Federal Circuit Defines When A System Is Being Used Where No Party Owns All of the System Elements

In Centillion Data Systems v. Qwest Communications International, 631 F.3d 1279; 97 U.S.P.Q.2D  1697 (Fed. Cir. 2011), Centillion is the owner of U.S. Patent No. 5,287,270 (the ‘270 patent”), which is drawn to a system for collecting and processing billing information from a service provider and electronically delivering the billing information from the service provider to a customer in a format usable on a personal computer.  As construed by the Federal Circuit, claim 1 recites a system for presenting information comprising “1) storage means for storing transaction records, 2) data processing means for generating summary reports as specified by a user from the transaction records, 3) transferring means for transferring the transaction records and summary reports to a user, and 4) personal computer data processing means adapted to perform additional processing on the transaction records.”  Centillion acknowledged that claim features 1) through 3) are performed at a backend at the service provider and claim feature 4) is maintained by a front end (i.e., the user).

Qwest has a billing system which includes a back office system and a front end client application installed on a user computer.  The billing system allows the user to obtain automatic delivery of billing information to the user computer, or a user computer can request billing information on demand. Centillion accused Qwest of infringing the ‘270 patent through its billing system, and filed suit in the Southern District of Indiana.  Qwest made a motion for non-infringement based upon whether it was possible for Qwest to infringe the system claims when all parties acknowledge that the back office system maintained by Qwest did not infringe the ‘270 patent alone.  The District Court granted this motion since no single party used each element of the claims as both the backend office system and front end client application are independently owned.  Therefore, neither Qwest nor the customers are using the entire patented system.

On appeal, the Federal Circuit analyzed what “use” means in the context of a system claim under 35 U.S.C. §271(a).  Specifically, as defined in NTP, Inc. v. Research in Motion, Ltd., 418 F.3d 1282 (Fed. Cir. 2005), “use” is “put[ting] the system into service, i.e., . . . exercis[ing] control over, and benefit[ting] from, the system’s application.”  The Federal Circuit first noted that the issue in NTP was more narrowly drawn since the system included elements located outside of the United States, whereas 35 U.S.C. §271(a) requires use within the United States.  Thus, NTP focused on the location of the infringement, which is in contrast to the broad interpretation otherwise afforded “use” when the situs of the infringing elements is not in dispute.  In this case, the Federal Circuit noted that a infringing use of a system occurs where a party has “the right to put into service any invention.” NTP, 418 F.3d at 1316-17 citing to Bauer & Cie v. O’Donnell, 229 U.S. 1 (1913).  In analyzing these standards, the Federal Circuit adopted the NTP standard as the more recent analysis of system claim uses, and held that, for a party to use a system for purpose of infringement, that party “must put the invention into service, i.e., control the system as a whole and obtain benefit from it”. NTP, 418 F.3d at 1317.

At the same time, the term “control” does not require a party to exercise physical or direct control over each system element.  Instead, a party controls the entire system by having “the ability to place the system has a whole into service.”  Thus, in NTP, a customer put the system into service by transmitting a message, even though the customer did not have physical or direct control over each system element.

In applying the facts to this test, the Federal Circuit first looked at whether the end user was using the billing system for purposes of 35 U.S.C. §271(a).  The Federal Circuit noted that when a customer requests an on demand billing report, the end user is putting the billing system Qwest’s back office system into service, and thus may be infringing since the customer is controlling the system the front end client application.  Similarly, where the billing information and reports are automatically generated within Qwest’s back end office system and merely made available for download by the end user through the front end client application, there is still “use” of the billing system since the Qwest back end office system only creates these reports at the request of the front end client application such that the end user still maintains control over the system for multiple generations of reports as opposed to the single report created in the on demand option.  Thus, the Federal Circuit reversed the District Court’s summary judgment as to the issue of end user “use” of the accused system.

Next, the Federal Circuit reviewed whether Qwest also was using the billing system for purposes of 35 U.S.C. §271(a).  The Federal Circuit that, while Qwest maintains the back end office system which performs most of the calculations (i.e., features 1) through 3)), the back end office system does not put the entire billing system into service alone.  Further, the mere supplying of the software for the user computer to create the front end client application does not create the infringing system since the mere supply of software does not place the entire system into service without the affirmative actions of the end user.  Thus, as there was no evidence that the end user was acting as an agent for Qwest such that Qwest is vicariously liable, the mere providing of software which an end user voluntarily and independently installs on the end user computer does not expose Qwest to direct infringement liability.  Therefore, the Federal Circuit upheld the District Court’s grant of summary judgment as to Qwest for not using the system.

Lastly, the Federal Circuit addressed whether Qwest could be liable for making the entire system.  Specifically, since Qwest manufactured both the front and back end software, Centillion argued that Qwest “made” the system for purposes of 35 U.S.C. §271(a).  In rejecting this argument, the Federal Circuit held that, since the claims require a “personal computer data processing means” having the front end software, the mere manufacture of the software was not enough to make the entire system.  Instead, the system was not made until at the front end software was installed on an end user computer.  Thus, the Federal Circuit also upheld the District Court’s grant of summary judgment as to Qwest for not making the system.

Significance for Patent Applicants

Protecting entire systems has always been problematic for applicants where the system itself is rarely owned or operated by a single entity.  This is especially true of internet-related inventions, whereby the system includes clients, servers, routers, and a variety of elements spread over distinct networks.  While one strategy is to attempt to patent each element of the network to create distinct server claim sets and client claim sets, Centillion teaches an alternative: including all elements of the system in a system claim, but claiming the interactions to vary which element puts the entire system into service.  Such a strategy is especially advantageous where the novelty relies on the system as a whole instead of lying in one element.  Thus, Centillion serves as a reminder of yet another way in which systems can be protected while still focusing the infringing acts on a target group (i.e., a server owner or a client).

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