Federal Circuit Redefines Liability for Induced Infringement

September 13, 2012

The Federal Circuit recently ruled en banc that in cases of divided infringement where more than one entity is involved in performing the steps of a patented method, an entity may be liable for inducing others to infringe even when no single other entity can be held liable for directly infringing.1

The issue of divided patent infringement arises when multiple actors perform separate steps of an asserted method claim, but no single entity performs every claimed step. Confusion over the infringement standard in such cases has led to inconsistent precedent concerning who may be held liable for direct and/or induced infringement.

To clarify the proper test in cases of divided infringement, the Federal Circuit, sitting en banc, reviewed two separate panel decisions, Akamai Technologies, Inc. v. Limelight Networks (Fed. Cir. 2010) and McKesson Technologies, Inc. v. Epic Sys. Corp. (Fed. Cir. 2011), and addressed the following question:

whether a defendant may be held liable for induced infringement if the defendant has performed some of the steps of a claimed method and has induced other parties to commit the remaining steps (as in the Akamai case), or if the defendant has induced other parties to collectively perform all the steps of the claimed method, but no single party has performed all of the steps itself (as in the McKesson case).2

In a single opinion issued on August 31, a sharply divided (6-5) court articulated a new standard for induced infringement, but did not clarify the test for direct infringement. The majority, comprised of Chief Judge Randall Rader and Circuit Judges Alan Lourie, William Bryson, Kimberly Moore, Jimmie Reyna, and Evan Wallach, held that "all the steps of a claimed method must be performed in order to find induced infringement, but that it is not necessary to prove that all the steps were committed by a single entity."3 This holding expressly overrules part of the Federal Circuit's earlier precedent in BMC Resources, Inc. v. Paymentech, L.P.,4 which held that "in order for a party to be liable for induced infringement, some other entity must be liable for direct infringement."5 Regarding direct infringement, the court declined to reconsider the well-settled "single-entity" rule, which requires that for direct infringement to be found under 35 U.S.C. § 271(a), a single entity "must commit all the acts necessary to infringe the patent, either personally or vicariously."6

Significantly, the court maintained that the principle that "there can be no indirect infringement without direct infringement" remains uncontroversial and is consistent with its new rule.7 The key to the newly articulated inducement standard is that there can be indirect infringement without liability for direct infringement because direct infringement can exist without being able to impose liability on the direct infringers. As the court noted, "[r]equiring 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."8

In Akamai, the patentee (Akamai) filed a complaint against Limelight alleging direct and induced infringement of a patented method for efficient delivery of web content. Limelight performed some steps of the patented method itself and instructed its customers on how to carry out the remaining steps. Applying the single-entity rule, the district court found that neither Limelight nor its customers directly infringed because no single entity performed all steps of the claimed method. Further, Limelight did not induce infringement because, under BMC, without a single direct infringer there can be no indirect infringement.

In McKesson, the patentee filed a complaint against Epic alleging that Epic induced its customers to infringe the asserted claims by licensing its software to healthcare organizations. Epic itself did not perform any steps of the patented method. The steps were divided between two sets of Epic's customers: healthcare organizations and patients. The district court applied the same precedent as applied in Akamai to grant summary judgment of noninfringement because it reasoned that there could be no inducement without a single direct infringer.

Applying its new inducement standard, the Federal Circuit reversed and remanded both Akamai and McKesson so that the issue of inducement could be litigated under the new doctrine:

[In the Akamai case,] under the principles of inducement laid out above, Limelight would be liable for inducing infringement if the patentee could show that (1) Limelight knew of Akamai's patent, (2) it performed all but one of the steps of the method claimed in the patent, (3) it induced the content providers to perform the final step of the claimed method, and (4) the content providers in fact performed that final step.9

In the McKesson case, Epic can be held liable for inducing infringement if it can be shown that (1) it knew of McKesson's patent, (2) it induced the performance of the steps of the method claimed in the patent, and (3) those steps were performed.10

Judge Richard Linn's dissent, in which Judges Timothy Dyk, Sharon Prost, and Kathleen O'Malley joined, reasons that the single-entity rule should be the standard for liability for both direct and indirect infringement such that an entity can be liable "only where one party performs each and every claim limitation or is vicariously liable for the acts of others in completing any steps of a method claim."11

Judge Pauline Newman's dissent criticizes the single-entity rule as inadequate to address the issues in either direct or indirect infringement properly. Judge Newman also criticizes the majority opinion for failing to address the conflict in precedent that prompted the court to take the cases en banc: "principles regarding the law of divided infringement as it applies to liability for direct infringement."12

The Akamai decision is a significant development of Federal Circuit precedent in that it broadens the doctrine of inducement, effectively making it easier for patent-holders to prove inducement of infringement. Further, as Judge Newman acknowledged in her dissent, the new standard for inducement raises issues not addressed by the majority opinion that could give rise to future uncertainty. She wrote:

The court thus avoids the en banc issue, even as it creates a new liability; yet the court gives no attention to the accompanying new issues such as the measure of damages, or the availability of remedy against direct infringement.13

Given the significance of this issue and the sharply divided court, it is likely that the parties will seek review at the Supreme Court.

For more information about this case, issues of indirect infringement, or other related matters, please contact James Yoon, Stefani Shanberg, Craig Tyler, Jose Villarreal, Michael Levin, Larry Shatzer, or another member of Wilson Sonsini Goodrich & Rosati's intellectual property litigation practice.

1 Akamai Techs, Inc. v. Limelight Networks, 2012 WL 3764695 (Fed. Cir., Aug. 31, 2012).

2 Id. at *9.

3 Id. at *10.

4 498 F.3d 1373 (Fed. Cir. 2007).

5 Akamai, 2012 WL 3764695, at *10.

6 Id. at *12.

7 Id. at *15.

8 Id. at *16.

9 Id. at *35-36.

10 Id. at *35.

11 Id. at *27 (Linn, J., dissenting).

12 Id. at *6 (Newman, J., dissenting).

13 Id.