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June 2 — There can be no liability for induced patent infringement under Section 271(b) of the Patent Act when there is no underlying direct infringement under Section 271(a), the U.S. Supreme Court ruled June 2 in a 9-0 decision.
In an opinion authored by Justice Samuel A. Alito Jr., the court said that allowing liability for induced infringement when there had been no underlying direct infringement “would deprive §271(b) of ascertainable standards” and “require the courts to develop two parallel bodies of infringement law: one for liability for direct infringement, and one for liability for inducement.”
Reversing an en banc ruling by the U.S. Court of Appeals for the Federal Circuit—for the fifth time in the current term—the high court sharply chastised the appeals court in stating that “The Federal Circuit's analysis fundamentally misunderstands what it means to infringe a method patent.”
“The Federal Circuit's analysis fundamentally misunderstands what it means to infringe a method patent.”Justice Samuel A. Alito Jr.
On remand, the Federal Circuit is likely to reconsider the patent owner's claims of joint liability for direct infringement, under 35 U.S.C. §271(a). The high court appeared to be saying that, if there is a “loophole” whereby parties can avoid liability by splitting tasks, it is a problem of the appeals court's own making, most recently in the Muniauction case.
The joint or divided infringement issue comes up frequently in Internet applications, as here, when a service provider offers a service requiring interactive inputs from a customer. However, the difficulty in placing liability on one party also arises with method patents in areas such as banking, mobile phone communications, casino games and the life sciences—such as when a lab conducts a test and a physician acts on the result.
Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318, 2008 BL 146916, 87 U.S.P.Q.2d 1350 (Fed. Cir. 2008), held that no one party has infringed, and thus there can be no liability under Section 271(a), unless on party exercises “control or direction” over the other party's performance of additional method claim steps.
Such “control or direction” is rare in the relationship between service provider and customer, as here. But then if direct infringement does not apply, is it possible that inducement would?
Akamai Technologies Inc. and Limelight Networks Inc. offer competitive “content delivery networks” (CDNs), storing and delivering website content to Internet users on behalf of website operators.
Akamai owns a patent (U.S. Patent No. 6,108,703) on a “Global Hosting System” for web content. The relevant method claims here are infringed jointly—if at all—when Limelight performs some steps and the websites of its customers perform the remainder.
The Federal Circuit, sitting en banc, was divided 6-5 in this case. Akamai Technologies Inc. v. Limelight Networks Inc., 692 F.3d 1301, 104 U.S.P.Q.2d 1799 (Fed. Cir. 2012) (en banc).
The en banc court effectively ignored direct infringement in coming to its decision, and it instead addressed only inducement. The court overturned its inducement standards of the past in holding that a patent owner claiming induced infringement—under Section 271(b)—no longer had to show that a single induced entity is liable for direct infringement under Section 271(a).
Under the appeals court's changed standard, Akamai in the instant case could have conceivably held Limelight liable for inducing website operators to use Limelight's CDN.
“The decision limits the ability of patent holders to protect technologies that are increasingly relevant in today's economy.”Antoinette F. Konski of Foley & Lardner LLP
The court granted cert to address Limelight's inducement appeal on Jan. 10, without making a decison on Akamai's conditional cross-petition on the Federal Circuit's non-decision on direct infringement.
Friends of the court filed 22 briefs on both sides of the case. At oral argument on April 30, some justices appeared to wish they had granted the cross-petition.
The Supreme Court's June 2 opinion began by stating the “simple truth” that liability for inducement requires direct infringement. It characterized the Federal Circuit's holding as allowing for direct infringement “independently of a violation of [Sections 271(a) and (b)].”
In support of its “fundamentally misunderstanding” criticism of the appeals court, the high court repeated the “all elements” rule of Warner-Jenkinson Co. v. Hilton Davis Chem. Co., 520 U.S. 17, 41 U.S.P.Q.2d 1865 (1997): “Each element contained in a patent claim is deemed material to defining the scope of the patent invention,” the court quoted from the case, and, it added “a patentee's rights extend only to the claimed combination of elements, and no further.”
The court assumed for argument's sake that Muniauction was correct, and if so, “there has simply been no infringement of the method in which respondents have staked out an interest, because the performance of all the patent's steps is not attributable to any one person.”
The court said that Section 271(f)(1)—on inducement of infringement outside the United States—illustrated that “when Congress wishes to impose liability for inducing activity that does not itself constitute direct infringement, it knows precisely how to do so.” Thus, the court concluded, such liability could not be inferred under Section 271(a).
