Centillion Data Systems, LLC v. Qwest Communications International: New Aspects to Divided Infringement

In Centillion Data Systems, LLC v. Qwest Communications International (PDF), the Federal Circuit limited its doctrine that for patent infringement, “every element” of a claim needs to be infringed by a single party.

Legal Background:

Patent claims describe the scope of an invention. To infringe on a patent, a party must practice every element of the claimed invention. BMC Resources Inc. v. Paymentech, L.P., 498 F.3d 1373, 1378-79 (Fed. Cir., 2007). If no single party can be found to practice all the claims, then no infringement will be found, even if multiple parties combine to do so (this is known as divided infringement). While parties can be liable for actively inducing patent infringement or for contributing to infringement under 35 U.S.C. § 271, this requires a predicate finding of an infringing party.

Factual Background:

In 1994 the PTO issued patent 5,287,270 (the ‘270 patent). Claim 1 of the ‘270 patent was used as the illustrative claim in Centillion. The relevant part of the claim, as summarized by the Federal Circuit, was

a system for presenting information to a user comprising: 1) storage means for storing transaction records, 2) data processing means for generating summary reports as specified by a user from the transaction records, 3) transferring means for transferring the transaction records and summary reports to a user, and 4) personal computer data processing means adapted to perform additional processing on the transaction records.

Centillion claimed that Qwest infringed. The district court ruled for Qwest because no single party practiced all the limitations of the claim – the first three limitations were accomplished by the server and the fourth by the user.  The Federal Circuit reversed the decision (without dissent), finding that the customer constructively infringed on all the elements of the claim, because “but for the customer’s actions, the entire system would never have been put into service.”

Analysis:

The district court relied on BMC Resources Inc. v. Paymentech, L.P. The dispute in Paymentech arose because BMC was the assignee of a patent that claimed a method of paying bills that involved both client and server action. Paymentech claimed, and the Federal Circuit affirmed, that it did not infringe on BMC’s patent because there was divided infringement – parts of the claim involved customer activity while parts involved provider activity. As a result, there was no direct infringement of the patent and therefore no indirect infringement.

The Federal Circuit distinguished Paymentech from Centillion because in Paymentech the claim was for a method whereas in Centillion the claim was for a system. This distinction was developed by the Federal Circuit in NTP, Inc. v. Research In Motion, Ltd., 418 F.3d 1282, 1317-18 (Fed. Cir. 2005), where the Federal Circuit ruled that for purposes of the requirement that patent infringement occur within the U.S., 35 U.S.C. § 271(a), all the elements of a patent claiming a system are considered to occur at the place where a customer calls on a function, whereas patents claiming a method are considered to occur where they physically occur – and if not all the steps occur within the U.S. then there is no infringement. The NTP court justified this distinction on the grounds that a method claim is a claim to a series of separate acts, and therefore each one separately needs to occur within the U.S., whereas in a system claim “the components are used collectively, not individually.”

Centillion, thus, created a situation where system claims can prohibit divided infringement but a similar method claim cannot. This is in tension with the 2008 Supreme Court unanimous decision that expressed disfavor for courts substantively differentiating between method claims and system claims. Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617, 629-30 (2008). Centillion is also in tension with language in Paymentech, 498 F.3d at 1380, that groups system and method claims together in discussing divided infringement. Since none of the judges in Centillion were on the Paymentech court, it is possible that the Federal Circuit judges disagree and an en banc hearing is in store.

Cite as: BTLJ, Centillion Data Systems, LLC v. Qwest Communications International: New Aspects to Divided Infringement, Berkeley Tech. L.J. Bolt (February 27, 2011), http://btlj.org/?p=978.
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