimed system and obtains benefit from the system. Naturally, patent claims are better drafted to capture a single class of infringers, and patent applicants would be wise to keep this in mind as they review the claims of their patent applications drafted during prosecution of the patent.

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