The multi-party infringement puzzle

The multi-party infringement puzzle

The implications of the Federal Circuit’s en banc decisions inAkamai and Mckesson reveal a divided view of joint infringement, as Gene Lee, J. Steven Baughman and Rodrigo Valle explain.

Advancements in technology have led to a significant increase in the use of widely distributed computer and communications systems. This trend has fueled an increase in patent disputes involving companies that use such systems. These cases often involve patent assertions that accuse the collective activities of multiple entities. On 31 August 2012, the Court of Appeals for the Federal Circuit issued the highly anticipateden banc decision in Akamai v Limelight and McKesson v Epic Sys. Corp., Nos. 2009-1372, -1380, -1416, -1417, 2010-1291, 2012 U.S. App. LEXIS 18532 (Fed. Cir. Aug. 31, 2012) (Akamai II). The ruling has significant implications for situations that potentially involve “divided” or “joint” infringement.

Background

Historically, “[d]irect infringement has not been extended to cases in which multiple independent parties perform the steps of the method claim.”Id. at *14. However, as patents have been asserted with increasing frequency against the activities of multiple distinct actors, the issue of joint infringement has grown more contentious, and the Federal Circuit has struggled to find an appropriate and workable standard for joint infringement.

In 2007, the Federal Circuit inBMC Resources v Paymentech, L.P., 498 F.3d 1373, considered a potential joint infringement scenario and applied the agency principle of vicarious liability to analyze whether the defendant, by playing a part in processing clients’ financial transactions, along with other distinct financial providers, could be liable for direct infringement. The Federal Circuit noted that “the law imposes vicarious liability on a party for the acts of another in circumstances showing that the liable party controlled the conduct of the acting party.” Id. at 1379. The Court held that the defendant did not directly infringe a patented method for paying bills since it did notdirect or control the debit networks and financial institutions at issue; specifically, it did not “perform or cause to be performed each and every element of the claims.”Id. at 1382.

The following year, inMuniauction, Inc. v Thomson Corp., 532 F.3d 1318 (Fed. Cir. 2008), the Court applied the “direction or control” test fromBMC Resources in finding no infringement, stating, “[t]hat [Defendant] controls access to its system and instructs bidders on its use is not sufficient to incur liability for direct infringement.”Id. at 1330 (emphasis added). Since the defendant “neither performed every step of the claimed methods nor had another party perform steps on its behalf,” it did not infringe the asserted method claims as a matter of law.Id.

Against this backdrop, the Federal Circuit addressed joint infringement in two new cases involving method-type patent claims that resulted in the recenten banc decision, Akamai Techs., Inc. v Limelight Networks, Inc., 629 F.3d 1311 (Fed. Cir. 2010) (Akamai I) andMcKesson Techs. Inc. v Epic Sys. Corp., No. 2010-1291, 2011 U.S. App. LEXIS 7531, (Fed. Cir. Apr. 12, 2011) (McKesson I). The Federal Circuit also recently decided a case that involved system-type patent claims,Centillion Data Sys., LLC v Qwest Commc’ns Int’l, Inc., 631 F.3d 1279 (Fed. Cir. 2011).

InAkamai I, the Federal Circuit affirmed the district court’s overturning of a jury verdict of infringement and held there was no infringement as a matter of law, even though the defendant and its customers together performed all the claimed steps of the method. In its decision, the Federal Circuit further developed the standard fromBMC Resources and Muniauction, explaining that “what is essential is not merely the exercise of control or the providing of instructions, but whether the relationship between the parties is such that acts of one may be attributed to the other.”Akamai I, 629 F.3d at 1319. The Court held that “there can only be joint infringement when there is an agency relationship between the parties who perform the method steps or when one party is contractually obligated to the other to perform the steps.”Id. at 1320.

InMcKesson I, the Federal Circuit affirmed the district court’s grant of a renewed motion for summary judgment of no induced infringement where the asserted method involved a step performed by patients, rather than the health care providers implicated by the remaining steps. The Court emphasized that “[a] doctor-patient relationship does not by itself give rise to an agency relationship or impose on patients a contractual obligation such that the voluntary actions of patients can be said to represent the vicarious actions of their doctors.” McKesson I, 2011 U.S. App. LEXIS 7531 at *10. Absent an agency or contractual obligation to perform any of the claimed method steps, the Federal Circuit found that McKesson failed to demonstrate that any single party directly infringed the patent and thus, the defendant could not be liable for indirect infringement.Id. at *11.

