Liability for Induced Infringement of a Method Claim No Longer Requires Proof of Direct Infringement

Cindy Chen | September 14, 2012

Akamai Technologies, Inc. and MIT v. Limelight Networks, Inc.

McKesson Technologies, Inc. v. Epic Systems Corp.

August 31, 2012

Panel: Rader, Newman, Lourie, Bryson, O’Malley, Linn, Dyk, Prost, Reyna and Wallach (en banc)

Per curiam opinion, joined by Rader, Lourie, Bryson, Moore, Reyna, and Wallach.  Dissent by Linn, joined by Dyk, Prost, and O’Malley.  Dissent by Newman.

Summary

In a 6-5 en banc decision, the Federal Circuit rejected precedents and relaxed the standard of proof for finding induced infringement under 37 USC §271(b).  Traditionally, induced infringement requires a two-pronged showing of (1) knowing inducement to infringe and (2) actual direct infringement of the patent.  In fact, direct infringement had long been held as the sine qua non of indirect infringement liability. The court’s new standard, however, eliminates the direct infringement requirement. Now, in cases involving method claims, inducement liability follows if the accused infringer (1) had knowledge of the patent, (2) induced others’ performance of the steps of the method claims, and (3) the steps were actually performed. Liability also follows if the accused infringer performed some of the steps of the claims and then knowingly induced another to perform the remaining steps.

Details

When a single actor performs all the steps necessary to infringe a patent, that actor is liable for direct infringement under 35 USC §271(a). Liability follows whether the actor performs the steps personally or vicariously through another acting under the first actor’s direction or control. When a single actor induces another actor to commit all the infringing steps, the first actor is liable for induced infringement under 35 USC §271(b).

Akamai v. Limelight

Akamai holds a license for U.S. Patent No. 6, 108,703 (“the ‘703 patent”), which covers methods of using content delivery networks (CDN) to host and deliver web content elements such as texts and graphics. The claimed methods include storing copies of a webpage’s content elements, called embedded objects, on separate replicate servers on a CDN. Servers are distributed throughout the world so that by bringing the embedded objects geographically closer to users, a CDN reduces a webpage’s loading time. By storing multiple copies of the objects on replicate servers, a CDN also enables a webpage to handle surges in internet traffic. Embedded objects have unique internet addresses, and the ‘703 patent claims methods for retrieving objects from a server onto the CDN by modifying the objects’ addresses in a process called “tagging”.

Limelight maintains a CDN where Limelight stores embedded objects on its servers, but instructs its users to perform the steps of tagging and retrieving these objects. No single entity performs all of the steps of the ‘703 patent. Akamai filed suit against Limelight, alleging both direct and induced infringement.

McKesson v. Epic

McKesson owns U.S. Patent No. 6,757,898 (“the ‘898 patent”) covering methods for electronic communications between healthcare providers and patients. The claimed methods include personalized webpages where once logged on, patients can access personal healthcare records and services such as appointment requests and prescription refills. Epic owns a software system that allows patients to electronically interact with their healthcare providers. Epic licenses out the software system to healthcare providers. McKesson sued Epic for induced infringement of the ‘898 patent. Epic does not perform any steps of the claimed methods. Rather, the steps are divided between patients and their healthcare providers. Nevertheless, McKesson argued that Epic induced its licensees to infringe the patent.

In each case, the district court found non-infringement. The district courts relied on BMC Resources, Inc. v. Paymentech, L.P., 498  F.3d 1373 (Fed. Cir. 2007), which held that direct infringement by a single entity as defined in §271(a) is a predicate for indirect infringement liability under §271(b). This proposition came to be known as the “single entity rule”. In the context of a method claim, the “single entity rule” meant that liability for induced infringement followed only if all steps of the claimed method were practiced by actor(s) under the direction and control of the accused mastermind infringer.

In Akamai, the district court granted Limelight’s motion for judgment as a matter of law because Limelight’s users performed the final step of the claimed method. In McKesson, the district court granted summary judgment of non-infringement because the steps of the claimed methods were divided between healthcare providers and their patients. In neither case was there a single entity that performed each and every step of the asserted method claims. The Federal Circuit panels affirmed both judgments before the full court granted petitions for rehearing en banc on the issue of divided infringement.

CAFC Analysis

The Federal Circuit declined to decide whether direct infringement as defined in §271(a) can arise in cases where multiple actors “divide” their infringing acts. The court reasoned that since defendants in the two present cases could be found liable for induced infringement, the court “[had] no occasion at this time to revisit any of those principles regarding the law of divided infringement as it applies to liability for direct infringement under 35 USC §271(a).”

