COMMENTARY

In an opinion of two factually similar cases, Akamai Technologies v. Limelight Networks and McKesson Technologies v. Epic Systems, consolidated as 692 F.3d 1301 (Fed. Cir. 2012), a split 6-5 U.S. Court of Appeals for the Federal Circuit significantly departed from prior precedent in holding that liability for induced infringement of a claimed method no longer requires all method steps to be performed by a single entity.

In both cases, the defendants instructed or divided the performance of a portion of the patented method steps among third parties, a tactic used for the specific purpose of avoiding infringement liability. The court’s newly established rule attempts to close an exploited loophole and loosen the pleading requirements to put the inducement law back in line with congressional intent.

This article provides a background to the recent decision and its effect on technological industries with business models that coordinate actions from multiple parties, the legal differences between direct and induced infringement, and the importance of proper prosecution strategy in drafting method claims.

For purposes of providing some background, we will first consider the cases overturned by this ruling.

BMC Resources v. Paymentech

In BMC Resources v. Paymentech, 498 F.3d 1373 (Fed. Cir. 2007), the court considered the proper standard for joint infringement by multiple parties of a single claim. The defendant was a third-party transaction processing company and denied infringement by arguing it did not perform all steps of the patented method by itself, nor did it direct or control its customers to do so.

At the time BMC was decided, it was well established that liability for direct infringement required a single party to perform or use each and every step or element of a claimed method or product — the single-entity rule. Induced infringement required a predicate finding of direct infringement.

In a joint infringement scenario, a party that directs or controls another party to infringe will be liable for direct infringement. “A party cannot avoid infringement, however, simply by contracting out steps of a patented process to another entity. In those cases, the party in control would be liable for direct infringement,” the court held in BMC.

In BMC, the Federal Circuit noted the danger of the control or direction standard. “The standard requiring control or direction for a finding of joint infringement may in some circumstances allow parties to enter into arms-length agreements to avoid infringement,” the court held. “Nonetheless, this concern does not outweigh concerns over expanding the rules governing direct infringement. For example, expanding the rules governing direct infringement to reach independent conduct of multiple actors would subvert the statutory scheme for indirect infringement. Direct infringement is a strict-liability offense, but it is limited to those who practice each and every element of the claimed invention. By contrast, indirect liability requires evidence of ‘specific intent’ to induce infringement.”

When a defendant participates in or encourages infringement but does not directly infringe itself, the recourse is found within the law of indirect infringement. However, as mentioned above, for inducement of infringement liability to attach, the Federal Circuit required a predicate finding of direct infringement.

The court in BMC failed to find direct infringement because of the lack of requisite direction or control of the actions of the entities and the lack of a finding that a single party performed all the method steps. Thus, without a finding that one party directly infringed, there could not be induced infringement.

Muniauction v. Thomson

BMC left open the possibility that evidence of direction or control might be found if a party provides “instructions or directions.” In Muniauction v. Thomson, 532 F.3d 1318 (Fed. Cir. 2008), the Federal Circuit elaborated on the single-entity rule of BMC, stating “the control or direction standard is satisfied in situations where the law would traditionally hold the accused direct infringer vicariously liable for the acts committed by another party that are required to complete performance of a claimed method.”

The court reasoned that Thomson Corp. neither performed every step of the claimed methods nor had another party perform steps on its behalf, and therefore held Thomson did not infringe the asserted claims as a matter of law. Muniauction, therefore, established the rule that direction or control requires more than a mere contractual agreement to pay for services and instructions or directions on how to utilize those services. Again, without a finding of direct infringement, there was no possibility of induced infringement.

Background of the Cases

U.S. Patent No. 6,108,703 (’703 patent), at issue in Akamai, covers a method for efficient delivery of Web content. The claimed method consists of placing a content provider’s content on a set of replicated servers and modifying the content provider’s webpage to instruct the browser to retrieve the content from those servers.

Akamai filed suit against Limelight, alleging infringement. Limelight placed content on servers but did not modify the content provider’s webpages. Instead, Limelight instructed its customers on the steps required to complete that modification. After a jury finding of patent infringement and an award of $45.5 million in damages, Limelight sought reconsideration based on the decision in Muniauction, where the Federal Circuit expanded upon the direction and control standard of BMC. In finding non-infringement as a matter of law, the district court concluded the modification steps undertaken by customers were not based on a contractual obligation; rather, they were based on the customers’ desire to use Limelight’s service.

