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Federal Circuit Resolves Joint Infringement Liability Gap With New Inducement Standard

Tuesday, September 11, 2012
A patent owner claiming induced infringement no longer has to show that a single induced entity is liable for direct infringement, the U.S. Court of Appeals for the Federal Circuit, sitting en banc, ruled Aug. 31 in a 6-5 split (Akamai Technologies Inc. v. Limelight Networks Inc., Fed. Cir., No. 2009-1372, 8/31/12; and McKesson Technologies Inc. v. Epic Systems Corp.,Fed. Cir., No. 2010-1291, 8/31/12).

The change in the inducement standard was the court's way of resolving the issue that was actually argued in the case: the standards for how two entities could be jointly liable for direct infringement of a method claim.

The court's precedent on joint liability since 2007 has made it difficult to find direct infringement when some of the steps of the claim were performed by one party and the remaining steps by a second party. The court took two cases en banc to address changing the standards for joint liability, but, it said, “It is not necessary for us to resolve that issue today because we find that these cases and cases like them can be resolved through an application of the doctrine of induced infringement.”

One dissenting opinion called the new standards “dramatic changes in the law of infringement.” Another faulted the majority for “assum[ing] the mantle of policy maker” and defining infringement to “mean different things in different contexts.” That second dissent also referred to the decision as a “sweeping change to the nation's patent policy.”

Court Decisions in 2007-2010
Liability for patent infringement is governed by Section 271 of the Patent Act, 35 U.S.C. §271. Joint liability is assessed under Section 271(a), which defines direct infringement. Sections 271(b) and (c) on inducement and contributory infringement, respectively, are often asserted in the same cases, but courts distinguish the arguments.

Joint liability for infringement is at issue when a claim of a patent is unlikely to be infringed by a single party. In recent cases, asserted claims have been directed to actions by both the computing systems of an online application service provider and a user of that application. The patent owner in each case charged infringement by the service provider, even though the service provider did not perform all the steps of the method claim or own all the components of the claimed system.

The key case BMC Resources Inc. v. Paymentech LP, 498 F.3d 1373, 84 USPQ2d 1545 (Fed. Cir. 2007) (185 PTD, 9/25/07), held that the alleged infringer must have “direction or control” over the party performing the additional steps of a method claim.

Then, Muniauction Inc. v. Thomson Corp., 532 F.3d 1318, 87 USPQ2d 1350 (Fed. Cir. 2008) (137 PTD, 7/17/08), added that only an agency relationship or a contractual obligation can support a finding of direction or control.

Muniauction said that the high hurdle for proving joint liability was justified because “proper claim drafting” by the patent owner--such that a claim's steps could be infringed by only one party--would allow adequate patent enforcement against competitors.

Current Cases in Brief
Briefly, the facts in the two cases at issue are as follows:

  • Akamai Technologies Inc. is the exclusive licensee of three patents (6,108,703; 6,553,413; and 7,103,645) on optimizing the transfer of the contents of a web page from a server to a user's display. Akamai accused Limelight Networks Inc. and its customers of joint infringement, with Limelight providing the software and instructing its customers on web page preparation.


On Dec. 20, a unanimous panel, citing the recent precedents, ruled against Akamai. 629 F.3d 1311, 97 USPQ2d 1321 (244 PTD, 12/22/10). Following up on the “proper claim drafting” caution by Muniauction, Judge Richard Linn noted that even current patent holders “may be able to correct a claim that can only be infringed by multiple parties by seeking a reissue patent.”

  • McKesson Technologies Inc. holds a patent (6,757,898) on a method of communication between health care providers and patients over the internet, in which personalized web pages are presented to patients. The twist in the McKesson case was that defendant Epic Systems Corp. sold software to the health care providers, rather than participating in the direct infringement itself. The case thus brought up Epic's inducement liability when it could not show direct infringement by the combination of a health care provider and a patient.


On April 12, a split panel held that there was no joint infringement by Epic and its licensees or by the licensees and the patients. 98 USPQ2d 1281(73 PTD, 4/15/11). Judge Pauline Newman dissented. “The court's removal of interactive methods from the purview of the patent system, through its newly minted and now enlarged 'single-entity rule,' is contrary to law and policy,” the dissent said, criticizing BMC and all the subsequent decisions relying on it.

The court agreed to hear both cases en banc and scheduled oral arguments the same day (225 PTD, 11/22/11).

Now BMC Is Overruled
The en banc majority now overruled BMC.

