Joint Infringement Liability After Golden Hour Data Sys. v. emsCharts, Inc.

Thus, in BMC, the Federal Circuit sought to minimize the potential loophole for infringement avoidance through arms-length cooperation by establishing the rules for vicarious liability. In Golden Hour, however, the court may have opened a larger loophole for infringement avoidance through strategic cooperation, provided that the accused parties maintain separate corporate statuses.

Heather R. Bobkova is an intellectual property litigator in the San Francisco office of Morrison & Foerster LLP. She can be reached at [email protected].

A method patent is only infringed when a single actor performs each step of the claimed invention. BMC Res., Inc. v. Paymentech, L.P. , 498 F.3d 1373 (Fed. Cir. 2007). In BMC, the Federal Circuit recognized that the single-actor rule seemingly provides a loophole for parties to avoid liability by contracting out one or more claimed steps. Id. at 1379. The court stated, however, that the law would impose vicarious liability on an accused infringer who controls or directs the conduct of the acting party. Id .; see also Muniauction, Inc. v. Thomson Corp. , 532 F.3d 1318 (Fed. Cir. 2008) (explaining that joint infringement turns on whether the accused infringer sufficiently controls or directs other parties such that it can be said to have performed the steps itself). In BMC, the court further noted that patentees can offset concerns over infringement avoidance through careful claim drafting. Id.

The Federal Circuit recently revisited the issue of joint infringement in Golden Hour Data Sys. v. emsCharts, Inc., 614 F.3d 1367 (Fed. Cir. 2010). The court's decision in that case illustrates one way in which vicarious liability may not close the loophole for liability avoidance through the use of multiple actors. Further, the decision shows that claim drafting alone does not end the joint infringement problem for patentees.

The BMC and Muniauction Decisions

The Federal Circuit earlier weighed in on joint infringement in BMC. In that case, the court looked to the literal language of 35 U.S.C. ' 271(a), and determined that infringement liability can only attach where a single party performs the steps of a patented invention. BMC, 498 F.3d at 1378-79. The court noted that a party cannot avoid infringement “simply by contracting out steps of a patented process to another entity.” Id. at 1381. In those cases, the party in control would be liable for direct infringement. Id. Citing the Second Restatement of Agency, the court held that when parties are in an agency relationship, the controlling party is responsible based on vicarious liability. Id. at 1379.

The Federal Circuit in BMC acknowledged that the vicarious liability standard may in some cases allow parties to enter into arms-length agreements to avoid infringement. Id. Nevertheless, the court found that the avoidance concern must be tolerated lest expanded rules governing direct infringement subvert the statutory scheme for indirect infringement. The court explained that direct infringement is a strict-liability offense, limited to those who practice each and every element of the claimed invention. Id. at 1381. By contrast, indirect liability requires evidence of a particular mens rea, and is limited to sales of components or materials without substantial noninfringing uses. Id. The court reasoned that expanded liability for direct infringement to reach joint infringers would mean that a patentee would rarely, if ever, need to bring a claim for indirect infringement. Id.

The Federal Circuit further noted that any concerns over liability avoidance can usually be offset by proper, unitary claim drafting. Id. The claims at issue in BMC were drafted such that multiple parties are needed to perform the steps. In particular, the claims require action by a customer, a merchant, a merchant's agent, and a financial institution. Id. at 1375-76. The court explained that claims can usually be drafted to require action by only one party and “BMC chose instead to have four different parties perform different acts within one claim.” Id. at 1381.

In Muniauction, the Federal Circuit reaffirmed that a party will not be liable for the acts of another unless it “directs” or “controls” those acts. Muniauction, 532 F.3d at 1329. The court reiterated that “mere arms-length cooperation” does not give rise to direct infringement by either party. Instead, joint infringement arises where one party is the “mastermind” and exerts control over the entire process. Id.

Like the claims in BMC, the claims in Muniauction were drafted such that more than one party was required to perform the steps. The claims recite an electronic auction system that required action from both issuers and bidders. Id. at 1322. In the exemplary claim considered by the court, at least one step is completed by the bidder, whereas the remaining steps are performed by the auctioneer's system. Id. at 1328-29.

