To infringe a patented method claim, all steps of the method must be performed. When one entity performs all of the steps, that entity infringes the claim. When two or more entities collectively perform all of the steps, there are three possibilities: (1) one of the parties alone is liable for direct infringement; (2) two or more parties are liable as joint infringers; or (3) no one infringes. Whether the performance of all claimed steps amounts to direct, joint, or no infringement, turns on the relationship among the entities performing the claimed steps.

Two recent Court of Appeals for the Federal Circuit cases – Akamai Technologies, Inc. v. Limelight Networks, Inc. and McKesson Technologies Inc. v. Epic Systems Corp. – have interpreted the law in a way that makes it easier for accused infringers to argue that their activities fall in the “no infringement” category. Both cases involved method claims in which an accused infringer performed all but one step of a claim, with its customer or patient performing the other step. The Federal Circuit found no infringement because there was no agency relationship or contractual obligation between the accused infringers and their customers or patients.  

Akamai Technologies, Inc. v. Limelight Networks, Inc.

In Akamai, the patents disclosed a service for allowing a website owner to outsource the storage and delivery of discrete portions of its website content to maximize the efficient delivery of information over the Internet. The patent claims include steps in which the content delivery provider (e.g., accused infringer Limelight) performs the steps of storing, replicating, and delivering embedded webpage objects for its website owner customers. Limelight’s customers, however, perform the claim step of tagging the webpage objects to be outsourced to Limelight.

Because no one entity performed all the claim steps, Akamai argued at trial that Limelight and its customers were joint infringers. But under prior Federal Circuit case law, joint infringement requires that one of the joint infringers “control” or “direct” the activities of the other party. While Limelight provided its customers with step-by-step instructions to perform the tagging step, offered technical assistance to those customers, and contractually required the customers to do the tagging to take advantage of the Limelight service, the Federal Circuit held that Limelight did not “control” or “direct” its customers in a way that made Limelight responsible for performing the only step in the claim (the “tagging” step) not performed by Limelight.

Because it was not responsible for the performance of all steps, Limelight did not infringe the Akamai patent.

For Limelight to be liable, the Federal Circuit held that the relationship between Limelight and its customers had to be one of principal and agent, applying generally accepted principles of agency law, or that Limelight’s customers had to be contractually obligated to perform the tagging step. Traditionally, the principal-agent relationship involves a fiduciary relationship in which the principal authorizes an agent to act on the principal’s behalf, and the agent agrees to do so. Here, Limelight’s customers were not agents of Limelight, and while there was a contract between Limelight and its customers, the customers were not obligated to perform the tagging step. Rather, they merely could choose to perform the step if they wanted to take advantage of Limelight’s service.

McKesson Technologies Inc. v. Epic Systems Corp.

In McKesson, the patent disclosed an electronic communication method between health care providers and their patients. Several steps of the patent claims involved providing personalized patient webpages. Those steps were performed by the health care providers. However, the claims also included the step of “initiating a communication,” which was performed by the patients. The accused infringer, Epic Systems, licensed a software program to health care providers that allowed its customers to set up personalized websites for their patients. Epic’s software performed all of the claimed steps, except for the “initiating” step performed by the patients. Applying the earlier Akamai decision, it was shown that there was no agency or contractual relationship between the doctors and patients. McKesson, the patent owner, argued that because of the special nature of the doctor-patient relationship, the court could treat actions of the patients as actions of their doctors, meaning that the health care providers were performing all of the claimed steps. The Federal Circuit disagreed, holding that without an agency or contractual relationship establishing control or direction by the doctors over their patients, there could be no direct infringement by the doctors or inducement of infringement by Epic’s licensing of the software that performed the steps.

Should All Patent Claim Steps Have to be Performed by a Single Entity?

