Alert November 28, 2012

“Joint” Infringement and the Federal Circuit’s Akamai and McKesson En Banc Opinion

On August 31, 2012, the Federal Circuit issued an en banc opinion addressing two cases, Akamai Techs. Inc. v. Limelight Networks Inc. and McKesson Techs., Inc. v. Epic Sys. Corp. 692 F.3d 1301 (Fed. Cir. 2012). In the majority opinion, the court rather unexpectedly departed from the traditional approach used to find liability for what has been coined "joint" or "divided" infringement.

The Saga of "Joint" Infringement

The issue of "joint" infringement is hardly new although it arises more frequently as patents are increasingly employed to protect complex business methods, in particular, methods of implementing multipart transactions via the Internet, and medical diagnostic methods, for instance, in the area of personalized medicine. The issue arises because of the long-standing rule that direct infringement requires that a single party or person perform each and every step of a claimed method. For years district courts somewhat inconsistently found liability for direct infringement when multiple parties performed all steps of a claimed method. While it was clear that parties could not avoid liability for direct infringement by simply arranging that certain steps of a claimed method be performed by another party, the rule generally followed by the district courts required that the parties performing the steps had "some connection" to each other in order for liability to exist. See, e.g., Faroudja Labs., Inc. v. Dwin Elecs., Inc., 1999 WL 111788, *5 (N.D. Cal. Feb. 24, 1999). Courts generally held that when parties actively and deliberately worked together the "some connection" standard was met, and the level of connection did not need to amount to an agency relationship or concerted activity. See Free Standing Stuffer, Inc. v. Holly Devel. Co., 187 U.S.P.Q. 323, 333 (N.D. Ill. 1974); see also Hill v. Amazon.com, Inc., 2006 WL 151911, *2 (E.D. Tex. Jan. 19, 2006); Shields v. Halliburton Co., 493 F. Supp. 1376, 1388-89 (W.D. La. 1980), aff’d, 667 F.2d 1232 (5th Cir. 1982).

In the 2007 case of BMC Res., Inc. v. Paymentech LP, the Federal Circuit weighed in on the question of the connection required when multiple parties collectively performed the claimed method steps. 498 F.3d 1373 (Fed. Cir. 2007). BMC followed the so-called "single-entity" rule that requires that a single entity, or anyone under its direction or control, perform each step of a claimed method in order to find direct infringement. See id. at 1380-81. This rule foils attempts by one party - the "mastermind" - to avoid liability by contracting out steps of a patented process, but does not extend liability where the relationship between parties is merely an arms-length transaction. Id. at 1381. BMC touched on potential liability for indirect infringement noting that "[w]here a party participates in infringement but does not directly infringe the patent, the law provides remedies under principles of indirect infringement. However, this court has held that inducement of infringement requires a predicate finding of direct infringement." Id. at 1380 (citing Dynacore Holdings Corp. v. U.S. Philips Corp., 363 F.3d 1263, 1272 (Fed. Cir. 2004).

The Akamai and McKesson En Banc Opinion

A number of decisions rendered after the 2007 BMC decision appeared to narrow the circumstances under which "direction or control" would be found, and therefore the Federal Circuit ordered en banc review of two cases, Akamai Techs. Inc. v. Limelight Networks Inc., 629 F.3d 1311 (Fed. Cir. 2010) and McKesson Techs., Inc. v. Epic Sys. Corp., 98 U.S.P.Q. 2d 1281 (Fed. Cir. 2011). The Akamai case was on appeal in the Federal Circuit from the District Court of Massachusetts. The McKesson case was on appeal in the Federal Circuit from the District Court for the Northern District of Georgia.

The claims in the Akamai case were directed to methods of content delivery requiring placing some of a content provider's content elements on a set of replicated servers and modifying the content provider's web page to instruct web browsers to retrieve that content from the servers. Limelight, the alleged infringer, did not modify the content provider’s pages itself, but rather instructed its customers on the steps needed to make the modification. The Federal Circuit, in a 2010 panel decision, determined that the customers performing some of the steps of the claimed method were not "directed or controlled" by the defendant Limelight Networks and therefore Limelight was not liable for direct infringement.

The method claims in the McKesson case were directed to electronic communication between healthcare providers and patients. Defendant Epic licensed its software to healthcare providers to communicate with patients, but Epic itself did not perform any of the claimed steps. The 2011 Federal Circuit panel found no agency relationship between Epic and its customers and therefore held that Epic was not liable for direct infringement.

