Patent owners can find themselves in a jam when multiple unauthorized parties cooperate to practice a claimed invention. Imagine a method claim in a patent with two steps – Step A and Step B. If two parties cooperate to perform this method, whereby Party 1 performs Step A while Party 2 performs Step B, a patent owner who wants to assert its patent against such joint activities is faced with what is known as a joint infringement problem. This problem can be particularly acute in areas such as networked computing and software, where the technology in question often inherently involves the joint interactions of multiple parties.
Following the Federal Circuit’s decisions in BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007) and Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318 (Fed. Cir. 2008), courts have applied a stringent “control or direction” requirement to determine whether a party can be held liable for direct infringement of a method claim when that party does not itself perform all steps of the method claim. “[W]here the actions of multiple parties combine to perform every step of a claimed method, the claim is directly infringed only if one party exercises ‘control or direction’ over the entire process such that every step is attributable to the controlling party.” Muniauction, 532 F.3d at 1329 (citing BMC Resources, 498. F.3d at 1380-81). In both the BMC Resources case and the Muniauction case, the court found that the patent owner was not able to show “control or direction” by a single party over the performance of the whole method, and thus no direct infringement existed. A significant ramification of these decisions is that the patent owner was also unable to establish indirect infringement liability (i.e., on a contributory infringement theory or an inducement of infringement theory) against any party because of the absence of a direct infringer. These findings resulted in the patent owners the two cases effectively having uninfringeable patents.
In a recent line of cases, the Federal Circuit continues to grapple with these issues, and the full Federal Circuit has now agreed to reconsider major aspects of its joint infringement jurisprudence in the Akamai and McKesson appeals, discussed below.
A Tale of Two Claims – Akamai and Centillion
Akamai and Method Claims:
In a December 20, 2010, panel decision, the Federal Circuit further elaborated on this “control or direct” requirement in the case Akamai Technologies, Inc. v. Limelight Networks, Inc., 629 F. 3d 1311 (Fed. Cir. 2010). In doing so, the Akamai case effectively removed the “direct” portion of the “control or direct” analysis from the test for joint infringement liability.
The Akamai case involved a patent directed toward how Internet web pages that include embedded objects can be delivered to computer users by content providers. Rather than hosting an embedded object in a web page on a content provider’s own server, the patented technology permitted the content provider to instead store these embedded objects in a remote server network, presumably in an effort to increase the speed and reliability by which these embedded objects could be delivered to computer users who access the content provider’s web pages. The operator of the remote server network thus provided a service to content providers to improve the Internet experience of the computer users who access the content provider’s web pages. For this system to work, the URLs for the embedded objects needed to be re-pointed away from the content provider’s server(s) to the server network of the remote server network operator. The patent described this process as “tagging” the embedded objects.
The defendant in the Akamai case operated a remote server network in competition with the patent owner. However, with respect to the method claim asserted against the defendant, the defendant did not perform the tagging step. Instead, the defendant’s customers (the content providers) performed the tagging step. The patent owner alleged that despite the divided performance of the method steps, the defendant was still liable for direct infringement under a “control or direct” theory. In particular, the service contracts between the defendant and its customers, while not obligating the customers to use the defendant’s hosting services for embedded objects, did require that those customers who chose to use defendant’s hosting services for embedded objects perform the tagging step itself. As part of this, the defendant provided explicit and detailed instructions to its customers regarding how the customers were to perform the tagging step.
The jury returned a verdict in favor of the patent owner, presumably concluding that the defendant’s instructions to its customers satisfied the “control or direct” requirement. However, the district court overturned that jury verdict in a judgment as a matter of law (JMOL), and the patent owner appealed the case to the Federal Circuit.
On appeal, the Federal Circuit affirmed the district court’s conclusion that the patent owner failed to establish sufficient evidence to show control or direction by the defendant over the tagging activities of its customers. In an extension of its holding from the Muniauction case, the Federal Circuit ruled:
This court therefore holds 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 on party is contractually obligated to the other to perform the steps. Akamai, 629 F. 3d at 1320 (emphasis added).
Within this new legal framework, the Federal Circuit concluded that the patent owner could not satisfy the “agency relationship” requirement of this test because the defendant’s customers were not acting as agents of the defendant. As to the “contractual obligation” portion of the test, the court found that the service contracts between the defendant and its customers did not contractually obligate its customers to use the tagging feature. The customer was entirely free under the contract to choose whether to use the tagging feature. Therefore, because the contract permitted the defendant’s customers not to use the tagging feature, the court concluded that the patent owner was unable to establish that the defendant’s customers were contractually obligated by the defendant to perform the tagging step of the method claim.
Thus, despite explicit instructions from the defendant that directed the customer on how to perform the tagging step of a method claim, the Federal Circuit in Akamai concluded that the defendant was not liable as a direct infringer under a joint infringement theory because no agency relationship existed between the defendant and the alleged joint actor and because there was no contract between the defendant and the joint actor that obligated the joint actor to perform the method step in question. As such, the Akamai case demonstrates the extreme difficulty that currently exists for a patent owner to establish liability for the infringement of a method claim in a joint infringement scenario.
Centillion and System/Apparatus Claims:
One month later, in a January 20, 2011, panel decision, the Federal Circuit issued a ruling in the case Centillion Data Systems, LLC v. Qwest Communications Int’l, Inc., 631 F.3d 1279 (Fed. Cir. 2011) that was more favorable toward patent owners in joint infringement scenarios, so long as the patent owner is able to assert “system” or “apparatus” claims against the alleged parties that operate the allegedly infringing system or apparatus.
