CloudofChange, LLC v. NCR Corp., Appeal No. 2023-1111 (Fed. Cir. Dec. 18, 2024)

 In our Case of the Week, the Federal Circuit addressed the question of divided infringement in the context of system claims. In its previous opinion in Akamai Techs., Inc. v. Limelight Networks, Inc., 797 F.3d 1020 (Fed. Cir. 2015) (en banc), the en banc Federal Circuit had considered divided infringement within the context of method claims—i.e., when the accused party does not perform all the recited steps in a patent claim. CloudofChange v. NCR is one of the few cases to reach the Court since its decision in Akamai on the question of divided infringement of a claim directed to a system rather than a method.

The patents at issue claimed a point-of-sale (POS) system involving POS computer hardware, an Internet connection, a web server, and software that resides on remote servers. CloudofChange sued NCR and alleged infringement by its product NCR Silver, a web-based POS solution designed for small businesses. Users of that system must acquire hardware (such as a personal computer), and an Internet connection to NCR’s backend servers. The users are responsible for providing the Internet connection, and although NCR makes some hardware available for sale, most users supply their own.

In the district court, CloudofChange pursued a single theory of infringement: that NCR directly “used” the claimed system by putting it into beneficial use. This theory of infringement was based on the Federal Circuit’s decision in Centillion Data Sys., LLC v. Qwest Commc’ns Int’l, Inc., 631 F.3d 1279 (Fed. Cir. 2011). CloudofChange abandoned all other infringement theories, including induced infringement, contributory infringement, direct infringement by importing, making, or selling the claimed system, etc.

A jury found that NCR had infringed—a decision that was upheld after JMOL motions filed by NCR. However, at trial, CloudofChange’s expert conceded that users are all required to supply their own Internet access, that NCR’s customers actually use the software in their retail locations, and that the NCR customers benefit from the use of NCR Silver.

NCR appealed. The case turned on the Federal Circuit’s standard for infringement under Centillion. In that case, the Court held that a party “uses” a system for purposes of infringement when it “control[s] the system as a whole and obtain[s] benefit from it.” The control need not be physical control over each individual element of the system, but rather the ability to make the system elements “work for their patented purpose,” such that the defendant must use “every element of the system by putting every element collectively into service.” As in this case, the claims in Centillion addressed a system that involved both a front end, with a personal computer maintained by the user, and a back end. Qwest was found not liable in Centillion because it did not “use” the system. Rather, customers chose when to put the system into service, and thus “controlled” the system. Qwest’s back-end processing was put into service only when a request was made by the customer-controlled front end. The Court also analyzed whether Qwest was vicariously liable for its customers’ use, and concluded that Qwest was not liable because it did not direct its customers to perform, and the customers did not act as, Qwest’s agents.

Applying the same standard here, the Federal Circuit reversed the district court’s denial of JMOL. The Court found that the merchants—not NCR—use the claimed system. The merchants retain responsibility for putting the system into use (by buying their own equipment and supplying Internet), and they benefit from its use. The fact that NCR occasionally provided hardware was irrelevant. That NCR benefitted through revenue earned from the system was also not relevant, because that was not the type of “benefit” contemplated in Centillion; rather, the “benefit” was the recited purpose or result of the claimed invention—i.e., the purpose of a POS system.

The Court also assessed whether NCR was vicariously liable for its merchant-customers and concluded it was not, for the same reasons as in Centillion. The Court adapted its holding in Akamai to system claims, and held that the appropriate question is “whether NCR directed or controlled or should otherwise be vicariously liable for its customers’ use of the system claim”—i.e., whether “NCR directed or controlled its merchant-customer’s actions in putting the entire claimed system to service to build or edit POS systems.” The Court held it did not, because “the contractual obligation to supply an Internet connection does not amount to direction or control of a merchant’s use of the claimed system to build POS systems . . . .”

The case was reversed.

The full opinion can be found here.

By Nika Aldrich

 ALSO THIS WEEK

Teva Branded Pharmaceutical Products R&D, Inc. v. Amneal Pharmaceuticals of New York, LLC, Appeal No. 2024-1936 (Fed. Cir. Dec. 20, 2024)

In this Hatch-Waxman abbreviated new drug application (ANDA) case, the Federal Circuit affirmed a district court’s Rule 12(c) judgment ordering certain of Teva’s patents to be delisted from the FDA’s Orange Book publication. In affirming the lower court’s decision, the Federal Circuit adopted a new, bright-line rule that “to qualify for listing, a patent must claim at least what made the product approvable as a drug in the first place—its active ingredient.” Patents more broadly claiming, e.g., only a drug delivery device may not be used to hold up FDA review of applications for generic formulations of the approved drug.

The patents at issue in this case were directed to aspects of Teva’s ProAir® HFA inhaler device. The district court had found them subject to de-listing because they claimed only aspects of the inhaler device and not the active drug substance itself. The Federal Circuit agreed, holding that patents that do not specifically claim a drug’s active ingredient or method of its use are subject to de-listing under 21 U.S.C. § 355(j)(5)(C)(ii)(I). In addition to rejecting Teva’s counter-arguments, the Court’s lengthy opinion included a detailed recitation of the history and purpose of abbreviated new drug applications, providing a source of helpful background material for practitioners in Hatch-Waxman ANDA cases.

The full opinion can be found here.

By Jason A. Wrubleski

Palo Alto Networks, Inc., v. Centripetal Networks, LLC., Appeal Nos. 2023-1636 (Fed. Cir. Dec. 16, 2024)

In this case, the Federal Circuit found the Patent Trial and Appeal Board had failed to properly explain its holding regarding motivation to combine. The patent at issue involved a system that detects network packets, correlates them, and notifies a system administrator if a correlation suggests the packets may be malicious. The Board, in an inter partes review, found that the cited references did not provide the “necessary bridge showing that one of ordinary skill in the art would have appreciated” combining the references.

An obviousness analysis must be “thorough and searching,” and must “articulate a reason why a [person of ordinary skill in the art] would combine the prior art references.” In re Nuvasive, Inc., 842 F.3d 1376, 1382 (Fed. Cir. 2016). A finding that there is no motivation to combine must be “expressly [stated] with an adequate explanation.” Vicor Corp. v. SynQor, Inc., 869 F.3d 1309, 1324 (Fed. Cir. 2017). The inquiry must also consider “whether it would have been obvious to a person of ordinary skill in the art to combine the relevant disclosures of the two references, not whether each individual reference discloses all of the necessary elements.” Game & Tech. Co. v. Wargaming Grp. Ltd., 942 F.3d 1343, 1352 (Fed. Cir. 2019).

Because the Board failed to address the evidence and argument for motivation to combine, failed to explain what “necessary bridge” meant, and considered references individually, the Federal Circuit vacated and remanded the Board’s holding that there was no motivation to combine.

The opinion can be found here.

By Jeff Liao