In a case that no doubt closes a loop hole in enforcement of software patents, an en banc panel of the Federal Circuit has overruled BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373, and made it much harder to avoid infringement by dividing the steps of a software invention among more than one party.
The court’s holding is twofold (and mirrors the twin disputes being resolved in this opinion);
Generally: All the steps of a claimed method must be performed in order to find induced infringement, but it is not necessary to prove that all the steps were committed by a single entity.
More specifically, the court held that
1. A defendant to a claim of induced patent infringement of a method claim may be held liable if the defendant has performed some of the steps of a claimed method and has induced other party or parties to commit the remaining steps; or
2. A defendant to a claim of induced patent infringement of a method claim may be held liable if a defendant induces other parties to collectively perform all the steps of a claimed method, but no single party has performed all the steps itself.
As such, the court holds that BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373 is overruled. (Previously had held that in order for a party to be liable for induced infringement, some other single entity must be liable for direct infringement.)
The majority’s holding is quite basic on its face, and as such, is potentially sweeping in nature. The en banc Court of Appeals for the Federal Circuit’s per curiam opinion holds that the scope of induced patent infringement under 35 U.S.C 271(b) and contributory patent infringement under 35 U.S.C. 271(c) are now widened in scope, so as to encompass those who aim to intentionally infringe, but have been able to distribute the parts of the infringing action so as to avoid committing direct patent infringement under 35 U.S.C. 271(a).
The court distinguishes direct and indirect infringement, and in so doing, elaborates that direct infringement would require that all the parties involved in an infringement must have an agency relationship between them (vicarious liability), but that this unity standard does not apply to indirect infringement. Instead, the court reasons that the induced infringer must be acting under the inducer’s direction or control to
“such an extent that the act of the induced party can be attributed to the inducer as a direct infringer; it is enough that the inducer causes, urges, encourages, or aids the infringing conduct and that the induced conduct is carried out.”
The court also expressly states that its decision is not predicated on the doctrine of direct infringement, and therefore it did not revisit the principles of divided infringement as it relates to direct infringement. The court then states somewhat enigmatically that
Induced infringement is in some ways narrower than direct infringement, and in some ways broader.
In order to mitigate worries that this new standard is too broad in nature, the court underscores the fact that unlike direct patent infringement, induced infringement is not a strict liability tort and it requires that the accused infringer act with knowledge that the induced acts constitute patent infringement. The majority feels this scienter requirement is sufficient to avoid unjust claims of inducement against innocent third parties.
In addition, the majority holds that
“Inducement gives rise to liability for induced patent infringement only if the inducement leads to actual infringement; there can be no indirect infringement without direct infringement.”
Reading the language of 271(a), this is not readily transparent at first glance. Still, the court highlights a contradiction in logic and common sense in the current state of the law.
“It 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.”
Judge Newman, dissenting, stated that
“The majority’s theory is a spontaneous judicial creation. And it is wrong … neither the single-entity rule not the majority’s newly minted inducement-only rule is in accord with the infringement statute, or with any reasonable infringement policy.”
The second dissent, comprising four judges, took a more positivist jurisprudential angle, disagreed vigorously with the majority’s stance, finding no support in the statute, and therefore no leg to stand on in changing the nature of induced and contributory infringement. Judge Linn wrote
“The majority effectively rewrites these sections, telling us that the term “infringement was no, as was previously thought, defined by Congress in § 271(a), but instead can mean different things in different contexts”
Still, the majority’s broader and more results-oriented reasoning carried the day, thus substantially enlarging the patent protection in situations where the steps or apparatus of a claim are performed by multiple actors, and in particular, in the case of software patents. Time will tell if Congress or the Supreme Court will act to either confirm or reject this court’s reasoning and holding.
Akamai initially sued Limelight in the District Court of Massachusetts on June 23, 2006. Akamai claimed that Limelight and its customers jointly infringed claims of its patent, U.S. Patent No. 6,108,703. Limelight argued that there was no joint infringement because, according to BMC Resources, joint liability may only be found when one party “controls or directs” the activities of another party. However, the jury returned a verdict for Akamai and awarded lost profits and royalties. Limelight moved for JMOL of noninfringement, which was initially denied. Upon reconsideration in light of the Muniauction decision, the district court granted the JMOL motion of noninfringement.
Akamai appealed the JMOL decision regarding noninfringement. The Federal Circuit panel focused on the joint infringement rule, as established in BMC and Muniauction, that “there can only be joint infringement when there is an agency relationship between the parties who perform the method steps or when one party is contractually obligated to the other to perform the steps.” The panel found that the relationship between Limelight and its customers was not an agency relationship and the customers were not contractually obligated to perform the “tagging” step of the asserted claim. Therefore, the Federal Circuit panel affirmed the ruling by the district court.
The panel also reversed the result in McKesson Tech., Inc. v. Epic Systems Corp. In that case, McKesson initially sued Epic in the District Court for the Northern District of Georgia on December 6, 2006. McKesson claimed that Epic induced infringement of its patent, U.S. Patent No. 6,757,898, by licensing MyChart to healthcare providers. Epic moved for summary judgment on the issue of joint infringement because the healthcare providers did not perform the initial step of the asserted claims. The district court originally denied this motion, relying on BMC Resources. After claim construction and discovery, Epic renewed its motion for summary judgment on the issue of joint infringement and the court granted this motion, relying on BMC and Muniauction. Since McKesson failed to demonstrate that a single party infringed its patent, it could not prevail on the claim of indirect infringement.
McKesson appealed the summary judgment determination by the district court. The Federal Circuit panel focused on the same joint infringement rule that was mentioned in Akamai. The panel determined that the patients using MyChart, who performed the first step of the asserted claims, were not in an agency relationship with the healthcare providers, who performed the rest of the steps. The panel also determined that there was no contractual obligation for the patients to use MyChart. The panel stated that absent direct infringement by a single party, Epic cannot be liable for indirect infringement. Therefore, the Federal Circuit panel, in a 2-1 decision, affirmed the ruling by the district court. This decision was made with a concurring opinion that alluded to a potential en banc review to determine if the rule relied upon is correct.
Scott Berger and Kyle Helgemoe of William Mitchell College of Law assisted with this posting.