United States: Inducement With Divided Infringement After Akamai Tech. v. Limelight Networks And McKesson Tech. v. Epic Systems

As diagnostics, end-user sophistication, and mobile and web-based technologies grow, so does the likelihood that potential infringement is carried out across multiple users or entities, i.e., divided infringement. Divided infringement scenarios exist where a single entity does not perform every element of a claim, but rather different entities perform the different steps of a claim. This divided infringement scenario occurs frequently as customers begin performing critical steps in implementing technologies – for instance, a doctor performing a collection or diagnostic step or a server user modifying a webpage. The divided infringement defense has grown more popular in recent years, paralleling the rising importance of method claims used to describe cutting edge computer software, business method inventions, and diagnostic and therapeutic inventions in biotech. This is particularly relevant where companies have been able to strategically avoid claims by performing less than all steps of a method claim and having their customers or other entities perform remaining elements of the claim.

Under claims for direct infringement under §271(a) of the 1952 Patent Act (the make, use, or sell provision), divided infringement is a complete defense as infringement here follows the single-entity rule. See Warner-Jenkinson Corp. v. Hilton Davis Corp. Until last month, it was also a complete defense to inducement theories arising under §271(b).

On August 31, 2012, the Court of Appeals for the Federal Circuit abated the divided infringement defense by enabling patent holders to advance claims against divided infringers based on an inducement theory. In the combined decisions of Akamai Tech. v. Limelight Networks and McKesson Tech. v. Epic Systems Co. (Fed. Cir. 2012) (En Banc), the court ruled per curiam, six to five, that inducement as defined by 35 U.S.C. §271(b) does not require a single, direct infringer – that merely knowingly inducing the performance of each claim limitation, regardless of who is performing that limitation, is inducement under §271(b).

Two scenarios were presented to the court by the respective cases. In Akamai, the court questioned "whether a defendant may be held liable for induced infringement if the defendant has performed some of the steps of a claimed method and has induced other parties to commit the remaining steps...." In McKesson, the court decided whether a "defendant has induced other parties to collectively perform all the steps of the claimed method, but no single party has performed all of the steps itself."

In addressing these scenarios, the court notes that the underlying issue can essentially only occur in method claims where it is often advantageous to divide the steps of a particular task among different entities. The court states that, for non-method claims, it is not possible to have induced infringement without a direct infringer because inevitably "the entity that installs the final part and thereby completes the claimed invention is a direct infringer." However, method claims are never similarly "completed" by a single direct infringer.

The majority held that there can be induced infringement in the absence of a single, directly infringing entity. The court determined that entities should not be immunized from infringement merely because they have delegated infringement activity, thus overruling the previous standards set by the Federal Circuit in BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007) and Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318 (Fed. Cir. 2008). In overruling the precedent, the majority drew from criminal law and tort law principles to determine that common law requires imposing liability for inducement of a tort or crime even if the person being induced is unaware that his act is injurious and is not liable for that reason. In application to divided infringement, the majority explains that "a party may be liable for inducing infringement even if none of the individuals whose conduct constituted the infringement would be liable, as direct infringers, for the act of infringement that was induced."

Considerable limitations on the inducement doctrine still exist. For instance, the first prong of the inducement test requires that a joint infringer knowingly induce the activity. The exact extent of the intent prong is still hazy, but is likely to mean that the inducing infringer have knowledge of the asserted patent and have knowledge that the induced (and divided) activities are collectively infringing the asserted patent. The court in Akamai distinguished the inducement cause of action under §271(b) from the infringement cause under §271(a), specifically with respect to strict liability.

It is well settled that infringement under §271(a) is a strict liability tort with intent being irrelevant (except as to damages determinations). See In re Seagate Tech., 497 F.3d 1360, 1368 (Fed. Cir. 1997). But, as the court points out, §271(b) is not strict liability and thus intent is a critical element as it is in traditional tort and criminal cases. This willfulness prong limits the broadening of the joint infringement doctrine to the nefarious actor; plaintiffs must still prove intent to infringe as has long been required in inducement actions. See BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007). While this intent limitation may be sufficiently narrowing to stave off a Supreme Court reversal, it was unpersuasive to the five members of the court.

In dissent, Judge Linn, who was joined by Judges Dyk, Prost and O'Malley, advocated keeping the divided infringement defense for §271(b) as required in BMC. Judge Linn noted that "[a] patentee can usually structure a claim to capture infringement by a single party" and thus, Linn suggested, policy considerations need not be slanted farther in favor of patent owners. However, Judge Linn's characterization is becoming less relevant as new mobile and cloud-based technologies allow for new models for products and services available over a remote network continue to be developed. Judge Newman also dissented stating that the induced infringement theory of the majority "is a spontaneous judicial creation. And it is wrong." Judge Newman also notes that the majority does not address damages or the ability to obtain an injunction under a divided infringement scenario.

Both software and biotechnology are areas that could benefit greatly from the majority ruling. It is still best practice to draft method claims where a single infringer would practice every claim step and thus be strictly liable for direct infringement. For such instances, no intent requirement must be proven and the ability to obtain damages and injunctive relief is relatively well settled. However, in some instances, the Akamai decision may provide claim drafters a viable avenue for protecting previously unpatentable methods or correcting previously untenable claim language. For example, personalized medicine diagnostics often involves a process including data gathering, analysis, correlation, and ultimately treatment with a pharmaceutical. Generally, these steps are performed by different entities, such as a diagnostics lab, a doctor, and a pharmaceutical company to provide the drug, thus yielding divided infringement. Claims for these processes were often drafted to omit parts of the process such that only a single entity would infringe. Limiting the claim scope in such a way has led to many broadly defined claims that are arguably unpatentable subject matter under 35 U.S.C. § 101. By adding a transformative treatment step such that the claim may be performed by divided entities, these claims may not be as easily dismissed as unpatentable subject matter.

This decision should also be taken into account when evaluating competitor method claims. Companies should revisit prior freedom to operate analyses in view of the inducement doctrine development. If a lack of infringement determination was based on the fact that there was not a single party who infringed every step of the claim, the analysis should be revisited by counsel in light of Akamai and McKesson.

www.nutter.com

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.

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Nutter McClennen & Fish LLP's Intellectual Property Practice Group
 
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