Akamai Technologies, Inc. v. Limelight Networks, Inc. and McKesson Technologies, Inc. v. Epic Systems Corp. (Fed. Cir. 2012) (en banc)

[author: Kevin E. Noonan]

Federal Circuit SealLast Friday, the Federal Circuit reconsidered en banc the Court's decisions in Akamai Technologies, Inc. v. Limelight Networks, Inc. and McKesson Technologies, Inc. v. Epic Systems Corp.  Long awaited, the decision was handed down "per curiam," with a majority consisting of Chief Judge Rader joined by Judges Lourie, Bryson, Moore, Reyna, and Wallach.  Judge Newman wrote her own dissent and Judge Linn authored another, being joined by Judges Dyk, Prost, and O'Malley.

The facts of the cases are as follows.  In Akamai, the asserted patent claimed methods for delivering web content by placing content on a number of "replication servers" and having web browsers access the content by being directed to those server pages.  Accordingly there is no direct modification of content providers' web pages; the defendant merely instructs users how to do so.  In McKesson, the patent claims were directed toward electronic communication between patients and healthcare providers, whereby portions of defendant's software permitted patients to access their healthcare records directly from physicians.  Defendant's software did not perform any of the steps of the method; rather, performance of the steps of the patented method was divided between the patients and healthcare providers.  Below, both defendants prevailed, on the grounds that there was no single, direct (literal) infringer, based on Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318 (Fed. Cir. 2008).

The majority opinion characterizes its decision as being directed to induced infringement, where direct infringement (§ 271(a)) requires that "a single actor commits all the elements of infringement" and induced infringement (§ 271(b)) occurs when "a single actor induces another actor to commit all the elements of infringement.  Neither is the case here, and "when the acts necessary to give rise to liability for direct infringement are shared between two or more actors, doctrinal problems arise" according to the majority.  The opinion contrasts two generic scenarios that illustrate the issues before the Court:  an actor performs some of the steps of a claimed method and induces others to commit the remaining steps (the fact pattern in Akamai) versus an actor inducing multiple parties to "collectively perform" all the steps of a claimed method, i.e., no single party has performed all of the steps (the fact pattern in McKesson).

The problem (according to the majority):  "[r]ecent precedents of this court have interpreted section 271(b) to mean that unless the accused infringer directs or controls the actions of the party or parties that are performing the claimed steps, the patentee has no remedy, even though the patentee's rights are plainly being violated by the actors' joint conduct."  This is the wrong approach, according to the opinion, but only a bare majority of the Court decided not to decide the question of whether there can be direct infringement when no single actor performs all the method steps, stating that induced infringement can be used to decide the questions in both cases.

The majority expressly overruled BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007), which held that there must be a single actor (or a second actor acting under the control of another) for infringement to lie.  All the steps of the claimed method still need to be performed, according to the majority opinion, but it is not necessary to prove a "single entity" performed them.

Going back to its own case law, the majority states that "for a party to be liable for direct patent infringement under 35 U.S.C. § 271(a), that party must commit all the acts necessary to infringe the patent, either personally or vicariously," citing Cross Med. Prods., Inc. v. Medtronic Sofamor Danek, Inc., 424 F.3d 1293, 1311 (Fed. Cir. 2005), and Fromson v. Advance Offset Plate, Inc., 720 F.2d 1565, 1568 (Fed. Cir. 1983).  The legal grounds for this position is that patent infringement is a "strict liability tort" and being able to sue "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" would be unfair, citing In re Seagate Tech., 497 F.3d 1360, 1368 (Fed. Cir. 2007) (en banc).  While agency principles were used in the past to find infringement when a second actor was acting as the accused infringer's agent, absent such a relationship infringement liability was not created by the acts of independent actors, according to the opinion (citing Cross Med. Prods., Inc.).

The opinion does not address the correctness of these precepts in its opinion, because it bases its judgment that defendants in the cases at bar are liable for infringement on its interpretation of the requirements for induced infringement (a portion of the statute that as written requires more than one tortfeasor).  This leads the majority into a disquisition on the grounds and bases for induced infringement liability under the 1952 Patent Act.  These grounds are expressly that the accused party is "a party who advises, encourages, or otherwise induces others to engage in infringing conduct."  In a footnote, the majority hints at why their result is not tainted by the considerations of unfairness that were thought to attach to innocent parties in the prior jurisprudence:

Because liability for inducement, unlike liability for direct infringement, requires specific intent to cause infringement, using inducement to reach joint infringement does not present the risk of extending liability to persons who may be unaware of the existence of a patent or even unaware that others are practicing some of the steps claimed in the patent.

