Federal Circuit Clarifies Standard for Induced Infringement of Method Claims

Skadden, Arps, Slate, Meagher & Flom LLP

Douglas R. Nemec P. Anthony Sammi

On August 31, 2012, the Federal Circuit issued an en banc opinion in two related cases involving the joint infringement of method claims, Akamai Technologies, Inc. v. Limelight Networks, Inc. and McKesson Technologies, Inc. v. Epic Systems Corp. See Akamai Techs., Inc. v. Limelight Networks, Inc., No. 2009-1372, 2012 U.S. App. LEXIS 18532 (Fed. Cir. Aug. 31, 2012) (en banc). In a 6-5 decision, the court expanded the theory of induced infringement of a method claim, holding that all the steps of a method claim do not need to be directed by a single controlling actor to demonstrate induced infringement. The court remanded the two cases for further proceedings in light of its opinion.

Previously, the Federal Circuit had held that for a party to be liable for induced infringement, another single actor had to be liable personally or vicariously for the underlying direct infringement. Now, in Akamai and McKesson, the Federal Circuit has softened this standard by eliminating the requirement that a sole controlling actor orchestrate the underlying direct infringement. See Akamai Techs., 2012 U.S. App. LEXIS 18532, at *76.

In Akamai, the patent holder alleged that its method claims — directed to the more efficient storage and delivery of website content — were infringed jointly by Limelight and its customers. Limelight did not itself perform every step of the asserted method claims; its customers, website content providers, performed the required element of tagging the URLs of embedded content on their websites. Akamai alleged that because Limelight provided information and technical support to assist its customers in performing the tagging element of the claims, Limelight wielded sufficient “control or direction” to be held vicariously liable for its customers’ actions. See Akamai Technologies, Inc. v. Limelight Networks, Inc., 629 F.3d 1311, 1318-19 (Fed. Cir. 2010), vacated on grant of reh’g en banc, 419 F. App’x 989 (Fed. Cir. 2011), and rev’d, No. 2009-1372, 2012 U.S. App. LEXIS 18532 (Fed. Cir. Aug. 31, 2012) (en banc).

In its earlier Akamai decision, the Federal Circuit held that Limelight exercised insufficient “control or direction” over its customers to incur liability. The court interpreted its previous holdings 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), as requiring a principal-agent relationship between parties, writing that “joint infringement occurs when a party is contractually obligated to the accused infringer to perform a method step.” Akamai, 629 F.3d at 1319 (Fed. Cir. 2010).

In McKesson, the patentee’s claims were directed to an electronic method of communication between doctors and patients involving the use of personalized web pages. Epic Systems Corp., the accused infringer, licensed a software product called “MyChart” to health care providers. MyChart enabled the creation of personal web pages through which patients could access their medical records and initiate communications with their doctors.

As in Akamai, the alleged infringer did not itself practice any of the steps of McKesson’s method claims; rather, these steps are performed by the patients and health care providers who use the accused MyChart software. In its previous McKesson decision, the Federal Circuit held that no agency relationship existed and there was insufficient control over the various actors to demonstrate liability. McKesson Tech. Inc. v. Epic Sys. Corp., No. 2010-1291, 2011 U.S. App. LEXIS 7531, at *14-15 (Fed. Cir. Apr. 12, 2011) (“This court has time and again rejected liability where one party performed most of the patented method and left it to another party to complete the method in the absence of any contractual obligation or agency relationship that would vicariously attribute the acts of the one party to the other.”).

Following Akamai and McKesson’s petitions for rehearing en banc, the Federal Circuit vacated the panel opinions in both cases and ordered the parties to brief the following two issues:

1. If separate entities each perform separate steps of a method claim, under what circumstances, if any, would either entity or any third party be liable for inducing infringement or for contributory infringement? See Fromson v. Advance Offset Plate, Inc., 720 F.2d 1565 (Fed. Cir. 1983).

2. Does the nature of the relationship between the relevant actors — e.g., service provider/user; doctor/patient — affect the question of direct or indirect infringement liability?

