I’ve already commented on the conundrum created by the Federal Circuit’s joint infringement doctrine, and especially its impact on protecting interactive computer-based technologies. See The Impact of the CAFC’s Joint Infringement Conundrum on Protecting Interactive Technologies. Two cases involving such joint infringement (sometimes referred to as “divided infringement”) issues were accepted by the Federal Circuit for en banc review. The first was the 2010 case of Akamai Technologies, Inc. v. Limelight Networks, Inc., which held there was no joint infringement of a patented method for content delivery service where the customer and the provider of the service each performed some but not all steps. The other was the 2011 case of McKesson Technologies, Inc. v. Epic Systems Corp., which held there was no joint infringement of a patented interactive electronic method for communicating between healthcare providers and patients about personalized web pages for doctors because the initial step of the patented method was performed by the patient while the remaining steps were performed by the software provided by the healthcare provider.
In a collective decision of almost 100 pages total, the en banc Federal Circuit has now spoken with an extremely discordant and fragmented voice on this joint infringement issue (or as an exasperated dissenting Judge Newman characterized the majority opinion, dodged this issue) in Akamai Technologies and McKesson Technologies (August 31, 2012). In an opinion over 30 pages long, a bare six judge per curiam majority (Chief Judge Rader and Judges Lourie, Bryson, Moore, Reyna, and Wallach) found it unnecessary to resolve the joint infringement issue. Instead, the per curiam majority ruled that the Akamai Technologies and McKesson Technologies cases should be resolved by applying the doctrine of inducing (indirect) infringement under 35 U.S.C § 271(b). The majority also ruled that such indirect infringement could occur as long as all steps of the a claimed method are performed, but didn’t requiring that all steps be performed by a single actor, expressly overruling the 2007 case of BMC Resources v. Paymentech, and at least implicitly overruling the 2008 case of Muniauction, Inc. v. Thomson Corp. (no joint infringement of patented electronic method for conducting auctions of financial instruments where auctioneer and bidder each perform some but not all of the steps).
Not surprisingly, Judge Linn (joined by Judges Dyk, Prost, and O’Malley) filed a dissenting opinion (almost 25 pages long) adhering to his now overruled opinion in BMC Resources that there must be direct infringement of a claimed method by a single actor before there could be indirect infringement (such as inducing infringement) of that claimed method under 35 U.S.C § 271(b). Even more interesting was Judge Newman’s dissenting opinion (over 35 pages long and actually somewhat of a partial concurrence because she agreed there could be infringement liability but on a different basis) which said that direct infringement of a claimed method under 35 U.S.C § 271(a) does not require that all steps be performed by a single actor (construing the “whoever infringes” language in 35 U.S.C § 271(a) to allow for multiple actors). In other words, Judge Newman’s and Judge Linn’s dissenting opinions disagreed on the single actor requirement for infringement, be it direct or indirect. But like Judge Linn, Judge Newman wasn’t happy at all with the per curiam majority’s reasoning for saying that the doctrine of inducing infringement under 35 U.S.C § 271(a) governed the Akamai Technologies and McKesson Technologies cases. With apologies beforehand for the length of this article, I will now dive (with some trepidation) into the details of this massive and fragmented en banc decision.
As acknowledged by the per curiam majority, liability for direct infringement under 35 U.S.C § 271(a) requires that accused infringing party “must commit all the acts necessary to infringe the patent, either personally or vicariously,” citing the 2005 case of Cross Medical Products, Inc. v. Medtronic Sofamor Danek, Inc. (no liability for direct infringement if the party that is directly infringing is not acting as an agent of, or at the direction of, the accused infringer), as well as the 1983 case of Fromson v. Advance Offset Plate, Inc. For a claimed method, that means that “the accused infringer must perform all the steps of the claimed method, either personally or through another acting under his direction or control.”
