Overturning Prior Panel Precedent, Court Holds That Inducement Liability for Method Patent Claims May Be Predicated on Conduct by Multiple Parties Who Collectively Perform the Method Steps, Without a Showing of “Direction or Control” by One Party

SUMMARY

In the combined appeal in Akamai Techs., Inc. v. Limelight Networks, Inc. and McKesson Techs., Inc. v. Epic Sys. Corp. (Fed. Cir. August 31, 2012), a 6-5 en banc majority of the United States Court of Appeals for the Federal Circuit held that proving infringement by inducement of a method patent no longer would require proof that a single entity directly infringed that patent. The court held that a defendant may be liable for inducing infringement where the defendant has induced other parties to perform the steps of the claimed method, even if no single party has performed all of those steps. In reaching that conclusion, the court overruled a prior panel decision, in BMC Resources Inc. v. Paymentech, L.P., 498 F.3d 1373, 1379 (Fed. Cir. 2007), which held that liability for inducing infringement required, as a predicate, a finding of direct infringement by a single entity.

BACKGROUND

Under 37 U.S.C. § 271(a), “whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States, . . . infringes the patent.” It has long been the case that direct infringement of a method claim under Section 271(a) is governed by the “single entity rule,” under which liability for direct infringement cannot be established unless a single entity (or multiple entities where one acts vicariously through the others) performs each step of the claimed method. See Akamai/McKesson, slip. op. at 12 (citing, e.g., Cross Med. Prods. v. Medtronic Sofamor Danek, 424 F.3d 1923, 1311 (Fed. Cir. 2005)). Section 271(b) provides that “[w]hoever actively induces infringement of a patent shall be liable as an infringer.” In Aro Mfg. Co. v. Convertible Top. Replacement Co., 365 U.S. 336, 341 (1961), the Supreme Court held that “if there is no infringement of a patent there can be no contributory infringer.” Based on these and other precedents, the Federal Circuit panel in BMC Resources had held that liability of a single entity for direct infringement is a necessary predicate to liability for inducing infringement. 498 F.3d at 1379.

In Akamai, the patent at issue covered a method for delivering web content in which some content was placed on separate servers, and the content provider’s web page was modified, by the content provider, to instruct a web browser to retrieve the content from the servers. The defendant provided the servers, and instructed its customers (the content providers) on how to modify their web pages. Thus, most of the steps of the claimed method were carried out by the defendant, but the last step was performed by its customers. Following a jury trial in which the jury concluded that the defendant had infringed the asserted patents, the district court granted judgment as a matter of law that the defendant could not be liable for infringement because no single entity had performed all of the method steps, and the defendant did not direct or control the actions of its customers.

In McKesson, the patent covered a method of communicating between doctors and patients. The defendant licensed software to healthcare organizations. By communicating through the software, doctors and their patients collectively carried out all of the steps of the claimed method. The district court granted summary judgment of non-infringement because no single entity engaged in direct infringement.

On appeal, the panels in both Akamai and McKesson affirmed the district court decisions. In its August 31, 2012 en banc decision, the Federal Circuit vacated the panel decisions, and remanded for further consideration of inducement by the district courts.

THE FEDERAL CIRCUIT’S DECISION

In its per curium decision,1 the Federal Circuit acknowledged the single entity rule for direct infringement, noting that under Section 271(a) a single party “must commit all the acts necessary to infringe the patent, either personally or vicariously.” Akamai/McKesson, slip op. at 12. For a method claim, “this means the accused infringer must perform all the steps of the claimed method either personally or through another acting under his direction or control.” Id. The court found no need to “revisit any of those principles” with respect to direct infringement. Id. at 13.

The court also acknowledged as “well supported in this court’s law” the proposition that “liability for induced infringement requires proof of direct infringement.” Id. at 15-16. However, it reasoned that “[r]equiring proof that there has been direct infringement . . . is not the same as requiring proof that a single party would be liable as a direct infringer.” Id. (emphasis in original). As a result, the court held that inducing infringement could be proven through the conduct of multiple parties:

If a party has knowingly induced others to commit the acts necessary to infringe the plaintiff’s patent and those others commit those acts, there is no reason to immunize the inducer from liability for indirect infringement simply because the parties have structured their conduct so that no single defendant has committed all the acts necessary to give rise to liability for direct infringement.

Id. at 16. The court justified this holding largely by reference to statutory construction and patent policy, and by analogy to criminal and tort law.

