Ricoh wins (partial) remand over Quanta at CAFC, which gives guidance on indirect infringement issues

Reuters reported of the recent CAFC decision in Ricoh v. Quanta:

Ricoh Company won a battle in a patent fight with Quanta Computer over optical disc drives when a patent appeals court ruled on Dec. 23 that a lower court erred in tossing out Ricoh's lawsuit.

Ricoh had filed suit against both Quanta and its customer Nu Technology, accusing them of infringing its patents for optical disc drives. The U.S. District Court for the Western District of Wisconsin issued a summary judgment against Ricoh.

Ricoh appealed, and the U.S. Court of Appeals for the Federal Circuit ruled on Tuesday that the federal court in Wisconsin was correct in rejecting the suit as it pertained to two patents but "applied erroneous legal standards" to assess whether Quanta contributed to infringement of the other two.

In fact, the CAFC found the district court "got it wrong" on contributory infringement AND inducement:

Because the district court applied erroneous legal standards for assessing (1) whether
Quanta contributorily infringed the ’552 and ’755 patents and (2) whether QSI induced
infringement of the ’552 and ’755 patents, the district court’s summary judgment of
noninfringement is vacated on these issues.

The issue on contributory infringement-->

We now turn to Ricoh’s arguments that Quanta contributorily infringed the ’552
and ’755 patents by selling optical disc drives adapted to perform the patented
recording methods. The district court held that even though Quanta’s drives might be
capable of being used to infringe Ricoh’s patented processes by writing discs, there was
no liability for contributory infringement because the drives were also capable of
“substantial noninfringing use” within the meaning of § 271(c) because they could also
be used to read discs in a noninfringing manner.

The crux-->

For purposes of this appeal, we must accept as true Ricoh’s evidence that Quanta’s drives
contain at least some distinct and separate components used only to perform the
allegedly infringing write methods. In this posture, this case thus presents 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 Sony Corporation of America v. Universal City Studios, Inc., 464 U.S. 416
(1984), and Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 545 U.S. 913 (2005).

History-->

The language of the statute incorporates the core notion that one
who sells a component especially designed for use in a patented invention may be
liable as a contributory infringer, provided that the component is not a staple article of
commerce suitable for substantial noninfringing use.

The reasoning-->

It thus follows that Quanta should not be permitted to escape liability as a
contributory infringer merely by embedding that microcontroller in a larger product with
some additional, separable feature before importing and selling it. 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.7
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.

On the distinction between contributory and induced-->

Finally, the potential for induced infringement liability in these situations is not a
practical substitute for contributory infringement liability. Unlike contributory
infringement, induced infringement liability under § 271(b) requires proof that “the
inducer [has] an affirmative intent to cause direct infringement.”

On inducement-->

Finally, we consider Ricoh’s claim that QSI actively induces infringement under
35 U.S.C. § 271(b), which states that “[w]hoever actively induces infringement of a
patent shall be liable as an infringer.” Specifically, Ricoh claims that QSI induced
infringement by its customers (e.g., Hewlett-Packard, Dell, and Gateway) as well as the
end-users of the drives. The district court granted summary judgment of no inducement
on the grounds that Ricoh had not presented evidence sufficient to create a material
issue of fact as to whether QSI possessed the requisite intent that the patents be
infringed.

The issue-->

The issue before us is whether Ricoh has introduced evidence sufficient to create
a material issue of fact as to Quanta’s intent that its drives be used to infringe the
method claims of the ’552 and ’755 patents. Again, we turn to Grokster and its analysis
of the law of active inducement.

The errors of the district court on inducement-->

Accordingly, the district court erred to the extent that it
discounted Ricoh’s evidence of QSI’s intent as failing to present evidence that QSI
communicated the nature of its actions to alleged direct infringers.
Similarly, the court erred in discounting evidence that QSI made a presentation to
Dell, which touted the advantages of the Quanta drives, on the grounds that the
presentation disclosed an algorithm rather than one of the claimed methods. The
potential relevance of the presentation is two-fold. First, the presentation is relevant to
the extent it indicates QSI possessed the requisite intent that its drives be used to
perform the infringing methods. Second, the presentation is relevant to the issue of
whether it encouraged Dell to use the drives in an infringing manner.