With regard to liability for indirect (e.g., inducing) infringement, the Fromson case (authored by the late Chief Judge Markey) is particularly relevant and instructive. Fromson held that liability for direct infringement requires one party to perform all steps of the claimed process/method. But what Chief Judge Markey also made clear in Fromson was that liability for indirect infringement (e.g., contributory infringement) could be predicated on all of the steps of the claimed process/method being performed, but by different actors (e.g., in a two-step process/method, the manufacturer performed the initial step, while the customer performed the remaining step). In other words, what Fromson says is that, as long as all steps of the claimed process/method were performed (no matter how many actors performed those steps), the direct infringement predicate necessary for indirect infringement liability was satisfied. (Besides Fromson, the per curiam majority cited a 1937 Seventh Circuit decision, Peerless Equipment Co. v. W.H. Miner, Inc., which held that an accused infringer that performed all steps of a claimed process except the last one which was then performed by the customer was “guilty of contributory infringement of the process claims.”)
The statement by the per curiam majority opinion that “the reasoning of our decision today is not predicated on the doctrine of direct infringement” requires some background explanation before someone shouts “heresy!” As reflected by the Supreme Court’s 1961 decision in Aro Manufacturing Co. v. Convertible Top Replacement Co., as well as the Supreme Court’s 1972 decision in Deepsouth Packing Co. v. Laitram Corp., there has been the general concept that there must be at least one instance of direct infringement of the entire claimed invention (e.g., all steps of the claimed method must be practiced) for liability to be based on indirect infringement. That general concept has been carried forward by the Federal Circuit. See, for example, the 1993 Federal Circuit case of Joy Technologies, Inc. v. Flakt, Inc. (stating that liability for either active inducement of infringement or for contributory infringement is dependent upon the existence of direct infringement), and the 2004 Federal Circuit case of Dynacore Holdings Corp. v. U.S. Philips Corp. (“[i]ndirect infringement, whether inducement to infringe or contributory infringement, can only arise in the presence of direct infringement”).
The now overruled BMC Resources case took that general concept for direct infringement even farther to mean that, for indirect infringement liability to occur, one actor must perform all steps of claimed method/process. But neither Joy Technologies, nor Dynacore Holdings unambiguously supports this “one actor must perform all steps” premise (and the earlier Fromson case is certainly to the contrary). In Joy Technologies, the Federal Circuit lifted an injunction because the alleged inducing infringement was based on sales of plants that might be capable of practicing the patented method, not because multiple actors were required to perform all of the method steps. (Although unclear from the Joy Technologies decision, the Federal Circuit may have also lifted the injunction based on the theory that the alleged infringer only planned to import the equipment for the plant from outside the United States.) In Dynacore Holdings, the Federal Circuit ruled against vicarious infringement liability (under either an inducing or contributory infringement theory) of alleged infringing networks, but again not because multiple actors were required to perform all of the method steps. Instead, the patentee in Dynacore Holdings had failed to show that any of the infringing networks would meet a central limitation recited in the claims, i.e., there was no proof that the entire claimed method had been practiced, whether it be by single or multiple actors.
When 35 U.S.C § 271(f) was enacted in 1984, this general concept that infringement liability (direct or indirect) always required at least one instance of practicing the entire claimed invention changed. In the 2001 case of Waymark Corp. v. Porta Systems Corp. the Federal Circuit construed 35 U.S.C § 271(f)(2) to permit infringement liability to occur, whether or not the claimed invention was ever completed by the accused infringer. See Guttag, “When Offshore Activities Become Infringing: Apply § 271 to Technologies that “Straddle” Territorial Borders, Richmond Journal of Law & Technology, Vol. XIV, Issue 1 (November 2007) at: http://jolt.richmond.edu/v14i1/article1.pdf where I discuss this “unusual” aspect of infringement liability under 35 U.S.C § 271(f). The potential impact of this change in 35 U.S.C § 271(f) on the general concept of infringement liability, as applied to inducing infringement under 35 U.S.C § 271(b), will be discussed further below.
Because the Fromson case suggested that there must be at least one instance of direct infringement of the entire claimed method (by one or more actors) to support indirect infringement liability, the per curiam majority opinion had to at least address this aspect of the direct infringement doctrine. The per curiam majority opinion did address this aspect (at least implicitly) when it said that “inducement gives rise to liability only if the inducement leads to actual infringement,” citing Deepsouth Packing. I consider this reference to “actual infringement” as essentially the equivalent of saying that there was at least one instance of direct infringement of the entire claimed invention (i.e., all steps of the claimed method were practiced). Accordingly, the per curiam majority opinion does at least comport with this aspect of direct infringement doctrine (per Fromson) that all steps of the claimed method must practiced for there to be indirect infringement liability, but using different words (“actual infringement”).