Fn. 1.  In addition, induced (like contributory) infringement requires intent (or, at minimum, "willful blindness" according to the Supreme Court; see Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060, 2068 (2011)) and thus is not a strict liability tort according to the majority, citing DSU Med. Corp. v. JMS Co., 471 F.3d 1293, 1306 (Fed. Cir. 2006) (en banc).  The utility of induced infringement doctrines in this case arises because there is no requirement for any type of agency relationship between infringers, so long as the infringing acts are performed.  (The opinion cites Nat'l Presto Indus., Inc. v. West Bend Co., 76 F.3d 1185, 1196 (Fed. Cir. 1996), for the analogy that induced infringement is akin to "aiding and abetting" in the criminal context.)  The decision does not alter the "well-settled" law that direct infringement must occur for there to be indirect infringement, according to the majority.  But the BMC decision "extended that principle in an important respect that warrants reconsideration"; specifically, by requiring direct infringement in support of induced infringement to be performed by a single actor.  Although the individual prongs of the analysis was supported by precedent, the majority say here that "the conclusion that the [BMC] court drew from them was not."  As stated in the opinion (emphasis in original):

Requiring proof that there has been direct infringement as a predicate for induced infringement is not the same as requiring proof that a single party would be liable as a direct infringer.  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.

The majority opinion relies on the intent requirement to justify extension of infringement liability further than the BMC precedent would permit.  In the majority's view, a party who induces several other parties to infringe collectively "has had precisely the same impact on the patentee as a party who induces the same infringement by a single direct infringer" and there is no reason to differentiate between the two types of inducing infringers.  Nor is there any reason, according to the majority, to treat someone differently who only performs certain steps of a claimed method, and has one or more other parties complete infringement by performing other steps.  Both scenarios are set forth with relation to the harm to the patentee; indeed, the majority believes that, if anything, an inducing party that performs some of the steps may be even more culpable.

The en banc majority reads 35 U.S.C. § 271(b) as being "entirely consistent" with how they apply it to the two cases under their consideration here.  Perhaps in the face of the strong dissent, the majority also sets forth their exegesis of § 271(b) and its historical and legislative history predicates.  The opinion notes that, prior to the 1952 Act, indirect infringement comprising induced and contributory infringement were joined in the same section of the patent law.  Citing the legislative history, P.J. Federico (Commentary on the New Patent Act reprinted in 75 J. Pat. & Trademark Off. Soc'y 161, 214 (1993)), and Judge (then Mr.) G.S. Rich, the "principal architect" of the 1952 Act, the majority contends that Congress intended to give induced infringement a broad scope, whereas contributory infringement (§ 271(c)) was drafted more narrowly, reflecting a compromise directed at addressing some of the more egregious anti-patent decisions from the Supreme Court at that time (as examples, the opinion cites Mercoid Corp. v. Mid-Continent Investment Co., 320 U.S. 661 (1944), and Mercoid Corp. v. Minneapolis-Honeywell Regulator Co., 320 U.S. 680 (1944)).  The majority finds that the content of the legislative history evinces a legislative intent for § 271(b) that was "significant" for its analysis here, insofar as it was intended to "reach cases of divided infringement, even when no single entity would be liable for direct infringement."  According to that legislative history, § 271(b) having a broad scope was necessary to protect inventions, inter alia, in the radio and television communication arts, which almost by definition encompassed "both transmitting and receiving" embodiments (i.e., where both a transmitter and a receiver needed to be changed in parallel in order to function).  The revised statute was needed, according to Judge Rich, because "recent decisions of the Supreme Court [the cases targeted by the statutory changes] appear to make it impossible to enforce such patents in the usual case where a radio transmitter and a radio receiver are owned and operated by different persons, for, while there is obvious infringement of the patent, there is no direct infringer of the patent but only two contributory infringers," citing Contributory Infringement of Patents: Hearings Before the Subcomm. on Patents, Trademarks, and Copyrights of the H. Comm. on the Judiciary, 80th Cong. 5 (1948) ("1948 Hearing") (emphasis in original).  The majority thus invoked Judge Rich's considerable authority for their proposition that there should be infringement liability under an inducement theory even in cases where there was no direct patent infringer.

