By Dennis Smith, Martin Bader, Gray Buccigross

On August 31, 2012, the Federal Circuit, sitting en banc, issued a seminal, split decision articulating a new standard for induced infringement. Adjudicating two companion cases, Akamai Technologies, Inc. v. Limelight Networks Inc., and McKesson Technologies, Inc. v. Epic Systems Corp. (Fed. Cir., No. 2009-1372, -1380, -1416, -1417), the majority (Chief Judge Rader, and Circuit Judges Lourie, Bryson, Reyna, Moore and Wallach, joining) reversed both district courts and remanded for further proceedings.

Many observers had expected the Federal Circuit to tackle the sticky issue of joint, direct infringement—situations in which no single entity performs all of the steps in a method claim asserted as direct infringement. [1] The Federal Circuit did not resolve that open question, leaving many commentators to speculate as to the future landscape for direct infringement claims implicating two separate actors.

Instead, the majority limited its decision to indirect, inducement claims and eliminated the “single entity rule” therefor, explaining that “it is not necessary to prove that all the steps were committed by a single entity.” The majority thus overruled the contrary holding in BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007), as applied to induced infringement.

Akamai’s patent (U.S. Patent No. 6,108,703) covers a method for the efficient storage and delivery of web content, whereas McKesson’s patent (U.S. Patent No. 6,757,898) covers a method of electronic communication between healthcare providers and their patients. In Akamai, the claimed steps are divided between two actors, the defendant, Limelight, and its customers. In McKesson, the claimed steps are divided between defendant, Epic, and patients and health care providers using Epic’s “MyChart” web-portal. In both McKesson and Akamai, no single entity performed all of the steps of the claimed methods.

Majority looked to “statutory construction, precedent, and sound patent policy”

First, the majority agreed that the inducement statute should cover joint infringement because, unlike the strict liability tort of direct infringement, inducement requires that “the accused inducer act with knowledge that the induced acts constitute patent infringement.” Thus, the scienter requirement avoids “the risk of extending liability to persons who may be unaware of the existence of a patent or even unaware that others are practicing some of the steps claimed in the patent.”

Next, the majority presented several hypotheticals as evidence that upholding the “single entity rule” for purposes of induced infringement would lead to inequitable and bizarre results. According to the majority, “[a] party who knowingly induces others to engage in acts that collectively practice the steps of the patented method—and those others perform those acts—has had precisely the same impact on the patentee as a party who induces the same infringement by a single direct infringer . . . .”

The majority then addressed the inducer who also practices some of the steps of the patented method proposing that “[i]t would be a bizarre result to hold someone liable for inducing another to perform all of the steps of a method claim but to hold harmless one who goes further by actually performing some of the steps himself. The party who actually participates in performing the infringing method is, if anything, more culpable than one who does not perform any steps.”

Turning to § 271 specifically, the majority reasoned that the language of § 271(b) supports the majority opinion because “[n]othing in the text indicates that the term ‘infringement’ in section 271(b) is limited to ‘infringement’ by a single entity. Rather, ‘infringement’ in this context appears to refer most naturally to the acts necessary to infringe a patent, not to whether those acts are performed by one entity or several.”

The majority also relied on the legislative history of the 1952 Patent Act, which provides strong support for eliminating the “single entity rule” for inducement. The majority relied, for the most part, on statements by Judge Rich (then “Mr.” Rich), one of the statute’s principal drafters. Addressing a proposed version of § 271(b) of the 1952 Act, Judge Rich commented on hypothetical patent claims covering television inventions. Judge Rich observed that to describe an invention involving a transmitter that one entity owns and operates and a receiver that another owns and operates, “it is necessary either to specify a new method which involves both transmitting and receiving, or a new combination of an element in the receiver and an element in the transmitter.”