That inducing infringement liability may be based on multiple actors performing all (but different) steps of the claimed method (a given for contributory infringement under 35 U.S.C § 271(c) as in Fromson) can be conceptually justified under 35 U.S.C § 271(b). By definition, inducing infringement involves multiple actors: the one who induces and those who are induced to infringe (which the language of 35 U.S.C § 271(b) also does not restrict to one “inducing’ or “induced” actor). That the inducer may also perform one or more steps of the claimed method, with the remaining steps are performed by those who are induced to infringe, is also not inconsistent with the language of 35 U.S.C § 271(b). Indeed, as the per curiam majority opinion says, 35 U.S.C § 271(b) “is well suited to address the problem presented by the cases before us, i.e., whether liability should extend to a party who induces the commission of infringing conduct when no single ‘induced’ entity commits all of the infringing acts or steps but where the infringing conduct is split among more than one other entity.”
The per curiam majority opinion also correctly notes that indirect infringement liability based on inducing infringement under 35 U.S.C § 271(b) imposes certain restrictions which do not apply to direct infringement liability under 35 U.S.C § 271(a): proof of inducing infringement requires the “accused inducer act with knowledge that the induced acts constitute patent infringement,” citing the 2011 Supreme Court decision in Global-Tech Appliances, Inc. v. SEB S.A. (inducing infringement liability can be based on the “willful blindness” of the inducer). In other words (and unlike direct infringement under 35 U.S.C § 271(a) which is a strict liability action), the inducer has to know that its actions (whatever they are) will cause infringement of the claimed method. (And as pointed out at the end of the per curiam majority opinion, the patentees in the Akamai Technologies and McKesson Technologies cases still have to show that: (1) the accused infringers knew of the asserted patents; (2) the accused infringers induced performance of at least one step of the claimed methods in those patents; and (3) all steps of the claimed methods were actually performed.)
In addressing why BMC Resources was being overruled, the per curiam majority opinion also pointed to the same faulty legal premise that I previously observed in Judge Linn’s majority opinion in the panel decision for McKesson Technologies: “Requiring proof that there has been direct infringement as a predicate for induced infringement is not the same as requiring proof that a single party would be liable as a direct infringer.” The per curiam majority opinion referred to 35 U.S.C § 271(b) as being “structured differently” from 35 U.S.C § 271(a). In fact, as I noted above, the per curiam majority opinion observed that nothing in 35 U.S.C § 271(b) limits “infringement” to a single actor. Instead, the per curiam majority opinion characterized “infringement” in the context of 35 U.S.C § 271(b) as “refer[ring] most naturally to the acts necessary to infringe a patent, not to whether those acts are performed by one entity or several.”
The per curiam majority opinion also relied upon the legislative history from the 1952 Patent Act relating to 35 U.S.C § 271(b) to provide “strong support for interpreting induced infringement not to require that a single entity—as opposed to multiple entities—commit all the acts necessary to constitute infringement.” In this regard, the per curiam majority opinion contrasted 35 U.S.C § 271(b) as being “broad in scope” with the contributory infringement statute, 35 U.S.C § 271(c), as being a much narrower “compromise” directed to restricting and confining the doctrine of patent misuse. The per curiam majority opinion also referenced statements made by the late Judge Rich (on behalf of the New York Patent Law Association) during the legislative hearings on the 1952 Patent Act that “he saw no anomaly in finding liability for indirect infringement when there was ‘obvious infringement of the patent’ even though there was ‘no direct infringer of the patent.’”
