Hayden W. Gregory is legislative consultant for the ABA Section of Intellectual Property Law in Washington, D.C. He can be reached at email@example.com.
The success and viability of any legal system is dependent upon its ability to provide stability and certainty while at the same time sufficient flexibility to adjust and adapt to changing conditions and needs.
We have seen these principles played out in the laws of the United States on monumental issues such as human rights, equal protection of the laws, and universal suffrage. We also have seen that much-needed change is often a long time in coming. Slavery was not outlawed throughout the United States until 1864. Universal women’s suffrage was not recognized until the ratification of the 19th Amendment to the Constitution in 1920. The Supreme Court waited almost 60 years before Brown v. Board of Education repudiated the “separate but equal” doctrine that it had enunciated in 1896 in Plessy v. Ferguson.
Intellectual property law shows similar patterns. The so-called “manufacturing clause,” which limited copyright protection to works printed in the United States, imposed its xenophobic reign from its enactment in 1891 until repealed in 1986.
If there is a single dominant theme in recent Supreme Court jurisprudence relating to IP, it is found in an antipathy to hard-and-fast rules and a demand for flexible legal doctrine. That is the lesson of decisions such as eBay v.MercExchange, Bilski v. Kappos, Holmes v. Vornado, and KSR International v. Teleflex. Driving this insistence upon flexibility is the need for adaptation to address changed circumstances. In his Bilski v. Kappos opinion for the court rejecting the Federal Circuit’s adoption of an exclusive “machine-or-transformation” test for patent eligibility, Justice Kennedy aptly alluded to the need for adaptability in the patent law:
The machine-or-transformation test may well provide a sufficient basis for evaluating processes similar to those in the Industrial Age—for example, inventions grounded in a physical or other tangible form. But there are reasons to doubt whether the test should be the sole criterion for determining the patentability of inventions in the Information Age.
The patent claims at issue in Bilski were claims to processes or methods of doing business, with the issue being whether or not such claimed inventions are eligible for patenting at all. Another area of the law relating to process patents that may be in need of the sort of “Information Age” reassessment suggested by Justice Kennedy was addressed in the recent en banc decision of the Federal Circuit in the Akamai and McKesson appeals, which were combined in the en banc review [citation], where the issue was not patentability but the requirements for proof of infringement when the alleged infringement involves multiple steps of a process claim performed by more than one party.
In the “Information” Age to which Justice Kennedy alluded, the multi-step, divided performance phenomenon is increasingly common. Electronically operated, computer-implemented, and Internet-delivered innovations are growing exponentially. The attractive feature of “interactivity” is often found in them. Consider innovations such as electronic bank accounts, embodying features including electronic bank statements, fund transfer capabilities, and bill payment options.
Another example is found in the McKesson litigation, involving alleged infringement of a patent directed to an electronic method of communication between health care providers and their patients. Using the McKesson process, doctors can establish on their websites personalized web pages for their patients, and patients can access visit-specific information online following every visit, as well as submit and receive appointment and prescription refill information.
The processes that define these innovations often require multiple actors to achieve their useful end result (e.g., a website provider, merchant/vendor, hosting data center, and customer).
When, as is often the case, these innovations are embodied in process patents, it is critical that courts get it right in determining individual freedom of action and the collective responsibility to respect the legitimate patent rights of the innovators of such technologies. An innovation that by its nature requires multiple actors to take individual actions to achieve the desired end result is also likely to involve multiple actors being charged with its infringement, based upon their collective (rather than their separate, individual) actions.
However, the applicability of established principles for law for determining patent infringement, at least as those principles have been interpreted and applied in recent Federal Circuit cases, produces results that leave one feeling less than fully satisfied with the result and with the legal doctrines that compelled that result.
The law, briefly stated, is this: Direct infringement of a claim to a multiple-step process requires that every step be performed, and performed by a single actor. This “single actor” rule arises from the rule that direct infringement is a strict liability tort, and the belief that it would be unfair to impose liability on actors who did not themselves commit all the acts necessary to constitute infringement and who had no way of knowing that others were acting in a way that rendered their collective conduct infringing.
