On December 18, 2024, the Federal Circuit issued a significant opinion in CloudofChange, LLC v. NCR Corporation, a case concerning direct infringement of system claims under 35 U.S.C. § 271(a). The decision clarifies the application of Centillion Data Systems, LLC v. Qwest Communications International, Inc. and Akamai Technologies, Inc. v. Limelight Networks, Inc., two pivotal cases addressing the standards for direct infringement of system and method claims. Ultimately, the Federal Circuit reversed the jury’s verdict of infringement and vacated the $13.2 million damages award against NCR.

Key Issues in the Case

The appeal focused on whether NCR directly infringed U.S. Patent Nos. 9,400,640 and 10,083,012, which claim a web-based point-of-sale (POS) system that allows non-expert business operators to build and modify POS terminals remotely. The infringement question centered on NCR’s “NCR Silver” product, a web-based POS solution. NCR argued that it could not be liable for direct infringement because it did not “use” the claimed system—only its customers (merchants) did.

1. What Constitutes “Use” of a System?

Under Centillion, direct infringement of a system claim requires that an entity (1) control the system as a whole and (2) obtain benefit from it. The Federal Circuit reaffirmed that customers must be the ones who “use” a system when they initiate interactions with it and derive its benefits. In this case, NCR’s merchants, not NCR itself, performed these actions:

• Merchants provided their own POS hardware and internet access.
• They initiated actions on their POS terminals, such as building or modifying menus.
• They benefitted directly from the system’s functionality.

Thus, the court found that NCR did not “use” the system under Centillion, and its merchants were the actual users.

2. Vicarious Liability and Divided Infringement

Recognizing that Centillion alone did not end the inquiry, the court next considered whether NCR was vicariously liable for its customers’ use of the system. The Federal Circuit applied the Akamai framework, which allows direct infringement liability when one entity “directs or controls” another’s performance of the claim elements.

CloudofChange argued that NCR’s Merchant Agreement, which required merchants to maintain internet access, established control over their use of the system. The district court had agreed, analogizing NCR’s role to that of an infringer who contracts with another party to perform part of the claim.

The Federal Circuit, however, rejected this reasoning, emphasizing that:

• NCR did not contractually require merchants to use the POS system in any particular way.
• NCR’s merchants acted independently, choosing whether and how to use the system.
• Merely requiring internet access as a prerequisite to use does not amount to “direction or control” over system usage.

Since NCR did not control the merchants’ use of the POS system, it could not be held vicariously liable for their infringement.

Conclusion: A Cautionary Tale for System Claims

This decision underscores the challenges of proving direct infringement of system claims when multiple parties are involved. Patent holders alleging infringement of such claims must demonstrate that the accused infringer, not just its customers, uses the system in a legally meaningful way. Additionally, claims involving distributed systems must account for the complexities of divided infringement and vicarious liability.

For technology companies, this case highlights the importance of structuring agreements and customer interactions to minimize exposure to direct infringement claims. As CloudofChange v. NCR demonstrates, courts are unwilling to stretch the definition of “use” beyond the clear framework established in Centillion and Akamai.

By Charles Gideon Korrell