En Banc Federal Circuit Expands Liability for Induced Infringement of Method Claims

September 5, 2012

On August 31, 2012, the Court of Appeals for the Federal Circuit handed down its en banc decision in two closely watched cases involving "divided infringement," Akamai Technologies, Inc., v. Limelight Networks, Inc., Nos. 2009-1372, -1380, -1416, -1417 (Fed. Cir. Aug. 31, 2012), and McKesson Technologies, Inc., v. Epic Systems Corp., No. 2010-1291 (Fed. Cir. Aug. 31, 2012) (together referred to as "Akamai").  The decision makes it easier for patent-holders to prove that a party is inducing infringement of method claims, particularly where the steps of the method claims are practiced by different entities — as is often the case in industries ranging from internet businesses, to telecommunications, to biotechnology and entertainment. 

Introduction and Summary

Under 35 U.S.C. § 271(b), "[w]hoever actively induces infringement of a patent shall be liable as an infringer."  Courts have long interpreted section 271(b) to require not only proof of active inducement, but also proof that the induced infringer directly infringed the asserted patent claim.  For method claims, this meant proving that a single entity practiced all of the steps of the claimed method. This strict rule raised the possibility that firms could avoid liability by doling out the claimed steps of a patented method to multiple independent entities. For example, in the underlying Akamai case, the district court found that defendant Limelight performed all but one method step, which was performed by Limelight’s customers.  In the underlying McKesson case, the district court found that the method steps were divided between patients and healthcare providers.  Slip op. 11.  The district court in each case found no liability for induced infringement because there was no single direct infringer, and the non-parties completing the method steps were neither directed nor controlled by the inducing party.  Id. at 12.

The Federal Circuit’s en banc decision works a substantial change in the law of divided infringement.  The Court concluded that where induced infringement is concerned, the single entity rule "would permit ready evasion of valid method claims."  Id. at 35.  Accordingly, the Court established a standard that permits an accused infringer to be found liable for inducing infringement even if the method steps are performed by multiple independent entities, rather than a single direct infringer.  In short, under the standard set by the en banc decision, a defendant can be held liable for inducing infringement if (1) it has knowledge of the patent; (2) it induced the performance of each of the method steps (or performed some of the steps itself and induced the performance of the remaining steps); and (3) the steps were collectively performed by the defendant and/or the induced entities.  The decision thus makes method patents stronger because a patent-holder can now establish indirect infringement without the need for a single direct infringer and without the need to show direction or control by the inducer.

Discussion

Requirements for Direct Infringement of Method Claims Are Unchanged

To ensure the availability of a remedy for "divided infringement," the Federal Circuit could have opted to change the underlying requirements for proving direct infringement of a method claim under 35 U.S.C. § 271(a) by loosening the requirement of a single actor.  The Court declined to take this approach.  An accused infringer can still be liable for direct infringement only when all of the method claim steps are effectively performed by a single entity – where that single entity may include not just the accused infringer, but its agents, or parties acting pursuant to its direction or control.  Slip op. 13.

Inducement of Infringement No Longer Requires a Single-Entity Direct Infringer

Rather than modify the standard for direct infringement liability under 35 U.S.C. § 271(a), the Federal Circuit instead focused on a new test for direct infringement in the specific context of determining whether a party is inducing infringement under § 271(b).  The Court held that an entity can still be held liable for inducing infringement under § 271(b) when there is no single entity that acts as a direct infringer – indeed, even when there is no entity that is actually liable for direct infringement – as long as all of the method steps are collectively performed.  Slip op. 16-17.

In announcing this new rule, the Federal Circuit reasoned that a party should be held accountable for inducing infringement regardless of whether the party (i) "induced others to commit the acts necessary to infringe the plaintiff’s patent and those others commit[ted] those acts";  (ii) "perform[ed] some of the steps itself"; or (iii) otherwise "structured [its] conduct so that no single defendant has committed all the acts necessary to give rise to liability for direct infringement."  Id.  Although all the steps of a claimed method must be performed in order to find induced infringement, it is not necessary to prove that all the steps were committed by a single entity.  Id. at 10.

Innocent Joint Infringers Are Still Innocent

In response to concerns that broadening liability for induced infringement would ensnare innocent joint infringers, the Court maintained the other requirements for proving inducement.  In particular, liability for inducing infringement still "requires that the accused infringer act with knowledge that the induced acts constitute patent infringement."  Slip op. 14.  As the Court noted, inducement claims should not reach "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."  Slip op. 14, note 1.

The Effect of Akamai

The Federal Circuit’s en banc ruling is an important one.  In the highly interactive realms of software, web, and Internet computing and business, where transactions are fast and independent actors may be widely diverse in geography and function, the Akamai decision is an abrupt change.  The prior practice of avoiding infringement by dividing steps of a method claim among independent (i.e., not directed or controlled) actors, such as customers, is no longer a safe harbor.  However, the Akamai decision applies not just to the computer and electronics arenas, but to method claims in all technologies — indeed, biotechnology firms weighed in as amici during the briefing.  As such, all business entities should take the time to consider how this new decision may impact their processes and practices.

Gibson Dunn filed an amicus brief in Akamai in support of Limelight Networks on behalf of Facebook, Inc. and LinkedIn.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these issues.  For further information, please contact the Gibson Dunn lawyer with whom you work, the authors, Joseph Evall and Mark Lyon, or any of the following members of the firm’s Intellectual Property Practice Group:  

© 2012 Gibson, Dunn & Crutcher LLP

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