Sign up | Log in

CAFC: To “Use” a System Under§ 271(a), One Must Put It Into Service, or Control System as a Whole and Benefit From It

January 20, 2011

The U.S. Court of Appeals for the Federal Circuit ruled Jan. 20 in a case of first impression that, consistent with its NTP v. Research in Motion Ltd. ruling involving method claims, one must put an invention into service, i.e., control the system as a whole and obtain benefit from it, in order to infringe system claims by “use” under § 271(a) of the Patent Act (Centillion Data Systems LLC v. Qwest Communications International Inc., Fed. Cir, No. 2010-1110, 1/20/11).

Billing System Noninfringement Ruling Appealed.

In this case, Centillion Data Systems LLC appealed the district court’s summary judgment that Qwest’s Logic, eBill Companion, and Insite billing systems did not infringe its billing system patent (5,287,270). The accused products include two parts: Qwest’s back office systems and front-end client applications that a user may install on a personal computer.

Rather than conducting an element by element comparison to determine whether the claimed system was infringed, the district court only considered infringement by “use” under 35 U.S.C. § 271(a), particularly whether Qwest could be liable for infringement of a system claim that requires both a back office portion as well as a personal computer operated by a user.

While Centilion appealed the noninfringement ruling, Qwest cross-appealed the ruling that the ‘270 patent was not invalid for anticipation.

§271(a) ‘Use’ of a System Claim Is Defined Under NTP Case.

The Federal Circuit began by observing that this case raises a matter of first impression—“use” of a system claim under Section 271(a) where the elements are in the possession of more than one actor.

However, a similar case involving asserted method claims found that customers located in the United States who sent messages via the accused Blackberry handheld device made “use” of the overall system in the United States even though one of the system relays was located in Canada, Judge Kimberly A. Moore noted, citing NTP Inc. v. Research in Motion Ltd., 418 F.3d 1282 (Fed. Cir. 2005). There, the court distinguished use of a claimed method from that of a claimed system and held that “[t]he use of a claimed system under section 271(a) is the place at which the system as a whole is put into service, i.e., the place where control of the system is exercised and beneficial use of the system obtained.”

Relying on NTP, the district court defined “use” under Section 271(a) as “put[ting] the system into service, i.e., . . . exercis[ing] control over, and benefit[ting] from, the system’s application.” It held that under BMC Resources Inc. v. Paymentech L.P., 498 F.3d 1373 (Fed. Cir. 2007) and Cross Medical Products v. Medtronic Sofamor Danek, Inc., 424 F.3d 1293 (Fed. Cir. 2005), an accused infringer must either practice every element or control or direct the actions of another practicing the element in question.

Accordingly, the district court determined that no single party practices all of the limitations of the asserted claims. As to Qwest, it found that the company does not “use” the system under § 271(a) by providing the back-end portions of the accused systems and the software for a user to load on its “personal computer processing means.” Under this reading of “use,” it held that Centillion could not show that Qwest “practiced each and every element of the system claim.”

The district court further held that Qwest’s customers did not “use” the patented system under § 271(a) since Centillion could not show that the customers directed or controlled the “[data] processing means” of the accused systems’ “back-end.”

Though noting that NTP dealt with the situs of infringement rather than the nature of the infringing act, Moore here adopted its definition of “use” under § 271(a) and held that to “use” a system for purposes of infringement, a party must put the invention into service, i.e., control the system as a whole and obtain benefit from it. “The district court correctly determined that this definition from NTP was the proper one to apply,” she wrote.

However, the Federal Circuit rejected the district court’s conclusion that in order to “use” a system under § 271(a), a party must exercise physical or direct control over each individual element of the system. Moore explained:

The “control” contemplated in NTP is the ability to place the system as a whole into service. In other words, the customer in NTP remotely “controlled” the system by simply transmitting a message. … That customer clearly did not have possession of each of the relays in the system, nor did it exert the level of direct, physical “control” that the district court requires. To accept the district court’s interpretation of “use” would effectively overturn NTP because the predicate “use” in that case would no longer fall under the definition of “use.”

We agree that direct infringement by “use” of a system claim “requires a party . . . to use each and every . . . element of a claimed [system].” In order to “put the system into service,” the end user must be using all portions of the claimed invention. For example, in NTP, the end user was “using” every element of the system by transmitting a message. It did not matter that the user did not have physical control over the relays, the user made them work for their patented purpose, and thus “used” every element of the system by putting every element collectively into service.

‘Use’ by Qwest’s Customers.