The purpose of the requirement that all steps of a patented method must be performed by a single entity is to ensure that innocent, noninfringing activity is not blocked by the patent owner. Anyone should be free to perform unpatented, individual steps that make up a patented method. At the same time, under Federal Circuit precedent, BMC Resources Inc. v. Paymentech, LP, 498 F.3d 1373 (Fed. Cir. 2007), one cannot avoid infringement by merely contracting out a step of a patented process to a third party while practicing the remaining steps. For example, if the final step of a patented manufacturing method requires applying a coat of paint, the manufacturer performing all of the other steps cannot escape infringement by hiring a commercial painter to apply the coat of paint. In addition, the painter, who is just engaging in an innocent activity that is not separately patented, will not be liable for infringement. In that example, the manufacturer would be deemed to have performed all of the steps itself because of the agency or contractual relationship between it and the painter.

In Akamai and McKesson, the Federal Circuit was asked to extend the “control” or “direct” requirement beyond traditional agency or contractual relationships. It refused to do so at the panel level, noting that its binding precedent established the “control” or “direct” principle it was applying in these cases. The line must be drawn somewhere to protect innocent activity from amounting to joint infringement, and the Federal Circuit stuck with its “control” or “direct” principle stemming from the common law agency definitions. The resistance to expanding the “control” or “direct” principle stemmed, in part, from the belief that this entire debate could have been avoided had the patent owners drafted their claims so that only one entity had to perform the claimed steps to infringe. In Akamai, instead of including a step of “tagging the embedded objects” of a webpage, which is generally performed by the website owner, the claim could have been written to require “receiving a request to serve a tagged embedded object,” which would be performed by the accused content delivery provider performing the rest of the patented steps. In McKesson, instead of including a claim step of “initiating a communication,” which is performed by the patient, the claim could have been written to require “receiving a communication from a patient,” which would be performed by the health care provider performing the rest of the patented steps.

The Federal Circuit Has Agreed to Revisit Its Reasoning

Not everyone agreed with the panel decisions in these cases, both of which were authored by Judge Linn. Judge Newman wrote a dissenting opinion in McKesson, stating that the “single entity rule” is not required by precedent and that the majority’s decision precludes infringement of “interactive” patent methods. She concluded:

A patent that cannot be enforced on any theory of infringement is not a statutory patent right. It is a cynical, and expensive, delusion to encourage innovators to develop new interactive procedures, only to find that the courts will not recognize the patent because the participants are independent entities. From the error, confusion, and unfairness of this ruling, I respectfully dissent.

Judge Bryson, the third panel member in McKesson, concurred with Judge Linn’s opinion, noting that the result was required under the Federal Circuit’s precedent. However, Judge Bryson noted that “[w] hether those decisions are correct is another question, one that is close enough and important enough that it may warrant review by the en banc court in an appropriate case.”

As expected, the patent owners in both Akamai and McKesson filed petitions for rehearing en banc. The Federal Circuit agreed to hear the cases en banc and posed the following questions:

Click here to view the table.

The first question is essentially the same for each case. The slight variation stems from the fact that the accused infringer in McKesson was accused of inducing infringement because it licensed the software used by the accused directly infringing healthcare providers who performed all but one of the claimed steps. The second question in McKesson shows that the Federal Circuit is seeking guidance beyond Internet-related cases. Other areas of innovation will be affected. For example, many medical device companies have patents with method claims in which doctors, and sometimes also patients, perform claimed steps. In the diagnostics field, some patent claims are performed by a combination of laboratories assaying for a particular property and doctors making a correlation between the assayed property and another condition.

One of the focuses at the en banc court may be whether patent owners could have drafted better claims that could be infringed by a single entity. Patent law is a unique area in which property owners get to draft the scope of their own property rights. To the extent that poor claim drafting creates some ambiguity as to whether practicing only some steps of a patented method will amount to an infringing act, some will argue that it is only fair to construe that ambiguity against the claim drafter. Others will argue that inventors should be awarded for coming up with new and useful patents directed to interactive technologies and that the “control” or “direct” requirement for joint infringement should be relaxed to capture relationships of groups clearly working together, even if each relationship does not amount to an agency or contractual relationship.

Briefing for the Federal Circuit’s en banc consideration of the two cases is now on a parallel track, and the en banc oral argument should take place in late summer or fall 2011. Given the strong opinions on the Federal Circuit on both sides of the issues, and the Federal Circuit’s willingness to hear the case en banc, the decisions in these cases may very well provide a new framework for determining whether joint actors infringe method claims.