Supreme Court Clarifies Induced Infringement: a Defendant Cannot Be Liable for Inducing Infringement Where No One Has Directly Infringed
Sanford Warren | September 1, 2014
On June 2, 2014, the US Supreme Court unanimously held that a party cannot be liable for indirect infringement under § 271(b) without a threshold showing of direct infringement under § 271(a) in Limelight Networks, Inc. v. Akamai Techs., Inc., No. 12–786 (2014). This opinion reverses the previous standard proffered by the federal circuit that a showing of direct infringement was not necessary so long as the patentee could demonstrate that every claimed method step was performed by entities under the control and encouragement of the accused inducer. The implications of this opinion are clear: accused infringers now have a stronger noninfringement position when contending with method claims involving terms that necessarily implicate multiple actors.
Accordingly, when accessing risk in view of patent infringement allegations that involve method claims, Limelight bolsters the position of potential defendants by requiring the patent holder to show direct infringement before attempting to prove indirect infringement. And when the claims require the patent holder to identify multiple entities to perform the claimed steps, Limelight precludes the patent holder from alleging that the culmination of those entities' actions constitutes direct infringement. At bottom, the case makes it easier for potential defendants to defend against allegations where several parties must be involved to perform the asserted method claims.
Federal Circuit's Previous Standard
In 2006, Massachusetts Institute of Technology and Akamai Technologies, Inc., sued Limelight Networks, Inc., for patent infringement in the US District Court for the District of Massachusetts. At trial, the jury found that Limelight infringed the patent-in-suit, awarding over $40 million in damages. That victory was short-lived.
Following the jury verdict, the federal circuit issued its opinion in Muniauction, holding that direct infringement may occur if a single entity either performs every claimed step or exercises control over every claimed step. See Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318 (Fed. Cir. 2008). In that case, the appellate court rejected the argument that the defendant's actions directly infringed the asserted method claims of the patent-in-suit. There, the defendant performed some of the steps of the patented method, and its customers, to whom the defendant gave access to its system along with instructions on the usage of the system, performed the remaining steps.
Operating under "the proposition that direct infringement requires a single party to perform every step of a claimed method," the federal circuit determined that direct infringement may occur in this context if a single defendant "exercises 'control or direction' over the entire process such that every step is attributable to the controlling party." Id. at 1229. The court held that the defendant was not liable for direct infringement because it did not exercise control or direction over its customers when they performed certain claimed steps.
Muniauction prompted Limelight to move for reconsideration of a previously unsuccessful motion for judgment as a matter of law. After granting reconsideration, the district court changed course, concluding that Limelight did not directly infringe the patent at issue because its customers performed certain claimed steps and Limelight did not exert control over its customers during the execution of those steps. An appellate panel affirmed that ruling because an "agency relationship" did not exist between Limelight and its customers. See Akamai Techs., Inc. v. Limelight Networks, Inc., 629 F.3d 1311 (Fed. Cir. 2010).
After an en banc rehearing, a divided federal circuit reversed the panel, holding that a defendant who performed some steps of a method claim and encouraged others to perform the rest could be liable for inducing infringement even if no single entity is liable for direct infringement. See Akamai Tech., Inc. v. Limelight Networks, Inc., 692 F.3d 1301 (Fed. Cir. 2012). The en banc court ruled that the evidence could support a finding of liability against Limelight based on an inducement theory and remanded for further proceedings. And with that opinion, the Federal Circuit endorsed the position that indirect liability could occur without direct liability for the first time. In the wake of that en banc decision, theories for indirect infringement correspondingly expanded to embrace the concept of secondary liability without the need to establish primary liability.
The Supreme Court granted certiorari, heard arguments on April 30, 2014, and reversed the en banc panel on June 2, 2014.
Justice Alito's Opinion
Justice Samuel Alito delivered the unanimous opinion, holding "where there has been no direct infringement, there can be no inducement of infringement under § 271(b)." See Slip Op. at 8. According to the court, liability for inducement must be predicated on direct infringement. Because the lower courts previously found that direct infringement had not occurred, the court concluded there can be no inducement of infringement under § 271(b). The justices also rejected the notion that theories from tort law and criminal aiding and abetting, as well as patent law principles in existence before the 1952 Patent Act, support the federal circuit's reading of the statute because the statutory text explicitly requires direct infringement to be a prerequisite for indirect infringement. See § 271(b). ("Whoever actively induces infringement of a patent shall be liable as an infringer.")
As parting words, the court clarified that the opinion does not address whether the federal circuit was correct when defining divided direct infringement in Muniauction. Justice Alito also gently reminded that "the federal circuit will have the opportunity to revisit the § 271(a) question [under Muniauction] if it so chooses." And with that, one question on multiparty liability was answered while another seemingly remains open for further review.
Conclusion
The Supreme Court's opinion in Limelight brings the legal question of indirect infringement back to a familiar previously held notion: you cannot have indirect infringement without a showing of underlying direct infringement. For defendants presently confronted with allegations of induced infringement of method claims, this revived standard should enjoy an understandably welcomed return. As a strategy moving forward, accused indirect infringers should look at the claim terms themselves and ask a simple question: Does someone perform all the claimed steps? If the answer is no, a defense strategy should be tailored to highlight that direct infringement does not occur as alleged by the patentee. Where multiple actors are present, nuanced arguments favoring lack of control may be necessary. But Limelight at least makes definitive that induced infringement works like a switch—either it is available with a precursor showing of direct infringement or it does not exist.
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