Multiple Joint Infringers of Process Claims: How Close Is Close Enough?

Typically, in an action concerning infringement of a process patent, the activities of an individual party are alleged to infringe one or more of the process patent claims. Under certain circumstances, however, the combined activities of two or more parties may constitute infringement of a process patent claim. Often, courts analyze these situations by determining if 'some connection' exists between the parties whose activities are being combined. This standard, in our view, ultimately defines more activities as infringing than is warranted. A more appropriate standard would be a 'working in concert' standard.

Process claims often contain more than one step so that, in some cases, the combination of the activities of two or more parties may fulfill all of the steps of a multi-step claim. For example, one court found a defendant liable for direct infringement although another party performed one of the steps of the asserted claim. Metal Film Co. v. Milton Corp., 316 F. Supp. 96, 110 n.12 (S.D.N.Y. 1970). The case law addressing when the combination of activities is sufficient for infringement has arisen mainly at the district court level, and courts have found that certain combined activities constitute direct infringement while other combinations do not. Generally speaking, if multiple parties perform different steps of a process claim, a court may find direct infringement if the parties have 'some connection' to each other. See Faroudja Labs., Inc. v. Dwin Elecs., Inc., 1999 WL 111788, *5 (N.D. Cal. 1999). This standard is open to interpretation, and, not surprisingly, courts have considered how much of a connection is necessary in order to tack together the parties' activities to find infringement.

When courts find that parties actively and deliberately work in concert, the 'some connection' requirement typically is fulfilled. See Free Standing Stuffer, Inc. v. Holly Devel. Co., 187 U.S.P.Q. 323, 333 (N.D. Ill. 1974); see also Shields v. Halliburton Co., 493 F. Supp. 1376, 1388-89 (W.D. La. 1980), aff'd, 667 F.2d 1232 (5th Cir. 1982). For example, in Free Standing Stuffer, the court found infringement where three separate entities were 'essentially all one operation,' 'alter egos of each other,' and it was unlikely that 'any one person or company would itself physically perform all of the steps of the claim.' Free Standing Stuffer, 187 U.S.P.Q.2d at 333. In the Shields case, the court similarly indicated that '[i]nfringement of a patented process or method cannot be avoided by having another perform one step of the process or method.' Shields, 493 F. Supp. at 1389 (citing Metal Film, 316 F. Supp. 96). Although a level of connection between the parties amounting to an agency relationship or concerted activity typically is not required to show 'some connection,' not all types of interactions between parties satisfy the 'some connection' standard. See Hill v. Amazon.com, Inc., 2006 WL 151911, *2 (E.D. Tex. 2006). For instance, in a case involving consumer operation of a quality im-provement device on videos converted from film, the court held that a copyright license existing between the device consumer and film-to-video transfer company was an insufficient connection to satisfy the standard. Faroudja, 1999 WL 111788, at *6.

In the gray area between Free Standing Stuffer or Shields and Faroudja, some courts have found the combined activities of parties to be infringing even though the parties were not working in concert, but were nonetheless associated. By way of example, one court found 'some connection' between a medical device company and doctors, whose combined activities constituted the infringement, where the company taught doctors about the benefits of and how to use new products, supplied sample products to doctors, and recruited doctors to participate in clinical trials. Cordis Corp. v. Medtronic Ave, Inc., 194 F. Supp. 2d 323, 349-50 (D. Del. 2002), rev'd on other grounds, 339 F.3d 1352 (Fed. Cir. 2003).

The question remains, however, how high a bar courts should set between activities that are sufficiently connected to find infringement and those that are not. The solution isn't trivial. Set the bar too high, and a party escapes infringement by paying another party to carry out one step of a process claim. Set the bar too low, and suddenly infringement occurs far too frequently amongst members of a supply chain or by consumers of a product. Ultimately, the issue be-comes one of fairness. How distant from a single party directly infringing a process claim must a party's activities be before that party has escaped liability for infringement?