Prior caselaw-->

DSU Medical further relied on Grokster to reaffirm the sufficiency of
circumstantial evidence to prove specific intent. Id. (“‘While proof of intent is necessary,
direct evidence is not required; rather, circumstantial evidence may suffice.’” (quoting
Water Techs. Corp. v. Calco, Ltd., 850 F.2d 660, 668 (Fed. Cir. 1988))). Moreover, both
DSU Medical and Grokster relied on prior decisions of this court establishing that
specific intent may be inferred from circumstantial evidence where a defendant has both
knowledge of the patent and specific intent to cause the acts constituting infringement.

Judge Gajarsa dissented in part:

Specifically, I disagree with my colleagues’ decision to decide the difficult issue of contributory
infringement on the basis of policy concerns without due regard for the text of 35 U.S.C.
§ 271(c) and am of the opinion that the majority makes three errors in its analysis. First,
the majority ignores the fact that Quanta does not sell or offer to sell the accused
components, as the term “sell” is used in § 271(c). Second, the majority opts for an
over-inclusive application of § 271(c) that directly contravenes Supreme Court guidance
on how this section ought to be interpreted. Third, the conduct to which the majority
objects relates to the design and manufacture of “components,” even though § 271(c)
only addresses the act of selling a component.

There were obviousness issues in the case:

the parties do not dispute that the claims of the ’109 patent are presumed
obvious. See Ormco Corp. v. Align Tech., Inc., 463 F.3d 1299, 1311 (Fed. Cir. 2006)
(“Where a claimed range overlaps with a range disclosed in the prior art, there is a
presumption of obviousness.” (citing Iron Grip Barbell Co. v. USA Sports, Inc., 392 F.3d
1317, 1322 (Fed. Cir. 2004); In re Geisler, 116 F.3d 1465, 1469 (Fed. Cir. 1997))). This
presumption, however, “can be rebutted if it can be shown that the prior art teaches
away from the claimed range, or the claimed range produces new and unexpected
results.” Id. at 1311 (citations omitted). The district court rejected Ricoh’s expert
testimony offered to rebut the presumption, reasoning that “plaintiff . . . fails to explain
how the prior art ‘teaches away’ from its ’109 patent or how the ’109 patent provides
‘new and unexpected results.’”

Of "teaching away"-->

“‘A reference may be said to teach away when a person of ordinary skill, upon reading the reference,
would be discouraged from following the path set out in the reference, or would be led in
a direction divergent from the path that was taken by the applicant.’” Optivus Tech., Inc.
v. Ion Beam Applications S.A., 469 F.3d 978, 989 (Fed. Cir. 2006) (quoting In re Kahn,
441 F.3d 977, 990 (Fed. Cir. 2006)); see also In re Fulton, 391 F.3d 1195, 1201 (Fed.
Cir. 2004) (refusing to conclude that prior art disclosure taught away from the claimed
invention where the disclosure did not “criticize, discredit, or otherwise discourage the
solution claimed”). Here, EP ’272 teaches that the recrystallization upper-limit linear
speed is a physical characteristic of the particular phase change media—i.e., optical
discs having a specific composition—disclosed therein. EP ’272 p.6 ll.7–9 (stating that
the “‘recrystallization upper-limit linear speed’ of the recording layer of the optical
recording medium is a novel value for characterizing the recording medium, which was
discovered by the inventors of the present invention”).

Ricoh's '109 patent claims were obvious over Ricoh's own EP patents: Such
development of the prior art is the quintessence of “ordinary skill” or “ordinary skill and
common sense” rather than patentable innovation. Cf. KSR Int’l Co. v. Teleflex Inc.,
127 S. Ct. 1727, 1742 (2007).

Ricoh also lost on a method claim:
Infringement of a method claim “occurs when a party performs all of the steps of
the process,” BMC Res., Inc. v. Paymentech, L.P., 498 F.3d 1373, 1379 (Fed. Cir.
2007), and Ricoh reads the district court’s opinion as improperly applying this standard.
In particular, Ricoh argues that the use of “comprising” in the preamble, plus the
indefinite article “a” to introduce “a formatting process,” indicates that an accused
formatting method with one or more additional foreground steps may infringe the claims
of the ’955 patent as long as at least one process begins as a background process.
Although the use of “comprising” in a claim’s preamble “raises a presumption that the
list of elements is nonexclusive,” the enumerated steps of a method claim must
nevertheless “all be practiced as recited in the claim for a process to infringe.” Dippin’
Dots, Inc. v. Mosey, 476 F.3d 1337, 1343 (Fed. Cir. 2007). Accordingly, even under
Ricoh’s analysis, the process alleged to meet the background process limitation of
claims 8–12 of the ’955 patent must itself originate as a background process.