The majority then went far afield into other areas of tort law, to show (presumably) the reasonableness of their decision and for the principle that "courts look to the common law principles of joint tortfeasance (Hewlett-Packard Co. v. Bausch & Lomb, Inc., 909 F.2d 1464, 1469 (Fed. Cir. 1990); see also Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476, 500 (1964)).  These include the First and Second Restatements of Torts, §§ 876 & 877(a)(1979) and the Federal Criminal Code (relating to "aiding and abetting" criminal activity; 18 U.S.C. § 2(a)).  The Restatements provide the majority with a basis and rationale for their opinion, wherein the common law requires that "the rule imposing liability for inducement of a tort applies even if the person being induced is unaware that his act is injurious and is not liable for that reason" (circumstances that exist in the cases under review).  The majority draw from these sources the conclusion that:

The implication of that principle, as applied in the divided infringement context, is that a party may be liable for inducing infringement even if none of the individuals whose conduct constituted infringement would be liable, as direct infringers, for the act of infringement that was induced.

Turning to their review of the decisions at hand, the majority reversed the district court in both cases and remand for reconsideration.

Judge NewmanJudge Newman wrote her own dissent, noting that the question presented has "split [the Court] into two factions" and acknowledging that a "scant majority" recognizes what she terms "a new theory of patent infringement, based on criminal law" (something that could also be said about the Supreme Court's decision in the Global-Tech case).  She characterizes these as "dramatic changes" to infringement law, which she states could have been avoided by simply applying existing law.  And she characterizes the dissent as addressing an issue not raised by the majority ("[a]lthough review of the singe-entity rule was the sole reason for this rehearing en banc, and the sole question briefed by the parties and the amici curiae").  Neither side of the Court "provides a reasonable answer" to the question before them in her view, the majority's opinion "impos[ing] disruption, uncertainty, and disincentive upon the innovation communities."

For Judge Newman the task is straightforward:  the Court should have addressed the question posed and briefed, by the parties as well as several amici, relating to whether infringement liability can lie under the circumstances in the Akamai or McKesson cases below.  She is not persuaded that the majority actually overrules the BMC Resources case, saying that what was ultimately addressed by the majority (and overruled) was but a single sentence in the earlier decision, specifically:  "Indirect infringement requires, as a predicate, a finding that some party amongst the accused actors has committed the entire act of direct infringement."  While she acknowledges that "this [the Federal Circuit's] jurisprudence is in need of correction, clarification, and consistency, for neither the single-entity rule nor the majority's newly minted inducement-only rule is in accord with the infringement statute, or with any reasonable infringement policy," the majority decision is not such a solution (it is, she says, "a spontaneous judicial creation.  And it is wrong.").  She further acknowledges that while "[q]uestions of divided infringement are not new," the "single entity rule" espoused in Judge Linn's dissent (representing the status quo) "is plainly inadequate" for the task because it "leaves the meritorious patentee without redress," citing the McKesson decision below.  She identifies the rule, not the statute, as the problem, because in her reading the statute is not ambiguous:

§271(a) Except as otherwise provided in this title, whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.

The crux of her argument is that the "whoever" in the statute can be singular or plural, citing statutes and case law from other areas of the law as well as other portions of the Patent Act.  This interpretation of the statute makes the problem posed in these cases disappear:  no matter how many actors are required, if all the steps in a method claim are performed direct infringement has been established.  In this part of her argument, Judge Newman relies on Mowry v. Whitney, 81 U.S. 620, 652 (1871), Aro Manufacturing Co. v. Convertible Top Replacement Co., 365 U.S. 336, 342 (1961), and the linkage she perceives between § 154 (defining the right to exclude) and § 271 (defining what constitutes infringement), supporting this linkage by language from the Supreme Court in Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518, 522 (1972), and comments from Judge Rich ("We got along without [a separate infringement provision] for 162 years and we could again").

