Supreme Court Reverses En Banc Federal Circuit on Divided Patent Infringement

by Perkins Coie
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Yesterday in Limelight Networks, Inc., v. Akamai Technologies, Inc. the U.S. Supreme Court unanimously reversed the en banc Federal Circuit and held that a defendant cannot be liable for inducing patent infringement under 35 U.S.C. § 271(b) unless another entity has directly infringed under 35 U.S.C. § 271(a).  The decision was narrow, however, and left the Federal Circuit room to revisit the scope of liability for “divided infringement” under § 271(a).

The divided infringement problem arises in the context of method patent claims reciting multiple steps.  For example, a claim may require steps A, B, C and D, and Entity 1 may practice steps A, B and C while Entity 2 practices step D.  In such cases, the question becomes whether Entity 1 or Entity 2 may be held liable for direct infringement on grounds that it is responsible for performance of all claimed steps, or whether either of them or a third party may be held liable for inducing both of them to infringe collectively.  Divided infringement issues have arisen in a variety of contexts, including Internet applications and medical treatments.

In this case, Akamai is the exclusive licensee of MIT’s U.S. Patent No. 6,108,703, which claims methods of delivering electronic data via content delivery networks.  In 2006 Akamai sued Limelight for infringement.  According to Akamai, Limelight directly performed most of the steps of the claims itself and encouraged customers to perform one step (a “tagging” step).  A jury found Limelight liable for direct infringement, but shortly thereafter the Federal Circuit issued its decision in Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318 (2008), which held that a defendant cannot be liable for direct infringement unless it has exercised control or direction over the performance of every step of a method claim.  Based on Muniauction and BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007), the district court granted judgment as a matter of law that Limelight did not infringe.

On appeal, a Federal Circuit panel upheld the district court’s decision, but the en banc Federal Circuit later vacated the panel decision and reheard the case along with another case raising the inducement issue, McKesson Technologies, Inc. v. Epic Systems Corp.  In its en banc decision, the Federal Circuit court left standing its existing doctrine requiring a single entity to exercise control or direction over all steps to be liable for direct infringement under § 271(a).  But it also held that a defendant such as Limelight could be liable for inducing a combination of parties to infringe under § 271(b), even where no single party was liable for direct infringement under § 271(a). 

Both sides filed cross-petitions for certiorari.  The Supreme Court granted Limelight’s petition, which asked the Court to decide whether a party may be liable for inducing infringement even though no party has committed direct infringement.  The Court held Akamai’s cross-petition, which asked the Court to review the Muniauction control-or-direction test for direct infringement.  Now, in a 9-0 decision written by Justice Alito, the Supreme Court has reversed the Federal Circuit and held that a party such as Limelight cannot be liable for inducing infringement under § 271(b) without an underlying act of direct infringement under § 271(a).  In so holding, the Court followed the en banc Federal Circuit’s lead and assumed without deciding that Muniauction was correctly decided.  It observed, however, that “on remand, the Federal Circuit will have the opportunity to revisit the §271(a) question if it chooses.”

The Court began by observing that it had long held that there can be no liability for indirect infringement without underlying direct infringement.  The Federal Circuit posited that direct infringement could exist even though no one party was liable for it, but the Court disagreed, saying that “[t]he Federal Circuit’s analysis fundamentally misunderstands what it means to infringe a method patent.”  Taking Muniauction’s control-or-direction test as a given for the purposes of today’s decision, the Court held that “there has simply been no in­fringement of the method … because the performance of all the patent’s steps is not attributable to any one person.”  In so holding, the Court cited § 271(f), which addresses inducement of infringement abroad, for the proposition that “when Congress wishes to impose liability for inducing activity that does not itself constitute direct infringement, it knows precisely how to do so.”  According to the Court, “in this case, performance of all the claimed steps cannot be attributed to a single person, so direct infringement never occurred” and “Limelight cannot be liable for inducing infringement that never came to pass.” 

The Court acknowledged the Federal Circuit’s concern that this interpretation would “permit[] a would-be infringer to evade liability by dividing performance of a method patent’s steps with another whom the defendant neither directs nor controls.”  But it felt that “[a] desire to avoid Muniauction’s natural consequences does not justify fundamentally altering the rules of inducement liability that the text and structure of the Patent Act clearly require—an alteration that would result in its own serious and problematic consequences, namely, creating for §271(b) purposes some free-floating concept of ‘in­fringement’ both untethered to the statutory text and difficult for the lower courts to apply consistently.”  Similarly, “the possibility that the Federal Circuit erred by too narrowly circumscribing the scope of §271(a) [wa]s no reason for this Court to err a second time by misconstruing §271(b) to impose liability for inducing infringement where no infringement has occurred.”

Although Akamai urged the Court to review the merits of the control-or-direction test, the Court declined to do so because the question presented presupposed that Limelight had not committed direct infringement under § 271(a).  The Court specifically noted, however, that on remand the Federal Circuit will have the opportunity to revisit the scope of liability under § 271(a).  Under the Federal Circuit’s Internal Operating Procedures, the case will be referred back to the en banc court of appeals, which will then decide whether to revisit the test limiting direct infringement of method claims to cases in which a single entity performs, controls or directs the performance of every step.

 

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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