Continuing, the appellate court examined both modes of the Qwest system operation to determine if there was customer “use” under § 271(a), On-Demand Operation. In the on-demand function, a customer creates a query that the Qwest back-end system processes and provides a result for download. “We hold that the on-demand operation is a “use” of the system as a matter of law,” Moore said, noting that the customer puts the system as a whole into service, i.e., controls the system and obtains benefit from it. She added:

The customer controls the system by creating a query and transmitting it to Qwest’s back-end. The customer controls the system on a one request/one response basis. This query causes the back-end processing to act for its intended purpose to run a query and return a result. The user may then download the result and perform additional processing as required by the claim. If the user did not make the request, then the back-end processing would not be put into service. By causing the system as a whole to perform this processing and obtaining the benefit of the result, the customer has “used” the system under § 271(a). It makes no difference that the back-end processing is physically possessed by Qwest. The customer is a single “user” of the system and because there is a single user, there is no need for the vicarious liability analysis from BMC or Cross Medical.

Standard Operation. During normal functioning, after a user subscribes, Qwest’s back-end systems create periodic summary reports (standard operation) which are available for the user to download. The Federal Circuit held that this form of operation is also a “use” as a matter of law. Though this mode is not a one request/one response scenario, “[l]ike the on-demand operation, the back-end processing in normal operation is performed in response to a customer demand, Moore explained, writing:

The difference though is that a single customer demand (the act of subscribing to the service) causes the back-end processing monthly. But in both modes of operation, it is the customer initiated demand for the service which causes the back-end system to generate the requisite reports. This is “use” because, but for the customer’s actions, the entire system would never have been put into service. This is sufficient control over the system under NTP, and the customer clearly benefits from this function.

Since the district court concluded as a matter of law that no single party could be liable for “use” of the patented invention, it did not compare the accused system to the claim limitations. Having found that conclusion wrong, the Federal Circuit declined to determine for the first time on appeal whether any individual customer has actually installed the Qwest software, downloaded records, and analyzed them as required by the claims. Further, it made no comment as to whether Qwest may have induced infringement by a customer.

Qwest Not Vicariously Liable for ‘Use’ by Its Customers.

Citing Fantasy Sports Properties Inc. v. Inc., 287 F.3d 1108 (Fed. Cir. 2002), Centillion argued that Qwest’s operation of the back-end processing “uses” the system under § 271(a).

However, Qwest argued that it could not be liable for a “use” of the system under § 271(a) because it does not control the claimed personal computer.

The Federal Circuit “agree[d] with Qwest that, as a matter of law, it does not “use” the patented invention under the appropriate test from NTP.” Citing NTP, Moore stated:

To “use” the system, Qwest must put the claimed invention into service, i.e., control the system and obtain benefit from it. … While Qwest may make the back-end processing elements, it never “uses” the entire claimed system because it never puts into service the personal computer data processing means. Supplying the software for the customer to use is not the same as using the system. …

Following our vicarious liability precedents, we conclude, as a matter of law, that Qwest is not vicariously liable for the actions of its customers. Qwest in no way directs its customers to perform nor do its customers act as its agents. While Qwest provides software and technical assistance, it is entirely the decision of the customer whether to install and operate this software on its personal computer data processing means.

Centillion’s reliance on Fantasy Sports is misplaced, Moore said, noting that in that case the district court erred by not considering direct infringement along with indirect infringement since the defendant housed all of the necessary software on its servers. ”This does not equate to a holding that in order to prove ‘use’ of a patented invention, a patent owner must only show that the accused infringer makes software available,” she said, pointing out that an entire system is not used until a customer loads software on its personal computer and processes data. “Qwest clearly does not fulfill this claim requirement.”

Qwest Does Not ‘Make’ Claimed Invention Under §271(a).

While Centillion claimed that there was a genuine issue of material fact as to whether Qwest “makes” the claimed invention under § 271(a), the Federal Circuit disagreed because Qwest manufactures only part of the claimed system. In order to “make” the system under § 271(a), Moore explained, “Qwest would need to combine all of the claim elements—this it does not do.”

Further, the court found that there is no vicarious liability because Qwest’s customers do not act as its agents as a matter of law nor are they contractually obligated by Qwest to act.

Fact Issues as to Invalidity for Anticipation.

Finally, the Federal Circuit ruled that the district court erred in granting a summary judgment that the ’270 patent was not anticipated under §102 of the Patent Act by NYNEX’s prior art COBRA billing system. There is a factual dispute as to whether the records generated by COBRA are “summary reports” as construed by the district court, and also a factual dispute as to whether such reports are created “as specified by the user”  under the patent’s broad language, Moore said.

The summary judgment of noninfringement was vacated and remanded, and the summary judgment of no invalidity for anticipation was reversed and remanded.

The opinion was joined by Judges Richard Linn and Alan Lourie.

Centillion was represented by Victor M. Wigman of Blank Rome, Washington, D.C. Qwest was represented by Vincent J. Belusko of Morrison & Foerster, Los Angeles.

Other articles:

Powered By relatedArticle