Induced Infringement Standard Debated at Supreme Court

Induced Infringement Standard Debated at Supreme Court

 WASHINGTON, D.C. — (Mealey’s) The U.S. Supreme Court yesterday expressed uncertainty about how best to proceed in a dispute that poses the question of whether induced patent infringement liability can be established without also proving direct infringement (Limelight Networks, Inc. v. Akamai Technologies, Inc. and The Massachusetts Institute of Technology, No. 12-786, U.S. Sup.; See 1/6/14, Page 30) [lexis.com subscribers may access Supreme Court briefs for this case].

Because an en banc majority of the Federal Circuit U.S. Court of Appeals answered in the affirmative but failed to address whether the patent in question was ever actually directly infringed, Justice Samuel Alito opined that “the question before us really has no significance that I can think of.”

“My problem is that the question . . . is so complicated.  And the reason I found it so complicated is that I can . . .  think of so many different kinds of situations with so many different steps in method patents where so many rights and wrongs of it are differently at play, that I become worried about setting forth any rule.  And it’s under those circumstances that I say ‘Okay, let’s go with what we’ve had for 30 years, and if Congress feels they should change it, change it,’” Justice Stephen Breyer added.

Damages Awarded

Respondent Akamai Technologies Inc. and petitioner Limelight Networks Inc. provide Internet content delivery services and maintain their own content delivery network (CDN).  U.S. patent No. 6,108,703, a “Global Hosting System” for website content, is assigned to the Massachusetts Institute of Technology (MIT) and licensed to Akamai.  In 2006, Akamai and MIT (collectively, Akamai) sued Limelight in the U.S. District Court for the District of Massachusetts, alleging patent infringement.  The case ended in a verdict in favor of Akamai, with jurors finding that Limelight infringed claims 19 to 21 and that none of the infringed claims — which pertain to the use of CDNs to deliver embedded objects — was invalid. Akamai was awarded lost profits and royalty damages of $41.5 million, along with prejudgment interest and price erosion damages of $4 million.

However, Judge Rya W. Zobel granted judgment as a matter of law to Limelight pursuant to Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318 (Fed. Cir. 2008) [an enhanced version of this opinion is available to lexis.com subscribers], which held that an accused infringer’s control over its customers’ access to an online system, coupled with instructions on how to use that system, was not enough to establish direct infringement.

Wrong Interpretation

The Federal Circuit U.S. Court of Appeals in 2010 affirmed the ruling after finding that “what is essential” in evaluating a claim of liability for joint infringement is “whether the relationship between the parties is such that acts of one may be attributed to the other.”  The panel said joint infringement “occurs when a party is contractually obligated to the accused infringer to perform a method step.”  The Federal Circuit granted a petition by Akamai for rehearing en banc, and in August 2012, a six-member majority found that although all claimed steps of a method must be performed to find induced patent infringement, it is not necessary to prove that all steps were committed by a single entity.  The majority reconsidered and overruled the Federal Circuit’s 2007 holding in BMC Resources Inc. v. Paymentech LP, 498 F.3d 1373 (Fed. Cir. 2007) [enhanced version] that “some other single entity” must be liable for direct infringement for a different party to be held liable for induced infringement pursuant to 35 U.S. Code Section 271(b).

“Recent precedents of this court have interpreted section 271(b) to mean that unless the accused infringer directs or controls the actions of the party or parties that are performing the claimed steps, the patentee has no remedy, even though the patentee’s rights are plainly being violated by the actors’ joint conduct.  We now conclude that this interpretation of section 271(b) is wrong as a matter of statutory construction, precedent, and sound patent policy,” the majority held.

‘Abdication’ Of Obligation

After finding support for its holding in the statutory history of the Patent Act, the majority turned to the merits of the case, finding that liability for induced infringement can be established on remand with a finding that Limelight knew of Akamai’s patent, that it performed all but one of the steps of the method claimed in the patent, that it induced content providers to perform the final step and that the content providers did, in fact, perform the step.  Importantly, however, the en banc majority left undisturbed the original panel’s findings with regard to those content providers’ actions.

In a dissent, five circuit judges argued that the majority made a “sweeping change to the nation’s patent policy” when it followed “its conception of what Congress ought to have done, rather than what it did.”  The majority ruling “is also an abdication of this court’s obligation to interpret Congressional policy rather than alter it,” according to the dissenters, who noted that “when this court convenes en banc, it frees itself of the obligation to follow its own prior precedential decisions.”

Limelight filed a petition for writ of certiorari with the Supreme Court, presenting the following question: “Whether the Federal Circuit erred in holding that a defendant may be held liable for inducing patent infringement under 35 U.S.C. § 271(b) even though no one has committed direct infringement under § 271(a).”  The petition was granted in January 2014.

