After Akamai and McKesson, a New Standard for Litigating Inducement Claims

Mark Baghdassarian and Matthew F. Abbott

Corporate Counsel

01-23-2013

On August 31, 2012, a divided en banc panel of the Federal Circuit issued multiple opinions in Akamai Technologies, Inc. v. Limelight Networks and McKesson Technologies, Inc. v. Epic Systems Corp., replacing the long-standing single entity rule for proving direct infringement underlying an inducement claim. In our May 2012 article for CorpCounsel.com, “Divided Infringement After Akamai and McKesson,” we discussed the parties’ arguments and explained that the Federal Circuit could take a number of approaches.

The Federal Circuit has now outlined a new rule whereby the requisite divided infringement of a method claim may be satisfied through the actions of multiple entities rather than a single entity for purposes of an inducement claim. This new path has fundamentally changed the law on proving infringement under the doctrine of inducement, and has significant implications for patent litigation going forward.

The Federal Circuit’s En Banc Decision

The Federal Circuit’s majority opinion (joined by Judges Rader, Lourie, Bryson, Moore, Reyna, and Wallach) held that even where a single entity does not practice all elements of a method claim, the acts of multiple parties that collectively practice a claim together may constitute the predicate act of direct infringement sufficient to establish inducement. Akamai Techs.; McKesson Techs. (Fed. Cir. Aug. 31, 2012) at 15-16. While the majority did not expressly abolish the single entity rule, its holding was limited to the requisite proof of direct infringement for purposes of an inducement claim. Id. at 13. The practical effect of this rubric will likely be the elimination of the single entity rule as applied to method claims as described below.

Notwithstanding this change in law, the majority affirmed the specific intent requirement for an inducement claim. Under this requirement, the majority held that inducement requires neither an agency relationship nor direction or control exerted by the inducer (as was the case under the single entity rule), but rather, a party who acts intentionally to “cause, urge, encourage, or aid” another party in infringing a claim. Under the single entity rule, the “mastermind”—or party found to exert direction or control over other participating parties—was solely liable for infringement. Under the new rule, any party found to satisfy the inducement standard is liable.

The Impact on Accused Patent Infringers

The most significant impact of the Federal Circuit’s decision is on the oft-used divided infringement defense to charges of infringement of method claims. Patentees will now likely avoid the divided infringement defense by pursuing their claims based on an inducement theory because the standard to prove direct infringement is lower than under the single entity rule. Accused infringers will no longer have the ability to argue that they do not infringe because they do not themselves perform all steps of the claimed method. Of course, patentees must satisfy the requisite specific intent requirement by demonstrating that the accused infringer (1) was aware of the patent, and (2) took action that caused, urged, encouraged, or aided another in infringing the patent. However, because satisfying the knowledge requirement can be relatively easy, this does not prevent multiple parties—including even “innocent” parties—from being drawn into expensive lawsuits as part of a group of defendants.

For example, some of the most popular patent litigation venues (e.g., the Eastern District of Texas) allow patentees to rely on the patent-in-suit attached to the complaint to satisfy the “knowledge” requirement. Consequently, a patentee need only allege that, since the defendant has obtained knowledge of the patents, it has continued to “cause, urge, encourage, or aid” other parties in committing the acts necessary to give rise to infringement during the pendency of the lawsuit. Because this is a fact-intensive inquiry that would allow a patentee to pursue both fact and expert discovery, the seemingly innocent infringer would nevertheless be subject to costly litigation and possibly liability.

Incentives for Patentees to Sue Multiple Parties

In view of the change in law, patentees may be more incentivized to bring claims against multiple parties. For example, in order to prove induced infringement, a plaintiff must always show that the allegedly induced infringers collectively practiced all elements of the claim. As a result, where a particular company is a non-party, the plaintiff will have to take third-party discovery of that company to acquire evidence of infringement. However, where that company is a named party, the plaintiff may take discovery directly and will typically have more leverage in the discovery process than with a non-party.

In addition, patentees may be incentivized to bring claims against multiple parties to deter challenges to the patentee’s chosen venue. Motions to transfer are often granted where the court determines that private and public interests weigh in favor of the lawsuit being more convenient in another jurisdiction, and a venue transfer can often confer a significant advantage to a defendant. Where a complaint names multiple defendants in different jurisdictions, no one jurisdiction is more convenient for defendants than any other, and a plaintiff’s choice of forum is likely either to remain unchallenged, or to remain more securely anchored in a plaintiff’s chosen forum.

The Impact on Patentees

While the new inducement rule will likely increase patentees’ ability to bring infringement suits against accused infringers, the specific intent requirement may help defendants by potentially limiting the amount of damages recoverable, or by possibly allowing accused infringers to pursue a declaratory judgment action against a patentee. In order to recover damages for induced infringement prior to the filing of the complaint, a patentee must prove that the defendant had prior knowledge of the patent and acted with intent. As a result, a patentee must choose whether to (a) provide notice to the accused infringer prior to filing the lawsuit and risk the accused infringer filing a declaratory judgment action in the venue of its choice; or (b) to bring the lawsuit without notice and lose a period of damages that might have accrued prior to filing. It will be interesting to see how this dynamic plays out.

Recent Developments

The Federal Circuit recently has suggested that, notwithstanding Akamai, liability under a divided infringement theory may still exist because Akamai “left open to possible future cases whether some form of liability for divided infringement could occur in some circumstances under § 271(a).” Travel Sentry, Inc. v. Tropp, (2011-1023)(Fed. Cir. Nov. 5, 2012). In Travel Sentry, the majority explained that the direction or control standard could be satisfied by (1) a single entity directing or controlling another through “instructions or directions” for performing the claimed steps of the method or by contracting those steps out to another entity; or (2) alternatively, where the law traditionally would hold the accused direct infringer vicariously liable for the acts performed by another.

In his concurring opinion, Judge Linn disagreed that vicarious liability might be an alternative way to satisfy the direction or control standard because the Court’s jurisprudence has equated both direction and control with traditional notions of vicarious liability. He warned that treating it so would lead to innocent actors becoming liable for participating unknowingly in collectively infringing conduct. This issue bears further observation as it suggests that subsequent panels could go either way on this issue. Should the Court follow the majority’s view in Travel Sentry, “instructions or direction” alone, rather than the higher threshold for vicarious liability, would be attractive to patentees. By contrast, the vicarious liability standard would be more attractive to accused infringers.

Conclusion

The Federal Circuit’s new rule represents a significant change in the law of induced infringement, although it appears that the issue of divided infringement liability may be subject to differing applications within the Court. Both patentees and potential accused infringers are advised to keep apprised of how this new doctrine evolves and its ramifications for patent litigation.

Mark Baghdassarian is a partner in the intellectual property group of Kramer Levin Naftalis & Frankel. His practice involves complex patent infringement actions involving satellite radio devices and services, Hatch-Waxman Act-based disputes, digital imaging technology, and devices used in the semiconductor industry, as well as negotiating and drafting technology and licensing agreements. Matthew F. Abbott is an associate in the group and focuses primarily on litigation of intellectual property and commercial disputes.