News & Insights

Case of Interest where Federal Circuit Clarifies Vicarious Liability for System Infringement

Jan 9, 2025

In CloudofChange, LLC v. NCR Corporation, No. 2023-1111, 2024 WL 515627 (Fed.Cir., Dec. 18, 2024), the Court of Appeals for the Federal Circuit vacated a district court jury verdict that found a manufacturer liable for its customers’ use of a patented point-of-sale (POS) system. The system, designed for non-expert merchants, required application software, hardware, and an Internet connection. The manufacturer sold the software, while merchants provided their hardware and Internet connection. The Federal Circuit agreed with the trial judge that the manufacturer did not “use” the system, as it could not put all elements into service. However, the court reversed the trial judge’s ruling on vicarious liability. The court said vicarious liability only applies when the manufacturer uses every element of the system, directs the merchants’ actions, or treats them as agents; none of these occurred in this case.

The Federal Circuit also highlighted a critical distinction between “method” and “system” claims. It noted that a manufacturer could infringe a method claim if it agreed to complete certain steps in collaboration with another party to facilitate the other party completing the other steps of the method claim. In contrast, for a system claim, infringement requires the manufacturer to use every element of the system, direct users to perform all system elements, or establish an agency relationship with the users. This clarification limits the circumstances under which manufacturers can be held liable for infringement of system patents.

Also, the patent owner specifically withdrew and the opinion does not address allegations of direct infringement by importing, making, or selling the claimed system; induced infringement (which requires proof that the manufacturer specifically intended the merchants to infringe and knew the merchants’ acts will infringe); and contributory infringement (which requires proof the manufacturer knew of the infringement, knew of the patent in dispute, and knew its product had no substantial non-infringing use).

A special thanks to James E. Smith, shareholder admitted to practice before the USPTO, for his contribution to this case of interest. If you need more information, feel free to contact Jim Smith, 713.752.8620 or jsmith@craincaton.com, Jim Hudson, 713.752.8652 or jhudson@craincaton.com, or Bill Jensen, 713.752.8689 or wjensen@craincaton.com.

No information in this communication is intended to constitute specific legal advice. For specific legal advice, please contact an attorney, and if you have any such questions or would like more information about this issue, please contact William “Pat” Huttenbach at 713.752.8616, or email at phuttenbach@craincaton.com.

Thanks,

Pat

CloudofChange LLC v NCR Corporation.pdf