In Limelight, Supreme Court Rejects Inducement Liability Without a Direct Infringer

by Goodwin
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On June 2, 2014, the U.S. Supreme Court decided Limelight Networks, Inc. v. Akamai Technologies, Inc., et al., reversing a Federal Circuit decision holding Limelight liable for inducing patent infringement. The Court held that since there was no underlying act of direct infringement, there could be no liability for inducing infringement.

The Context

Akamai Technologies is the exclusive licensee of a patent for more efficient delivery of content on the Internet. One of the limitations of claimed method is “tagging” certain material on web sites to be processed in a particular fashion. Both Akamai and Limelight provide services to entities that have web pages.

In 2006, Akamai sued Limelight for infringement of the patent and was initially awarded $40 million in damages by the jury. After the verdict, the Federal Circuit issued a ruling in another case, Muniauction Inc. v. Thomson Corp., in which it held that “direct infringement requires a single party to perform every step of a method claim.” Based upon that ruling, and because the “tagging” step was performed by Limelight’s customers, rather than Limelight itself, the district court granted judgment of non-infringement to Limelight.

On appeal, a panel of the Federal Circuit affirmed the judgment of non-infringement. It held that even though Limelight’s contracts with its customers instructed them to perform the “tagging” step, those customers were not acting as agents of Limelight, and thus their actions could not be attributed to Limelight. Limelight was therefore not responsible for performing all of the steps of the claimed invention, and therefore was not liable for direct infringement.

At Akamai’s request, the Federal Circuit agreed to rehear the case en banc. In a 6-5 decision, the full Federal Circuit reversed the finding of non-infringement. While it did not hold either Limelight or its customers liable for direct infringement, it held that Limelight could be liable for inducing infringement because it encouraged its customers to perform the “tagging” step.

The Supreme Court accepted review of the Federal Circuit’s decision.

What the Supreme Court Said

  • Liability for inducement of infringement requires direct infringement.
  • Infringement of a method patent requires that all of the claimed steps are carried out.

What the Supreme Court Did Not Say

  • The Court expressed no opinion on whether direct infringement of a method claim requires all of the steps to be performed by (or attributable to) a single entity. This question is left for the Federal Circuit to resolve on remand, if it chooses to do so.

What You Need to Consider

The Supreme Court’s decision in Limelight eliminates the expansion of inducement liability resulting from the Federal Circuit’s en banc decision. Liability for inducement of infringement (or for contributory infringement) will once again require a patent holder to identify an underlying act of direct infringement.

The ruling will have the biggest impact on companies that provide services, such as the Internet services at issue in this case. Those businesses are most likely to face patent claims involving methods, such that they are likely to benefit from the Supreme Court’s reining in the Federal Circuit’s expansive view of induced infringement of method claims.

Under current Federal Circuit precedent, most notably Muniauction Inc. v. Thomson Corp., a single party must be responsible for performing each step of a patent claim in order for there to be an act of direct infringement. To be responsible for the performance of a method step, a party must either perform the step itself, or “direct or control” another party to carry out the step. Thus, Limelight in view of Muniauction allows a party to avoid direct infringement and inducement liability if it carries out only some of the steps itself while the remaining steps are carried out by a third party (as long as the party does not “direct or control” that third party). As in Limelight, a company could perform some of the claimed steps while its customer performs some of the claimed steps, and neither party would directly infringe or induce infringement of the claimed method.

Those companies’ freedom to engage in what some have called “divided infringement” may be short lived, however. As the Supreme Court noted, the Federal Circuit is free to reconsider the standard for direct infringement of method claims when Limelight goes back to that court on remand. Even if the “single party” rule is not changed by the Federal Circuit, companies need to be careful in managing their relationship with any third party that performs one of the claimed steps so the company is not considered to “direct or control” the third party.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this informational piece (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

 

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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