United States: Federal Circuit Expands Liability For Divided Patent Infringement

On August 13, 2015, the Federal Circuit in Akamai Technologies, Inc. v. Limelight Networks, Inc. changed the law regarding liability for direct infringement of a method patent involving more than one actor (divided infringement), after the Supreme Court invited it to revisit its interpretation of 35 U.S.C. § 271(a).

A Brief History of Divided Infringement

In 2007, the Federal Circuit held that in order for liability for direct infringement of a method patent to lie under § 271(a), a single party must carry out every step of the claimed process, either on its own or by "directing or controlling" another to perform some of the steps. BMC Res., Inc. v. Paymentech, L.P., 498 F.3d 1373, 1379–81 (Fed. Cir. 2007). This holding was reiterated and clarified in Muniauction, Inc. v. Thomson Corp., in which the Federal Circuit announced that "where the actions of multiple parties combine to perform every step of a claimed method, the claim is directly infringed only if one party exercises 'control or direction' over the entire process such that every step is attributable to the controlling party, i.e., the 'mastermind.'" 532 F.3d 1318, 1329 (Fed. Cir. 2008). There, the court held an auctioneer not liable for infringement where it performed the majority of steps of the claimed method but a bidder performed the step of "inputting data" regarding a bid into the auctioneer's system. Under Muniauction, a company that both 1) controls access to the system where the additional steps are carried out; and 2) instructs the user on how to carry out those steps, does not "direct or control." Id. Rather, liability for joint infringement only existed "in situations where the law would traditionally hold the accused direct infringer vicariously liable" for the third party's actions of completing the steps. Id.

Thus, under Muniauction, a party could avoid liability for infringing a method patent simply by instructing its customers to carry out one of the steps, or even by agreeing with another company to split the infringement. In fact, the Federal Circuit subsequently held that there was no direct infringement when two companies formed a partnership to enable their software programs to work together and sold them as a unit, when that unit met every element of a claim, because there was no "control or direction" over the entire process and no single "mastermind." Golden Hour Data Sys., Inc. v. emsCharts, Inc., 614 F.3d 1367, 1371 & 1380–81 (Fed. Cir. 2010).

Factual Background in Akamai v. Limelight

Akamai sued Limelight in 2006 for infringing a patent on a method of delivering electronic content from content providers. Limelight performed all of the steps of the claimed methods except for "tagging" and "serving." Its customers, the content providers, performed those two steps. The jury found Limelight liable for infringement, but the district court entered judgment as a matter of law for Limelight in light of Muniauction, which had been decided shortly after the jury verdict.

On appeal, a Federal Circuit panel affirmed the district court's ruling, but the en banc court reversed without addressing direct infringement, finding instead liability for induced infringement under 35 U.S.C. § 271(b). The Supreme Court rejected the Federal Circuit's interpretation of induced infringement under § 271(b), holding that there is no liability for induced infringement "when no one has directly infringed under § 271(a) or any other statutory provision." Limelight Networks, Inc. v. Akamai Techs., Inc., 134 S. Ct. 2111, 2113 (2014). The Supreme Court also suggested that "the Federal Circuit erred by too narrowly circumscribing the scope of § 271(a)" in Muniauction, and invited it to revisit that holding. Id. at 2119–20.

New Divided Infringement Standard Announced in Akamai v. Limelight

On remand, a Federal Circuit panel, constrained by divided infringement precedent, held that "direct infringement liability of a method claim under 35 U.S.C. § 271(a) exists when all of the steps of the claim are performed by or attributed to a single entity," and that such attribution occurs according to the principles of vicarious liability, in 1) a principal-agent relationship; 2) a contractual arrangement; or 3) a joint enterprise. Akamai Techs., Inc. v. Limelight Networks, Inc., 786 F.3d 899, 904 (Fed. Cir. May 13, 2015). And, finding that none of these circumstances existed, the panel affirmed the judgment as a matter of law that Limelight did not infringe.