See McKesson Techs., 463 F. App’x at 907 (per curiam order granting rehearing en banc).

In its August 31st opinion, the Federal Circuit focused solely on the question of induced infringement. It declined to address direct infringement involving multiple actors, writing that “[b]ecause the reasoning of our decision today is not predicated on the doctrine of direct infringement, we have 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 U.S.C. § 271(a).” Akamai, 2012 U.S. App. LEXIS 18532, at *16.

With respect to induced infringement, the court overruled its 2007 decision in BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007), in which it had held that a party cannot be liable for induced infringement of a method claim unless some other single actor was liable for direct infringement of that claim. See Akamai Techs., 2012 U.S. App. LEXIS 18532, at *11-12. The court instead articulated a new standard, holding “that all the steps of a claimed method must be performed in order to find induced infringement, but that it is not necessary to prove that all the steps were committed by a single entity.” Id. at *11-12. In eliminating the single controlling actor requirement, the court eliminated the need to show that “the induced party [is] an agent of the inducer or [is] acting under the inducer’s direction or control,” writing that “[i]t is enough that the inducer ‘cause[s], urge[s], encourage[s], or aid[s]’ the infringing conduct and that the induced conduct is carried out.” Id. at *17 (citation omitted). The court distinguished the question of whether the steps of the claimed method had been performed, from the question of liability for directly infringing the method claim, which would require the actions or control of a single entity. See id. at *19 (“Requiring proof that there has been direct infringement as a predicate for induced infringement is not the same as requiring proof that a single party would be liable as a direct infringer.”).

Judge Newman and Judge Linn both authored strongly worded dissents, criticizing the majority’s reasoning as well as their decision not to address the question of direct infringement. However, the Newman and Linn dissents advocate decidedly different alternatives. Judge Newman argues for eliminating the single-entity requirement in all contexts, stating that the court should “restore direct infringement to its status as occurring when all of the claimed steps are conducted,” leaving the allocation of damages to account for various parties’ respective contributions to the infringement. See id. at *103. Judge Linn was joined by three other judges in his dissent. Judge Linn, who authored the earlier, and now vacated, McKesson decision, urged a return to the single-entity rule, arguing that the majority opinion is “rooted in its conception of what Congress ought to have done rather than what it did.” See id. at *105.

While the majority reasoned that the BMC Resources “single-entity rule” constituted an improper departure from prior case law and legislative history, many likely will view this decision as a major shift from established principles. As Judge Newman wrote, the majority’s opinion creates “dramatic changes in the law of infringement” that “greatly enlarge[]” the grounds for induced infringement. Id. at *51. Similarly, Judge Linn called the majority’s approach “contrary to both the Patent Act and to the Supreme Court’s longstanding precedent.” Id. at *104. This Akamai decision will likely be viewed by many as a positive development for holders of complex method patents. However, parties should continue to be protected from unknowingly creating liability by the knowledge and intent requirement for inducement. See Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060, 2068 (2011).

This is not likely to be the last word on this issue. A petition for Writ of Certiorari to the Supreme Court is a virtual certainty, and there is a good chance that it will be accepted given the attention these cases have garnered and the heavily divided en banc decision. Congressional action also is a possibility, as much of the debate surrounds what the Patent Act was intended to provide and how it should be interpreted. In addition, because the majority relies on the intent requirement to avoid liability for innocent or unknowing actors, further clarity will be needed regarding what constitutes sufficient knowledge and intent to support an inducement claim. The America Invents Act codified the shift in recent case law making it more difficult to show willful infringement, and in so doing, it addressed the intent requirement for inducement. Section 17 of the act states, “The failure of an infringer to obtain the advice of counsel with respect to any allegedly infringed patent, or the failure of the infringer to present such advice to the court or jury, may not be used to prove that the accused infringer … intended to induce infringement of the patent.” Despite this language in the act, however, an opinion of counsel on the issue of inducement may still provide the most reliable defense as the case law continues to develop on the question of intent.

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