The patent involved in the Centillion case was directed toward a networked computer system whereby telephone companies provided certain billing information to customers via the Internet for analysis. The claims in question were system claims that required both a telephone company’s back-end computer system and a customer’s personal computer (PC) to work in concert with each other. The telephone company back-end system stored billing data and generated billing reports. The customer PC ran software that analyzed the billing reports generated by and received from the telephone company back-end system. While customers downloaded this software from the telephone company computer system, the customers executed the downloaded software locally on their own PCs.
At the district court level, the patent owner lost on summary judgment because the district court concluded that the patent owner could not establish sufficient control or direction by the defendant over its customers. However, on appeal, the Federal Circuit drew a distinction between this case and the BMC Resources/Muniauction/Akamai line of cases because this case involved system/apparatus claims rather than method claims.
The Federal Circuit found that it had never addressed the issue of the circumstances under which an infringing “use” under 35 USC §271(a) occurs in the context of a system claim having elements that are in the possession of more than one party. Relying heavily on its prior decision in NTP, Inc. v. Research in Motion, Ltd., 418 F.3d 1282 (Fed. Cir. 2005) (finding that a user located in the United States who makes use of a system was “using” that system in the United States for the purposes of 35 USC §271(a) by putting the system as a whole to beneficial use from the United States even though some components of that system were located in Canada), the Federal Circuit held that “to ‘use’ a system for purposes of infringement, a party must put the invention into service, i.e., control the system as a whole and obtain benefit from it.” Centillion, 631 F.3d at 1284.
Based on this standard, the court concluded that:
- The defendant’s customers could potentially be direct sole infringers because the customers put the claimed system as a whole into service and received the benefit from this service;
- The defendant could not be a direct sole infringer because it did not put the system as a whole into service (instead, it was their customers who initiated the operation of the system);
- The defendant could not be a direct infringer under a joint infringement theory because its customers were not acting as agents of the defendant and because it did not contractually obligate its customers to use the system; and
- The defendant could potentially be an indirect infringer under indirect infringement theories if its customers are found to be direct infringers. Id. at 1284-87.
The Federal Circuit further considered whether the defendant faced any liability for “making” an infringing system that was a combination of the defendant’s back-end computer system and the customers’ PCs. On this issue, the court found that the defendant cannot be considered the “maker” of the system because it only made a portion of the claimed system. Instead, it was the customer, acting outside of the control or direction of the defendant, who “completes the system” by installing the software on their PCs and initiating its operation. Id. at 1287-88. As such, the court concluded that the defendant could not be a direct infringer of the system claims under a “making” theory.
By holding that customers can face liability for direct infringement by using a jointly administered system or apparatus and further holding that a system provider could then face liability for indirect infringement based on the customers’ direct infringement, the Centillion case provides a lifeline to patent owners whose patents have system or apparatus claims with elements that are administered by multiple parties.
The McKesson Case - A Plea for En Banc Consideration of Joint Infringement Issues
In an April 12, 2011, panel decision, the Federal Circuit once again considered joint infringement issues in the context of method claims in the case McKesson Technologies Inc. v. Epic Systems Corp., No. 2010-1291, 2011 WL1518909 (Fed. Cir. 2011).
The asserted patent in the McKesson case involved networked software by which patients and doctors could interact with each other to share medical information and advice. The asserted method claims included a step that was performed by a patient and other steps performed by the doctors. In a divided 2-1 opinion, Judge Linn of the Federal Circuit found that the patent owner was unable to establish that the doctors exercised control or direction over the patients' use of the software. Relying on Akamai, the court found that the patients’ interactions with the doctors did not create an agency relationship between the patients and the doctors, nor was a contractual obligation in existence that obligated the patients to perform the method steps. In doing so, the court rejected the patent owner’s argument that the special nature of the doctor/patient relationship translated into doctors exercising sufficient control or direction over their patients’ behavior.
In a concurring opinion, Judge Bryson agreed with Judge Linn’s resolution as a matter of precedent following the BMC Resources, Muniauction, and Akamai cases. However, he further noted that an en banc review of the joint infringement legal standard should be conducted by the full Federal Circuit because he believes a question exists as to whether this precedent is correct.
In a dissenting opinion, Judge Newman found for the patent owner, and she concluded that the legal standards set by the Federal Circuit panel decisions in the BMC Resources/Muniauction/Akamai line of cases conflict with past Federal Circuit precedent, particularly as to their effects on indirect infringement liability.
Judge Bryson’s call for an en banc Federal Circuit review of its joint infringement jurisprudence was answered shortly after the McKesson decision was handed down. On April 20, 2011, the Federal Circuit issued an order for an en banc rehearing of the Akamai case. The Federal Circuit vacated its panel decision in the Akamai case, and it requested that the parties submit new briefs addressing the following issue: “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?” Next, on May 26, 2011, the Federal Circuit issued an order for an en banc rehearing of the McKesson case, and vacated its panel McKesson decision. Among the issues to be considered in the McKesson rehearing will be the circumstances under which indirect infringement liability can arise in joint infringement scenarios.
Thus, the legal framework for joint infringement liability may further shift following these en banc rehearings of the Akamai and McKesson appeals.
In view of this evolving legal landscape and the difficulties faced by patent owners in these joint infringement cases, patent applicants should strive to:
- Present claims in patent applications that are targeted toward a single party to the extent possible given the nature of the invention. Even with technologies that are inherently geared for joint operation by multiple parties (such as inventions involving networked computer systems and the like), opportunities will likely exist for drafting patent claims from the perspective of a single party so as to retain the ability to assert infringement against a single party without relying on joint infringement theories.
- Include a mix of system/apparatus and method claims in patent applications to fully protect an invention and retain the option of relying on the Centillion case to assert infringement based on a single party’s use of a jointly administered system/apparatus.
- Use continuation patent applications to retain flexibility for adapting to future changes in the law.