Today, a Federal Circuit panel, Judges Prost, Linn (author) and Moore (dissent), issued its long-awaited decision in the Akamia v. Limelight case following remand from the Supreme Court to consider the issue of multiple-actor direct infringement under 35 U.S.C. § 271(a) (see our June 2, 2014 post).  The panel again found that there was no direct infringement liability under § 271(a) because accused infringer Limelight “did not perform all of the steps of the asserted method claims … and because the record contains no basis on which to impose liability on Limelight for the actions of its customers who carried out the other steps.”  The majority summarized its decision as follows:

In the court’s view, … direct infringement liability of a method claim under 35 U.S.C. § 271(a) exists when all of the steps of the claim are performed by or attributed to a single entity–as would be the case, for example, in a principal-agent relationship, in a contractual arrangement, or in a joint enterprise. [fn. 1: “Because this case does not implicate joint enterprise liability, this case is not the appropriate vehicle to adopt joint enterprise liability.”]  Because this case involves neither agency nor contract nor joint enterprise, we find that Limelight is not liable for direct infringement.

Background

Our June 2, 2014 post on the Supreme Court’s decision in this case provides the procedural background.  In summary, the patent concerns a claimed method for delivering content where certain components of a website are “tagged” to be stored on certain servers within a content delivery network (CDN).  The alleged infringer, Limelight, stored tagged content on its servers, but required its customers to do their own tagging of the content.  So Limelight itself did not perform the claimed method step of tagging components to be stored on its servers.

This case was sent to the original three-judge panel in this case following remand from the Supreme Court; but Judge Moore was added to the panel because original panel member Judge Rader had since retired from the court.

Federal Circuit Majority Opinion

The majority opinion, written by Judge Linn and joined by Chief Judge Prost, started with the premise that, “[f]or method patent claims, direct infringement only occurs when a single party or a joint enterprise performs all of the steps of the process.”  There is no such direct infringement based merely on “[e]ncouraging or instructing others to perform an act.”  When there are multiple actors, direct infringement may arise where one actor may be vicariously liable for the actions of another:

In circumstances in which one party, acting as “mastermind” exercises sufficient “direction or control” over the actions of another, such that those actions may be attributed to the mastermind, the combined performance of the steps of a method claim will directly infringe under § 271(a).  Under BMC Resources, 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.  This may occur in a principal-agent relationship, a contractual relationship or in circumstances in which parties work together in a joint enterprise functioning as a form of mutual agency.

The majority ruled that the 1952 codification of direct liability in § 271(a) did not incorporate broad concepts of joint tortfeaser liability, but only “the principles of vicarious liability.”  Rather than court developed doctrines of joint liability in patent cases, the 1952 Patent Act “removed joint-actor patent infringement liability from the discretion of the courts, defining ‘infringement’ in § 271(a) and expressly outlining in § 271(b) and (c) the only situations in which a party could be liable for something less than an infringement.” (emphasis in original)

The majority also rejected the patent owner’s argument that a defendant could be liable for § 271(a) direct infringement for “causing and intending an act or result” of another, because that would render § 271(b) induced infringement and § 271(c) contributory infringement redundant.

The majority described the “single entity rule” that applies for § 271(a) direct infringement, which requires vicarious liability in order to attribute actions of others to a single entity:

Under the language of § 271(a), this court’s “divided infringement” case law is rooted in traditional principles of vicarious liability.  Under the principles of vicarious liability, direct infringement does not occur unless all steps of a method claim are performed by or attributable to a single entity.  This is the single entity rule.  BMC confirmed that where the actions of one party can be legally imputed to another, such that a single entity can be said to have performed each and every element of the claim, that single entity is liable as a direct infringer.

The majority also indicated that limiting circumstances of § 271(a) direct infringement liability is proper given the patent owner’s ability to draft claims targeted to individual direct infringers:

[I]n patent law, unlike in other areas of tort law–where the victim has no ability to define the injurious conduct upfront–the patentee specifically defines the boundaries of his or her exclusive rights in the claims appended to the patent and provides notice thereby to the public so that it can avoid infringement. … Further, many amici have pointed out that the claim drafter is the least cost avoider of the problem of unenforceable patents due to joint infringement.  It would thus be unwise to overrule decades of precedent in an attempt to enforce poorly-drafted patents.

The majority stated that the scope of vicarious liability includes principal-agent relationships, contractual arrangements, and joint enterprises.  The majority indicated that such a “contractual arrangement will typically not be present in an arms-length seller-customer relationship.”  The majority, citing to the Restatement (Second) of Torts, provided insight as to when “[a] joint enterprise exists for the purposes of imposing vicarious liability”:

  1. an agreement, express or implied, among the members of the group;
  2. a common purpose to be carried out by the group;
  3. a community of pecuniary interest in that purpose, among the members; and
  4. an equal right to a voice in the direction of the enterprise, which gives an equal right of control.

