Federal Circuit Limits “Divided Infringement” Defense – Precise Contours Of Direct Infringement Remain Uncertain

Monday, August 17, 2015

In this latest chapter of a long-running litigation involving the direct infringement of patent claims involving multiple actors, the U.S. Court of Appeals for the Federal Circuit recently concluded that a defendant can be liable for direct infringement when it “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.” Akamai Techs., Inc. v. Limelight Networks, Inc., No. 2009-1372, at *5 (Fed. Cir. Aug. 13, 2015) (en banc). The en banc decision vacated a May 13, 2015 panel decision holding that Limelight was not liable because the “single entity rule” for liability in divided infringement situations was not met. See BMC Res., Inc. v. Paymentech, LP, 498 F.3d 1373 (Fed. Cir. 2007). This latest decision appears to hinge on the specific facts of the case, particularly the nature of the relationship between Limelight and its customers. Thus, the full scope of the divided infringement doctrine remains undefined, and will require further clarification in future decisions.

Practice Points

  • Federal Circuit finds Limelight liable for direct infringement even though Limelight’s customers performed certain steps of Akamai’s patented process.
  • Defendants may be liable as direct infringers if they “direct or control” actions of a third party, including by: (1) conditioning participation in an activity or receipt of a benefit upon performance of a step of a patented method, and (2) establishing the manner or timing of the performance.
  • Although the opinion is limited to a specific set of facts, the Federal Circuit is clear that different, yet-to-be analyzed factual scenarios may warrant a finding of divided infringement. Thus, companies should continue to assess the risk of liability resulting from the sale of products that may be used by customers, and other third parties, to practice patented processes.

Akamai’s CDN Technology:

In the latest decision, the Federal Circuit again considered whether a defendant is liable for direct infringement under 35 U.S.C. § 271(a) when multiple actors carry out the required steps of a patented process – also referred to as “divided infringement” situations. Divided infringement claims arise where complex process inventions are carried out in a distributed manner, such as over computer networks or through commercial activity, and two or more actors carry out various steps in the claimed process.

The patent-in-suit, U.S. Patent No. 6,108,703 includes method claims directed to an Internet content delivery service, which delivers the base document of a web site from a content provider's storage, while data-intensive components such as photographs and video are stored on a Content Delivery Network (“CDN”). Because CDNs allow for the storage of information at multiple geographical locations, they provide faster delivery of content over the Internet to website visitors.

The ‘703 patent includes the step of “tagging at least some of the embedded objects of the page so that requests for the objects resolve to the domain instead of the content provider domain.” Claim 34 from the ‘703 patent is set out fully below:

34. A content delivery method, comprising:

distributing a set of page objects across a network of content servers managed by a domain other than a content provider domain, wherein the network of content servers are organized into a set of regions;

for a given page normally served from the content provider domain, tagging at least some of the embedded objects of the page so that requests for the objects resolve to the domain instead of the content provider domain;

in response to a client request for an embedded object of the page:

resolving the client request as a function of a location of the client machine making the request and current Internet traffic conditions to identify a given region; and

returning to the client an IP address of a given one of the content servers within the given region that is likely to host the embedded object and that is not overloaded.

‘703 patent (emphasis added). This “tagging” step formed the primary basis for the divided infringement claim before the Federal Circuit.

Prior Akamai/Limelight Cases Discussing Divided Infringement Liability:

Akamai Technologies, Inc. first sued Limelight Networks, Inc., which provides a competing CDN system, in the U.S. District Court for the District of Massachusetts. Although the jury in that case found Limelight liable for infringement, the district court granted Limelight’s motion for reconsideration of the court’s denial of Limelight’s motion for directed verdict based on the Federal Circuit’s decision in Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318 (2008). Muniauction held that merely providing instructions to a customer does not constitute sufficient direction or control for divided infringement liability. Akamai appealed that decision to the Federal Circuit.

In its initial panel decision, the Federal Circuit affirmed the district court’s finding of no direct infringement, holding that Limelight was not liable because it did not control the website owner’s decision to tag certain objects. Akamai Technologies, Inc. v. Limelight Networks, Inc., 629 F.3d 1311 (Fed. Cir. 2010). In a subsequent en banc decision, the Federal Circuit avoided the divided infringement issue addressed by the panel, and instead held that Limelight may be liable for indirect infringement based on a new rule that the direct infringement requirement for inducement may be satisfied by multiple actors, i.e., all of the steps needed to establish direct infringement need not be attributable to a single actor. Akamai Technologies, Inc. v. Limelight Networks, Inc., 692 F.3d 1301 (Fed. Cir. 2012) (en banc).

