By Kevin E. Noonan --
The Federal Circuit clarified its position on method claim infringement to the detriment of the plaintiff in Muniauction, Inc. v. Thomson Corp., vacating an $84.6 million dollar judgment (in a contingency fee case, no less). In a jury trial, Defendants Thomson Corp. and I-Deal LLC were found to infringe U.S. Patent No. 6,161,099, and that the asserted claims (claims 1, 2, 9, 14, 18, 20, 24, 31, 32, 36, 40, 42, 46, and 56) were not invalid. (The District Court reviewed the non-obviousness determination upon Thomson's JMOL motion, filed after the Supreme Court's decision in KSR Int'l Co. v. Teleflex Inc., but denied the motion.) The District Court found infringement to be willful and granted a permanent injunction. The Federal Circuit reversed (in a unanimous opinion by Judges Gajarsa, Plager, and Proust, Judge Gajarsa writing for the Court), finding claims 1, 9, 14, 31, 36, and 56 to be obvious, and that the remaining claims were not infringed.
The patent was directed to "electronic methods for conducting 'original issuer auctions of financial instruments,'" i.e., methods for performing auctions for original-issuer municipal bonds over the Internet. As explained in the opinion, these types of auctions are typically structured so that the issuer -- a municipality -- offers the bonds in a block to "bidders" (underwriters) who purchase the entire bond offering on an "all or nothing" basis, and then the underwriters sell individual bonds to the public. The bonds typically comprise a variety of debt instruments having different maturity dates and principal amounts, so the bidder must offer a price based on these amounts and maturity dates.
The portion of the decision invalidating claims 1, 9, 14, 31, 36, and 56 for obviousness has been discussed elsewhere (see Patently-O, "Obviousness is Reviewed De Novo"). It is the remaining claims asserted by Muniauction, which the Federal Circuit found not to be infringed, that concern us here. The Court's non-infringement decision was based on its determination that "no single party performs every step of the asserted claims" (which the CAFC characterized as being undisputed by the parties), coupled with the further rubric that a method claim can only be infringed if all steps of the claimed method are performed (see BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007)). Here, some steps of the claimed methods were performed by the bidder, while others ("a majority") were performed by the auctioneer's computer system. Thus, the Federal Circuit opined, the "issue [was] whether the actions of at least the bidder and the auctioneer may be combined" to amount to infringement by the auctioneer.
The Court decided they could not. In its opinion, the CAFC relied on the principles enunciated in the BMC Resources case, which required that a single "party" must perform every step of a claimed method. (The Court also cited its decision in NTP Inc. v. Research in Motion, that the users of the accused system could not directly infringe method claims where one step of the method was performed in Canada.) Since a literal application of this rule would permit a defendant to avoid infringement liability by having a third party carry out at least one step of the method, the CAFC had adopted what it termed the "mastermind" test, wherein direct infringement will lie against multiple actors performing the steps of a claimed method if "one party exercises 'control or direction' over the entire process."
The question for the Federal Circuit was whether Thomson exercised sufficient control over the bidders to impute their actions to Thomson for purposes of infringement liability. The Court concluded that Thomson did not, saying that the BMC Resources test would be satisfied "in situations where the law would traditionally hold the accused direct infringer vicariously liable for the acts committed by another party that are required to complete performance of the claimed method." Thomson was in no way in control of the actions by the bidders, and Muniauction having presented "no legal theory" supporting liability, the Court reversed the judgment and vacated the damages award.
The case is certainly a cautionary tale, but it may have particular relevance to biotechnology claiming, as illustrated by the CAFC's earlier decision in Monsanto Co. v. Syngenta Seeds, Inc. In that case, the Federal Circuit affirmed a judgment of non-infringement of claim 4 of U.S. Patent No. 5,538,880:
4. A process comprising obtaining progeny from a fertile transgenic plant obtained by the process of claim 1 which comprise said DNA.
And claim 5 of U.S. Patent No. 6,013,863:
5. The process of claim 1 further comprising obtaining transgenic glyphosate resistant progeny plants of subsequent generations from said fertile transgenic plant.
where claim 1 in each patent recited the method for producing the transgenic plants.