The majority disagreed with the dissent’s suggestion to extend liability to “include[] parties who act in concert to collectively perform the claimed process pursuant to a common plan, design, or purpose,” stating that this erroneously “attempts to fit a square peg in a round hole: joint tortfeasor law and § 271 are fundamentally incompatible.”  The majority explained that “[t]here is no mutual agency or cooperation when parties act independently for their own benefit, such as in arms-length seller-customer relationships.”  The majority ruled it would be error to extend liability to arms-length agreements merely because “one party ‘know[s] of th[e] [other] party’s actions.”  Rather, Supreme Court precedent makes clear that “a direct infringer’s knowledge or intent is irrelevant.”

The majority expressed concern that extending § 271(a) direct infringement liability may improperly capture unsophisticated end user customers notwithstanding the current patent reform legislation debate that has been fueled by concerns about such end users:

The dissent’s rule also leads to several extraordinary results.  For example, a customer who performs a single step of a patented method by merely using a product as intended would be jointly and severally liable for direct infringement under § 271(a).  It is nothing short of remarkable that while Congress and state legislators express their concern about the vulnerability of innocent customers to charges of patent infringement, [patent owner] Akamai and the dissent labor to create an unprecedented interpretation of existing law to make customers significantly more vulnerable to such charges.  This is especially troubling given that the customer can be liable even without knowledge of the patent.

***

The drastic expansion of predatory customer suits is not a theoretical concern.  Several amici, the White House, and other commentators identify numerous instances where patentees have sent demand letters to or sued dozens, hundreds, or, in some cases, even thousands of unsophisticated downstream users.  If the law were expanded to impose joint and several liability on users of a single prior art method step, it would subject swathes of innocent actors across diverse industries to these practices.

The majority found no § 271(a) direct infringement liability in this case, because nothing indicates that the customers–who perform one of the claimed method steps–are performing those steps in any way “vicariously on behalf of [accused infringer] Limelight.”  Rather, the customers direct and control their own use of Limelight’s CDN network and do not act as Limelight’s agents merely because Limelight “provides its customers a written manual explaining how to operate Limelight’s products”:

… Limelight’s customers direct and control their own use of Limelight’s content delivery network (“CDN”).  Limelight’s customers serve their own web pages, and decide what content, if any, they would like delivered by Limelight’s CDN.  Customers sometimes even have Limelight’s CDN and competing CDNs simultaneously deliver the same content.  As such, customers–not Limelight–direct and control which CDN delivers each and every object of their content.  Limelight’s customers do not become Limelight’s agents simply because Limelight provides its customers a written manual explaining how to operate Limelight’s product.

The majority rejected the patent owner’s argument for liability based on Limelight contracting-out to customers the claimed method steps that Limelight does not perform:

… Limelight’s customers decide what content, if any, they choose to have delivered by Limelight’s CDN and only then perform the “tagging” and “serving” steps.  The form contract does not obligate Limelight’s customers to perform any of the method steps.  It merely explains that customers will have to perform the steps if they decide to take advantage of Limelight’s service.  Because the customers were acting for their own benefit, Limelight is not vicariously liable for the customers’ action. [emphasis in original]

Accordingly, the majority ruled that Limelight was not liable for § 271(a) direct infringement.

Judge Moore’s Dissent

Judge Moore dissented because the ruling was too narrow and “divorces patent law from mainstream legal principles by refusing to accept that § 271(a) includes joint tortfeasor liability.”  She stated that the “single entity rule” is a recent judicial creation that contravenes the statute and centuries of common law.  The drafting of claims by thousands of practitioners that are “incapable of being infringed” under the single entity rules “belies the proposition that there was a long-standing single entity requirement for direct infringement,” indicating that “we have changed the rules on these folks.”

Judge Moore argues that the term “Whoever” in § 271(a) encompasses multiple entities–e.g., “Dictionaries define ‘whoever’ in the plural as ‘[w]hatever person or persons“–and the term is used many times in the patent statute to denote “collective actions of multiple persons.”  Further, the 1952 Patent Act was not intended to make sweeping changes to infringement liability or create a “gaping hole” in liability coverage, but was intended to codify existing infringement liability that included the joint tortfeasor liability that the majority opinion now excludes.

Judge Moore considered the majority’s concern about “predatory customer suits” to be a “smokescreen”, because only Limelight–and not its customers–were sued.  If an unsophisticated customer were sued, “the manufacturer can be joined voluntarily (or even involuntarily)” and could secure a judgment resolving the suit as to all parties.

Judge Moore also expressed concern that this panel did not have the authority to reach the decision it did here, because the panel decision conflicts with a prior panel decision in Golden Hour v. emsCharts, and only the Federal Circuit sitting en banc can overrule a prior panel decision.

Judge Moore would find Limelight liable for § 271(a) direct infringement for several reasons.  First, “Limelight is liable under the direction or control test, because Limelight has performed a number of the steps of the patented methods, and it has directed its customers to perform the remaining steps.”  Second, “Limelight could also be held liable as a joint infringer, acting in concert with the customers pursuant to a common purpose, design or plan.”