Outsourcing Doesn’t Directly Infringe

Posted on | January 26, 2010 | No Comments

2010-1125 Phoenix Solutions v. DirecTV Group
CD/CA 08-cv-984
Judge Mariana Pfaelzer

Phoenix appeals from the order of Judge Pfaelzer granting summary judgment of non-infringement to DirecTV relating to a series of patents generally directed to speech processing technology and natural language interactive voice response systems.  The accused systems include a website and telephone support lines that allegedly utilize the claimed technology.

DirecTV outsources the accused customer support operations to West Interactive Corporation, a non-party to the case.  According to the court's findings of fact, although DirecTV dictates the business rules and outcomes from these operations (i.e., the ability to order pay-per-view, etc.), it did not dictate, choose, or control West's operations.  Further, the actual operation of the services occur not on DirecTV servers, but on those of West's facilities.

According to the court, Phoenix alleged that DirecTV directly infringed–it did not allege indirect infringement.  The court thus turned to a string of cases of direct infringement liability where a third-party actually performed the infringing steps;  BMC Resources. LP v. Paymentech, Inc., 498 F.3d 1373 (Fed. Cir. 2007); and Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318 (Fed. Cir. 2008).  These cases allow for direct infringement liability if the accused infringer "directs or controls" a third party's performance of the infringing steps.

The court also looks to several district court cases for further articulation of "direct and control," noting that the accused infringer must be the "mastermind" and controlling the third party "in its performance of the infringing steps" such that the third party acts as defendant's agent.  Emtel, Inc. v. Lipidlabs, Inc., 583 F. Supp. 2d 811 (S.D. Tx. 2008).  Order, Conclusions of Law ¶ 4.

Thus, after reviewing the law on joint and vicarious infringement, the court concludes:

DirecTV can not be liable for direct infringement of an asserted claim if the evidence demonstrates that DirecTV neither performs by itself nor directs nor controls a third party's performance of any one element of the claim. 

Order, Conclusions of Law ¶ 19 (emphasis added). 

The court found undisputed the fact that DirecTV does not control or mastermind West's operation of each and every element of any claim, and therefore concludes that DirecTV does not infringe (or isn't liable for any direct infringement).  In particular the court noted that it is not whether DirecTV controls or dictates the service in general, but whether it does so with respect to the allegedly infringing steps.

The court also rejects Phoenix's attempt to broadly read the NTP v Research in Motion, 418 F.3d 1282 (Fed. Cir. 2005) as imposing liability where a party "puts into service any given invention."  The court rejected such a broad reading and distinguished NTP as not a joint liability case, but rather a location case (i.e., inside U.S. or without).  

2010-1125 SJ Order

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