Step ‘Outsourced’

Representing Limelight, attorney Aaron M. Panner argued that there can be no liability under Section 271(b) without “deliberate,” “actionable, direct infringement” by a defendant under Section 271(a).

“That conclusion is strongly reinforced by the principle that the patent laws best promote the legitimate interests of inventors, of the innovative community, and the public when rules and boundaries are clear,” Panner added.

Chief Justice John G. Roberts Jr. noted, however, that Limelight’s position “makes it pretty easy” to “get around” infringement liability.  “All you’ve got to do is find one step in the process and essentially outsource it, or make it attractive for someone else to perform that particular step and you’ve essentially invalidated the patent,” he said.

The Supreme Court then quickly became mired down in the en banc Federal Circuit majority’s failure to address the question of direct infringement in the instant dispute, with Justice Ruth Bader Ginsburg conceding that “this case tends to be rather confusing” and Justice Elena Kagan questioning the relevance of a reversal. 

“If they did reach it a second time around and they decided ‘Well, now that this inducement theory is not available to us, we think that there is a real problem here, that there is a kind of end-run around the patent law and so we’re going to change what we think on the 271(a) question’ . . .  If they did that, would it be right to say it would render our opinion on the 271(b) question a nullity?  I can’t think of a way in which our decision on the 271(b) question would be relevant for any case if the Federal Circuit on remand goes the opposite way on the 271(a) question,” Justice Kagan added.

Competing Concerns

Ginger D. Anders, representing the United States, told the Supreme Court that the en banc Federal Circuit ruling is wrong for two reasons.

“First, Section 271(b)’s text makes clear that to be liable for inducement, a party must induce conduct that constitutes direct infringement under 271(a).  And second, I think in expanding 271(b), the Federal Circuit departed from the approach that this Court has repeatedly employed in interpreting Section 271,” Anders said.

Although the Federal Circuit was “understandably” concerned about infringement inducers avoiding liability by allowing others to perform certain steps of a patented process, under the standards set in Microsoft Corp. v. AT&T Corp., 550 U.S. 437 (2007) [enhanced version] and Deep South Packing Co. v. Laitram Corp., 406 U.S. 518, 530-531 (1972) [enhanced version], “judicial concerns about gaps in [Section] 271’s coverage should not drive the Court’s interpretation of that provision,” Anders argued.

“That is because any time that you close a gap in 271, expanding patent rights, you are invariably implicating competing concerns and it’s for Congress to resolve those concerns.  So to go to the concern about circumvention, I think if Congress were just considering the traditional active inducer who simply induces a party to perform all the steps of a process, that person compared to someone who performs some steps himself and induces someone else to perform the rest of the steps, there’s no obvious policy reason to distinguish between those two actors,” Anders added.

Consumer Concerns

Finally, Seth P. Waxman — representing Akamai — warned the Supreme Court about the wide-ranging implications of adopting Limelight’s position.

“Let’s assume that there is disclosure and patenting of a cure for cancer or a novel treatment for cancer that involves, as they often do, the administration of different drugs sequentially.  And two parties get together and say, ‘I’ll administer Drug 1, you administer Drug 2, and we can take advantage of this marvelous patented process without paying or giving anything whatsoever to the company that spent a billion dollars and years developing,’” Waxman hypothesized, leading Justice Sotomayor to ask, “Isn’t that a partnership?”

Justice Anthony M. Kennedy then asked Waxman about whether consumers who “add the final step” would be held liable under Akamai’s theory.  Answering in the negative, Waxman noted that on the way to court while using his smartphone, he “probably” performed the final step of “15 different method patents.” 

“Consumers aren’t sued under patent law for infringement, whether there’s a single user or multiple users,” Waxman said.

“Yet, until we issue the case in your favor,” Justice Kennedy replied.

Counsel

Limelight is represented by Panner, John Christopher Rozendaal, Gregory G. Rapawy and Michael E. Joffre of Kellogg, Huber, Hansen, Todd, Evans & Figel in Washington, Alexander F. MacKinnon of Kirkland & Ellis in Los Angeles and Dion Messer of Limelight in Tempe, Ariz.

Waxman, Thomas G. Saunders and Thomas G. Sprankling of Wilmer Cutler Pickering Hale and Dorr in Washington; Donald R. Dunner and Kara F. Stoll of Finnegan, Henderson, Farabow, Garrett & Dunner in Washington; Mark C. Fleming, Lauren B. Fletcher, Brook Hopkins and Eric F. Fletcher of Wilmer Cutler in Boston; Robert S. Frank Jr. and Carlos Perez-Albuerne of Choate, Hall & Stewart in Boston; Jennifer S. Swan of Finnegan Henderson in Palo Alto, Calif.; and David H. Judson of Law Office of David H. Judson in Dallas represent Akamai.

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