Limelight appealed that decision to the Supreme Court. The Supreme Court vacated the en banc decision, holding that the Federal Circuit’s induced infringement approach was erroneous, because indirect infringement liability under § 271(b) cannot exist without direct infringement attributable to a single entity. Limelight Networks, Inc. v. Akamai Technologies, Inc., 134 S. Ct. 2111 (2014)

On remand to the Federal Circuit, a panel again ruled in a 2-1 decision that Limelight was not liable for direct infringement. Akamai Technologies, Inc v. Limelight Networks, Inc., 786 F.3d 899 (Fed. Cir. 2015). The court held that § 271(a)’s “single entity rule” requires that all of the steps of patented process be performed by or attributed to a single entity, such as a party in a principal-agent relationship, a contractual arrangement, or a joint enterprise. Because Limelight’s relationship with its customers did not involve an agency, contract, or joint enterprise, the majority ruled that Limelight was not liable for direct infringement.

August 13th En Banc Decision

Most recently, the Federal Circuit vacated the post-remand panel decision and ruled in an en banc, per curiam opinion that Limelight was liable for direct infringement.

The court ruled that a party may be liable for direct infringement of a claimed process if it either performs all the recited process steps of a patented process or the steps are “attributable” to the defendant. Steps performed by a third party, such as a customer, are attributable to the defendant (1) if the defendant directs or controls the performance, or (2) where the defendant and other actors form a “joint enterprise.”

The Federal Circuit en banc panel ruled unanimously that Limelight was liable based on the steps performed by its customers because the record demonstrated that it had directed or controlled the customer “tagging” activity. The court noted that in applying this approach, principles of vicarious liability, as set forth in the BMC case, continue to be significant. (The court noted, however, that in the patent context “vicarious liability” is a “misnomer,” because the non-defendant is not independently liable for infringing the patent. See Slip op. at 4, n.2.) Nonetheless, the court ruled that a defendant may be liable for direct infringement under § 271(a) 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. In those instances, the third party’s actions are attributed to the alleged infringer such that the alleged infringer becomes the single actor chargeable with direct infringement.” Slip op. at 5.

Applying that standard to the facts of the case, the court ruled that Limelight controlled and directed the actions of its customers, and that those steps – when combined with the steps performed by Limelight itself – practice the claimed invention. The Federal Circuit emphasized that “Limelight conditions its customers’ use of its content delivery network upon its customers’ performance of the tagging and serving steps, and . . . Limelight establishes the manner or timing of its customers’ performance.” Slip op. at 7.

The conditions for using Limelight’s CDN system are established in a customer user agreement stating that Limelight is not obligated to deliver content unless the customer follows a specified process to tag and serve webpage elements. In addition, the court noted that Limelight provides each customer with detailed, mandatory instructions governing the manner and timing of customer performance. “Limelight provides step-by-step instructions to its customers telling them how to integrate Limelight’s hostname into its webpages if the customer wants to act as the origin for content. If Limelight’s customers do not follow these precise steps, Limelight’s service will not be available.” Id. (record cite omitted). As a result, the court ruled that substantial evidence existed that Limelight directed and controlled the steps performed by its customers, and thus it was liable for directly infringing the ‘703 patent claims.

The court also clarified that a defendant also may be liable for direct infringement on a “joint enterprise” theory, if four elements are met:

  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.

Slip op. at 5-6. The court did not address whether Limelight and its customers met the requirements for a joint enterprise.

The court recognized that its decision clarified, to a degree, the limits of direct liability for direct infringement. “Section 271(a) is not limited solely to principal-agent relationships, contractual arrangements, and joint enterprise, as the vacated panel decision held. Rather, to determine direct infringement, we consider whether all method steps can be attributed to a single entity.” Id. at 5 (footnote omitted). The court noted, however, that its discussion of the limits of liability was limited to the specific details of Limelight’s operations, and that, “In the future, other factual scenarios may arise which warrant attributing others’ performance of method steps to a single actor. Going forward, principles of attribution are to be considered in the context of the particular facts presented.” Id.

A summary of the five Akamai v. Limelight appellate decisions are included in the table below.

Akamai chart

Practical Significance

The latest Akamai decision further clarifies the circumstances in which a defendant may be a direct infringer under a divided infringement theory. However, the full reach of the divided infringement doctrine remains partially undefined. Limelight’s customers entered into a detailed contract, which required specific activity in order to use Limelight’s system. But the decision gives little guidance on whether liability will exist when customers have more discretion in performing required method steps.

Despite this decision, it remains important that patent applicants claim their process inventions in ways that can be practiced by single actors, either by a single competitor or actions attributable to it through well-established contractual relationship or agency principles. This is especially important because liability for active inducement or contributory infringement will not be available in many cases due to the high intent standard required under § 271(b) and (c). See Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060 (2011) (active inducement requires actual intent to cause infringement or willful blindness).