We propose that courts set the standard closer to the Free Standing Stuffer or Shields cases, which identify situations where two or more entities are working closely in concert with each other and, thus, infringe a process claim. This standard prevents bad-faith attempts to avoid patent infringement, such as paying others or forming closely related corporate entities to perform one or more steps of a process claim. Two hypothetical scenarios illustrate how this standard prevents abuse of the system, while at the same time eliminating liability for infringement in arm's length business transactions.

Consider a claim directed to a two-step process for producing a pharmaceutical, including the steps of forming a base compound and halogenating the base compound. In a first scenario, assume that the base compound has no other use but for this pharmaceutical. A first entity pays a second entity to produce the base compound and ship the base compound to it. The first entity then halogenates the base compound. Under the suggested standard, these two entities are acting in concert, and a court would find infringement. Contrast this with a second scenario in which the base compound is a common starting component used in many pharmaceuticals. Even though the first entity pays the second entity to produce the base compound for it, the second entity also ships it to many others as well. In this instance, the two entities are conducting an arm's length transaction, and there would be no liability for infringement. They are not working in concert. Under the 'some connection' standard, by contrast, a court might find that the two entities are infringers in this scenario.

These hypothetical examples illustrate the fairness of the 'working in concert' standard. In the instance where bad-faith dealing is occurring, the parties are held accountable. In the instance with no bad-faith dealing, the patentee is accountable for the limitations that appear in the claim. In many ways, this proposed standard harmonizes the law surrounding process claims with the statutory provisions of 35 U.S.C. '271(c) regarding contributory infringement.

The first hypothetical scenario, the bad-faith situation, actually played out in the case of Marley Mouldings Ltd. v. Mikron Indus. Inc., 66 U.S.P.Q.2d 1701 (N.D. Ill. 2003), where the claim at issue included a step of making a composite pellet. The defendant purchased these 'made to order' pellets from a third-party manufacturer and used them to complete the remaining steps of the claimed process. The court stated that a party cannot avoid infringement by contracting out certain claim steps, and denied the defendant's motion for summary judgment because there was a material issue of fact as to whether the defendant controlled the third party's activities. Although the court used the 'some connection' standard, if the defendant did control the third party's activities, these facts would lead to a finding of infringement under the proposed 'working in concert' standard as well.

Although the Federal Circuit has not yet formally weighed in on the appropriate standard, there are indications that it would follow a more demanding standard, such as the proposed 'working in concert' standard, rather than the weaker 'some connection' standard developed by the district courts. For example, in Cross Medical Prods., Inc. v. Medtronic Sofamor Danek, Inc., 424 F.3d 1293, 1311 (Fed. Cir. 2005), the court hinted that an agency relationship may be necessary. In Cross, the claim at issue was directed to an apparatus and required that the claimed device be joined to bone. Relying on Shields, the plaintiff analogized the situation to one in which the combined activities of two parties complete the steps of a process claim because surgeons joined the device (manufactured by the defendant) to bone to 'complete' the device. The court rejected this reasoning, noting that although defendant's representatives may appear in the operating room, it is the surgeons who actually work with the device, and the surgeons were not the defendant's agents. In another recent decision, the Federal Circuit agreed with a district court's jury instruction that '[i]nfringement of a patented process or method cannot be avoided by having another perform one step of the process or method,' but decided the case on other grounds. On Demand Mach. Corp. v. Ingram Indus., 442 F.3d 1331, 1345 (Fed. Cir. 2006).

Conclusion

The 'some connection' standard that courts currently use to analyze the interaction between entities whose activities may constitute infringement in combination is too broad. A 'working in concert' standard would better circumscribe 'bad actor' activities without sweeping in transactions that occur at arm's length, placing the burden for drafting appropriate claims on the patentee.

Lindsey A. Repose is an associate in Goodwin Procter LLP's Litigation Department, who specializes in intellectual property related matters. She can be contacted at [email protected]. Daniel A. Wilson is an associate in the firm's Business Law Department, who specializes in protecting intellectual property rights in support of business objectives in the fields of life sciences and medical devices. He assists clients with a variety of intellectual property matters, including preparation and prosecution of U.S. and foreign patent and trademark applications. He can be contacted at [email protected].