For Judge Newman, the cases could be resolved merely by resolving earlier conflicts in the Court's precedent.  After describing her understanding of this precedent (BMC Resources and Muniauction, including the earlier panel decisions in these cases), Judge Newman writes that many of the earlier decisions were not mandated by the statute or binding precedent.  And she showed little patience for "the Linn cadre's argument" that the single-entity rule could be avoided by "ingenious patent claim drafting."  "I do not discourage ingenuity," she writes, "but the presence or absence of infringement should not depend on cleverness or luck to satisfy a malleable single-entity rule."  Judge Newman also finds "useful guidance" from copyright law, where she cites Metro– Goldwyn–Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913, 930 (2005), for the proposition "that one 'infringes vicariously by profiting from direct infringement while declining to exercise a right to stop or limit it,'" citing Shapiro, Berstein & Co. v. H.L. Green Co., 316 F.2d 304, 307 (2d Cir. 1963).  Under these rubrics, finding vicarious liability would settle the question before the Court in a way that would address infringement as presented by the cases at bar while not doing violence to the statutory scheme.  She states:

The court should simply acknowledge that a broad, all-purpose single-entity requirement is flawed, and restore infringement to its status as occurring when all of the claimed steps are performed, whether by a single entity or more than one entity, whether by direction or control, or jointly, or in collaboration or interaction.

The majority, according to Judge Newman, erred by "discard[ing] decades of precedent, refus[ing] our en banc responsibility, and stat[ing] that 'we have no occasion at this time to revisit any of those principles regarding the law of divided infringement as it applies to liability for direct infringement'" as the basis for enunciating their new "inducement only rule."  Judge Newman believes that the better way to address the question is utilizing the same analysis used by the Court prior to BMC Resources, i.e., "application of the existing laws of infringement, whether direct, induced, or contributory infringement."  This means that "liability for inducement requires direct infringement," which for Judge Newman means turning to precedent (common law as well as statutory) on contributory infringement cases (including NTP, Inc. v. Research in Motion, Ltd., 418 F.3d 1282, 1318 (Fed. Cir. 2005); Everpure, Inc. v. Cuno, Inc., 875 F.2d 300, 302 (Fed. Cir. 1989); and National Presto Industries, Inc. v. West Bend Co., 76 F.3d 1185 (Fed. Cir. 1996)), all of which required direct infringement as a predicate for finding contributory infringement.  (She also castigates her brethren in the majority for introducing negligence concepts ("duty, breach and causation") into patent law (a strict liability tort).  And she disagrees with the majority's selective citation of the legislative history and Judge Rich's contributions, finding quotes contrary to the ones cited in the majority opinion to support her position.

Judge Newman then performs her own bit of judicial legerdemain by defining away the problem facing the Court.  She states that the problem does not require a change in the law so much as a change in definition; she says that "[t]he court misconstrues 'strict liability' as requiring that every participant in an interactive or collaborative method is fully responsible for the entire harm caused by the infringement" and that recognizing that the "strict liability" standard is not the standard for patent infringement is a legitimate way to permit the Court to find joint tortfeasor liability.  Strict liability is only required, according to Judge Newman, when there is "an absolute duty to make something safe" such as arises with regard to "ultrahazardous activities or in products-liability cases," citing Black's Law Dictionary 998 (9th ed. 2009).  Treating patent infringement as a tort, and not requiring strict liability, would permit courts to apply traditional remedies (including apportionment of remedies on the bases of "relative contribution to the injury to the patentee, the economic benefit received by the tortfeasor, and the knowledge and culpability of the actor") against two or more tortfeasors required (in some cases) to infringe a patent claim.  Thus, "[w]hen the several steps of a process claim are performed by more than one entity, whether the entities operate under common direction or control, or jointly or independently or interactively, remedy for infringement is appropriately allocated based on established criteria of culpability, benefit, and the like."

For Judge Newman, the best and most simple course is to acknowledge that the "single entity rule" is flawed, and to "restore direct infringement to its status as occurring when all of the claimed steps are conducted, whether by a single entity or in interaction or collaboration," allocating remedies for infringement between the defendants "in accordance with statute and the experience of precedent."

Judge LinnJudge Linn's dissent is based on his belief, shared by a significant portion of the Court that the majority engaged in judicial policymaking in developing its "inducement only" test.  To the dissenting judges, the "plain text" of the statute controls and (by implication) the "single entity" test is both appropriate and required by the statute.  Citing a plethora of Supreme Court cases as well as its own precedent, the dissenting judges argue that direct infringement (and thus, a single, direct infringer) must exist in order to apply induced or contributory infringement.  "Congress removed joint-actor patent infringement liability from the discretion of the courts," according to their opinion, "defining 'infringement' in § 271(a) and expressly defining the only situations in which a party could be liable for something less than an infringement in §§ 271(b) and (c) -- clearing away the morass of multi-actor infringement theories that were the unpredictable creature of common law."  For Judge Linn, the Court should have "adopt[ed] en banc" the Court's earlier BMC Resources and Muniauction decisions requiring "all steps of a claimed method be practiced, alone or vicariously, by a single entity or joint enterprise."  These dissenting judges agree with Judge Newman that the majority avoided the question presented to the Court en banc.

