A Turning Point?

Since its decision in BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007), the Federal Circuit has continued to raise the bar for direct infringement of a method claim where the claimed steps are performed by different entities. According to BMC Resources, direct infringement of a method claim under such circumstances can be attributed to a so-called mastermind that exercises “control or direction” over the performance of each step of the claimed method. Id. at 1381. Control or direction by the mastermind was held to be found whenever the law would traditionally hold the mastermind vicariously liable for the steps of the claimed method performed by another party. Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318, 1330 (Fed. Cir. 2008) (citing BMC Resources, at 1379). The control or direction by the mastermind has since evolved to require an agency relationship between the parties who perform the method steps, or a contractual obligation imposed on another party to perform the method step(s) not performed by the mastermind. Akamai Techs., Inc. v. Limelight Networks, Inc., 629 F.3d 1311, 1320 (Fed. Cir. 2010), reh'g en banc granted, 2011 U.S. App. LEXIS 8167 (Fed. Cir. 2011). The Federal Circuit recently adhered to this test for “control or direction” in upholding summary judgment of non-infringement in McKesson Techs., Inc. v. Epic Systems Corp., 2010-1291 (Fed. Cir. 2011). But based on the sentiments from the panel members in McKesson, the opinion in Akamai may set the high-water mark for method claim patent infringement by multiple parties acting in concert.

The Patent at Issue

The patent at issue in McKesson, U.S. Patent No. 6,757,898, is assigned to McKesson Technologies, Inc. (“McKesson”) and is directed toward an interactive communication method that facilitates communications between health care providers and patients. The '898 patent includes a method claim that requires, in relevant part, “initiating a communication by one of the plurality of users to the provider for information ' ” along with other steps performed by the health care provider.

Epic Systems Corporation (“Epic”) licenses its software to various health care providers, who then offer it to their patients. The Epic software allows the health care providers to make electronic medical records and other resources accessible online, and also allows patients to communicate with their health care provider online. According to McKesson, health care providers require the patient to enter into a contractual agreement regarding use of the Epic software. The health care providers instruct the patients on every aspect of using the Epic software. Health care providers can end their patients' use of the Epic software at any time, and can even formulate communications for their patients.

McKesson asserted the '898 patent against Epic, alleging that Epic induced the health care providers to infringe the method claim by making the Epic software available to their patients. It was undisputed that the health care providers performed all of the steps of the claims except for the above-quoted step (i.e., they do not initiate a communication), which is performed by the patients. The district court granted Epic's motion for summary judgment because the health care providers did not directly perform the step of “initiating a communication” or exercise control or direction over the patients, who did. Thus, there was no direct infringement of the method claim by a single party. And since Epic's customers, the health care providers, did not directly infringe the method claim, there can be no indirect infringement by Epic for inducing the health care providers to infringe the '898 patent.

'Initiating a Communication'

On appeal, the sole issue was whether the relationship between the health care providers and their patients was such that the “initiating a communication” step performed by the patients could be attributed to the health care providers. McKesson argued that the doctor-patient relationship was closer than an arms-length transaction, and was sufficient to support a finding of an agency-type relationship. In other words, most patients will readily obey their doctor's orders without question, much like an agent will obey a principal. But the Federal Circuit held that even the doctor-patient relationship does not establish an agency relationship.

The Federal Circuit also held that the doctor-patient relationship did not impose a contractual obligation on the patients to perform any of the claimed method steps on behalf of the health care providers. Relying on Akamai and Muniauction, the health care providers were found to merely control the patients' access to the Epic software. The patients chose whether to perform the “initiating a communication” step, which was not absolutely necessary to use other portions of the software. Akamai at 1321; Muniauction at 1330. But, even if “initiating a communication” was a necessary step, it appears the outcome would not have been different. The Federal Circuit has held that the performance of a mandatory step by users who voluntarily elect to use software for their own benefit and under their own control, does not contractually obligate them to perform the step. Akamai at 1321.

Patent Law Differs from Joint and Vicarious Tort Liabilities

McKesson's other position on appeal was that the Federal Circuit panel decisions followed by the district court in reaching its holding are in conflict with “ordinary principles of law involving concerted action.” McKesson points to joint tortfeasor liability and vicarious copyright liability as two instances where liability is imposed for the concerted actions of multiple parties to cause a single harm. But the Federal Circuit was not persuaded. The single harm in the present case was said to be direct patent infringement, which has not occurred because no party has practiced each and every element of the claimed method. Without direct infringement, Epic could not have induced such direct infringement on the part of the health care providers.

The Federal Circuit also pointed out that patent law differs from joint tort liability and vicarious copyright liability in that the patentee specifically defines the boundaries of the exclusive rights afforded by a patent. This definition occurs upfront during prosecution, and puts the public on notice of the actions that, if performed, will result in infringement of the patent. Joint and vicarious tort liabilities were created to compensate victims without the ability to define the injurious conduct ahead of time, who may otherwise go uncompensated for their injuries. This portion of the panel's opinion in McKesson highlights a lesson found in Federal Circuit precedent addressing this matter: Carefully draft patent claims to be infringed by a single actor. The benefit of hindsight suggests amending the limitation in question to read “receiving a communication initiated by one of the plurality of users ' ” would have addressed the requirement of multiple actors.