U.S. Patent No. 6,757,898 (’898 patent), at issue in McKesson, covers a method of electronic communication between health care providers and their patients using personalized webpages. The ’898 patent provides a system where a patient, after an office visit, can access visit-specific content on his or her personalized webpage.

McKesson filed suit against Epic, alleging induced infringement. Epic licensed software that permits health care providers to communicate electronically with patients. However, the communications originate with the patients, if they choose to utilize the service, and the health care providers complete the remainder of the patented method steps. Because the parties agreed that no single party performed every step of the asserted method claims, a requirement under BMC for induced infringement, the district court granted Epic’s motion for summary judgment.

On appeal to the Federal Circuit, McKesson argued the relationship between the alleged infringer’s customers (heath care providers) and the users of the software (patients) is such that the performance of the initiation step should be attributed to Epic. The Federal Circuit determined that because of the absence of any contractual obligation or agency relationship, the act of initiating a communication could not be vicariously attributed to Epic. The Federal Circuit affirmed.

En Banc Decision

On appeal, the Federal Circuit, sitting en banc, addressed the problem of divided infringement in induced infringement cases. Specifically, the court addressed “whether a defendant may be held liable for induced infringement if the defendant has performed some of the steps of a claimed method and has induced other parties to commit the remaining steps” (the Akamai scenario), or “if the defendant has induced other parties to collectively perform all the steps of the claimed method, but no single party has performed all of the steps itself (the McKesson scenario).

The court refused to address whether direct infringement can be found when no single entity performs all of the claimed steps of the patent, and reaffirmed its position that for direct patent infringement under 35 USC §271(a), a party must commit all the acts necessary to infringe the patent, either personally or vicariously (acting through another under his or her direction or control).

The court articulated its fear “that extending [direct infringement] liability [to multiple independent parties performing the steps of the method claim] would ensnare actors who did not themselves commit all the acts necessary to constitute infringement and who had no way of knowing that others were acting in a way that rendered their collective conduct infringing.”

The court overruled BMC and set aside the rule requiring a single entity to be liable for direct infringement for a party to be found liable for induced infringement. The court reasoned that the doctrine of induced infringement was well suited to address the issues at hand and reduced the foreseen risks of extending direct infringement liability “because liability for inducement, unlike liability for direct infringement, requires specific intent to cause infringement, using inducement to reach joint infringement does not present the risk of extending liability to persons who may be unaware of the existence of a patent or even unaware that others are practicing some of the steps claimed in the patent.”

The court held that all claimed method steps must still be performed in order to find induced infringement, but that it is no longer necessary to prove that all the steps were committed by a single entity.

In reversing, the court found that in the McKesson scenario, Epic will be liable for induced infringement if McKesson can show (1) Epic knew of McKesson’s patent; (2) it induced the performance of the steps of the method claimed in the patent; and (3) those steps were performed.

In the Akamai scenario, the court found Limelight would be liable for induced infringement if the patentee could show that (1) Limelight knew of Akamai’s patent; (2) it performed all but one of the steps of the method claimed in the patent; (3) it induced the content providers to perform the final step of the claimed method; and (4) the content providers performed the final step.

Strategically Drafting Claims

When considering a prosecution strategy, it is vital to recognize the risk that a divided patent claim may leave the patentee with an unfavorable remedy. Client- and service-oriented technologies commonly involve the performance of steps by multiple actors. These types of divided patent claims frequently appear in wireless software or computer-related patents. As the court in BMC noted, “the concerns over a party avoiding infringement by arms-length cooperation can usually be offset by proper claim drafting. A patentee can usually structure a claim to capture infringement by a single party.” Inventions that involve cooperation of multiple parties can often be covered using claims drafted in a unitary form by focusing on one entity.

In reprimanding BMC for its claim drafting, the court suggested “the steps of the claim might have featured references to a single party’s supplying or receiving each element of the claimed process.” A patentee can therefore draft separate claims that will capture the behavior of each individual actor. 

John C. Donch Jr., a shareholder at Volpe and Koenig, concentrates his practice on securing, licensing and enforcing intellectual property rights. His technical experience includes wireless communications, computers, computer software, semiconductors and electronics. He can be contacted at jdonch@vklaw.com.

Max S. Morgan is a law clerk at the firm and a third-year law student at Rutgers University School of Law-Camden. He can be contacted at mmorgan@vklaw.com.