On April 30, the Supreme Court of the United States reviewed the Federal Circuit’s decision in Akamai Technologies, Inc v. Limelight Networks, Inc., which changed the law of induced infringement. The Supreme Court’s ultimate decision will have far-reaching consequences for numerous stakeholders. On opposing ends of the argument are two powerful industries: the computer and information technology industry on the side of respondents Akamai Technologies and MIT, and the healthcare industry on the side of petitioner Limelight Networks. In this Emerging Trends feature, Kaye Scholer Intellectual Property Partners Ben Hsing and William Tanenbaum explain the complex issues involved in this case, as well as the potential impact of the decision.
The case involves a type of method patent that, by its nature, involves steps that are usually performed by several different entities. As an illustrative example, one company will host a website, another company runs the website, and the customers use a browser to use the website functionality and ultimately retrieve contact and the upstream company’s servers. Accordingly, no single entity in this normal business chain performs each and every step of the method patent. It is very difficult for patent owners to obtain protection under a theory of direct infringement. Prior cases would have prevented the patent owner from proving induced infringement too. Since 2007, the Federal Circuit has explicitly required patent owners to show that a single entity or its agent directly infringed the method patent by performing every step before allowing the patent owner to argue that a defendant induced that entity into infringing the patent. In Akamai, however, the Federal Circuit found that a defendant could be liable for induced infringement even where no single party practiced every step of the method claim. Instead, a patent owner just has to show that (1) the defendant had knowledge of the patent; (2) the defendant induced other parties to perform the steps of the method patent; and (3) the steps of the patented method were performed.
The Competing Litigation Concerns of IT and Pharma
According to Intellectual Property Partner Benjamin Hsing, “While those in the computer and information technology industry are concerned that the Federal Circuit’s new rule for induced infringement will make it significantly easier for patent trolls—or non-practicing entities, as they prefer to be called—to abuse the patent system and collect damages for infringement of method patents that represent little or no advancement in innovation, the pharmaceutical industry argues that this rule is necessary to protect patents on methods of treatment. Many method of treatment patents may require more than one entity to perform all of the claimed steps—for example, multiple doctors or doctors and pharmacists. If the Federal Circuit’s decision is reversed, it may become very difficult to prove infringement for such patents.”
In addition to the litigation infringement issues, Akamai raises contract issues. “IP representations and indemnities need to be revisited, and when IP representations are part of an M&A transaction, one needs to ensure that one representation does not undercut the other one regarding liability,” explains Intellectual Property Partner William A. Tanenbaum. “This is complicated where vendors receive IP rights from upstream licensors, where customers have intermediate cloud and software service providers, and where a weak link in the chain of agreements can cause an unexpected adverse result. Unexamined patent indemnities may prove problematic in Health Care IT.”
The Impact of a Decision
“IT service providers are concerned that removing the requirement that a single entity or its agents perform every step of the method opens high-tech companies up to greatly expanded potential liability,” says Tanenbaum. “A patent covering a method of content delivery to smartphones, for example, may include steps in a single patent that are separately but collectively performed by the hardware manufacturer that provides the phone, the carrier that provides the data connection, the software company that provides the platform, the software companies that provide the applications and the company that integrates the hardware and software features into its own infrastructure .”
“Under the pre-Akamai rule,” Tanenbaum adds, “these separate actions would not give a basis for infringement liability. Now, however, the patent holder may have an action for induced infringement against any of the parties in the chain. This could make it easier for the non-practicing entities to threaten infringement litigation to bully companies into paying for damages or patent licenses they may not even infringe. Funding for R&D and innovation may need to be diverted to patent litigation.”
“On the other hand,” Hsing concludes, “if the Supreme Court rejects the Federal Circuit’s rule for induced infringement, the pharmaceutical industry may not be willing to expend the significant R&D expense required to develop new methods of treatment, since patents covering these methods may become impossible to enforce.”
As Eli Lilly explains in its amicus curiae brief, many parties often take part in the treatment of disease, from the doctor who diagnoses the issue and prescribes treatment, to the pharmacist who fills the prescription, to the patient who takes the drug. Pharmaceutical companies don’t want to sue healthcare professionals for prescribing the correct form of treatment; instead, they seek protection from the generic drug companies that market their generic forms of the drugs for the treatment of diseases. Without the patent protection afforded by the Federal Circuit’s induced infringement rule, the patent holder may spend millions of dollars researching and developing a treatment for a disease using a known compound, and a generic company may immediately undercut prices by marketing its generic form of the compound for that same treatment.
“During oral arguments Justices Roberts and Scalia seemed sympathetic to the patentee’s suggestion that adopting Limelight’s position would allow one to easily get around the patent by having another person performing one of the claimed steps,” observed Hsing. “As Justice Scalia said, ‘you can still violate the patent by not having one person do all the steps; have another person do some of the steps. And . . . it’s just as effective in . . . stealing the idea and yet there would not be a violation of the patent.’ The Justices, however, also seem to be troubled by the notion that inducing infringement can be found where there is no underlying direct infringement. As Justice Ginsburg quipped, ‘[a]n infringement without an infringer.’”
“Justices Kagan and Alito seemed concerned that if they decide the 271(b) inducement of infringement question as Limelight asks, i.e., whether there can be inducement when there is no underlying direct infringement, this still leaves open the question of whether there can be direct infringement under 271(a) when multiple entities are involved in performing the method,” Tanenbaum added.
“And if the Supreme Court were to overturn the Federal Circuit’s decision, on remand the Federal Circuit could very well decide that a finding of direct infringement does not require a single entity to perform all of the claimed steps. As Justice Kagan said, that ‘would render our opinion on the [inducement] question a nullity.’ But Limelight and the US point out that it’s Congress’s job to shore up gaps in the statute, not the job of the courts,” observed Hsing.
Though the court’s decision will be unpredictable, one thing is sure: members of the information technology and healthcare industries will be keeping a close eye on this case.