The McKesson decision followed Federal Circuit precedent and affirmed the district court's grant of summary judgment of noninfringement of the '898 patent. Perhaps more importantly, McKesson may have hinted at changes coming to the jurisprudence of method claim infringement by multiple actors. The panel majority opinion indicated that the arguments supporting a departure from Federal Circuit precedents in this case were not persuasive, but also explained that a three-judge panel could not depart from precedent, even if the arguments were persuasive. An en banc review of precedent would be required.

Concurring and Dissenting Opinions

The concurring opinion of Judge William C. Bryson agreed that the panel's decision was in accord with the precedents of BMC Resources, Muniauction and Akamai, but went a step further to question whether those decisions were correct. The concurring opinion not only recognized the lack of authority to depart from an earlier panel decision, it suggested that an en banc review is warranted.

Judge Pauline Newman wrote a lengthy dissent, criticizing the Federal Circuit for having already departed from the precedent of an earlier panel decision in deciding BMC Resources. The dissent noted that other panels of the Federal Circuit, and the Supreme Court, have held that there can be infringement liability when steps of a claimed method are performed by different entities. Neither statute nor precedent is said to support the holding that a single entity must perform, control or direct every step of a claimed method for that claim to be infringed. Judge Newman did not feel obligated to follow the precedents relied upon by the panel majority, noting that those decisions are distinguishable on their facts. All that would be required by the dissent to establish infringement of a method claim is that each and every one of the claimed steps be performed. In Judge Newman's view, the requirement that each and every step be performed by a single entity has been improperly added. In light of the now-conflicting precedents, en banc review is not only warranted, but believed to be necessary by the dissent to resolve the divergent positions.

All three opinions in McKesson expressed at least some reluctance to follow precedent on infringement of a method claim by method steps performed by different entities. The concurrence and dissent openly questioned the correctness and applicability of those precedential decisions. Although the panel in McKesson did not break new legal ground, it may have provided a glimpse of the analysis to come in the upcoming en banc rehearing of Akamai.

Donald J. Firca, Jr. is an associate at Pearne & Gordon LLP, where he focuses his practice on patent prosecution in the electronic and software arts.

Since its decision in BMC Resources, Inc. v. Paymentech, L.P. , 498 F.3d 1373 (Fed. Cir. 2007), the Federal Circuit has continued to raise the bar for direct infringement of a method claim where the claimed steps are performed by different entities. According to BMC Resources, direct infringement of a method claim under such circumstances can be attributed to a so-called mastermind that exercises “control or direction” over the performance of each step of the claimed method. Id. at 1381. Control or direction by the mastermind was held to be found whenever the law would traditionally hold the mastermind vicariously liable for the steps of the claimed method performed by another party. Muniauction, Inc. v. Thomson Corp. , 532 F.3d 1318, 1330 (Fed. Cir. 2008) (citing BMC Resources, at 1379). The control or direction by the mastermind has since evolved to require an agency relationship between the parties who perform the method steps, or a contractual obligation imposed on another party to perform the method step(s) not performed by the mastermind. Akamai Techs., Inc. v. Limelight Networks, Inc. , 629 F.3d 1311, 1320 (Fed. Cir. 2010), reh'g en banc granted, 2011 U.S. App. LEXIS 8167 (Fed. Cir. 2011). The Federal Circuit recently adhered to this test for “control or direction” in upholding summary judgment of non-infringement in McKesson Techs., Inc. v. Epic Systems Corp., 2010-1291 (Fed. Cir. 2011). But based on the sentiments from the panel members in McKesson, the opinion in Akamai may set the high-water mark for method claim patent infringement by multiple parties acting in concert.

The Patent at Issue

The patent at issue in McKesson, U.S. Patent No. 6,757,898, is assigned to McKesson Technologies, Inc. (“McKesson”) and is directed toward an interactive communication method that facilitates communications between health care providers and patients. The '898 patent includes a method claim that requires, in relevant part, “initiating a communication by one of the plurality of users to the provider for information ' ” along with other steps performed by the health care provider.

Epic Systems Corporation (“Epic”) licenses its software to various health care providers, who then offer it to their patients. The Epic software allows the health care providers to make electronic medical records and other resources accessible online, and also allows patients to communicate with their health care provider online. According to McKesson, health care providers require the patient to enter into a contractual agreement regarding use of the Epic software. The health care providers instruct the patients on every aspect of using the Epic software. Health care providers can end their patients' use of the Epic software at any time, and can even formulate communications for their patients.

