Divided Patent Infringement – Do You Sue Both The Supplier and The Customer?

In the early days of January 2011, the Federal Circuit Court of Appeals issued a ruling explaining many points of patent law and theory. In Uniloc USA, Inc. v. Microsoft Corp., Case No. 2010-1035, Jan. 4, 2011 (Fed. Cir. 2011)(available here), the Court’s opined on a number of topics covered by several blog entries such as (a) the rejection by the Federal Circuit of the 25% rule for calculating reasonable royalty patent damages (a rule “passively tolerated” by the Appeals Court but “widely accepted” by the lower courts for many years); (b) divided patent infringement between two parties which may require the presence of two defendant parties in the suit and the importance of drafting patent claims to “structure a claim to capture infringement by a single party;” and (c) the test for determining willful patent infringement and a review of some basic procedural concepts.

This blog discusses divided infringement. To prove infringement, plaintiff must show, by a preponderance of the evidence, “the presence of every element or its equivalent in the accused device. Lemelson v. United States, 752 F.2d 1538, 1551 (Fed. Cir. 1985).” Uniloc slip opn. p. 13 (hereinafter “Uniloc p. 13″).

Uniloc’s ’216 patent (available here) is directed to a software registration system to deter copying of software. In order to stem the loss of revenue as a result of the “casual copying” by users of software, where users install copies of a software program on multiple computers in violation of applicable software license conditions, Uniloc (www.uniloc.com/) was an early developer of a software registration system. The Uniloc software registration system permitted the user to operate the software in a “use mode” by inputting a software serial number which the registration system then combines with the computer’s internal code to generate a “local licensee unique ID” or “local ID.” This local ID was then sent to the software vendor’s system via the Internet which uses an algorithm to generate a “remote licensee unique ID” or “remote ID.” The remote ID is then transmitted or downloaded and stored in the user’s computer. When the software application boots up a second time, a software lock routine checks to see if the remote ID matches the local ID with an algorithm check. If the codes match, the software operates as normal. If the codes do not match, the software operates in a demonstration mode.

At trial, the jury returned a verdict of infringement on claim 19, the only patent claim asserted by Uniloc, finding that Microsoft (https://www.microsoft.com/en-us/) willfully infringed the patent, and awarded Uniloc $388M in damages. The jury also found that the Uniloc patent was not invalid. In post-trial motions, the trial court granted Microsoft’s motion for judgment as a matter of law (JMOL) of non-infringement, JMOL on the issue of willfulness and granted a new trial on infringement and willfulness. Microsoft argued that Uniloc failed to prove direct infringement because Microsoft did not supply the end user’s computers that implemented the local ID generating means and mode switching means.

The Court focused its attention on Uniloc’s claim 19, the only asserted claim which states:

19. A remote registration station incorporating remote licensee unique ID generating means, said station forming part of a registration system for licensing execution of digital data in a use mode, said digital data executable on a platform, said system including local licensee unique ID generating means, said system further including mode switching means operable on said platform which permits use of said digital data in said use mode on said platform only if a licensee unique ID generated by said local licensee unique ID generating means has matched a licensee unique ID generated by said remote licensee unique ID generating means; and wherein said remote licensee unique ID generating means comprises

software executed on a platform which includes the algorithm utilized by said local licensee unique ID generating means to produce said licensee unique ID.

The Court stated: “Microsoft’s argument is severely hampered by the language of claim 19. Claim 19 is directed to ‘A remote registration station incorporating remote licensee unique

ID generating means, said station forming part of a registration system . . . including local licensee unique ID generating means . . . .’”. Uniloc p. 29. It then noted that a patentee can write claims to capture a single party.

“As we noted in BMC, ‘[a] patentee can usually structure a claim to capture infringement by a single party,’ by ‘focus[ing] on one entity.’ BMC Res., Inc. v. Paymentech, L.P., 498 F.3d 1373, 1381 (Fed. Cir. 2007). This is exactly what Uniloc did in claim 19, which focuses exclusively on the ‘remote registration station,’ and defines the environment in which that registration station must function. It cannot be disputed that during each [software] Product Activation, Microsoft ‘uses’ a ‘remote registration station’ that incorporates a ‘remote licensee unique ID generating means,’ and this station forms part of a ‘registration system’ that also includes a ‘local licensee unique ID generating means’ and a ‘mode switching means.’ That other parties are necessary to complete the environment in which the claimed element functions does not necessarily divide the infringement between the necessary parties. For example, a claim that reads ‘An algorithm incorporating means for receiving e-mails’ may require two parties to function, but could nevertheless be infringed by the single party who uses an algorithm that receives e-mails.” Uniloc p. 29.

The Uniloc case shows the importance of carefully understanding the patentee’s business and how the product sought to be patented will be deployed in the marketplace. Drafting patent claims from different perspectives broadens the scope of patent protection.

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