The Federal Circuit then promptly granted en banc review, and reversed in a per curiam decision, taking the opportunity to follow the Supreme Court's suggestion to revisit infringement under § 271(a). Akamai Techs., Inc. v. Limelight Networks, Inc., Nos. 2009-1372, 2009-1380, 2009-1416, & 2009-1417, Slip Op. (Aug. 13, 2015). The en banc court held that "an entity is responsible for others' performance of method steps in two sets of circumstances: (1) where that entity directs or controls others' performance, and (2) where the actors form a joint enterprise." Slip Op. at 4. In applying this standard to the facts, the en banc decision makes clear that the scope of divided infringement liability has increased.

The en banc court expanded the circumstances where the acts of one actor are attributable to another such that a single entity is responsible for infringement of a method claim. The full court reiterated its prior reliance on the general principles of vicarious liability, and reaffirmed that an actor can be liable for § 271(a) infringement if it acts through an agent or contracts with another to perform one or more steps of a claimed method. But the court also held that if an alleged infringer 1) conditions participation in an activity or receipt of a benefit upon performance of a step or steps of a patented method, and 2) establishes the manner or timing of that performance, that actor can also be held liable under § 271(a). Slip Op. at 5. The court further emphasized that the list of ways to attribute the acts of one entity to another was not complete, stating that "other factual scenarios may arise which warrant attributing others' performance of method steps to a single actor." Slip Op. at 6. The en banc decision also overruled Golden Hour and any other prior decisions, to the extent that they were inconsistent with this expanded interpretation of divided infringement liability under § 271(a).

Applying the newly-stated standard to the facts of the case, the court found that Limelight conditioned its customers' use of its network on their performance of the "tagging" and "serving" steps. Slip Op. at 8. Further, it found that Limelight provided assistance and step-by-step instructions on integration of Limelight's hostname, a process which included the "tagging" step, and without which Limelight's service was not available. Limelight was liable for direct infringement because rather than merely providing guidance to customers who then "act independently on their own," Limelight "establishes the manner and timing of its customers' performance so that customers can only avail themselves of the service upon their performance of the method steps." Slip Op. at 9.

Divided Infringement Going Forward

After the August 13 en banc decision in Akamai, parties can no longer escape liability for direct infringement of a method patent by agreeing to split performance of the steps between them. Thus, the strategic alliance in Golden Hour, falling short of agency or contract, would no longer avoid infringement.

To the extent that companies were afraid their customers would be liable for direct infringement by installing a program or clicking on a link and performing one step of many in a method patent, the en banc decision should lay those fears to rest. The court made clear that all steps of a method patent must be attributable to single entity to give rise to liability under § 271(a). However, the court left the door open for a myriad of possible scenarios where a customer's or other third party's performance of a step should be attributed to an alleged infringer. Based on the facts of Akamai, a provider of a service will be liable for direct infringement when its customers must perform one or more steps, as instructed by the provider, in order to receive the service. On the other hand, a seller or service provider should not be liable merely by instructing a customer on how to perform a step, while providing the goods or service regardless of whether or when the customer performs the step.

Many varied fact patterns are likely to arise in district courts as parties explore the boundaries of the expanded divided infringement standard. For instance, diagnostic method patents do not fit neatly into the customer/provider schema that was before the Akamai court. When a kit seller performs steps A through C, but a doctor or patient sends a sample to a laboratory and the laboratory performs step D, the kit seller's liability for direct infringement depends on whether the lab's performance of step D can be attributed to the kit seller. For example, if the kit seller provides a postage-stamped, addressed envelope along with the kit so that samples are sent to a particular lab, and pays the laboratory directly for samples processed within a set turn-around time, it seems that the seller 1) conditioned receipt of a benefit (payment) upon performance of step D and 2) established the manner or timing of that performance. Thus, under these facts, the laboratory's performance should be attributed to the kit seller and the kit seller would be liable. But if the doctor or patient is left to get step D performed by any laboratory of their choice, the laboratory's performance may be too far removed to be attributable to the kit seller. Clearly, future decisions on divided infringement liability under § 271 will be highly specific to the facts of each particular case.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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