Patent Damages
8Dec/10Off

Joint infringement; hypothetical negotiation need not be split, rules EDTX

Joint infringement issues are cropping up with increasing frequency.  Joint infringement generally arises in the situation where two or more infringers jointly perform the steps of a method claim, and none performs the method alone.  Thus, the plaintiff cannot prove direct infringement by a single entity—instead the direct infringement only occurs when two or more entities are considered together.  Prior to the Federal Circuit’s decisions in BMC Resources, INc. v. Paymentech, 498 F.3d 1383 (Fed. Cir. 2007), and Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318 (Fed. Cir. 2008), joint infringement liability could exist in situations where there was some relationship between entities that together perform the method steps (e.g., defendant and defendant’s customer).  After Paymentech and Muniauction, the law now requires more than a mere undefined relationship.  The defendant must “control or direct” the actions of the other entities who perform method steps.  This is referred to as the “mastermind test.”

Judge Folsom from the Eastern District of Texas has been faced with joint infringement in Datatreasury Corp. v. Wells Fargo & Co., Civil Action No. 2:06-CV-72 DF (E.D. Tex.).  Judge Folsom recently issued a JMOL order (click here) dated September 27, 2010 that addresses the intersection of joint infringement and reasonable royalty damages.

The patents at issue involved check imaging technology.  The plaintiff accused U.S. Bank and a related entity called The Clearing House Payments Company (“TCH”) of jointly infringing system claims in the patents-in-suit.  Plaintiff introduced evidence of direction or control of TCH by U.S. Bank, including that U.S. Bank is an owner of TCH, sits on the board of TCH, contributes to operational decisions of TCH, sends check images to TCH, and directs how TCH’s servers handle those check images.  Thus, the plaintiff contended that the relationship between TCH and U.S. Bank was not arms-length, but instead U.S. Bank directs or controls each step of the infringement involving its check images and data.

The first issue addressed by Judge Folsom concerned liability for joint infringement.  TCH contended initially that there can be no joint infringement of a system claim.  The court rejected that argument, citing Uniloc USA, Inc. v. Microsoft Corp., 640 F. Supp. 2d 150, 162 (D.R.I. 2009).  The court then concluded that, based on the evidence presented at trial, plaintiff had demonstrated sufficient direction or control by U.S. Bank, and that the jury’s verdict of infringement was sufficiently supported.

This brought the court to the damages issue:  Where two or more parties jointly infringe, should (or even could) the plaintiff’s damages expert divide the hypothetical negotiation between the multiple infringers?  The plaintiff had offered evidence of a hypothethical negotiation between itself and U.S. Bank, and did not involve TCH in the negotiation. TCH contended that this methodology was improper because the plaintiff had excluded TCH from the negotiation.  TCH's argument relied on the often-cited Federal Circuit decision in ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 868-69 (Fed. Cir. 2010), for the proposition that a hypothetical negotiation must occur between the patent owner and the infringer.  Judge Folsom stated that TCH had failed to show that ResQNet or any other authority resolved the issue and held:  “On balance, Plaintiff’s evidence of a hypothetical negotiation between Plaintiff and U.S. Bank gave the jury sufficient evidence on which to base a finding of damages for joint infringement by U.S. Bank and TCH.”