Interestingly, the per curiam majority opinion refers to the federal criminal codes as showing that a “principal’s liability for acts committed not only through an agent but also by an innocent intermediary who was induced by the principal is not an idiosyncrasy of patent law, but is found in other areas of the law as well.” A more relevant analogy that the per curiam majority opinion cites to is general tort law, especially The Second Restatement of Torts: “Tort law also recognizes the doctrine of liability for inducing innocent actors to commit tortious acts.” In fact, the per curiam majority opinion found this tort analogy “particularly telling because for induced infringement under [35 U.S.C §] 271(b) the courts look to the common law principles of joint tortfeasance.” The per curiam majority opinion also made specific reference to the First Restatement of Torts § 876, Comment b, for the principle that “liability for inducement of a tort applies even if the person being induced is unaware that his act is injurious and is not liable for that reason.” From that principle, the per curiam majority opinion concluded that “as applied in the divided infringement context, [the implication] is that a party may be liable for inducing infringement even if none of the individuals whose conduct constituted infringement would be liable, as direct infringers, for the act of infringement that was induced.”
The per curiam majority opinion also made reference to two other subsections of the patent infringement statute, 35 U.S.C § 271(e)(2) and 35 U.S.C § 271(f), as evidence that infringement liability “is not limited to the circumstances that give rise to liability under [35 U.S.C] §271(a).” The per curiam majority opinion particularly cited the ruling in the Waymark case with respect to 35 U.S.C § 271(f) that inducing infringement liability need not even be predicated on the claimed invention being completed at all. See my discussion above of 35 U.S.C § 271(f) and how this subsection was construed by the Federal Circuit in the Waymark case.
Because the per curiam majority opinion overruled BMC Resources, it had to further address the statement in the 2004 Federal Circuit case of Dynacore Holdings (cited by BMC Resources) that “[i]ndirect infringement, whether inducement to infringe or contributory infringement, can only arise in the presence of direct infringement.” BMC Resources interpreted that statement in Dynacore Holdings to mean “[i]ndirect infringement requires, as a predicate, a finding that some party amongst the accused actors has committed the entire act of direct infringement.” (Emphasis added.) But the per curiam majority opinion viewed that “spin” (i.e., the underlined quote) by BMC Resources to be an unwarranted extension of the proposition actually stated by Dynacore Holdings (that indirect infringement “can only arise in the presence of direct infringement”), and therefore was “not supported by the decision” in Dynacore Holdings. The per curiam majority opinion also rebuffed the contention by Judge Linn’s dissenting opinion that the Supreme Court’s 1961 decision in Aro Manufacturing. Co. v. Convertible Top Replacement Co. stood for the proposition that “liability for inducement requires that a single party be liable for direct infringement.”
In conclusion, the per curiam majority opinion responded to the contention by Judge Linn’s dissenting opinion that the per curiam majority opinion represented a “sweeping change to the nation’s patent policy” as follows:
Of course, the question whether the [per curiam] majority’s position constitutes a change in the law, or whether the dissent’s position would constitute a change, depends on what one thinks the prior rule was. Based on the legislative history, general tort principles, and prior case law, including this court’s decision in Fromson, we believe that BMC [Resources] and the cases [e.g., Muniauction] that have followed it changed the pre-existing regime with respect to induced infringement of method claims, although admittedly at that time there were relatively few cases in which that issue had arisen. In either event, the court’s task is to attempt to determine what Congress had in mind when it enacted the induced infringement statute in 1952. At the end of the day, we are persuaded that Congress did not intend to create a regime in which parties could knowingly sidestep infringement liability simply by arranging to divide the steps of a method claim between them. And we have found no evidence to suggest that Congress intended to create different rules for method claims than for other types of claims. While we believe that our interpretation of [35 U.S.C §] 271(b) represents sound policy, that does not mean that we have adopted that position as a matter of policy preference. In the process of statutory interpretation, it is relevant to ask what policy Congress was attempting to promote and to test each party’s proposed interpretation by asking whether it comports with that policy. In these cases, we conclude that it is unlikely that Congress intended to endorse the “single entity rule,” at least for the purpose of induced infringement, advocated by Epic and Limelight [the accused inducers], which would permit ready evasion of valid method claims with no apparent countervailing benefits.
In Part II, I’ll discuss Judge Linn’s and Judge Newman’s dissenting, followed by some concluding remarks.
*© 2012 Eric W. Guttag. Posted on IPWatchdog on September , 2012.