The Federal Circuit recently clarified the test for infringement of a system claim when the elements of the system are held by more than one entity. In CloudofChange, LLC v. NCR Corporation, Appeal No. 2023-1111 (Fed. Cir. Dec. 18, 2024) the Court held that not all elements of the accused system were used by the defendant NCR, and that the District Court had erred in denying JMOL of noninfringement. The resulting $13.2 million dollar award was vacated and the denial of JMOL was reversed.
CloudofChange had sued NCR alleging that two of its patents were infringed by NCR’s Silver system. The NCR Silver system is a web-based point of sale solution designed for small businesses. The patent claims define a system which includes one or more point of sale terminals, an internet connection from one or more of those point of sale terminals to a web server, one or more local or remote point of sale workstations, and software that runs on the web server which allows the local or remote workstations to build or edit the point of sale terminals over the internet. The claim also specified that the web servers are provided as a vendor subscription service wherein subscribers are able to access and interact with the web servers software from the remote subscriber workstations.
At trial the jury found that the NCR Silver system infringed all asserted claims, and that those claims had not been proven invalid. Notably, in the district court CloudofChange pursued only direct infringement, and not induced, contributory, or direct infringement by importing, making, or selling the claimed system. CloudofChange relied upon Centillion Data Sys., LLC x. Qwest Commc’ns Int’l, Inc., 631 F.3d 1279 (Fed. Cir. 2011) and argued that NCR directly used the claimed system by putting it into beneficial use. At trial CloudofChange’s technical expert supported his infringement conclusion by pointing to the fact that NCR required its customers to obtain and maintain an internet connection at their own expense to use the accused system. However, during cross examination the expert agreed that it was NCR’s customers, and not NCR, who put the NCR System into use and that it was those customers who benefit from using it. These admissions in addition to assertions of direct infringement only would prove important in the appeal.
On appeal, NCR argued that the district court correctly found that its customers were the ones who put the accused system into operation because they obtained and controlled the internet access required for the system to operate, but that the district court then incorrectly found that the customers use of the system should be attributed to NCR. When analyzing the infringement question the district court relied on the legal framework used for determining direct infringement of method claims under Akamai Technologies, Inc. v. Limelight Networks, Inc., 797 F.3d 1020 (Fed. Cir. 2015).
The Federal Circuit agreed with the district court that it was the customers who put the system into service, rather than NCR, because they initiate demand for the service at the remote terminal and benefit from the service provided by the system. In response, CloudofChange argued that NCR benefited from the customers’ use of the system via receipt of monthly subscription fees and other advantages derived from having its use, such as product improvements through testing, product ideas, transaction data, etc. The Federal Circuit disagreed and pointed out that those were not the kind of benefits which lead to infringement under Centillion, which considers whether a party has put the entire invention to use and received the benefit of that use, i.e., the received benefit being the recited purposes or results of the claimed invention.
Having concluded that the proof of direct infringement was lacking, the Federal Circuit then considered whether NCR was vicariously liable for its customers’ use of the claimed system. The Court answered that question by pointing out that NCR does not direct or control its customers in their downloading and use of the Silver system. Instead, those customer take those actions of their own accord. Although the NCR customer agreement required the customers to obtain and maintain an internet connection to use the Silver system, that does not equate to contractually requiring the customers to use the entire system. The Federal Circuit pointed out that the district court erred by focusing its analysis on only one element of the system—the internet connection. The Federal Circuit stated that directing a merchant to perform one element of a system claim is not the proper test for vicarious liability of a system claim.
The Federal Circuit concluded that the district court had conflated the use of a method claim with the use of a system claim, and pointed out that the concept of use of a method claim is fundamentally different from the use of a patented system or device, noting that the use of a process involves doing or performing each of the required steps, while the use of a system involves putting that entire system to use and benefitting from that use. The Federal Circuit cited NTP, Inc. v. Rsch. In Motion, Ltd., 418 F.3d 1282,1317 (Fed. Cir.2005) for this distinction in infringement analyses. Applying that test, the Federal Circuit concluded that because NCR does not direct or control its customers use of the accused system it is not vicariously liable for that infringing use.