Judge Rich then stated that certain Supreme Court decisions (the cases that spurred Congress to enact the induced infringement statute in the first place) would render Judge Rich’s hypothetical transmitter/receiver method claim not infringed because “while there is obvious infringement of the patent, there is no direct infringer of the patent but only two contributory infringers.” The majority concluded that Judge Rich’s statements reflect his belief that there is liability for indirect infringement “even though there was ‘no direct infringer of the patent.’” The majority pointed to other statements Judge Rich made (concerning joint tortfeasors in patent infringement cases) as evidence that Judge Rich “viewed indirect infringement as an available remedy even in the absence of any single direct infringer.”

The Court then identified other areas of law that embrace the situation in which a principal can be liable for acts that an innocent intermediary commits, if the principal induced the intermediary to so act. The majority pointed to the aiding and abetting provision in 18 U.S.C. § 2(a & b), which “has been construed to permit the conviction of an accessory who induces or causes a criminal offense even when the principal is found not liable for the unlawful conduct.” The majority drew two more analogies to torts (§ 877(a) of the Second Restatement of Torts, and §§ 876 and 877 of the First Restatement of Torts), and reasoned that these exemplars were particularly compelling because § 271(b) derives from “the old common law doctrine of joint tort feasors.” According to the majority, these analogous principles found from other facets of the law support the conclusion that “a party may be liable for inducing infringement even if none of the individuals whose conduct constitute infringement would be liable, as direct infringers, for the act of infringement that was induced.”

Judge Newman dissented

Judge Newman’s dissent criticizes the majority for making “dramatic changes in the law of infringement.” Namely, Judge Newman stated that the “scant majority of the court adopts a new theory of patent infringement…whereby any entity that ‘advises, encourages, or otherwise induces,’ maj. op. 14, or ‘causes, urges, encourages, or aids the infringing conduct,’ id. at 15, is liable for the infringing conduct.”

Judge Newman also points out that “the majority further holds that only the ‘inducer’ is liable for divided infringement, and that the direct infringers are not liable although the patent rights are ‘plainly being violated by the actors’ joint conduct.’” Judge Newman characterizes this “new” and “flawed” type of infringement as the “inducement-only rule.”

According to Judge Newman, the infringement jurisprudence compels a different results—that there is infringement “when all of the claimed steps are performed, whether by a single entity or more than one entity, whether by direction or control, or jointly, or in collaboration or interaction.” Judge Newman’s dissent also touched on remedies in such cases, proposing that the “[r]emedy for infringement may be apportioned on such traditional tort factors as the relative contribution to the injury to the patentee, the economic benefit received by the tortfeasor, and the knowledge and culpability of the actor.”

Judge Linn dissented (Judges Dyk, Prost, and O’Malley. joining)

Judge Linn’s dissent concludes that the rulings in BMC and Muniauction were correct and should be adopted en banc so that “liability under § 271(b) requires the existence of an act of direct infringement under § 271(a), meaning that all steps of a claimed method be practiced, alone or vicariously, by a single entity or joint enterprise.”

Judge Linn’s dissent criticized the majority’s conclusion that the definition of “infringement” is different under § 271(a) and § 271(b). Judge Linn wrote, “Divorcing liability under § 271(a) from liability under § 271(b) is unsupported by the statute, subverts the statutory scheme, and ignores binding Supreme Court precedent.” Judge Linn proposed that “infringement” is expressly defined in § 271(a) alone according to the statutory language, comments contained in House and Senate reports from the statute’s adoption, canons of statutory construction, and statements by the Supreme Court in Aro.

Judge Linn’s dissent also addressed the grounds upon which the majority based its holding by questioning the relevance of Judge Rich’s comments (noting that it is unclear whether Judge Rich’s comments were directed at contributory infringement or induced infringement), calling the majority’s reading of the Fromson opinion “misplaced and misleading,” questioning the propriety of the majority’s reliance on Congress’s more recent additions to § 271, and questioning the propriety of the majority analogizing patent law to other areas of law such as criminal and tort law.

[1] In her dissent, Judge Newman observed that, “while many innovative industries explained how they may be affected by possible rulings on divided infringement, not one of the many amici suspected the inducement-only theory that is here adopted.”