As a matter of statutory construction, the court held that “nothing in the text indicates that the term ‘infringement’ in Section 271(b) [the provision defining inducement] is limited to ‘infringement’ by a single entity.” Id. at 17. Under the “most natural[]” reading of section 271(b), the court held, infringement encompasses those “acts that collectively practice the steps of the patented method.” Id. at 16, 17. Thus, “‘infringement’ in this context . . . refers . . . to the acts necessary to infringe a patent, not to whether those acts are performed by one entity or several.” Id. at 17.

With respect to public policy, the court noted a key difference between direct infringement and inducement. Because direct infringement is a “strict liability” offense, extending liability to cases where multiple parties collectively carry out the steps of a claimed method might “ensnare actors who did not themselves commit all the acts necessary to constitute infringement and who had no way of knowing that others were acting in a way that rendered their collective conduct infringing.” Id. at 12. In contrast, induced infringement requires that the inducer “act with knowledge that the induced acts constitute patent infringement,” and thus does not present the risk of extending liability to non-culpable parties. Id. at 14-15.

The court also found support in the U.S. criminal code and in tort law for extending inducement liability even where no party is liable for direct infringement. It noted that the federal “aiding and abetting” statute, 18 U.S.C. § 2, “permit[s] the conviction of an accessory who induces or causes a criminal offense even when the principal is found not liable for the unlawful conduct.” Akamai/McKesson, slip op. at 22. Likewise, “tort law also recognizes the doctrine of liability for inducing innocent actors to commit tortious acts.” Id. at 23.

Applying its holding to Akamai, the en banc majority held that where an infringer performs all but one step of a claimed method, liability for inducing infringement may be found where (1) the defendant knew of the plaintiff’s patent, (2) it performed all but one of the steps of the claimed method, (3) it induced others to perform the final step, and (4) the induced parties “in fact performed” that final step. Id. at 36. Where, as in McKesson, the defendant does not perform any of the steps of a claimed method, inducement liability may be found where (1) the defendant knew of the patent, (2) it induced performance of the steps of the claimed method, and (3) “those steps were performed.” Id. at 35.

Judge Linn, joined by Judges Dyk, Prost and O’Malley, dissented. In his opinion, Judge Linn reasoned that Section 271(a) alone defines “infringement,” and that definition applies to both direct infringement under Section 271(a) and induced infringement under Section 271(b); thus, the single entity rule should be applied to both. Judge Linn stated that, by redefining the term “infringement” and defining the term differently in the context of Sections 271(a) and (b), the majority usurped the role of Congress, and ignored the Supreme Court’s decision in Aro. He would have held that “unless someone is liable as a direct infringer, no one is liable for indirect infringement.” Dissent of J. Linn, slip op. at 10. Judge Newman wrote a separate dissent. She would have overturned the single entity rule with respect to both direct and induced infringement. Dissent of J. Newman, slip op. at 16, 38.

IMPLICATIONS

The en banc Akamai/McKesson decision has implications for both patent drafting and patent litigation. Unless overruled by the Supreme Court, the decision means that patent agents and attorneys will not be limited to drafting method claims in a manner that ensures that all of the steps will be performed by a single entity, potentially allowing for an expansion in the scope of certain claims.

The decision also loosens the requirements for bringing an inducement claim based on a method patent, by closing what some perceived as a loophole that allowed parties to encourage infringement while escaping inducement liability. Thus, if it stands, the decision likely would add substantial value to method claims that might be performed by multiple parties. At the same time, potential defendants likely will have to consider more carefully whether their conduct may encourage multiple parties collectively to carry out the steps of a claimed method.

Notably, the court did not overturn the single entity requirement for direct infringement under Section 271(a). Thus, proving infringement of a method claim in the absence of knowledge of a patent may be difficult in some circumstances. Moreover, as Judge Newman points out in her dissent, while the decision allows a patentee to pursue an inducer for damages, it does not address the measure of damages for which the inducer may be liable. In addition, because the en banc majority left the single entity rule in place for direct infringement, a patentee often will be precluded from obtaining damages or injunctive relief against parties that are actually performing the steps of the claimed method but cannot be adjudged liable for direct infringement due to that rule. In these circumstances, if the patentee does not have a claim for induced infringement under Section 271(b), it may have no remedy at all. Even if the patentee can prove inducement, available remedies against the inducer may not fully compensate for, or provide an injunction to stop, use of the patent by the multiple direct infringers.

Finally, it is likely that the parties will appeal to the Supreme Court, and, given the strong dissents and the bare majority in support of the en banc decision, the Supreme Court might decide to take the appeal.