Supreme Court Tightens Standard For Induced Patent Infringement

9.19.14

In recent years, patent holders have increasingly pursued lawsuits against defendants who didn’t necessarily directly infringe the patents themselves. The plaintiffs claimed that these defendants were liable for inducing others to infringe the patents. Those cases just became a lot harder to win, thanks to a unanimous ruling by the U.S. Supreme Court in Limelight Networks, Inc. v. Akamai Technologies, Inc.

Through the courts

Akamai Technologies is the exclusive licensee of a patent for a method of delivering electronic data using a content delivery network (CDN). Limelight Networks also operates a CDN and carries out several of the steps claimed in the patent. But its customers, rather than Limelight itself, perform a step of the patent known as “tagging.”

Akamai sued Limelight for patent infringement in 2006. A jury awarded Akamai more than $40 million, but the district court granted Limelight’s motion for judgment as a matter of law. It concluded that Limelight: (1) couldn’t have directly infringed the patent because infringement required tagging, and (2) didn’t control or direct its customers’ tagging.

The U.S. Court of Appeals for the Federal Circuit reversed this decision. It held that a defendant who performed some of the steps of the method patent and encouraged other parties to perform the remaining steps could be liable for induced infringement under Section 271(b) of the Patent Act — even if no one had directly infringed the patent.

Enter the high court                                                                

The Supreme Court reversed the Federal Circuit, holding that liability for inducement must be based on direct infringement. The patented method at issue here, though, hadn’t been infringed because the performance of all of its steps wasn’t attributable to any one party. In the absence of direct infringement, the Court said, there could be no inducement of infringement.

A method patent, the Supreme Court said, claims a number of steps — and the patent isn’t infringed unless all of the steps are carried out. The Federal Circuit’s approach would deprive Sec. 271(b) of “ascertainable standards,” according to the Court.

The Supreme Court went on to posit a situation in which a defendant pays another party to perform just one step of a 12-step process — and no one performs the other 11 steps — but that one step is the most important step in the process. The defendant wouldn’t have encouraged direct infringement, but there would be no reason not to find him or her liable under the Federal Circuit’s reasoning, which would allow inducement liability when fewer than all of the steps are performed.

The Court pointed to Section 271(f)(1) for further support. This provision imposes liability on a party who supplies (or causes to be supplied) in or from the United States all or a substantial portion of a patented invention’s components in a manner that actively induces the combination of the components “outside of the United States in a manner that would infringe the patent if such combination occurred within the United States.” [Court’s emphasis.]

According to the Supreme Court, the provision illustrates that, when Congress wants to impose liability for inducing activity that doesn’t itself constitute direct infringement, “it knows precisely how to do so.”

Holders must prove it

The Court’s decision in Limelight Networks, Inc. v. Akamai Technologies, Inc. reels back the Federal Circuit’s looser Muniauction standard for establishing liability for induced infringement of a patent. Patent holders will once again need to prove an underlying act of direct infringement occurred before they can expect to prevail on an induced infringement claim.

Still at issue: The direct infringement rule

In Limelight, Akamai also asked the U.S. Supreme Court to review the U.S. Court of Appeals for the Federal Circuit’s rule for direct infringement. As expressed in Muniauction, Inc. v. Thomson Corp., the appellate court said direct infringement requires that a single party perform every step of the allegedly infringed method.

The Federal Circuit explained that the requirement is satisfied even if the steps are actually undertaken by multiple parties as long as a single defendant exercises “control or direction” over the entire process so that every step is attributable to that controlling party. In other words, steps can be attributable to a single defendant if the defendant: (1) actually performed the steps, or (2) directed or controlled others who performed them.

The Supreme Court declined to address whether the Federal Circuit’s rule is correct. However, it did note that, because its decision on induced infringement required a remand to the appellate court, the lower court would have the opportunity to review its direct infringement rule.