United States: Federal Circuit Recognizes A Broad Scope Of Attribution Under The Doctrine Of Divided Infringement

In a recent decision, Travel Sentry, Inc. v. Tropp, __ F.3d __, Appeal Nos. 2016-2386, 2016-2387, 2016-2714, 2017-1025, Slip Op. at 20 (Dec. 19, 2017), the US Court of Appeals for the Federal Circuit reaffirmed its interpretation of the doctrine of divided infringement articulated in Akamai Technologies, Inc. v. Limelight Networks, Inc., 797 F.3d 1020 (Fed. Cir. 2015) (Akamai V). In Travel Sentry, the Federal Circuit rejected the district court's more narrow interpretation, made under the earlier standards in BMC Resources, Inv. v. Paymentech, L.P. and Muniauction, Inc. v. Thomson Corp., and vacated the court's summary judgment of non-infringement.

Divided infringement occurs when multiple actors collectively perform all the steps of a method claim, or use disparate elements of a system claim such that no one party directly infringes a patent under 35 USC section 271(a). The Federal Circuit's decision in Travel Sentry, the latest in a series of recent decisions on divided infringement, has important implications for enforcing claims when the claim elements are not performed by a single entity but by two or more parties acting in concert.

In its decisions leading up to Travel Sentry, the Federal Circuit has consistently held that one party may be held directly responsible for the actions of another under traditional agency or contract theory. However, the Federal Circuit recognized that liability for direct infringement can also be found when a two-pronged test is satisfied: first, when "an alleged infringer conditions participation in an activity or receipt of a benefit upon performance of a step," and second, when the alleged infringer "establishes the manner or timing of that performance."1 In that event, the first party may be found liable for the actions of the other, such that their combined actions can be attributed to a single entity that is liable for the entire act of infringement.

In Travel Sentry, the two patents at issue claim methods of inspecting checked airline luggage. Consumers are provided a special lock that can be opened by either a combination or a master key. The master keys are provided to a "luggage screening entity" (e.g., a security agency) that has agreed to search for special locks bearing an identifying mark and, if found, to use the master key to open and inspect the luggage as necessary. The patentee, David Tropp, sued Travel Sentry for infringement after Travel Sentry agreed to provide the Transportation Safety Administration (TSA) 1,500 master keys (or passkeys), along with instructions, to enable TSA's security officers to open and relock certified Travel Sentry locks on checked airline baggage without damaging the locks.

The central issue before the Federal Circuit was whether there was a genuine issue of material fact that TSA's performance of those steps could be attributed to Travel Sentry, such that Travel Sentry could be held singularly responsible for directly infringing Tropp's method claims. Slip Op. at 13. The district court had answered this question in the negative because it found that the parties' "relatively noncommittal" memorandum of understanding (MOU): (i) did not impose "any concrete or enforceable obligation" on TSA to use Travel Sentry's master keys at all; (ii) expressly absolved TSA of liability for any Travel Sentry locks that were damaged during the luggage screening process; (iii) did not provide any consequences for failure to comply; (iv) could be unilaterally terminated by either party; and (v) proved only that Travel Sentry had provided master keys and instructions to TSA, actions that had previously been held insufficient to establish vicarious liability. Id. at 9-10.

The Federal Circuit rejected the district court's interpretation of divided infringement as too narrow and, accordingly, vacated its summary judgment of non-infringement. With respect to the first prong of its analysis, whether Travel Sentry "conditions [TSA's] participation in an activity or receipt of a benefit upon [TSA's] performance of a step or steps of a patented method," the Federal Circuit held that the district court had erred in broadly identifying the relevant activity as encompassing "the luggage screening mandated by Congress." The relevant activity should be interpreted instead according to the parties' MOU, which more narrowly covers distributing passkeys and instructional information, using the passkeys to open checked baggage, and relocking the Travel Sentry locks after inspection. Likewise, the district court misinterpreted the "benefits" to TSA as furthering Congress's objectives of reducing theft and baggage claims and providing secure luggage inspection services. Instead, the Federal Circuit found that the benefit to TSA should have been defined in the context of the MOU, which specifically articulated the benefit to TSA as enabling TSA screeners to identify, open and inspect checked baggage secured with Travel Sentry locks without damaging those locks.