Typically, in an action concerning infringement of a process patent, the activities of an individual party are alleged to infringe one or more of the process patent claims. Under certain circumstances, however, the combined activities of two or more parties may constitute infringement of a process patent claim. Often, courts analyze these situations by determining if 'some connection' exists between the parties whose activities are being combined. This standard, in our view, ultimately defines more activities as infringing than is warranted. A more appropriate standard would be a 'working in concert' standard.

Process claims often contain more than one step so that, in some cases, the combination of the activities of two or more parties may fulfill all of the steps of a multi-step claim. For example, one court found a defendant liable for direct infringement although another party performed one of the steps of the asserted claim. Metal Film Co. v. Milton Corp., 316 F. Supp. 96, 110 n.12 (S.D.N.Y. 1970). The case law addressing when the combination of activities is sufficient for infringement has arisen mainly at the district court level, and courts have found that certain combined activities constitute direct infringement while other combinations do not. Generally speaking, if multiple parties perform different steps of a process claim, a court may find direct infringement if the parties have 'some connection' to each other. See Faroudja Labs., Inc. v. Dwin Elecs., Inc., 1999 WL 111788, *5 (N.D. Cal. 1999). This standard is open to interpretation, and, not surprisingly, courts have considered how much of a connection is necessary in order to tack together the parties' activities to find infringement.

When courts find that parties actively and deliberately work in concert, the 'some connection' requirement typically is fulfilled. See Free Standing Stuffer, Inc. v. Holly Devel. Co. , 187 U.S.P.Q. 323, 333 (N.D. Ill. 1974); see also Shields v. Halliburton Co. , 493 F. Supp. 1376, 1388-89 (W.D. La. 1980), aff'd , 667 F.2d 1232 (5th Cir. 1982). For example, in Free Standing Stuffer, the court found infringement where three separate entities were 'essentially all one operation,' 'alter egos of each other,' and it was unlikely that 'any one person or company would itself physically perform all of the steps of the claim.' Free Standing Stuffer, 187 U.S.P.Q.2d at 333. In the Shields case, the court similarly indicated that '[i]nfringement of a patented process or method cannot be avoided by having another perform one step of the process or method.' Shields, 493 F. Supp. at 1389 (citing Metal Film, 316 F. Supp. 96). Although a level of connection between the parties amounting to an agency relationship or concerted activity typically is not required to show 'some connection,' not all types of interactions between parties satisfy the 'some connection' standard. See Hill v. Amazon.com, Inc. , 2006 WL 151911, *2 (E.D. Tex. 2006). For instance, in a case involving consumer operation of a quality im-provement device on videos converted from film, the court held that a copyright license existing between the device consumer and film-to-video transfer company was an insufficient connection to satisfy the standard. Faroudja, 1999 WL 111788, at *6.

In the gray area between Free Standing Stuffer or Shields and Faroudja, some courts have found the combined activities of parties to be infringing even though the parties were not working in concert, but were nonetheless associated. By way of example, one court found 'some connection' between a medical device company and doctors, whose combined activities constituted the infringement, where the company taught doctors about the benefits of and how to use new products, supplied sample products to doctors, and recruited doctors to participate in clinical trials. Cordis Corp. v. Medtronic Ave, Inc. , 194 F. Supp. 2d 323, 349-50 (D. Del. 2002), rev'd on other grounds , 339 F.3d 1352 (Fed. Cir. 2003).

The question remains, however, how high a bar courts should set between activities that are sufficiently connected to find infringement and those that are not. The solution isn't trivial. Set the bar too high, and a party escapes infringement by paying another party to carry out one step of a process claim. Set the bar too low, and suddenly infringement occurs far too frequently amongst members of a supply chain or by consumers of a product. Ultimately, the issue be-comes one of fairness. How distant from a single party directly infringing a process claim must a party's activities be before that party has escaped liability for infringement?

