In a victory for holders of method patents, the Federal Circuit issued an en banc decision yesterday expanding the scope of direct infringement when multiple parties perform different steps of an invention. In its unanimous Akamai Techs. v. Limelight Networks decision, the appeals court provided a fact-based test for determining when “all method steps can be attributed to a single entity” such that direct infringement can be found under 35 U.S.C. § 271(a). Unlike the earlier panel decision that was overturned, the en banc court held that infringement can, in some circumstances, be attributed to a single entity even when there is an arms-length business relationship between that entity and the other parties that perform steps of the patented method.

Akamai addresses the question of “divided infringement,” which occurs when multiple parties combine to perform all the steps of a method patent. Akamai, for example, holds a patent covering a method of streaming content over the internet. Limelight, Akamai’s competitor, offers a service performing every step of Akamai’s patent except the final “tagging” step, which Limelight’s customers perform. The term “divided infringement” is something of a misnomer, however, because it has long been established that direct infringement under Section 271(a) occurs only when a single party or a joint enterprise performs all of the steps of the process. Thus, the real question in divided infringement cases is whether the entities practicing the claimed steps are somehow united. A “court must determine whether the acts of one [actor] are attributable to the other such that a single entity is responsible for the infringement,” as the Federal Circuit put it in its most recent Akamai decision. This question – of prime importance to industries like biotechnology and software that rely heavily on method patents – has vexed courts and litigators for the last decade.

The dispute between Akamai and Limelight raises the particularly complicated issue of whether a company and its end users can be considered a single entity for purposes of divided infringement. In the original appeal, the Federal Circuit (also en banc) ducked this question and held that Limelight could be held liable for induced infringement irrespective of whether the patented method could be attributed to a single entity for purposes of direct infringement. The Supreme Court, however, granted certiorari and held that a defendant cannot be liable for induced infringement under Section 271(b) unless a single party has directly infringed under Section 271(a). On remand, therefore, the Federal Circuit had to address the question of direct infringement that it had previously avoided.

Initially, in May of this year, a panel of the Federal Circuit held (over a vigorous dissent) that Limelight was not responsible for direct infringement. The panel concluded that Section 271(a) was limited to three relationships between the divided infringers: principal-agent relationships, joint enterprises, and contractual arrangements, which would “typically not be present in an arms-length seller-customer relationship.” This decision, coupled with the Supreme Court’s opinion on induced infringement, appeared to enable companies to avoid any method patent simply by arranging for their customers or another arms-length entity to perform at least one of the claimed steps.

In yesterday’s en banc decision, however, the Federal Circuit relaxed this test to allow a finding of direct infringement in a wider range of circumstances, including the facts of the Akamai-Limelight dispute. Noting that “we continue to consider general principles of vicarious liability” in assessing divided infringement, the court held that “liability under § 271(a) can also be found when an alleged infringer conditions participation in an activity or receipt of a benefit upon performance of a step or steps of a patented method and establishes the method or timing of that performance.” When this occurs, “the third party’s actions are attributed to the alleged infringer such that the alleged infringer becomes the single actor chargeable with direct infringement” – even if the third party and the alleged infringer otherwise have an arms-length relationship. The court also laid out a four-element test for when entities have formed a joint enterprise, such that the acts of either may be attributed to the other. In sum, the Federal Circuit set out what appears to be a flexible, fact-specific standard that uses traditional tort liability principles to determine “whether all method steps can be attributed to a single entity.”

Though Akamai and the cases that preceded it arose in the software context, the decision has significant implications for the biotechnology industry. Method patents are often the primary intellectual property associated with biologic medicines, much more so than for small molecule drugs. As the Biotechnology Industry Organization (BIO) notes in an amicus brief it filed in the Akamai case, “[p]roprietary biotechnological processes, and method patents protecting them, often are a biotechnology company’s most valuable assets.” Because multiple entities can perform the steps of a single patent, the ability to legally attribute their acts to one “mastermind” infringer makes a biotechnology company’s patent portfolio much more secure.

BIO’s brief contains an example of how divided infringement might work in the biotechnology context. The “foundational” invention of biotechnology is the ability to cut DNA out of one organism and splice it into the genome of another, thereby creating recombinant DNA. This invention is the subject of U.S. Patent No. 4,237,224. The ‘224 patent calls for, in essence, a four-step process: (1) creating a fragment of DNA; (2) combining that fragment with another in a unicellular organism; (3) growing that organism with the recombinant fragment; and (4) isolating the bacteria that contain the novel DNA. According to BIO, this patent “launched an industry.” Without some form of vicarious liability, however, this patent “could easily be circumvented by having one party perform steps (1) and (2) of the patented method and then having another party perform the remaining steps (3) and (4).” Many biotech processes can be similarly split between different entities, making divided infringement a concern for biologic patents.

Method patent holders may be able to breathe a little easier following the Akamai decision, likely the last in a case that sprawled over almost a decade and included a trip to the Supreme Court. Limelight, on the other hand, was not so lucky: the Federal Circuit decision reinstated a $45 million jury verdict against it.