Golden Hour

The patent at issue in Golden Hour is directed to computerized systems that provide for the integration of medical dispatch services, clinical services, and billing data. Golden Hour, 614 F.3d at 1370. The claims at issue were drafted such that they could be performed by an individual entity. For example, claim 15 is a method claim that requires integrating dispatch and clinical services data. It provides:

A computerized method of generating a patient encounter record, comprising the steps of:

collecting flight information relating to an emergency transport crew dispatch;

collecting patient information from a clinical encounter associated with a patient incident requiring emergency medical care by the emergency transport crew; and

integrating the patient information with the flight information to produce an encounter record indicative of the patient's clinical encounter.

Id.

In Golden Hour, both of the “joint actors” were defendants. emsCharts provided Web-based medical charting and billing, and Softech provided computer-aided flight dispatch software that coordinates flight information. Id. At trial, the jury saw evidence showing that emsCharts and Softtech formed a “strategic partnership” to integrate the functions of their software programs, and collaborated to sell the ensuing system as a package. Id. at 1371, 1374. The evidence presented to the jury included a press release announcing the partnership, and promoting the resultant system as a “seamless transition” from dispatch to medical reports to billing. Id. at 1374. The jury found infringement, but the district court subsequently granted emsCharts' motion for JMOL. The district court found that there was insufficient evidence of “control” or “direction” by emsCharts or Softtech (or vice versa) to find joint infringement. Id. at 1373.

In coming to that decision, the district court first determined that the two defendants were in fact separate entities, and that the relationship between them was governed by a non-exclusive distributorship agreement that lasted about a year. Golden Hour Data Sys. v. emsCharts, Inc., 2009 U.S. Dist. LEXIS 30108, *10 (E.D. Tex. Apr. 3, 2009). The court next found that the language of the distributorship agreement did not create “any agency, partnership, joint venture, or employer/employee relationship.” Id. The agreement stated that emsCharts was “receiving no rights in or to the [Softtech] Software under the Agreement[.]” Id. Softtech provided testimony that the agreement in no way caused it to give up control of its program. Id. The district court further found that the two parties “discussed and agreed” to submit joint bids and that neither party directed the other to submit the bids. Id. at *10-11.

On appeal, the Federal Circuit applied the “direct” or “control” standard and agreed that the parties did not jointly infringe the patent. Golden Hour, 614 F.3d at 1380-81. The court's conclusion upholds the literal language of ' 271(a), and adheres to the previously established control or direct standard. However, its conclusion may create a new loophole for avoiding infringement liability.

Potential Ramifications of Golden Hour

In BMC, the Federal Circuit indicated that an “arms-length” relationship does not lead to joint infringement liability when a party “simply contracts out steps of a patented process.” BMC, 498 F.3d at 1381. In Golden Hour, the parties did more than contract out steps of a patented process; they strategically joined forces to create and sell an integrated product on a coordinated basis. See Golden Hour, 614 F.3d at 1371. Although neither party was the mastermind of each claimed step, each party arguably had some control or direction of the overall process and the finished product. Nevertheless, the parties could not be liable for joint infringement given that neither party directed or controlled the other party. Moreover, under those circumstances, neither party could be liable for indirect infringement, given that no direct infringement could attach. See BMC, 498 F.3d at 1379 (“Indirect infringement requires, as a predicate, a finding that some party amongst the accused actors has committed the entire act of direct infringement.”). As a result, Golden Hour sets up a situation where both parties may otherwise meet the requirement for indirect infringement, yet neither would be held liable. The Federal Circuit's literal reading of ' 271(a) and desire to preserve the rules for indirect infringement therefore may allow parties to escape liability by joining forces on equal footing.

In BMC, the court noted that a patentee could ameliorate liability avoidance through careful claim drafting. BMC, 498 F.3d at 1381. As Golden Hour demonstrates, however, many modern technological processes can be implemented through the actions of multiple parties, regardless of how the claims are drafted. In Golden Hour, the representative method claim discussed by the Federal Circuit did not recite actions by multiple parties as the claims did in BMC and Muniauction. As a result, claim drafting alone will not necessarily provide protection for a patentee in addressing joint actions that would otherwise be infringing.

Thus, in BMC, the Federal Circuit sought to minimize the potential loophole for infringement avoidance through arms-length cooperation by establishing the rules for vicarious liability. In Golden Hour, however, the court may have opened a larger loophole for infringement avoidance through strategic cooperation, provided that the accused parties maintain separate corporate statuses.

Heather R. Bobkova is an intellectual property litigator in the San Francisco office of Morrison & Foerster LLP. She can be reached at [email protected].