Federal Circuit Expands the Definition of Direct Infringement

Federal Circuit Expands the Definition of Direct Infringement

On August 13, 2015, the en banc Federal Circuit again addressed the issue of divided infringement of a method claim and expanded the scope of direct infringement under 35 U.S.C. § 271(a) regarding situations when the steps of the patented method are performed by multiple parties. In a rare, unanimous, per curiam en banc decision, the Federal Circuit ruled again in Akamai Technologies, Inc. v. Limelight Networks, Inc. on remand from the Supreme Court, which last year held that there can be no inducement of infringement if there is no underlying act of direct infringement, which requires all steps of a claimed method to be performed by a single actor or legally attributable to a single actor. The Supreme Court did not address the standard for finding direct infringement under 35 U.S.C. § 271(a), since that issue was not presented, but invited the Federal Circuit to do so.

In addressing that issue, the Federal Circuit broadened the pool of actors who can be considered direct infringers, as well as those who can be liable for inducing infringement of a method claim. Specifically, the holding of the en banc court establishes that direct infringement can be found:

(i) “when an alleged infringer conditions participation in an activity or receipt of a benefit upon performance of a step or steps of a patented method and establishes the manner or timing of that performance,” or

(ii) “where two or more actors form a joint enterprise, all can be charged with the acts of the other, rendering each liable for the steps performed by the other as if each is a single actor.”

Limelight Networks, slip op. at 5. This new standard is significant because it arguably alters the concept of direct infringement. Since conditioning participation may occur in a variety of ways, including through licensing and other contractual terms, this decision could have wide-ranging implications if it ultimately is upheld and followed.

In the earlier en banc Akamai decision, the Federal Circuit held an entity liable for inducement even if no one has committed an act of direct infringement under § 271(a) because, according to the Federal Circuit, indirect infringement can exist independently of a violation of the statutory provisions set forth therein related to direct infringement. Akamai Techs., Inc. v. Limelight Networks, 692 F. 3d 1301 (Fed. Cir. 2012) (en banc). The Supreme Court rejected this approach, however, holding that inducement must be tied to an underlying act of direct infringement. Limelight Networks v. Akamai Techs., Inc. 134 S. Ct. 2111 (2014). In doing so, Justice Alito, writing for the Court noted that in Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318 (2008), the Federal Circuit had held “that a method’s steps have not all been performed as claimed by the patent unless they are all attributable to the same defendant, either because the defendant actually performed those steps or because he directed or controlled others who performed them… . Assuming without deciding that the Federal Circuit’s holding in Muniauction is correct, there has simply been no infringement of the method in which respondents have staked out an interest, because the performance of all the patent’s steps is not attributable to any one person.” The Supreme Court’s statement about assuming without deciding about Muniauction’s validity led the Federal Circuit to reevaluate the law of direct infringement. The question will be whether, in doing so, it went too far in expanding the range of activities that could be classified as direct infringement. The Supreme Court may well have the opportunity to address that very issue in the appeal that will inevitably be made from the Federal Circuit’s en banc decision.

Since the Federal Circuit’s opinion may well not be the last round in this case, let us examine the background law and Federal Circuit’s analysis in a little more detail. Under 35 U.S.C. § 271(a), “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.” Direct infringement occurs where all steps of a claimed method are performed by, or attributable to, a single entity. See BMC Res., Inc. v. Paymentech, L.P., 498 F.3d 1373, 1379–81 (Fed. Cir. 2007). If more than one actor is involved in performing the method, “the question is ‘whether all method steps can be attributed to a single entity.’” Limelight Networks, slip op. at 6. In the Supreme Court’s Limelight decision, the Court reiterated that inducement under 35 U.S.C. § 271(b) requires a single direct infringer: “Similarly, in this case, performance of all the claimed steps cannot be attributed to a single person, so direct infringement never occurred. Limelight cannot be liable for inducing infringement that never came to pass.”

Under the Federal Circuit’s expanded definition of direct infringement, the performance of method steps by others may be “attributed to a single person” in two “sets of circumstances: (i) where that entity directs or controls others’ performance, and (ii) where the actors form a joint enterprise.” Limelight Networks, slip op. at 4. In the past, the Federal Circuit has held an actor liable for infringement if it acts through an agent, or if it contracts with another to perform one or more of the steps of the claim. However, the Federal Circuit expanded the requirements, concluding that direct infringement can also be established (i) “when an alleged infringer conditions participation in an activity or receipt of a benefit upon performance of a step or steps of a patented method and establishes the manner or timing of that performance,” or (ii) “where two or more actors form a joint enterprise, all can be charged with the acts of the other, rendering each liable for the steps performed by the other as if each is a single actor.” Id. at 5. Quoting the Restatement (Second) of Torts, the court stated that a joint enterprise requires proof of:

(1) an agreement, express or implied, among the members of the group;

(2) a common purpose to be carried out by the group;

(3) a community of pecuniary interest in that purpose, among the members; and

(4) an equal right to a voice in the direction of the enterprise, which gives an equal right of control.

Limelight Networks, slip op. at 5-6. Whether a joint enterprise exists is a question of fact, and is a question for a jury.

Following the Federal Circuit’s decision in Muniauction, many patent claims directed to methods were difficult to assert due to issues of divided infringement. A party could not be held liable if it did not perform even one of the steps of a claimed method, or if the steps of the method could not be attributed to the party. Thus, for example, two companies who together performed all the steps of a claim but separately did not, or a company who had its customers perform at least one step, could not be held liable for direct infringement or inducement. This was a significant defense to infringement and often was dispositive of a case at an early stage.

Now, however, patent owners and potential defendants need to reevaluate these claims anew and determine if the patented method is being performed and if all of the steps may be attributable to a single actor under the new Limelight standard. Under the current ruling, many more companies will be subject to potential liability for direct infringement, even if they only perform some of the steps of the claimed method. Moreover, since the nature of the inquiry into the relationship between the parties is now more liberal and highly fact based, it will now be more difficult for a defendant to prevail on a divided infringement defense, certainly at the summary judgment phase of a case. Indeed, at least one district court has already applied the new Limelight standard to a method of administering a chemotherapy drug, finding that the doctor prescribing the drug was a direct infringer even though the patient actually carried out one of the method steps. Eli Lilly & Co., v. Teva Parenteral Medicines, Inc. 10-cv-01376-TWP-DKL (S.D. Ind. Aug. 25, 2015). With this finding of direct infringement, the court found that the defendant drug companies induced the infringement through its product instructions.

But we stress again that the unanimous en banc opinion by the Federal Circuit may not—and we suspect will not—be the end of the road, however. We expect that Limelight will petition the Supreme Court to overturn the Federal Circuit’s expanded definition of direct infringement and we expect that many amici will also weigh in with their views about the Federal Circuit’s new approach.