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BMC Resources, Inc. v. Paymentech, L.P.

United States Court of Appeals, Federal Circuit
498 F.3d 1373 (2007)
ELI5:

Rule of Law:

For a party to be liable for direct infringement of a method patent under 35 U.S.C. § 271(a), that party must perform all steps of the claimed method, or alternatively, must direct or control the other parties who perform the remaining steps. An arms-length business relationship where parties perform separate steps of a method is insufficient to establish vicarious liability for direct infringement.


Facts:

  • BMC Resources, Inc. (BMC) owns patents for a method of processing debit transactions over the phone without a Personal Identification Number (PIN).
  • The patented method requires the combined action of several participants, including a payee's agent, a remote payment network, and card-issuing financial institutions.
  • Paymentech, L.P. (Paymentech) is a third-party that processes financial transactions for its merchant clients.
  • In 2002, Paymentech began offering PIN-less debit bill payment services which involved multiple parties.
  • In Paymentech's process, a merchant collects payment information from a customer and sends it to Paymentech.
  • Paymentech then routes the information to a debit network, which forwards it to a financial institution for authorization.
  • The financial institution authorizes or declines the transaction and charges the customer's account.
  • BMC discovered Paymentech's services and demanded that Paymentech obtain a license to use its patented technology, which Paymentech refused.

Procedural Posture:

  • Paymentech filed a declaratory judgment action in the U.S. District Court for the Northern District of Texas, seeking a declaration of non-infringement of BMC's patents.
  • BMC counterclaimed for infringement, and the parties were realigned with BMC as the plaintiff.
  • BMC alleged direct and induced infringement of U.S. Patent Nos. 5,870,456 and 5,718,298.
  • Paymentech moved for summary judgment of non-infringement.
  • A magistrate judge recommended granting Paymentech's motion for summary judgment, finding Paymentech did not perform all steps of the patented methods.
  • The district court adopted the magistrate judge's recommendation, granting summary judgment to Paymentech on the grounds that it did not direct or control the other entities involved in the process.
  • The district court dismissed BMC's claims for contributory infringement and inducement due to the lack of direct infringement.
  • BMC, as appellant, appealed the district court's grant of summary judgment to the U.S. Court of Appeals for the Federal Circuit, with Paymentech as the appellee.

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Issue:

Does a party directly infringe a patented method under 35 U.S.C. § 271(a) when it performs some steps of the method while other, unrelated parties perform the remaining steps, absent evidence that the party directs or controls the actions of the other parties?


Opinions:

Majority - Rader, Circuit Judge

No. A party is not liable for direct infringement of a method patent unless it performs every step of the claimed method or exercises direction or control over the other entities that perform the remaining steps. Direct infringement under 35 U.S.C. § 271(a) is a strict-liability offense that requires a party to practice the entire patented invention. While vicarious liability can attach where one party directs another to perform steps on its behalf, merely participating with others in an arms-length business transaction is insufficient. The court rejected BMC's argument that a looser 'participation and combined action' standard from 'On Demand' should apply, clarifying that language was non-binding dicta. Expanding direct infringement liability to cover the independent actions of multiple parties would improperly subvert the distinct statutory scheme for indirect infringement, which requires a showing of specific intent. The burden is on the patentee to draft claims that can be infringed by a single party; courts will not rewrite claims to remedy poor drafting. Since BMC presented no evidence that Paymentech directed or controlled the actions of the debit networks or financial institutions, Paymentech cannot be held liable for direct infringement.



Analysis:

This decision solidifies the 'direction or control' standard as the controlling test for joint (or 'divided') infringement of method patents, rejecting a more lenient 'participation and combined action' standard. It significantly impacts patents for complex systems, particularly in e-commerce, software, and telecommunications, where multiple independent entities often perform different steps of a claimed process. The ruling places a heavy burden on patentees to either draft claims that can be infringed by a single actor or to meet the high evidentiary bar of proving direction or control, which can be difficult in cases involving standard arms-length business agreements. Consequently, it makes pursuing direct infringement claims in such multi-actor scenarios more challenging, potentially forcing patentees to rely on indirect infringement theories, which have a higher 'mens rea' requirement.

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