The Federal Circuit also interpreted what it means to "condition" a third party's (i.e., TSA's) participation in an activity, or its receipt of a benefit, on its performance of the method steps. In particular, the Court rejected the lower court's limiting such "conditioning" to legally binding obligations. This is consistent with the Federal Circuit's earlier decisions, in which it held that divided infringement does not require imposing a legal or technological obligation on the other party to perform, verifying the other party's performance, or threatening to deny further treatment in the event of a failure to perform or comply with the method steps in question. Slip Op. at 17-18. Divided infringement, the Court reiterated, is not limited to "legal obligations or technical prerequisites." Id.2

Turning to the second prong, the Federal Circuit similarly found that there was a genuine issue of material fact as to whether Travel Sentry established "the manner or timing of TSA's performance" of the method steps in question. Slip Op. at 25. The district court, relying on earlier overturned case law, found no evidence that Travel Sentry had any influence on TSA's performance of the method steps, "let alone 'masterminded' the entire patented process." Id. Federal Circuit precedent under Akamai V, however, no longer requires that a party "mastermind" or even supervise another's performance of the method steps. It may suffice that Travel Sentry entered into an MOU with TSA, provided TSA with passkeys and related materials, and instructed TSA on how to identify, unlock and relock the Travel Sentry locks. TSA, in fact, cannot unlock the Travel Sentry locks or realize the benefits of that system unless it performs certain steps of the asserted method claims, even though it is not legally obligated to do so. As a result, the Federal Circuit held that a reasonable jury could find that Travel Sentry has set forth the manner in which TSA uses its lock system, obtains the benefits associated with that system, and practices the claim steps at issue. Id. at 27.

The Federal Circuit also relied on a principle originally set forth in copyright law that "an actor infringes vicariously by profiting from direct infringement if that actor has the right and ability to stop or limit the infringement."3 In this case, the Federal Circuit found that Travel Sentry has the right and ability to stop or limit TSA's ability to practice the claim steps at issue, and thus its ability to receive the benefits that follow from practicing those claim steps, through a number of means, including terminating the MOU, discontinuing its practice of replacing lost or damaged passkeys, or changing the design of future locks so that the passkeys it previously provided TSA would no longer work. For these reasons, the Federal Circuit found that the district court erred in granting summary judgment of non-infringement.

The Federal Circuit also emphasized the importance of context and the factual nature of this inquiry. While Travel Sentry may be viewed as merely a continuation of principles set forth in earlier cases, the Federal Circuit acknowledged that the "partnership-like relationship" between Travel Sentry and TSA distinguishes this case from the more definite service provider-customer relationship in Akamai V or the physician-client relationship in Eli Lilly and Co. v. Teva Parenteral Medicines, Inc., 845 F.3d 1357 (Fed. Cir. 2017). However, the Court held that a common thread linked the relationships: "[E]vidence that a third party hoping to obtain access to certain benefits can only do so if it performs certain steps identified by the defendant, and does so under the terms prescribed by the defendant." Slip Op. at 20.

In Akamai V, for example, Limelight required its customers to sign a standard contract delineating the steps they had to perform to use Limelight's content delivery service, and remained engaged in its customers' activities by integrating their websites, rather than allowing customers to take its guidance and act on their own.4 In contrast, the MOU between Travel Sentry and TSA does not require TSA to perform any particular acts in order to participate in the allegedly infringing standard created by Travel Sentry. As a result, the district court found the MOU insufficient as a matter of law for the purpose of imposing vicarious liability onto Travel Sentry under contract theory. Slip Op. at 9-10. Nonetheless, to gain the benefit of inspecting luggage using Travel Sentry's system, TSA must use the keys distributed by Travel Sentry under the MOU to conduct the inspection. This was sufficient to create at least a genuine issue of material fact as to whether TSA performed the final two steps of the patented method, even if the steps performed by TSA were "fewer and less complicated" than those required by Limelight's customers or the physicians and patients in Eli Lilly because the benefit sought by the subsequent practitioner (i.e., TSA) was coextensive with competing the final steps of the patented method.

Therefore, going forward, when assessing potential liability for direct infringement under a theory of divided infringement under Travel Sentry, we suggest first analyzing the relationship between the parties at issue to determine the "relevant activity" or "benefit." In Travel Sentry, the "relevant activity" or "benefit" was defined in the context of the MOU between the company and TSA, which is to say, in the context of the their relationship. Second, determine whether the performance of the claimed steps or elements confers the identified benefit to the party whose performance is being attributed to the responsible party. This guides whether the responsible party "has established the manner or timing of ... performance." By properly framing the relationship and actions of the parties in the context of the parties' relationship, one can accurately evaluate the responsibility of a responsible party for another's performance of claimed patent elements or steps.

Footnotes

1. Akamai Technologies, Inc. v. Limelight Networks, Inc., 797 F.3d 1020, 1022-23 (Fed. Cir. 2015) (en banc, per curiam) (identified as Akamai V in Slip Op.), on remand from Limelight Networks, Inc. v. Akamai Techns, Inc., 134 S. Ct. 2111 (2014).

2. Discussing Eli Lilly and Co. v. Teva Parenteral Medicines, Inc., 845 F.3d 1357, 1366 (Fed. Cir. 2017).

3. Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913, 930 (2005), cited in Akamai V, 797 F.3d at 1023. Discussed in Slip Op. at 29.

4. Akamai V, 797 F.3d at 1024.

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