The Federal Circuit has agreed to rehear en banc two cases addressing joint infringement (also referred to as divided infringement). The first case relates to direct infringement, and will answer the question: If separate entities each perform separate steps of a method claim, under what circumstances would that claim be directly infringed and to what extent would each of the parties be liable? Akamai Technol., Inc. v. Limelight Networks, Inc., Nos. 2009-1372, 2009-1380, 2009-1416, 2009-1417 (April 20, 2011) Order granting en banc rehearing and vacating December 20, 2010, panel decision. The second case relates to indirect infringement and will answer the following questions: 1) If separate entities each perform separate steps of a method claim, under what circumstances, if any, would either entity or any third party be liable for inducing infringement or for contributory infringement? 2) Does the nature of the relationship between the relevant actors – e.g., service provider/user; doctor/patient – affect the question of direct or indirect infringement liability? McKesson Technol. Inc. v. Epic Sys. Corp., No. 2010-1291 (Fed. Cir., May 26, 2011) Order granting en banc rehearing and vacating April 12, 2011, panel decision.
A method claim is directly infringed only if each step of the claimed method is performed. A claim must be directly infringed for a finding of induced or contributory (indirect) infringement. Where asserted method claims require more than one actor to complete all of the steps, an analysis of joint infringement is necessary. The Federal Circuit has previously held that methods must be performed by a single entity, or alternatively that a single entity which performs some of the steps must control or direct the actions of the other entity that is necessary for performance of the remaining steps of the method.
Where the combined actions of multiple parties are alleged to infringe process claims, the patent holder must prove that one party exercised “control or direction” over the entire process such that all steps of the process can be attributed to the controlling party, i.e., the “mastermind.” Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318, 1329 (Fed. Cir. 2008) (citing BMC Res., Inc. v. Paymentech, L.P., 498 F.3d 1373, 1380-81 (Fed. Cir. 2007)).
Golden Hour Data Systems, Inc. v. emsCharts Inc., 614 F.3d 1367, 1380-81 (Fed. Cir. 2010) (finding insufficient evidence of control or direction to uphold a finding of joint infringement); see also Fromson v. Advance Offset Plate, Inc., 720 F.2d 1565, 1568 (Fed. Cir. 1983) (finding no direct infringement by manufacturer who performed the first step of a process claim even where its customer performed the other step of the claim); compare SiRF Technol. Inc. v. ITC, 601 F.3d 1319 (Fed. Cir. 2010) (finding that, properly construed, the method claim did not require action by a third party, and holding direct infringement without joint infringement).
The BMC and Muniauction decisions
In BMC Resources the parties agreed that the defendant did not perform every step of the method. BMC Resources at 1378. The Court held that because there were two other entities required to perform all of the steps of the method and the defendant did not control or direct those entities in that performance, there was no direct infringement. The BMC Resources Court was mindful of the well-settled rule that “a defendant cannot thus avoid liability for direct infringement by having someone else carry out one or more of the claimed steps on its behalf” (see BMC Resources at 1379) and for this reason established a standard by which the “mastermind” actor must control or direct any other actors, relying in part on vicarious liability precedent. BMC Resources at 1379, 1381. Further recognizing that this may encourage parties to enter into “arms-length agreements” to avoid direct infringement by either party, the Court stated that this was preferable than overextending the scope of direct infringement:
Direct infringement is a strict-liability offense, but it is limited to those who practice each and every element of the claimed invention. By contrast, indirect liability requires evidence of “specific intent” to induce infringement. Another form of indirect infringement, contributory infringement under § 271(c), also requires a mens rea (knowledge) and is limited to sales of components or materials without substantial noninfringing uses.
Id. at 1381.
In Muniauction, the method claim at issue required actions to be taken by both a bidder and an auctioneer. The auctioneer was the defendant’s online electronic auction system. Thus, the issue in determining direct infringement was “whether the actions of at least the bidder and the auctioneer may be combined under the law so as to give rise to a finding of direct infringement by the auctioneer.” Muniauction at 1329. Relying on BMC Resources, the Muniauction Court stated,
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.
Muniauction at 1330. The Court held that the defendant’s control over access to its system and its instructions to bidders on the use of the system was insufficient for a finding of liability for direct infringement under the control and direct standard.
Thomson neither performed every step of the claimed methods nor had another party perform steps on its behalf, and Muniauction has identified no legal theory under which Thomson might be vicariously liable for the actions of the bidders. Therefore, Thomson does not infringe the asserted claims as a matter of law.
Thus, under current precedent, where a claim requires more than one actor a court must determine whether the defendant controlled or directed the actions of the third party who performed the other steps. Of course, the better practice is to draft method claims from the perspective of one actor. See BMC Resources at 1381:
The concerns over a party avoiding infringement by arms-length cooperation can usually be offset by proper claim drafting. A patentee can usually structure a claim to capture infringement by a single party. ... In this case, for example, BMC could have drafted its claims to focus on one entity. The steps of the claim might have featured references to a single party’s supplying or receiving each element of the claimed process. However, BMC chose instead to have four different parties perform different acts within one claim. BMC correctly notes the difficulty of proving infringement of this claim format. Nonetheless, this court will not unilaterally restructure the claim or the standards for joint infringement to remedy these ill-conceived claims.
