Federal Circuit Panel Reaffirms “Single Entity Rule” – One Infringer Must Be Responsible For Performing All Steps Of Methods Claims

Tuesday, May 26, 2015

On May 13, 2015, the U.S. Court of Appeals for the Federal Circuit again considered the circumstances in which a defendant may be liable for direct infringement under 35 U.S.C. § 271(a) when multiple actors carry out the required steps of a patented process. In a sharply divided panel decision, the court ruled that while principles of vicarious liability apply to direct infringement, liability is not available under joint tort concepts, such as “concert in action.” Akamai Technologies Inc. v. Limelight Networks, Inc., Case No. 2009-1372 (Fed. Cir. May 13, 2015). As a result, a defendant may be liable for direct infringement of a method claim only if: (a) the defendant performed every step of the patented method, or (b) if the defendant did not perform every step, the defendant was a “mastermind” that orchestrated the infringement and thus was responsible for the steps performed by others. In order to be a mastermind, a defendant must go beyond merely instructing or encouraging another actor to perform the steps that it did not perform -- a defendant is liable only if it is legally responsible for the missing steps due to a principal-agent relationship, a contractual arrangement, or a joint enterprise.

The latest Akamai decision essentially reaffirms the court’s earlier ruling in Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318 (2008) that direct infringement liability requires a single entity to perform all the steps of a patented method. This interpretation will impact patent claim drafting and infringement litigation. Due to the pointed dissent, however, it is likely that the Federal Circuit will again review the issue en banc.

Background:

The Akamai litigation concerns liability for direct infringement in so-called “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.

Akamai owns U.S. Patent No. 6,108,703 with method claims directed to an Internet content delivery service that 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”). CDNs are storage systems of computers at multiple geographical locations. The use of CDNs provides faster delivery of content over the Internet to website visitors.

The ‘703 patent claims include the step of “tagging” objects in order to identify them as content to be stored in and delivered from CDNs, instead of the content provider’s computer. For example, claim 34 recites:

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 typically is performed by each individual website owner, rather than the provider of the CDN service that performs the other steps of the method. As a result, the steps recited in the ‘703 patent require a combination of steps performed by different actors.

Akamai sued Limelight Networks, Inc., which provides a competing CDN system, in the U.S. District Court for the District of Massachusetts. Although Akamai won in a jury trial, the district court granted Limelight’s motion for directed verdict based on the Federal Circuit’s Muniauction decision. Akamai appealed to the Federal Circuit. In the initial panel decision, the Federal Circuit affirmed, ruling 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, however, the Federal Circuit deftly avoided the divided infringement issue by ruling that Limelight could be liable for active inducement of infringement under 35 U.S.C. § 271(b). Akamai Technologies, Inc. v. Limelight Networks, Inc., 692 F.3d 1301, 1319 (Fed. Cir. 2012) (en banc). Limelight then appealed to the Supreme Court. In a decision written by Justice Alito, the Supreme Court vacated the en banc decision, holding that indirect infringement liability under § 271(b) cannot exist without a direct infringement. Limelight Networks, Inc. v. Akamai Technologies, Inc., 134 S. Ct. 2111 (2014) The Court assumed, without deciding, that Muniauction correctly stated the law governing § 271(a) liability in divided infringement situations.

Federal Circuit Ruling:

On remand to the Federal Circuit, the panel again ruled that Limelight was not liable for direct infringement. In a 2 to 1 decision written by Circuit Judge Richard Linn, the court ruled that § 271(a) includes a “single entity rule:”

[D]irect infringement liability of a method claim under 35 U.S.C. § 271(a) exists when all of the steps of the claim are performed by or attributed to a single entity—as would be the case, for example, in a principal-agent relationship, in a contractual arrangement, or in a joint enterprise. Because this case involves neither agency nor contract nor joint enterprise, we find that Limelight is not liable for direct infringement.

Slip op. at 6-7. The court ruled that while § 271(a) covers situations in which a defendant is legally responsible for the acts of closely-related third parties (i.e., vicarious liability), direct infringement does not extend to common law tort theories in which multiple persons acting together are jointly liable.

In a vigorous dissent, Circuit Judge Kimberly A. Moore argued that the single entity rule has no basis in the statute or case law, and that limiting the scope of § 271(a) to vicarious liability situations creates a “gaping hole” in liability under the Patent Act, effectively rendering thousands of process claims uninfringeable. She argued that liability under § 271(a) also applies in cases where defendants would be considered jointly liable under some common law tort principles.

The majority rejected those arguments, however, and held that liability under § 271 is limited by the language of the statute, the legislative history of the Patent Act, and the unacceptable consequences of applying direct infringement to divided infringement situations.

First, the court noted that § 271 was a significant substantive change when enacted in 1952. Prior to that time, courts applied liability under various “joint actor” tort theories at their discretion. The then-new § 271 eliminated that discretion by defining “infringement” (§ 271(a)) and “expressly outlining in § 271(b) and (c) the only situations in which a party could be liable for something less than an infringement.” Slip op. at 10-11 (emphasis in original). The majority noted that if a defendant could be liable for direct infringement under § 271(a) for conduct that was something less than infringement, the indirect infringement provisions in § 271(b) and (c) would be redundant.

Second, the majority argued that expanding § 271(a) to cover defendants under joint tort theories would distort direct infringement’s character as a strict liability offense. At common law, joint tort theories extending liability to persons acting “in concert” with others only imposes liability on defendants acting with knowledge of a scheme and with complicity in a coordinated effort. The majority objected to introducing those requirements of knowledge and intent into § 271(a), which is a strict liability provision.

Third, the majority pointed out that the introduction of joint tort theories of liability to direct infringement under § 271(a) would lead to unacceptable results. For example, a defendant – such as a customer – who merely performs one step of a patented process by using a product as intended could be liable as a direct infringer. The court noted that, “It is nothing short of remarkable that while Congress and state legislators express their concern about the vulnerability of innocent customers to charges of patent infringement, Akamai and the dissent labor to create an unprecedented interpretation of existing law to make customers significantly more vulnerable to such charges. This is especially troubling given that the customer can be liable even without knowing of the patent.” Slip op. at 23. In addition, the introduction of joint tort theories to § 271(a) would lead to the anomalous result that claims with additional limitations, such as dependent claims, would result in more liable parties than narrower claims. This result would violate “the long . . . established rule that a dependent claim cannot be infringed unless the independent claim from which it depends is also infringed.” Slip op. at 24 (citation and quotation omitted).

Lessons for Claim Drafting:

The Akamai decision underscores the need for patent applicants to claim their process inventions in a way that can be infringed by a single actor, either through actions by a single competitor or actions attributable to it through 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 in § 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). The Akamai majority stated that rather than distorting § 271(a) to cover divided infringement situations, patentees could avoid the problem with better claim drafting. “[T]he claim drafter is the least cost avoider of the problem of unenforceable patents due to joint infringement. It would thus be unwise to overrule decades of precedent in an attempt to enforce poorly-drafted patents.” Slip op. at 17. Although claims reflecting the single entity rule may require extensive analysis, that effort is essential to ensure full protection of many process inventions.