The court went on to abandon the “single entity rule”, concluding that BMC’s interpretation of §271(b) was wrong “as a matter of statutory construction, precedent, and sound patent policy.” The court espoused an “inducement only rule”, holding that while all the steps of a claimed method must be performed in order to find induced infringement, it is not necessary to prove that all the steps were committed by a single entity.

Thus, in cases involving method claims, inducement liability under §271(b) now requires (1) knowledge of the patent, (2) performance and/or inducement of other parties to perform each step of a claimed method, and (3) actual performance of each step of the claimed method. Section 271(b) no longer requires that anyone be liable for direct infringement.

Statutory language

35 USC §271(a) and (b) provide:

(a)  Except as otherwise provided in this title, whoever without authority makes, uses, offers to sell or sells any patented invention, within the United States, or imports in the United States any patented invention during the term of the patent therefor, infringes the patent.

(b)  Whoever actively induces infringement of a patent shall be liable as an infringer.

The majority viewed the language of subsection (a) as stating one manner of infringement, but did not believe that subsection (a) in any way limits “infringement”, as the term is used in subsection (b), to mean only “infringement by a single entity”. Instead, the majority read subsection (b) as referring to “the acts necessary to infringe a patent, not whether those acts are performed by one entity or several.”

Policy

The majority’s decision closed a major loophole in existing indirect infringement standards, through which an infringer could avoid liability by inducing another to commit one or more steps of a claim. The majority thought it unsound policy to immunize an inducer from liability for divided infringement simply because the parties were crafty in structuring their conduct so that no one party would commit all the acts necessary to establish liability. Further, the majority analogized induced infringement to criminal and tort law, where liability is commonly imposed for knowingly causing an innocent intermediary to engage in criminal or tortious conduct.

Linn’s Dissent

The Linn dissent faulted the majority for deviating from the longstanding principle that there can be no induced infringement in the absence of direct infringement. Looking to the language of §271 for support, the dissent maintained that §271(a) defines infringement, and in turn, that definition carries over into the language of §271(b) and (c) establishing liability for one who “actively induces infringement.”

The Linn dissent also relied on Supreme Court’s decision in Aro Mtg. Co. v. Convertible Top Replacement Co., 365 U.S. 336 (1961), which held that “if there is no infringement of a patent, there can be no contributory infringer.” The majority conceded that the quoted language could suggest that indirect infringement predicated on liability for direct infringement. Nevertheless, the majority distinguished Aro on the ground that (1) Aro dealt only with product claims, and (2) for product claims, there is always a direct infringer whenever the product is made, used, or sold.

Finally, the Linn dissent raised the issue of judicial activism. The Linn dissent questioned whether it was appropriate for the majority to assume “the mantle of policy maker” and overstep its bound to effectively rewrite §271, based on how it thought the standard should be.

Newman’s Dissent

The Newman dissent agreed with the Linn dissent that direct infringement is a predicate for liability for induced infringement. The Newman dissent also agreed with the majority that the “single entity rule” is flawed. However, the Newman dissent would have concluded that infringement should be found “when all of the claimed steps are performed, whether by a single entity or more than one entity, whether by direction or control, or jointly, or in collaboration or interaction.” The Newman dissent, therefore, proposed a standard that could have extended to direct, induced, and contributory infringement.

Impact

The Akamai decision has the effect of strengthening method claims and easing their enforcement. Potential infringers will no longer be able to evade liability by dividing the steps of a patented method among multiple, unconnected actors. The “inducement only rule” eliminates the defense by accused infringers that, as a matter of law, there is no induced infringement of method claims where the steps are practiced others not under the direction or control of the accused infringers. However, the new standard still requires that (1) a defendant have knowledge of the patent, and (2) perform or affirmatively induce another to perform the infringing acts. Defendants could argue a lack of the requisite mens rea and/or actus reus to avoid liability.

Additionally, Supreme Court review of the decision is likely, given the narrow majority. It is possible that the decision will not stand for long. Opponents of the new standard will rely on the powerful language of the Linn dissent, including such gems as, “[The majority opinion is] an abdication of this court’s obligation to interpret Congressional policy rather than alter it.” Opponents will also emphasize the potential conflict between the majority opinion and Supreme Court precedent in Aro.

Takeaway

  • Method claims drafted to encompass actions of a single party are still preferable, in order to reduce burden of proving infringement.

Full Opinion

Patent At Issue #1 (Akamai v. Limelight)

Patent At Issue #2 (McKesson v. Epic)

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