We propose that courts set the standard closer to the Free Standing Stuffer or Shields cases, which identify situations where two or more entities are working closely in concert with each other and, thus, infringe a process claim. This standard prevents bad-faith attempts to avoid patent infringement, such as paying others or forming closely related corporate entities to perform one or more steps of a process claim. Two hypothetical scenarios illustrate how this standard prevents abuse of the system, while at the same time eliminating liability for infringement in arm's length business transactions.

Consider a claim directed to a two-step process for producing a pharmaceutical, including the steps of forming a base compound and halogenating the base compound. In a first scenario, assume that the base compound has no other use but for this pharmaceutical. A first entity pays a second entity to produce the base compound and ship the base compound to it. The first entity then halogenates the base compound. Under the suggested standard, these two entities are acting in concert, and a court would find infringement. Contrast this with a second scenario in which the base compound is a common starting component used in many pharmaceuticals. Even though the first entity pays the second entity to produce the base compound for it, the second entity also ships it to many others as well. In this instance, the two entities are conducting an arm's length transaction, and there would be no liability for infringement. They are not working in concert. Under the 'some connection' standard, by contrast, a court might find that the two entities are infringers in this scenario.

These hypothetical examples illustrate the fairness of the 'working in concert' standard. In the instance where bad-faith dealing is occurring, the parties are held accountable. In the instance with no bad-faith dealing, the patentee is accountable for the limitations that appear in the claim. In many ways, this proposed standard harmonizes the law surrounding process claims with the statutory provisions of 35 U.S.C. '271(c) regarding contributory infringement.

The first hypothetical scenario, the bad-faith situation, actually played out in the case of Marley Mouldings Ltd. v. Mikron Indus. Inc. , 66 U.S.P.Q.2d 1701 (N.D. Ill. 2003), where the claim at issue included a step of making a composite pellet. The defendant purchased these 'made to order' pellets from a third-party manufacturer and used them to complete the remaining steps of the claimed process. The court stated that a party cannot avoid infringement by contracting out certain claim steps, and denied the defendant's motion for summary judgment because there was a material issue of fact as to whether the defendant controlled the third party's activities. Although the court used the 'some connection' standard, if the defendant did control the third party's activities, these facts would lead to a finding of infringement under the proposed 'working in concert' standard as well.

Although the Federal Circuit has not yet formally weighed in on the appropriate standard, there are indications that it would follow a more demanding standard, such as the proposed 'working in concert' standard, rather than the weaker 'some connection' standard developed by the district courts. For example, in Cross Medical Prods., Inc. v. Medtronic Sofamor Danek, Inc. , 424 F.3d 1293, 1311 (Fed. Cir. 2005), the court hinted that an agency relationship may be necessary. In Cross, the claim at issue was directed to an apparatus and required that the claimed device be joined to bone. Relying on Shields, the plaintiff analogized the situation to one in which the combined activities of two parties complete the steps of a process claim because surgeons joined the device (manufactured by the defendant) to bone to 'complete' the device. The court rejected this reasoning, noting that although defendant's representatives may appear in the operating room, it is the surgeons who actually work with the device, and the surgeons were not the defendant's agents. In another recent decision, the Federal Circuit agreed with a district court's jury instruction that '[i]nfringement of a patented process or method cannot be avoided by having another perform one step of the process or method,' but decided the case on other grounds. On Demand Mach. Corp. v. Ingram Indus. , 442 F.3d 1331, 1345 (Fed. Cir. 2006).

Conclusion

The 'some connection' standard that courts currently use to analyze the interaction between entities whose activities may constitute infringement in combination is too broad. A 'working in concert' standard would better circumscribe 'bad actor' activities without sweeping in transactions that occur at arm's length, placing the burden for drafting appropriate claims on the patentee.

Lindsey A. Repose is an associate in Goodwin Procter LLP's Litigation Department, who specializes in intellectual property related matters. She can be contacted at [email protected]. Daniel A. Wilson is an associate in the firm's Business Law Department, who specializes in protecting intellectual property rights in support of business objectives in the fields of life sciences and medical devices. He assists clients with a variety of intellectual property matters, including preparation and prosecution of U.S. and foreign patent and trademark applications. He can be contacted at [email protected].