Posts Tagged “contributory infringement”

Many years ago I owned a Mercury Sable with the cheaper of two optional sound systems. One day, retrieving it from the dealer after some sort of service, I was surprised that my radio was operating in a new mode – one that was part of the higher end option. Normally this would be a good thing, but since I had only purchased the low end system, my dashboard did not have a switch to exit this new mode. A trip back to the dealer restored my sound system to it’s old modus operandi. Clearly, the only difference between the high and low end sound systems was the operating controls on the dashboard. The guts of the system were identical and the extra cost of the premium system only changed what functions you had access to.

What happens when you build a system that has certain elements or functions that infringe a patent? Can you avoid an infringement suit by burying the infringing elements in the way Mercury denied me access to the advanced functions that were physically in the sound system in my Sable? Can you simply “turn off” infringement by turning off the infringing element.

In a recent Court of Appeals case, Secure Computing Corporation tried to make just that argument. Secure essentially sold software that used proactive scanning technology for computer security. They were successfully sued by Finjan, Inc. for infringing three patents. The patents include claims covering “systems”, “methods”, and “computer-readable storage media” – essentially a computer that is running the software, the steps performed by the software, and a tangible embodiment of the software.

Secure’s primary defense was that what they made and sold did not infringe because what they delivered to a user was not functional out of the box – each software module (there were eight) was locked and needed a separately purchased software key to unlock the module. It was the the end user, the entity that entered the software key and ran the software, who was infringing, not Secure, which only sold non-functional modules.

Neither the trial court nor the Court of Appeals was buying this line of thinking. Like my radio, Secure’s software was capable of operation and nowhere in Finjan’s system or media claims is there an indication that the claim was limited to operating software. Most system/apparatus claims protect the bits and pieces of the apparatus and how they are connected together and this protection does not depend on someone pressing the “ON” button.

Secure did win its point (on appeal) that it did not violate the method claims. Here it is true that only the end user is “performing” the method when he or she runs the software – but of course this win did not hinge on whether the software was locked or not.

For patent applicants the lesson is clear; watch what words your attorney uses in your claims. I faced this with one of my clients whose initial claim language called for a source “capable of generating” light in a certain wavelength band. The examiner objected because a source operating outside that band might be “capable” of generating the claimed band. He suggested we say “a source operating in” the wavelength band. Had we accepted his wording, our competition could happily make and sell a non-infringing device by simply not turning it on. We settled on “a source for generating”.

BTW, even if the language of the claim lets you get away with selling a non-operating or locked system you most likely will be guilty of inducing infringement or contributory infringement when your customer unlocks the system.

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“I am about to partner with an engineer to manufacture and sell his product. I am looking for the designer to “own” the design liability and my company will “own” the manufacturing liability. How do I do that?”

It was a short question but there was something about the wording that made me think a long answer was needed. I felt I needed to clear up this matter of “design liability” and “manufacturing” liability. Here’s my response:
___________________________________________________________________________________________

Dear (xxxx),

You suggest that there is a difference between “design liability” and “manufacturing liability” and that the difference affects who will be the target in an infringement suit. That’s not really the case.

Keeping in mind that I’m not an attorney and don’t give legal advice (my lawyer makes me say this), infringement is the act of making, using, selling, etc. a patented device without permission. Technically I don’t believe designing a device, per se, is infringement.

Of course, very few people design a device and stop there. Once a designer of an infringing device lets someone make one, the designer may be liable for contributory infringement or perhaps inducing infringement while the builder is liable for direct infringment.

Now, let’s get to the business end. The patent law doesn’t really care about licensing (i.e., renting IP). Typically, in your situation, somewhere in your license agreement (which is just a contract between two parties) there will be an explanation of how any IP issues will be handled. It is important to have it there since when the Sxxx hits the fan nobody wants to own the problem.

In situations like yours, the designer usually starts off “owning” the liability since he should have checked out the IP territory before doing the design. By collecting money from you for use of his design he is selling something and should be willing to stand behind his work – you expect General Motors to warantee your car, right. The mechanism to get him to own the liability is a term in the license contract saying he will indemnify you for any infringement suit.

Of course, in many cases there is the up front recognition that the designer can’t shoulder all the liability, particularly since he is not garnering all the profits. Share the profits = share the liability. Again, how that cost is shared is to be included in the licensing agreement.

In other cases, where a small design house does work for a large, manufacturing partner, the larger partner may totally indemnify the small design house based on the financial realities AND the fact that the design house was only doing the design in the first place as an outsourced R&D function for the large partner.

So, bottom line, whether you pay for the use of the design on a flat fee basis (a license in your terminology) or on a per part built basis (royalty in your terminology) has zero bearing on who’s going to get sued. You will be sued for making and selling, the designer will be suited for contributory infringement, you both may be sued for inducing infringement in your customers, and, at least in theory, your customers can be sued for using. This last bit is typically only mentioned in large OEM sales, not in consumer sales, for all the obvious reasons.

What you need to care about is how you and the designer are going to split up the costs, and that split can be anything you two decide. Since damages are calculated on lost profits or a reasonable royalty basis, I expect you were thinking something along the lines of you “owning” the part of the damages that scales with the number of units made and your partner basically having a fixed liability. That is certainly reasonable if you are not paying him a per part royalty.