The Akamai decision
In Akamai, one step of the method claims at issue required users of a content delivery service to “tag” embedded objects. All of the other steps of the claimed method were performed by the defendant – the content delivery service provider. Thus, one step in the method was required to be performed by an entity other than the defendant. The district court had initially found that, unlike in BMC, there was a contractual relationship between the defendant and its customers and the defendant provided the customers with instructions on how to use its service and therefore denied a JMOL of non-infringement. After the Muniauction decision, however, the lower court granted the defendant’s motion for reconsideration and, finding no material difference in the interaction between defendant and its customers from that in Muniauction, granted the JMOL. The Federal Circuit affirmed, stating that while control or direction are considerations in determining whether an accused direct infringer is liable for the acts committed by another party, the relationship between the actors is also important, and agency law is instructive:
[W]hat is essential is not merely the exercise of control or the providing of instructions, but whether the relationship between the parties is such that acts of one may be attributed to the other. Implicit in this court’s holdings in BMC Resources and Muniauction is that the performance of a method step may be attributed to an accused infringer when the relationship between the accused infringer and another party performing a method step is that of principal and agent, applying generally accepted principles of the law of agency as explicated by the Supreme Court and the Restatement of Agency. ... Similarly, also implicit in the court’s holdings in BMC Resources and Muniauction, is that joint infringement occurs when a party is contractually obligated to the accused infringer to perform a method step.
Akamai Technol., Inc. v. Limelight Networks, Inc., 629 F.3d 1311, 1319 (Fed. Cir. 2010). Accordingly, the Akamai court held:
as a matter of Federal Circuit law that there can only be joint infringement when there is an agency relationship between the parties who perform the method steps or when one party is contractually obligated to the other to perform the steps. Neither is present here.
Akamai at 1320 (emphasis added). The Court found “nothing to indicate that [defendant’s] customers are performing any of the claimed method steps as agents for [defendant]”. Id.
An essential element of agency is the principal’s right to control the agent’s actions. ... there is no indication that an agency relationship arises when one party simply provides direction, no matter how explicit, to another party. All the elements of an agency relationship must be present.
Id. at 1320-21 (citation omitted).
For an agency relationship to exist, and thus, for infringement to be found, both parties must consent that the agent is acting on the principal’s behalf and subject to the principal’s control.
Id. at 1319 (citation omitted). Such agency relationships may include fiduciary relationships, independent contractors, or other relationships as set forth in the Restatement (Third) of Agency §1.01. Id. at 1320. The Akamai court found that the standard form contract that the defendant’s customers agreed to did not oblige them to tag any page, as required by the claims, “[i] t merely explains that the customer will have to perform the steps if it decides to take advantage of Limelight’s service,” which is more akin to an arms-length cooperation. Akamai at 1321. The court explained that nothing in the contract
establishes either Limelight’s control over its customers or its customers’ consent to Limelight’s control. To the contrary, the agreement merely provides the customers with the tools to allow them to exercise their independent discretion and control over how and in what respect they implement the system. ... the evidence leaves no question that Limelight’s customers acted principally for their own benefit and under their own control.
With regard to the difficulty of proving infringement of the claims, the court echoed BMC, stating
Here, the asserted claims were drafted so as to require the activities of both Limelight and its customers for a finding of infringement. Thus, Akamai put itself in a position of having to show that the allegedly infringing activities of Limelight’s customers were attributable to Limelight.
Id. at 1322.
The McKesson decision
In McKesson, the patent at issue is directed to an electronic method of communication between healthcare providers and patients via an interactive webpage on which content may be loaded by the provider and accessed by the patient. The defendant Epic licensed interactive software to healthcare providers, the execution of which was alleged to infringe the method claim of the McKesson patent. Thus, Epic was not itself a direct infringer, but was accused of inducing infringement of the patent by healthcare providers. However, one step in the method claim was not performed by the healthcare provider, but by the patient, and the parties agreed that no single party performed each step of the method.
The Federal Circuit affirmed the district court’s decision that because the patient voluntarily decided whether to execute that step, there was no direct infringement because the “control or direction” standard of BMC was not satisfied. The court rejected McKesson’s argument that liability could arise – under a joint tortfeasor theory – where there is merely concerted action. Id. at 9-10. The court noted that joint liability is subsumed in the concept of contributory or induced infringement, because the alleged infringer is liable for the actions of the party that directly infringes the patent. However, the court reasoned, “[a] bsent direct infringement, the patentee has not suffered a compensable harm.”
Judge Bryson concurred in McKesson because the holding was required in view of precedent (BMC and Akamai), but remarked that whether those decisions were correct might warrant review en banc in an appropriate case. McKesson, Slip Op. Concurrence (J. Bryson concurring).
