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After Akamai and McKesson, a New Standard for Litigating Inducement Claims
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 Circuits En Banc Decision
The Federal Circuits 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.
The Impact on Accused Patent Infringers
The most significant impact of the Federal Circuits 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 partiesincluding even innocent partiesfrom being drawn into expensive lawsuits as part of a group of defendants.
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.
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.
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.
The Federal Circuits 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.