The District Court found that the asserted claims of the '880 and '863 patents required not merely the step of obtaining transgenic progeny but also the process of producing the transgenic plant in the first place, based on the dependent-claim structure of the asserted claims of these patents. It was undisputed that the predecessor in interest of these patents, DeKalb Genetics Corp., had produced the transgenic plants initially and had thus performed these steps recited by the claims.
The Federal Circuit unanimously affirmed in an opinion by Judge Rader. The CAFC rejected both of Monsanto's theories of infringement: first, that claim 4 of the '880 patent was an independent claim and did not require performance of the steps recited in earlier claims; and second, that performance of the transgenic plant production steps by DeKalb did not preclude a finding of Syngenta's infringement by performing the ultimate step of obtaining the progeny transgenic plants. Regarding Monsanto's first theory, the Federal Circuit stated that claim 4 of the '880 patent and claim 5 of the '863 patent were cast in the conventional form of dependent claims. By itself this would not be sufficient, however, and the CAFC analyzed these claims with regard to whether they not only referenced at least one earlier claim but further limited the referent claim (pursuant to 35 U.S.C. § 112, fourth paragraph). In this analysis, the Federal Circuit held that claim 4 fulfilled the statutory requirements of a dependent claim, and further stated that while Monsanto could have presented claim 4 as merely requiring the product of process claim 1 as a starting material, it had not. The prosecution history supported this interpretation, as the claim as originally presented was "unquestionably" a dependent claim, and the patentees had asserted that amendments made to cast the claim into the form that issued as claim 4 were "directed to matters of form not affecting the scope of the invention" and did not introduce new matter.
The Federal Circuit also rejected Monsanto's contention, made during oral argument, that claim 1 was a product-by-process claim and thus merely provided a starting material for the process of claim 4. Having affirmed the District Court's determination that claims 4 (of the '880 patent) and 5 (of the '863 patent) were dependent claims, the Federal Circuit held that Syngenta's performance merely of the ultimate step of the properly-construed process claim was not infringement as a matter of law. The principle is simple: although an independent claim may be infringed while its dependent claim is not, the converse is not true (see Wahpeton Canvas Co., Inc. v. Frontier, Inc., 870 F.2d 1546, 1552 (Fed. Cir. 1989)). Here, it was undisputed that the steps comprising the independent claims of both asserted patents were performed not by the accused infringer Syngenta, but by Monsanto or DeKalb. Thus, since Syngenta did not infringe these independent claims, it could not infringe the asserted dependent claims. Moreover, the steps of the corresponding independent claims were practiced by Monsanto or DeKalb prior to grant of either of the asserted patents. Accordingly, this activity did not support Monsanto's infringement claims (made under both § 271(a) and § 271(g)).
Thus, although not expressly addressing the issue raised in the Muniauction case, the Court's decision in Monsanto is consistent: that a single party, or parties where one party is the "mastermind" who exerts "control or direction," must perform all steps of a method claim.
These results suggest that biotechnology patent claims, drafted in ignorance of these principles, may be at risk. As we have suggested earlier, caution should accompany claim drafting dependent on process steps, even should those process steps be necessary to overcome prior art or to fulfill the requirements of § 112. In the Monsanto case, the outcome might have been different had claim 4 of the '880 patent recited a claim such as:
A process comprising obtaining progeny from a fertile transgenic plant comprising a chimeric gene encoding a chloroplast transit peptide/5-enolpyruvylshikimate-3-phosphate synthase fusion polypeptide expressed at a level sufficient to increase the plant's resistance to glyphosate.
or even better,
Progeny of a fertile transgenic plant comprising a chimeric gene encoding a chloroplast transit peptide/5-enolpyruvylshikimate-3-phosphate synthase fusion polypeptide expressed at a level sufficient to increase the plant's resistance to glyphosate.
Either of these claims would be free of any process steps that could raise issues with regard to performance of any steps other than the steps Syngenta certainly performed in this case, i.e., producing progeny of Monsanto's transgenic plants.
The CAFC's case law, consistent and evolving, thus suggests that prudent biotechnology patent prosecutors consider the interrelationships between independent, "method of making," claims and any dependent, "method of using" claims, to avoid this latest trap for the unwary.
Muniauction, Inc. v. Thomson Corp. (Fed Cir. 2008)
Panel: Senior Circuit Judge Plager and Circuit Judges Gajarsa and Prost
Opinion by Circuit Judge Gajarsa