The court said, “we believe that BMC and the cases that have followed it changed the pre-existing regime with respect to induced infringement of method claims, although admittedly at that time there were relatively few cases in which that issue had arisen.”

And the court now held:

Requiring proof that there has been direct infringement as a predicate for induced infringement is not the same as requiring proof that a single party would be liable as a direct infringer. If a party has knowingly induced others to commit the acts necessary to infringe the plaintiff's patent and those others commit those acts, there is no reason to immunize the inducer from liability for indirect infringement simply because the parties have structured their conduct so that no single defendant has committed all the acts necessary to give rise to liability for direct infringement.

The change in the standard for inducement now allowed that Epic would be liable even if there was no single direct infringer. The court reversed a district court decision against McKesson and remanded with instructions for the proof necessary for finding Epic liable:

  • Epic knew of McKesson's patent.

  • Epic induced the performance of the steps of the method claimed in the patent.

  • The steps were performed.


 

The court took that same approach and applied it to the Akamai case. Akamai had claimed inducement, but did not press it at trial and the appeals court's panel decision was not dependent on inducement theories. However, the en banc court accepted the argument that Akamai's lower court decision not to press for inducement was based on a “mistaken view” that is overruled in the current case.

The court reversed the district court decision in Akamai as well and remanded with instructions for the proof necessary for finding Limelight liable for induced infringement:


  • Limelight knew of Akamai's patent.

  •  Limelight performed all but one of the steps of the method claimed in the patent.

  • Limelight induced its customers to perform the final step of the claimed method.

  • The customers in fact performed the final step.


 

Chief Judge Randall R. Rader and Judges Alan D. Lourie, William Curtis Bryson, Kimberly Ann Moore, Jimmie V. Reyna, and Evan J. Wallach joined the per curiam opinion.

Rader had written the BMC opinion, now overruled, and had joined theAkamai panel opinion.

The Linn Dissent
Linn wrote in dissent to the en banc opinion, joined by Judges Timothy B. Dyk, Sharon Prost, and Kathleen M. O'Malley. Prost had joined the majority opinions in BMC, Muniauction, and Akamai.

“With all due respect to my colleagues in the majority, the question of 'joint infringement' liability under §271(a) is essential to the resolution of these appeals,” Linn said. “Divorcing liability under § 271(a) from liability under § 271(b) is unsupported by the statute, subverts the statutory scheme, and ignores binding Supreme Court precedent.”

The dissent identified passages from the congressional record in the development of the Patent Act of 1952 supporting its position; the majority responded with other passages and events from the same record to rebut the dissent.

The high court case the dissent relied on most significantly is Aro Manufacturing Co. v. Convertible Top Replacement Co., 365 U.S. 336, 128 USPQ 354 (1961), and again the majority responded with a different interpretation of its holding.

“The well established doctrine of vicarious liability is the proper test for establishing direct infringement liability in the multi-actor context,” Linn's dissenting opinion said. “Absent direct infringement, the patentee has not suffered a compensable harm.”

The dissent concluded with a recitation of the standards established inBMC and Muniauction.

Newman Dissent
Judge Pauline Newman, who had dissented from the McKesson panel decision, now dissented from the en banc ruling as well.

Newman noted the “two factions” on the en banc court and faulted both for not resolving the divided direct infringement issue that was actually argued before the court.

Newman's dissent called the majority's main holding a “distortion of the inducement statute, 35 U.S.C. §271(b), [that] has no support in theory or practice. This new rule simply imposes disruption, uncertainty, and disincentive upon the innovation communities.”

After enumerating multiple potential consequences of this “distortion,” Newman ultimately argued that the Federal Circuit's prior jurisprudence favoring “an all-purpose single-entity requirement is flawed, and [the court should] restore direct infringement to its status as occurring when all of the claimed steps are conducted, whether by a single entity or in interaction or collaboration.”

Donald R. Dunner of Finnegan, Henderson, Farabow, Garrett & Dunner, Washington, D.C., represented Akamai. Aaron M. Panner of Kellogg, Huber, Hansen, Todd, Evans & Figel, Washington, D.C., represented Limelight.

Daryl L. Joseffer of King & Spalding, Washington, D.C., represented McKesson. William H. Boice of Kilpatrick, Townsend & Stockton, Atlanta, represented Epic.

By Tony Dutra


Dunner is a member of this publication's board of advisors.

Opinion at /uploadedFiles/Content/News/Legal_and_Business/Bloomberg_Law/Legal_Reports/AkamaiTechnologies2012Aug31(1).pdf

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