The Federal Circuit's 2012 decision in Akamai v. Limelight expanded the reach of induced infringement and enabled patent holders (including non-practicing entities) to more aggressively assert their patents, particularly against certain types of companies and technologies that leverage the collective actions of multiple entities. Many commentators have predicted disastrous consequences from that decision, and the Supreme Court has granted certiorari to consider the issue. While the total impact of Akamai is still unknown, the available evidence indicates that Akamai has indeed increased the risk of liability for patent infringement.
Akamai Expands the Reach of Induced Infringement
In its 2007 decision in BMC Res. Inc v. Paymentech, L.P., the Federal Circuit held that "in order to support a finding of induced infringement, not only must the inducement give rise to direct infringement, but in addition the direct infringement must be committed by a single actor." In Akamai, however, a fractured en banc court reversed course, ruling that "it is not necessary to prove that all the steps were committed by a single entity." In her dissent in Akamai, Judge Newman expressed concern about the implications of that ruling: "On this new ‘inducement-only rule,' the inducing entity is liable on greatly enlarged grounds…This new rule is not in accordance with statute, precedent, and sound policy. It raises new issues unrecognized by the majority, and contains vast potential for abuse."
The expansive ruling in Akamai caught the eye of the Supreme Court, which granted certiorari and heard oral arguments on April 30, 2014. In addition to the parties' positions, the Supreme Court analyzed amici briefs from a range of companies and coalitions, many of whom share Judge Newman's concerns regarding the scope of the majority's decision. These amici express concern thatAkamai will lead to substantial problems from the activities of non-practicing entities (i.e., patent trolls), raise the costs of baseless litigation, and create chaos in the telecommunications, financial, e-commerce and high tech industries, among others.
To better understand whether the amici's concerns are founded, Faegre Baker Daniels analyzed the patent litigation landscape for the year prior to and the year immediately following Akamai to see how many additional cases of induced infringement were filed. During the twelve months after the Akamaidecision, the number of complaints alleging induced infringement rose by almost 1,000 cases, or approximately 50 percent.
Since Akamai is likely to be only one factor among many responsible for the increase, we looked to see how many cases in the year following Akamai cited to that case regarding induced infringement. In the twelve months after Akamai, about 40 cases cited Akamai regarding induced infringement, and about 20 of those cases cited Akamai's holding that no single entity is required to perform all the steps as a prerequisite for liability under induced infringement.
At first glance, these figures suggest that Akamai might not be the primary factor driving the rise in induced infringement allegations, and that perhaps Akamai may not be as bad as some of the amiciallege. However, those numbers likely do not reflect the true impact of Akamai. For example, some cases have been stayed pending the Supreme Court's review of Akamai and it remains to be seen how Akamai may shape other cases still in their early stages.
Perhaps more importantly, this analysis was limited to publicly available information; it does not include the number of demand letters sent in the wake of Akamai or the number of licenses or settlements that preempted litigation. These effects, which were a particular point of emphasis for many of the amici in Akamai, are presumably far greater in number than the number of cases filed and under active litigation.
In analyzing several post-Akamai cases to identify those that only exist or that could not have gone forward but for Akamai, we noted a distinct fact pattern highlighting the expansive holding of Akamai. In a number of cases the district court (pre-Akamai) resolved all issues of infringement in favor of the defendant, appearing to end that central issue of the case. Yet in each of those cases, the court's ruling with respect to induced infringement was then vacated on appeal (post-Akamai) by the Federal Circuit or by the district court itself in view of the precepts of Akamai.
For example, in Move, Inc. v. Real Estate Alliance Ltd., the district court granted summary judgment of non-infringement to the defendant, Move, Inc., on the ground that "in Move's systems, the user, not the computer," performed one of the claim limitations, while the other limitations were performed by Move's systems. As there was no direct infringer, the district court did not engage in a discussion of indirect infringement. While the Federal Circuit affirmed the district court's conclusion regarding direct infringement, it vacated the district court's implicit ruling on indirect infringement and remanded "for a determination whether Move is liable for indirect infringement under the standard set forth in Akamai." Thus, absent Akamai, this case would have ended favorably for the defendants. The district court has since stayed that case pending the Supreme Court's resolution of Akamai. Other cases following the same pattern have been stayed or were settled, likely with the plaintiff receiving a much larger portion than it would have absent Akamai.
Thus, while the total impact of Akamai is unknown, available evidence indicates that Akamai has indeed increased the risk of liability for patent infringement. It also seems that many of the potential problems predicted in the Akamai amici briefs are coming to fruition.
What Happens Next?
Within the next few weeks, the Supreme Court will decide Akamai and could either eliminate this expanded basis for liability or could cement it into place. Even if the Supreme Court completely reverses Akamai, the risk of liability for induced infringement will not evaporate completely. Instead, the earlier standard for inducement will apply, which by itself provides ample potential for significant exposure. For example, in Commil v. Cisco Sys., Inc., Cisco faced allegations of direct and induced infringement. At trial, the jury found that Cisco directly infringed the patent at issue and awarded damages of $3.7 million. While the jury initially found that Cisco did not induce infringement, the court granted Commil's motion for a new trial on the issues of indirect infringement and damages. At the end of the second trial, the jury found that Cisco had induced infringement and awarded over $63.7 million in damages. While the Federal Circuit since vacated the jury's finding of inducement due to an erroneous jury instruction on the scienter requirement, the fact that the jury found that induced infringement merited $60 million more in damages than direct infringement indicates that the risk of induced infringement is not to be taken lightly, even under the pre-Akamai standard.
Thus, regardless of whether Akamai is reversed, it appears prudent to evaluate and take steps to mitigate potential exposure to induced infringement.