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Integrating infringing component into larger product does not escape contributory infringement
March 24, 2009

In a recent decision, the Federal Circuit affirmed a district court's grant of summary judgment of obviousness, but vacated and remanded the summary judgment of no contributory or inducing infringement of two other patents in suit related to recordable optical disk drive technology. The court relied on copyright cases applying the concept of secondary liability in determining that the district court applied the wrong legal standards for determining contributory infringement and inducement. Guided by the Supreme Court decisions in Grokster and Sony, the court determined that a component that infringes in larger assembly cannot be insulated from a finding of contributory infringement, otherwise a liability loophole would exist.Judge Gajarsa dissented. He argued the majority committed three major missteps with respect to contributory infringement. First, the alleged infringer did not sell or offer to sell the accused components as required by § 271(c). Second, the majority used an over-inclusive application of § 271(c) that directly contravened Supreme Court guidance on its interpretation. Finally, the conduct to which the majority objects related to the design and manufacture of components rather than the act of selling a component as addressed by § 271(c).More on Ricoh Co. v. Quanta Computer, Inc. after the jump.

Ricoh is Japan's second largest maker of office machines. Ricoh sued Quanta for infringing four optical disc drive patents: 6,631,109, 6,172,955, 5,063,552, and 6,661,755. Quanta Computer Inc. ("QCI") manufactures notebook computers. QCI does not sell notebooks directly to consumers, but instead sells its products to other companies for retail marketing. Quanta Computer is a one-third owner of Quanta Storage, Inc. ("QSI"), which manufactures optical disc drives. QSI sells to other companies, including NU Technology, who in turn sell to consumers.The district court granted summary judgment that the asserted claims of the '109 patent are invalid for obviousness and that the accused devices do not infringe the asserted claims of the '955 patent. As to the remaining two patents, the district court held that Ricoh failed to present evidence of a material issue of fact as to either direct or indirect infringement. Importantly, the district court held under § 271(c) that the defendants did not contributorily infringe because all of the devices it sold had substantial noninfringing uses and that Quanta did not induce infringement under § 271(b) because there was no issue of material fact as to Quanta's intent that its drives be used to infringe the '552 and '755 patents. Ricoh appealed.On appeal, the Federal Circuit affirmed the district court decision that the '109 was obvious over two European patents owned by Ricoh. The '109 patent is directed to methods and apparatuses for generating a particular pulse sequence for recording information on a rewritable optical disc over a wide range of disc speeds. The previous European patents included disclosure that overlapped this disc speed range in part, leading to a presumption of obviousness. As such, Ricoh had to provide evidence of teaching away or unexpected results to defeat the prima facie case of obviousness. The Federal Circuit agreed Ricoh had failed to do so. The court, paying homage to KSR v. Teleflex, noted that such an adaptation of prior art is the quintessence of ordinary skill and common sense rather than patentable innovation.The court also affirmed the district court decision that none of the accused devices practiced the methods of the '955 patent. The '955 patent teaches formatting rewritable optical discs where the formatting is started as a background process. The district court held Ricoh had not presented evidence of any process in the accused devices that start as a background process. Specifically, the formatting process in the accused devices started as a foreground process and then switched to a background process. The Federal Circuit agreed with this assessment, noting "Ricoh presented no evidence that the formatting process occurring in the background was a different process than the process that started as a foreground process."Turning to the remaining two patents, the court first addressed the issue of direct infringement. Here, the court again agreed with the district court that Ricoh failed to present evidence sufficient to create a material issue of fact. The court's analysis focused on the distinction between patented processes and devices. The technology at issue - software - is not a method but rather is instructions for hardware to carry out a method. The court noted that "software instructions can be separated from the hardware that actually carries out those instructions." Thus, the court held that where a party sells or offers to sell software containing instructions for performance of a patented method there is no infringement of a method patent under § 271(a) by virtue of the sale of the software, as the method is not actually performed until it is installed and run on appropriate hardware. Accordingly, the court affirmed the finding of no direct infringement of these two patents.The Federal Circuit came to a different outcome with regard to contributory and inducing infringement. According to the majority (per curiam) opinion, the district court applied the wrong legal standards in determining liability under § 271(b) and (c). The court first pointed out that the instant case was remarkable in that it presented "an important, and previously unresolved question, concerning the scope of liability for contributory infringement, the construction of § 271(c), and the interpretation of the Supreme Court's decisions" in Grokster and Sony.Relying on the aforementioned copyright cases of Grokster and Sony, the Federal Circuit held that a component that infringes in a larger assembly may still be the basis for contributory infringement even though the resulting product as a whole has substantial non-infringing uses based on additional features. According to the majority, "[t]o hold otherwise would allow competitors to evade the protection intended by Congress in enacting § 271(c). The court effectively summarized the result it was attempting to avoid:

If we were to hold otherwise, then so long as the resulting product, as a whole, has a substantial non-infringing use based solely on the additional feature, no contributory liability would exist despite the presence of a component that, if sold alone, plainly would incur liability. Under such a rule, evasion of the protection intended by Congress in enacting § 271(c) would become rather easy. A competitor who wished to sell hardware that would enable infringement of a patented process could do so without incurring liability for contributory infringement by selling a device that simply embedded the hardware for practicing the patented process within other hardware that also performs another process, or by combining the enabling hardware with other hardware before importing it. . . . In many of these situations, the only remedy would be against end users of the product for direct infringement. This result would be contrary to what the Supreme Court recognized in Grokster as a fundamental purpose of contributory infringement liability . . . .

Under this understanding of the law, the defendants could not avoid infringement simply because the accused devices were capable of undisputedly noninfringing uses. Because there was a genuine factual dispute regarding whether the accused devices were capable of practicing the claimed method, the court vacated the district court's grant of summary judgment of no contributory infringement.With respect to inducement, the court held the district court erred in discounting evidence of Quanta's intent that its drives be used to infringe the method claims of the two patents. Specifically, Ricoh presented evidence that Quanta gave a presentation to Dell touting the advantages of the Quanta drives. The court held the presentation was relevant to the extent it indicated Quanta possessed the requisite intent that its drives be used to perform the infringing methods, as well as to whether Quanta encouraged Dell to use the drives in an infringing manner. After articulating the proper legal principles for Ricoh's inducement claims, the court remanded for additional factual determination because it was unable to determine whether issues of material fact existed.In a partially dissenting opinion, Judge Gajarsa agreed with the result and judgment reached except with regard to contributory infringement. Specifically, Judge Gajarsa argued that summary judgment of no contributory infringement was proper as the majority committed three major missteps: First, the alleged infringer did not sell or offer to sell the accused components as required by § 271(c); second, the majority used an over-inclusive application of § 271(c) that directly contravened Supreme Court guidance on the interpretation of this section; and third, the conduct to which the majority objected related to the design and manufacture of components rather than the act of selling a component as addressed by § 271(c).The majority responded to Judge Gajarsa's concerns by providing, in a footnote, an illustration of its view of the liability loophole:Ricoh offers a useful illustration of this arbitrary result in its brief. Consider the hypothetical patented method of using an answering machine to take messages. If a manufacturer of an infringing machine sells two versions of the device, a stand-alone version and a version with a built-in telephone, consumers directly infringe when they use either to carry out the patented message-taking method. Under the dissent's logic, however, the manufacturer would only incur contributory liability for the stand-alone answering machine, and not for the version that is identical but for the addition of the telephone.To read the full decision in Ricoh Co. v. Quanta Computer Inc., click here.

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