Furthermore, the court said, the “notion that conduct which would be infringing in altered circumstances can form the basis for contributory infringement” had already been rejected in rulings such as Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518. 173 U.S.P.Q. 769 (1972). It saw no reason to make a different ruling for inducement.
The court turned to Akamai's arguments and rejected each as unpersuasive.
In the case below and in its briefing at the Supreme Court, Akamai sought to expand on the possibilities for joint direct infringement, importing other principles from tort law and criminal aiding and abetting doctrine.
As to the former, the court said, “Unsurprisingly, respondents point us to no tort case in which liability was imposed because a defendant caused an innocent third party to undertake action that did not violate the plaintiff 's legal rights.” And it distinguished joint guilt for committing a crime as having a common-law background from the statutory basis of patent law.
The opinion “seems intended to force the Federal Circuit to address the Muniauction rule head on.”Shawn G. Hansen of Nixon Peabody LLP
Finally, the court acknowledged the criticism that its decision here allows “a would-be infringer to evade liability by dividing performance of a method patent's steps with another whom the defendant neither directs nor controls.” However, it laid that concern on “the Federal Circuit's interpretation of §271(a) in Muniauction.”
It refused to alter the rules of inducement liability to resolve that loophole, and it rejected Akamai's request that it review Muniauction.
“Our decision on the §271(b) question necessitates a remand to the Federal Circuit, and on remand, the Federal Circuit will have the opportunity to revisit the §271(a) question if it so chooses,” the court said in closing.
Aaron M. Panner of Kellogg, Huber, Hansen, Todd, Evans & Figel, Washington, represented Limelight. He split oral argument time with Assistant to the Solicitor General Ginger D. Anders, representing the government. Seth P. Waxman of Wilmer Cutler Pickering Hale & Dorr LLP, Washington, represented Akamai.
“The decision limits the ability of patent holders to protect technologies that are increasingly relevant in today's economy,” according to Antoinette F. Konski of Foley & Lardner LLP, Palo Alto, Calif. “We are in an era of specialization and collaboration. Digital technology moves information among users. Patient samples may be taken in the home or in a physician's office, analyzed and in a laboratory and transmitted to a treating physician who prescribes therapy.”
Accordingly, Konski told Bloomberg BNA, “in many instances, more than one individual or entity can be involved in providing a digital service or medical method.”
Benjamin C. Hsing of Kaye Scholer LLP, New York, agreed, particularly with respect to the life sciences industries.
“The Supreme Court's decision may be detrimental to the pharmaceutical industry,” he told Bloomberg BNA. “Many method of treatment patents may require more than one entity to perform all of the claimed steps—for example, multiple doctors or doctors and pharmacists. The Supreme Court's ruling is likely to make these method of treatment patents more difficult to enforce.”
But, Hsing said, “this battle is not over.”
Robert H. Fischer of Fitzpatrick, Cella, Harper & Scinto LLP, New York, agreed. “The ultimate scope of liability in multi-party infringement situations still remains a very live question.”
Both were referring to the likelihood that the Section 271(a) issue will be addressed on remand by the Federal Circuit.
“The way I read this is that the Supreme Court is hinting that it would overturn the Muniauction rule and is giving the Federal Circuit a chance to correct it on remand,” according to Shawn G. Hansen of Nixon Peabody LLP's Silicon Valley office. “The Supreme Court's Limelight opinion comes down pretty hard on the Federal Circuit for ignoring the fundamental requirement of direct infringement in [creating a new category of inducement] and seems intended to force the Federal Circuit to address the Muniauction rule head on.”
“I look for the Federal Circuit to respond by going ‘back to basics' and adopting a standard for direct infringement of method claims that looks more like traditional tort law than the Muniauction rule,” he told Bloomberg BNA.
And Hansen's colleague at Nixon Peabody, Paul R. Kitch, possibly summarized the view of many patent community stakeholders in noting the number of intellectual property cases the high court took this term.
“Now it looks like the Supreme Court is saying to the Federal Circuit: ‘decide the 271(a) issue that you side-stepped below, and then, maybe, we will review that decision as well,'” he said. “Perhaps, the Supreme Court feels that reviewing only 10 IP cases within a single year isn't enough.”
Kitch was actually off by one. The high court will rule on 11 IP cases before it ends this term on June 30.
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