McKesson asserted the '898 patent against Epic, alleging that Epic induced the health care providers to infringe the method claim by making the Epic software available to their patients. It was undisputed that the health care providers performed all of the steps of the claims except for the above-quoted step (i.e., they do not initiate a communication), which is performed by the patients. The district court granted Epic's motion for summary judgment because the health care providers did not directly perform the step of “initiating a communication” or exercise control or direction over the patients, who did. Thus, there was no direct infringement of the method claim by a single party. And since Epic's customers, the health care providers, did not directly infringe the method claim, there can be no indirect infringement by Epic for inducing the health care providers to infringe the '898 patent.

'Initiating a Communication'

On appeal, the sole issue was whether the relationship between the health care providers and their patients was such that the “initiating a communication” step performed by the patients could be attributed to the health care providers. McKesson argued that the doctor-patient relationship was closer than an arms-length transaction, and was sufficient to support a finding of an agency-type relationship. In other words, most patients will readily obey their doctor's orders without question, much like an agent will obey a principal. But the Federal Circuit held that even the doctor-patient relationship does not establish an agency relationship.

The Federal Circuit also held that the doctor-patient relationship did not impose a contractual obligation on the patients to perform any of the claimed method steps on behalf of the health care providers. Relying on Akamai and Muniauction, the health care providers were found to merely control the patients' access to the Epic software. The patients chose whether to perform the “initiating a communication” step, which was not absolutely necessary to use other portions of the software. Akamai at 1321; Muniauction at 1330. But, even if “initiating a communication” was a necessary step, it appears the outcome would not have been different. The Federal Circuit has held that the performance of a mandatory step by users who voluntarily elect to use software for their own benefit and under their own control, does not contractually obligate them to perform the step. Akamai at 1321.

Patent Law Differs from Joint and Vicarious Tort Liabilities

McKesson's other position on appeal was that the Federal Circuit panel decisions followed by the district court in reaching its holding are in conflict with “ordinary principles of law involving concerted action.” McKesson points to joint tortfeasor liability and vicarious copyright liability as two instances where liability is imposed for the concerted actions of multiple parties to cause a single harm. But the Federal Circuit was not persuaded. The single harm in the present case was said to be direct patent infringement, which has not occurred because no party has practiced each and every element of the claimed method. Without direct infringement, Epic could not have induced such direct infringement on the part of the health care providers.

The Federal Circuit also pointed out that patent law differs from joint tort liability and vicarious copyright liability in that the patentee specifically defines the boundaries of the exclusive rights afforded by a patent. This definition occurs upfront during prosecution, and puts the public on notice of the actions that, if performed, will result in infringement of the patent. Joint and vicarious tort liabilities were created to compensate victims without the ability to define the injurious conduct ahead of time, who may otherwise go uncompensated for their injuries. This portion of the panel's opinion in McKesson highlights a lesson found in Federal Circuit precedent addressing this matter: Carefully draft patent claims to be infringed by a single actor. The benefit of hindsight suggests amending the limitation in question to read “receiving a communication initiated by one of the plurality of users ' ” would have addressed the requirement of multiple actors.

The McKesson decision followed Federal Circuit precedent and affirmed the district court's grant of summary judgment of noninfringement of the '898 patent. Perhaps more importantly, McKesson may have hinted at changes coming to the jurisprudence of method claim infringement by multiple actors. The panel majority opinion indicated that the arguments supporting a departure from Federal Circuit precedents in this case were not persuasive, but also explained that a three-judge panel could not depart from precedent, even if the arguments were persuasive. An en banc review of precedent would be required.

Concurring and Dissenting Opinions

The concurring opinion of Judge William C. Bryson agreed that the panel's decision was in accord with the precedents of BMC Resources, Muniauction and Akamai, but went a step further to question whether those decisions were correct. The concurring opinion not only recognized the lack of authority to depart from an earlier panel decision, it suggested that an en banc review is warranted.

Judge Pauline Newman wrote a lengthy dissent, criticizing the Federal Circuit for having already departed from the precedent of an earlier panel decision in deciding BMC Resources. The dissent noted that other panels of the Federal Circuit, and the Supreme Court, have held that there can be infringement liability when steps of a claimed method are performed by different entities. Neither statute nor precedent is said to support the holding that a single entity must perform, control or direct every step of a claimed method for that claim to be infringed. Judge Newman did not feel obligated to follow the precedents relied upon by the panel majority, noting that those decisions are distinguishable on their facts. All that would be required by the dissent to establish infringement of a method claim is that each and every one of the claimed steps be performed. In Judge Newman's view, the requirement that each and every step be performed by a single entity has been improperly added. In light of the now-conflicting precedents, en banc review is not only warranted, but believed to be necessary by the dissent to resolve the divergent positions.

All three opinions in McKesson expressed at least some reluctance to follow precedent on infringement of a method claim by method steps performed by different entities. The concurrence and dissent openly questioned the correctness and applicability of those precedential decisions. Although the panel in McKesson did not break new legal ground, it may have provided a glimpse of the analysis to come in the upcoming en banc rehearing of Akamai.

Donald J. Firca, Jr. is an associate at Pearne & Gordon LLP, where he focuses his practice on patent prosecution in the electronic and software arts.