Judge Linn's explication of the law of infringement is directed to narrowly defining it.  Thus, the opinion speaks about what the statute limits infringement to be, and that the statute defines in §§ 271(b) and (c) as "the only ways in which individuals not completing an infringing act under § 271(a) could nevertheless be liable" and in doing so "reject[ed] myriad other possibilities that existed in the common law at the time" (emphasis in original).  According to Judge Linn and his colleagues in dissent, the statute requires that there be direct infringement before a court could find liability for contributory infringement or inducing infringement.  The majority errs in "redefining 'infringement' for the purposes of establishing liability" for inducement (as well as for writing an opinion that is directly contradictory to the Supreme Court's decision in Aro Manufacturing Co. v. Convertible Top Replacement Co.), according to the dissent.

The dissent also uses Congressional approval of additional infringement provisions of the Patent Act enacted since 1952 (specifically, §§ 271(e), (f) and (g)) as evidence that Congress can, and has, amended the patent statute to address policy goals such as the ones identified by the majority.  Accordingly, because these sections of the statute show that "Congress knows how to create alternative forms of infringement" and it has not altered §§ 271(a) and (b), the dissent believes that Congress has evinced no intention to change the requirement that direct infringement must be shown before indirect infringement (here, inducement) can be use to raise infringement liability.  Additionally, the dissent rejects the majority's reliance on standards in criminal and tort law, stating that "the majority overstates and improperly analogizes to fundamental principles of criminal and tort law."  And the dissent also disagrees with Judge Newman, believing that direct infringement is a strict liability tort having all the requirements that prevent infringement except by a single actor.

For the dissenting judges, "[t]he well established doctrine of vicarious liability is the proper test for establishing direct infringement liability in the multi-actor context" because, inter alia, "[a]bsent direct infringement, the patentee has not suffered a compensable harm."  Because a patentee establishes the conditions under which it is harmed (by drafting patent claims that describe the patentee's right to exclude), the patentee also bears the responsibility to properly draft claims that avoid the joint-tortfeasor limitations incumbent upon § 271(a).  Thus, "[a] patentee can usually structure a claim to capture infringement by single party," says the dissent, citing BMC Resources.

Turning to the cases at bar, Judge Linn writes that, because they properly found that no one entity directly infringed the claims there could be no indirect infringement, he would affirm.

The decision has implications for biotechnology and pharma patent claims, even if (as seems likely) these implications will prove ephemeral; it is unlikely that the Supreme Court will deny certiorari in a case of statutory construction where the Federal Circuit is so plainly fractured.  The majority opinion, if upheld, would be a boon for biotechnology, if only because it would provide another way for claim drafters to protect diagnostic method claims.  These claims, under attack in Mayo v Prometheus and AMP v. USPTO, would be much more robust if they could include (as the Prometheus claims did not) a treatment step in a diagnostic method claim.  Until last Friday (and most likely someday in the not distant future), such claims could not be enforced because the actors -- the diagnostician or testing lab and the treating physician) were not thought to be under each other's control and thus there was no direct infringer who practiced every step.  That requirement is eliminated under the majority's views, and thus infringement could be found under circumstances common in modern medicine -- a physician orders an infringing diagnostic test and then treats using the diagnostic results as her guide.  This outcome will only occur should the majority's views ultimately prevail, something that in all candor is just not very likely.

Akamai Technologies, Inc. v. Limelight Networks, Inc. and McKesson Technologies, Inc. v. Epic Systems Corp. (Fed. Cir. 2012) (en banc)
Panel: Chief Judge Rader and Circuit Judges Newman, Lourie, Bryson, Linn, Dyk, Prost, Moore, O’Malley, Reyna, and Wallach
Opinion Per Curiam; dissenting opinion by Circuit Judge Newman; dissenting opinion by Circuit Judge Linn, joined by Circuit Judges Dyk, Prost, and O’Malley

 

Published In: Intellectual Property Updates, Science, Computers & Technology Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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