Dissenting, Judge Newman argued that precedent does not support the requirement for agency or contractual obligation between joint infringers. McKesson, Slip Op. Dissent at 12-15. To the contrary, she cited several previous Federal Circuit decisions that expressly or implicitly contradict the new “agency or contractual obligation” requirement, e.g., On Demand Machine Co. v. Ingram Indus., 442 F.3d 1331, 1344-45 (Fed. Cir. 2006) (approving jury instruction that stated: “It is not necessary for the acts that constitute infringement to be performed by one person or entity. When infringement results from the participation and combined action(s) of more than one person or entity, they are all jointly liable for patent infringement.”).
Judge Newman also argued that the court’s holding in this case – that because it is the patient who decides whether to initiate the communication (the first step in the method) and the provider doesn’t control or direct that decision, there can be no direct infringement as a matter of law – means that the claim can never be infringed, even though it meets all the requirements of patentability. Id. Judge Newman added that “[a] patent that can never be infringed is not a patent in the definition of the law, for a patent that cannot be infringed does not have the ‘right to exclude’ ” and therefore the restrictive holding is “inappropriate.” Id. at 6. She continued: “Today’s holding, and the recent few cases on which it builds, have the curious effect of removing from patent eligibility the burgeoning body of interactive computer-managed advances.” Id. at 17.
Judge Newman also criticized the holdings in Golden Hour (where parties formed a strategic partnership to circumvent the control or direction standard and avoid infringement) and Akamai (finding no infringement “as a matter of Federal Circuit law” under the panel’s new “agency or contractual obligation” test). In Judge Newman’s view, such a change of law, in the shadow of conflicting precedent, should be effected en banc and not by a three judge panel. Id. at 14.
Issues on Rehearing
The en banc Federal Circuit will address the following issue in Akamai: If separate entities each perform separate steps of a method claim, under what circumstances would that claim be directly infringed and to what extent would each of the parties be liable? The en banc court will address two issues in McKesson: 1) If separate entities each perform separate steps of a method claim, under what circumstances, if any, would either entity or any third party be liable for inducing infringement or for contributory infringement? 2) Does the nature of the relationship between the relevant actors – e.g., service provider/user; doctor/patient – affect the question of direct or indirect infringement liability?
As of the writing of this article, one of the parties in the Akamai rehearing has provided its answer to the en banc question at issue there. Akamai Technologies’ Principal Brief on Rehearing En Banc (“Akamai Br.”) argues that the court erred by reading a “single entity” requirement into § 271(a). According to Akamai, this requirement was introduced into the law by BMC, but it has no support in earlier Federal Circuit or Supreme Court cases, or in the text of § 271(a). Akamai Br. 7-18. Rather, according to Akamai, “[a] method claim is directly infringed when every step of the claim is practiced in the United States, whether by a single entity or by entities whose actions combine to perform all the steps of the claim.” Akamai Br. 1.
Akamai argues that liability for such divided infringement should be decided under traditional tort law principles of vicarious liability. Akamai acknowledges that the most common type of vicarious liability “is based on principles of respondeat superior, or agency law,” under which “the agent’s (servant’s) acts are attributed to the principal (master) such that the parties can be seen as acting as a single entity.” Id. However, Akamai argues that it was a mistake for the panel on the original hearing of this appeal to hold that this is the only kind of vicarious liability for purposes of divided infringement. Id.
First, Akamai argues – consisted with BMC – that “if one party ‘directs or controls’ another to perform a step or steps of a method claim, those steps may be attributed to the directing or controlling party. . . .” Id. Akamai asserts that this rule is consistent with traditional tort principles because “[u] nder common law principles of torts, it makes no difference whether the directed or controlled party is acting as the ‘agent’ of the other for this doctrine to apply.” Id. at 2.
Second, Akamai argues that “performance of the steps of a method claim by two or more parties acting in concert should make such parties jointly and severally liable for direct infringement.” Id. Akamai cites the Restatement (Second) of Torts, which states that parties act “in concert” when they act in accordance with an implied or express agreement to cooperate in a particular line of conduct. Under this theory, Akamai argues that parties should be jointly liable for direct infringement when they act in concert to perform the steps of a method claim “whether they are partners, part of a joint enterprise, or have a contractual relationship.” Id.
Third, Akamai argues that “under common law principles of torts, even if one party is unaware that it is carrying out certain steps of a patented method, the other party possessing either actual or constructive knowledge that all of the steps that constitute the patented method are indeed being carried out should be liable for patent infringement.” Id. at 2-3. Akamai suggests that “[i]n such circumstances, the ‘innocent’ party without such knowledge but who is merely carrying out certain steps in isolation would not be held liable.” Id. at 3.
The patent bar waits with interest how the appellees in Akamai and both sides in the McKesson case will address the issues presented for rehearing, and what the en banc Court will ultimately hold.