On June 2, 2014, the U.S. Supreme Court in Limelight Networks, Inc. v. Akamai Technologies, Inc., No. 12-786, unanimously held that “[a] defendant is not liable for inducing infringement under § 271(b) where no one has directly infringed under § 271(a) or any other statutory provision.” The judgment reversed the Federal Circuit’s en banc decision in Akamai Technologies, Inc. v. Limelight Networks, Inc., 692 F.3d 1301 (Fed. Cir. 2012), in which the Federal Circuit went against precedent by eliminating the “single-entity rule” for purposes of induced infringement.[1]

Akamai involves a patent with claims directed to a method of delivering electronic data using a “content delivery network” or “CDN.” Akamai Technologies, Inc.—the exclusive licensee of the asserted patent—filed suit against Limelight Networks, Inc. (“Limelight”) for infringement of the method claims. It was undisputed that Limelight carried out several steps of the claimed method but required its customers to perform the step of “tagging” or designating certain embedded objects for delivery.

Following the “single-entity rule,” a Federal Circuit panel affirmed the district court’s judgment of non-infringement because the defendant did not perform all of the claimed method steps, nor were its customers agents or contractually obligated to perform the remaining steps. Akamai, 629 F.3d at 1321. However, during en banc review, the Federal Circuit took an about-face and held that “all the steps of a claimed method must be performed in order to find induced infringement, but that it isnot necessary to prove that all the steps were committed by a single entity.” Akamai Technologies, Inc. v. Limelight Networks, Inc., 692 F.3d at 1306 (emphasis added). In other words, a party could be liable for induced infringement pursuant to § 271(b) even if no one would be liable as a direct infringer pursuant to § 271(a). In so holding, the Federal Circuit distinguished between liability for direct infringement pursuant to § 271(a) and the acts constituting direct infringement for purposes of induced infringement. Id. at 1308.

In reversing this decision, the Supreme Court sharply criticized the Federal Circuit, stating that “[t]he Federal Circuit’s analysis fundamentally misunderstands what it means to infringe a method patent.” Limelight Networks, Inc. v. Akamai Technologies, Inc., No. 12-786, slip op. at 5. Justice Alito, writing for the Court, first noted that liability for induced infringement is predicated on direct infringement. The Court also highlighted the Federal Circuit’s Muniauction holding that a method claim has not been directly infringed unless the defendant actually performed the steps or directed or controlled others to perform them. Id. at 5-6 (citing Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318, 1329-30 (2008)). Assuming that Muniauction is correct,[2] “there has simply been no infringement of the method in which respondents have staked out an interest, because the performance of all of the patent’s steps is not attributable to any one person.” Id. at 5-6. Thus, “the reason Limelight could not have induced infringement under § 271(b) is not that no third party is liable for direct infringement; the problem, instead, is that no direct infringement was committed.” Id. at 8.

The Court explained that the “Federal Circuit’s contrary view would deprive § 271(b) of ascertainable standards” because there would be ambiguity as to when indirect infringement liability is incurred if that liability is not triggered by all of the method steps being performed within the meaning of the statute. Id. at 6. The lack of support in the Patent Act itself further weakened the Federal Circuit’s interpretation. Id. at 6-7. While the Court acknowledged the Federal Circuit’s concern that the Court’s interpretation of § 271(b) could permit a potential infringer to escape infringement liability by dividing the performance of a claimed method with another that the potential infringer does not direct or control, the Court declined to adopt the Federal Circuit’s outcome-driven rule “that would result in its own serious and problematic consequences.” Id. at 10. Such a rule would “fundamentally alter[] the rules of inducement liability that the text and structure of the Patent Act clearly require,” “creating for § 271(b) purposes some free-floating concept of ‘infringement’ both untethered to the statutory text and difficult for lower courts to apply.” Id.

The Supreme Court’s Akamai decision squarely rejected the Federal Circuit’s attempt to lower the bar for induced infringement. The Federal Circuit’s expanded scope of induced infringement would have opened the door to more patent infringement cases, driven up the costs of litigation for companies defending against such lawsuits, and created more uncertainty regarding potential infringement liability. Along with the reinstated rule that induced infringement under § 271(b) must be predicated on direct infringement under § 271(a), comes the predictability and clarity regarding potential liability for induced infringement that will help guide companies’ behavior.