On 20 April 2011, the Federal Circuit granted Akamai’s petition for a rehearingen banc and requested briefing to address one issue: “[i]f separate entities each perform separate steps of a method claim, under what circumstances would that claim be directly infringed and to what extent would each of the parties be liable?”Akamai Techs., Inc. v Limelight Networks, Inc., 419 Fed. App’x 989 (Fed. Cir. 2011). One month later, on 26 May 2011, the Court granted McKesson’s petition for rehearingen banc and requested additional briefing on 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?

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?

McKesson Techs. Inc. v Epic Sys. Corp., 463 Fed. Appx. 906, 907 (Fed. Cir. 2011).

The Federal Circuit heard oral arguments en banc for both cases on 18 November 2011. The pair of cases was closely watched by various industries; all told, 34 amicus briefs were filed, including briefs by major high-tech companies such as Apple, Facebook and Cisco, as well as by numerous associations representing biotech, pharmaceutical, online retail and intellectual property interests.

The en banc decision

Despite having requested additional briefing on the single versus separate entity topics and acknowledging that “[m]uch of the briefing in these cases has been directed to the question whether direct infringement can be found when no single entity performs all of the claimed steps of the patent,” the Federal Circuit did not decide the issue of direct infringement involving performance by multiple parties.Akamai II, 2012 U.S. App. LEXIS 18532 at *11. Instead, the majority in theen banc decision focused on whether liability for induced infringement requires a showing of liability for direct infringement by a single entity. Indeed, the majority specifically described the question addressed as, “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 (as in theAkamai case), 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 (as in theMcKesson case).” Id. at *10 (emphasis added).

To the surprise of many, in a 6-5per curiam decision (with two substantial dissents), the Federal Circuit partially overruledBMC Resources, 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. The Federal Circuit majority did emphasize that it was not eradicating the general principle that direct infringement must exist before indirect infringement can be demonstrated, but rather explained that “[r]equiring proof that therehas been direct infringement as a predicate for induced infringement is not the same as requiring proof that a single party would beliable as a direct infringer.” Id. at *19. Thus, the Court rejected the “single entity” liability rule for indirect infringement and held that induced infringement could be found even absent a single party who could be liable for direct infringement.

With respect to the specifics of the two cases before it, the Court contemplated that the defendants might be liable for induced infringement in their respective cases if the patentee could make certain showings. For both cases, these included showing defendant’s knowledge of the patent, defendant’s inducement of others to perform a step of the method, and actual performance of those steps.Id. at *49-50. Importantly, following the Supreme Court’s decision in Global-Tech Appliances, Inc. v SEB S.A.,131 S. Ct. 2060, 2068, 179 L. Ed. 2d 1167 (2011), liability for induced infringement always requires that the accused inducer act with knowledge or willful blindness that the induced acts constitute patent infringement. As the Federal Circuit noted in theen banc Akamai II decision, “this court has required intent as follows: ‘[I]nducement requires that the alleged infringer knowingly induced infringement and possessed specific intent to encourage another’s infringement.’”Id. at *17 (citation omitted).

Judge Linn and Judge Newman authored substantial dissents to the majority’s opinion. Judge Newman criticized the majority for not addressing what she believed to be the sole reason for the en banc rehearing – whether the single entity rule is appropriate for direct infringement – and stated that the “[t]he court should simply acknowledge that a broad, all-purpose single-entity requirement is flawed, and restore infringement to its status as occurring when all of the claimed steps are performed, whether by a single entity or more than one entity, whether by direction or control, or jointly, or in collaboration or interaction.”Id. at *72. In Judge Newman’s view, the majority ruling rendered inducement theonly remedy for a patentee faced with multiple entities participating in infringement, yet provided no guidance as to how damages should be measured.

Judge Linn, however, joined by Judges Dyk, Prost, and O’Malley, criticized the majority’s differing definitions of “infringement” under Section 271(a) and (b) and expressed support for the single-entity rule. In his view, “[b]roadening the doctrine of inducement, such that no predicate act of direct infringement is required, is a sweeping change to the nation’s patent policy that is not for this court to make.”Id. at *120. Judge Linn further stated, “[t]he well established doctrine of vicarious liability is the proper test for establishing direct infringement liability in the multi-actor context. Absent direct infringement, the patentee has not suffered a compensable harm.” Id. at *142. He also submitted that many of the problems caused by joint infringement could be resolved by proper claim drafting.Id. at *143.

The court’s limited holding

While clearly a significant decision, the explicit holding of theen banc majority is limited in scope to cases involving method claims. Specifically, the Federal Circuit held that “all the steps…..

Click here to subscribe and read the whole article