Good luck…and consult with an attorney to draw up the licensing agreement!

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I recently got a call from a person referred to me for some IP advice – the question was what should he do, now that he’s found someone else has 3 patents that look a lot like they cover the product he is already selling. What if, he asked, he only sold the bits and pieces as a kit – each item was easily and inexpensively purchased at the wholesale level and the instructions for assembly could be followed by anyone who had a modicum of mechanical aptitude.

For someone new to the world of commerce and intellectual property, the answer to this question is not obvious. And the issue is surely made more complex by the patent office’s less than stellar examination process – if you are looking at a poorly examined patent, one that is “obvious” but allowed pre-KSR – do you take the risk of infringing, hoping that the patentee will think twice about challenging you, or do you bite the bullet and find a new product to take to market? Or, like this person, do you look for some wiggle room – sell a kit, rather than the item described in the patent, or maybe just sell the parts list and assembly instructions and let the patentee worry about suing all the individuals who build their own copy of the invention? In fact, the patent must enable someone of ordinary skill in the art to practice the invention, so with this obvious patent could you just distribute the patent and a list of suppliers who sell these ordinarily available parts?

As well intentioned as my caller was, I did have to point out to him that any company that had invested in THREE patents was not like to ignore his attempt to undercut their apparently lucrative market and that selling a kit or just the instructions was introducing the likelihood of either inducing or contributing to infringement, both of which would put him in the same situation as his current (assumed) direct infringement.

Inducing and/or contributing to infringement was at the heart of a recent Appeals Court decision (Ricoh v. Quanta). The patents in suit are directed to various aspects of optical disc drive technology – the specific claims describe methods for writing data to CD’s and DVD’s – and the question was whether building the firmware into a system that both wrote AND read the optical media allowed Quanta to slip by the infringement net; after all, they did not actually practice the methods and reading optical media was a noninfringing use. Ricoh argued for both contributory and induced infringement.

Contributing to infringement is, effectively, providing one or more components which, by themselves, are not patented but when combined (by someone else) with other items create an infringing product. A key consideration that determines liability is whether the supplied components are ordinary “article of commerce” with “substantial noninfringing uses”. The core notion, the court pointed out, “is that one who sells a component especially designed for use in a patented invention may be liable as a contributory infringer.” The court found Quanta’s argument (that the READ function of the drives meant the product had substantial noninfringing use) totally unconvincing. By Quanta’s logic, any infringing product could become noninfringing by just adding on features that didn’t infringe.

Inducing infringement is more like a police sting. Although you are not infringing you are providing the means for someone else to infringe and are suggesting or instructing them how to do so. Here too the Court agreed with Ricoh that Quanta had clearly sold its product (to computer manufacturers like HP and Dell) by highlighting the infringing WRITE functions. Had it been just a hidden and presumably unused function the judgment might have gone the other way.

If you were my caller, what option would you take: stop making and selling his product, continue his business and hope the patentee doesn’t notice, or try to get a license?

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If the USPTO allowed a patent for a method of swinging on a swing, which they did, then it’s surely time to do something about method patents – or at least methods that I’ve called end-user processes. Patents covering end-user processes are pernicious in several ways:

  • firstly, by their nature there is very little documented prior art for a patent examiner to demonstrate obviousness, undermining the doctrine that issued patents have a presumption of validity;
  • secondly, they erode the inherent society/inventor balance when their principle use is to secure coverage for an apparatus that has otherwise failed to obtain (or retain) patent protection;
  • thirdly, they potentially make every citizen an infringer just for engaging in what is normal or everyday activity; and
  • lastly, by raising concerns of induced or contributory infringement in other manufacturers, they contravene the Constitutional underpinnings of our patent law by repressing instead of promoting the “progress of science and the useful arts”.

It is this last issue that concerns me most. One of the characteristics of an end-user process is that it is performed by an individual using no patented/proprietary apparatus. The process is typically not performed by the patent owner or his competitors. And the patent owner never intends to sue the performing individuals. Instead, the patent owner hopes to protect his market for his unpatentable apparatus by scaring off competitors with the threat of an induced or contributory infringement suit.

The recent “KSR ruling”, which makes an obviousness objection harder to overcome (the method of swinging on a swing would not be allowed today), will certainly make it more difficult to obtain these patents but as we know the winds of court opinions can switch over time. It would be better to make explicit changes in the patent laws to eliminate or at least eviscerate these claims.

While some might try to tinker with the definition of a patentable process (e.g., NOT an end-user process), I would rather eliminate the benefit expected from filing these patents. I would make the statutory definition of contributory/induced infringement include, directly or indirectly, a patented apparatus.

With this definition you could teach people the method of swinging on a swing without being lible for inducing infringement. With this definition you could freely sell your non-infringing apparatus without worrying if it also had non-infringing uses.

Importantly, the only possible infringers under this definition are the individuals actually practicing the method. If the goal of the patent owner was to protect a market for an unpatentable apparatus, he will not sue his potential customers. If the goal of the patent owner was to protect the market for the actual method (i.e., a dentist who has developed a new method of implanting teeth wants to be the only dentist able to perform this method), he will sue (or license) the infringers.

 

 

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