In the 2012 Federal Circuit en banc opinion, six of the eleven judges joined in the majority opinion (Chief Judge Rader and Judges Lourie, Bryson, Moore, Reyna and Wallach). Judge Linn (joined by Judges Dyk, Prost and O’Malley) and Judge Newman filed dissenting opinions.

Notwithstanding that the court had ordered en banc review in order to address the "direction or control" standard, the majority opinion did not explicitly address liability for direct infringement under 35 U.S.C. § 271(a). Akamai, 692 F.3d at 1307. The majority instead focused on indirect infringement liability under § 271(b), which states that "[w]hoever actively induces infringement of a patent shall be liable as an infringer." Id. The majority held that when multiple parties together perform every step of a claimed method, the "inducing" party may be liable for infringement if he "advises, encourages, or otherwise induces the others to engage in infringing conduct" regardless of whether the performing parties themselves may be held liable for direct infringement. Id. at 1307-08. In other words, whereas before inducement could occur only when a third party directly infringed by performing all the claimed method steps, the majority determined it was sufficient for inducement that all the claimed steps were performed by one or more parties, provided of course that the other requirements for inducement were met.

In so ruling, the majority overruled BMC's requirement of direct infringement in order to impose liability for inducement, stating "we reconsider and overrule the 2007 decision of this court in which we held that in order for a party to be liable for induced infringement, some other single entity must be liable for direct infringement." Id. at 1306.

The majority also addressed and distinguished the Supreme Court decision in Aro Mfg. Co. v. Convertible Top Replacement Co., 365 U.S. 336 (1961) which, similar to BMC, held that direct infringement was required for a finding of indirect infringement. In Aro, the issue was whether the manufacturer of fabric used to replace worn fabric in convertible tops could be held liable for contributory infringement of patent claims covering a combination requiring the fabric, supporting structures and a mechanism for sealing the fabric against the side of the automobile. The Supreme Court reasoned that "[t]he determinative question … comes down to whether the car owner would infringe the combination patent by replacing the worn-out fabric element of the patented convertible top on his car ..." Id. at 342. The Supreme Court stated that the manufacturer could be held liable for "contributory infringement under § 271(c), if, but only if, such a replacement by the purchaser himself would in itself constitute a direct infringement under § 271(a), for it is settled that if there is no direct infringement of a patent there can be no contributory infringement." Id. at 341 (emphasis added). The majority in the Federal Circuit en banc opinion maintained that while the Supreme Court in Aro required direct infringement in order to find liability for induced infringement, "… they emphasized that what was induced was the fact of infringement, not liability for direct infringement by a single actor." Akamai, 692 F.3d at 1317.

In some cases courts have been hesitant to find liability for joint infringement because of the risk of extending liability to "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." Id. at 1307. But because liability for inducement, unlike liability for direct infringement, requires specific intent to cause infringement, the majority reasoned that situations in which inducement results in joint infringement do 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. Id. at 1308 n.1.

The en banc court remanded both the Akamai and McKesson cases to their respective district courts for further proceedings on the theory of induced infringement.

In her dissenting opinion, Judge Newman argued that the majority missed the mark because it did not address the issue for which en banc review was granted, namely, the "direction or control" standard for direct infringement. Judge Linn, in his dissenting opinion, adhered to the requirement of direct infringement for inducement of infringement as forth in BMC.

Potential Supreme Court Review

In view of the Federal Circuit’s en banc decision, it is likely that either Limelight or Epic will file a petition for a writ of certiorari in the Supreme Court. Although Supreme Court review is discretionary, in this instance there appears to be a high potential for Supreme Court review. Only six of the eleven Federal Circuit judges joined the majority opinion, and that opinion did not directly address the en banc issue – whether multiple parties could be held liable for direct infringement. In determining whether the majority got it right the Supreme Court will likely address whether the majority correctly interpreted the Supreme Court opinion in Aro as not requiring liability for direct infringement per se.

There is also the possibility that the Federal Circuit may render another opinion addressing "joint" infringement given that the en banc opinion did not expressly preclude finding liability for direct infringement. In refusing to address the "direction and control" standard, the Federal Circuit left open the possibility of finding liability under the narrow standard previously followed by the court. Thus, it is unlikely that the Federal Circuit en banc opinion is the last word on the issue of "joint" infringement.