Infringement can be found when a multiple-step process is performed by multiple actors, but a single actor must perform all the steps, either directly or as a “mastermind” who controls or directs all the other actors. The “controls or directs” exception to, or refinement of, the single actor rule serves to prevent an infringing party from avoiding liability by arranging for someone else to perform at least one of the steps of the process. The Federal Circuit has correctly held that one cannot escape liability by contracting out one of the steps. That is good news for patent owners. However, the bad news followed shortly, in the form of a Federal Circuit ruling that entering into a formal contract is about the only way that a mastermind of a system for infringing these process claims can be held liable. Other forms of cooperation, collaboration, and conspiracy readily available to would-be infringers were seemingly immunized from direct infringement liability when the Federal Circuit panel that heard the Akamai appeal held that “as a matter of Federal Circuit law 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 “agency or contract” limitation proclaimed by the Akamai panel prompted the first question posed in the Federal Circuit en banc order:
If separate entities each perform separate steps of a method claim, under what circumstances would that claim be directly infringed and to what extent would each of the parties be liable?
An issue presented in the McKesson litigation formed the basis of the second en banc question, namely the effect of the same performance factors on indirect infringement:
If separate entities each perform separate steps of a method claim, under what circumstances, if any, would either entity or any third party be liable for inducing infringement or for contributory infringement? See Fromson v. Advance Offset Plate, Inc., 720 F.2d 1565 (Fed. Cir. 1983).
Although the Akamai-inspired question relates only to direct infringement and the McKesson question only to indirect infringement, the answers to the two questions are inextricably linked, or so it seemed until the majority en banc decision was announced. This linkage is found in the long-recognized legal doctrine that there can be no indirect infringement without proof of direct infringement. The panel decision in McKesson thus began and ended with an analysis of whether defendant Epic Systems controlled or directed the other parties who performed steps in the alleged infringement of the McKesson patent on a process for interactive communication between health care providers and their patients.2
Given the “agency or contractual obligation” coral in which the Federal Circuit had penned its “control or direction” standard for divided performance process infringement, McKesson faced little chance of prevailing in the panel proceedings unless the court was willing to reject or modify standards set by previous panels. Citing its lack of authority to do so and an unwillingness to do so if authorized, the McKesson panel declined.
In dissent, Judge Newman argues that recent panel decisions on divided performance process patent infringement, including the one at hand, effectively leave patent owners without remedy, for either direct or indirect infringement, as a matter of law, for a “burgeoning body of interactive computer-managed advances.” She believes that the single infringer rule, as further narrowed to circumstances when that single infringer has controlled or directed the performance of all steps of the process pursuant to an agency or contractual relationship, is contrary to proper statutory construction and judicial precedent, and should be abandoned or greatly revised.
The Federal Circuit’s August 31st en banc decision in Akamai Technologies v. Limelight Networks was announced in a per curiam opinion joined in by six judges. Judge Newman wrote a dissenting opinion, as did Judge Linn, who was joined by Judges Dyk, Prost, and O’Malley.
The opinion of the court is surprising, and disappointing, in that it fails to address the central question addressed in the Akamai and McKesson panel decisions and in the en banc order for review. As stated in the en banc order, that question was:
If separate entities each perform separate steps of a method claim, under what circumstances would that claim be directly infringed and to what extent would each of the parties be liable?
A second question was posed concerning the effect of divided performance on indirect infringement, but the need for an answer to the first question is predominant, since under all recent Federal Circuit precedent, the answer to the second question is largely determined by the answer to the first.
Rather than answer its own question relating to direct infringement by divided performance of process claims, and thereby derivatively most likely also answering its question regarding induced infringement, the majority of the court instead resolved the cases by addressing only induced infringement, and specifically disclaimed any effect of its decision on the law relating to direct infringement.3
In fact, the court not only left standing the barriers to a patent owner’s recovery for direct infringement in these divided performances situations, but seemed to also want to raise those barriers, by describing the “agency or contract” requirement as applying to bar recovery “even if the parties have arranged to ‘divide’ their acts of infringing conduct for the specific purpose of avoiding infringement liability.”
Instead the court disposed of both appeals on grounds of induced infringement, and explained, “In doing so, we reconsider and overrule the 2007 decision of this court in which we held that in order for a party to be liable for induced infringement, some other single entity must be liable for direct infringement. BMC Resources, Inc. v. Paymentech, L.P.”
BMC Resources was a direct infringement case, and the per curiam decision does not appear to overrule that holding. In her dissent, Judge Newman commented: “The majority appears to overrule only a single sentence of BMC Resources, at 498 F.3d at 1379: ‘Indirect infringement requires, as a predicate, a finding that some party amongst the accused actors has committed the entire act of direct infringement.’”
Judge Newman’s description of what has been overruled or repudiated seems to be consistent with the majority opinion. The majority opinion states: “An important limitation on the scope of induced infringement is that inducement gives rise to liability only if the inducement leads to actual infringement. That principle, that there can be no indirect infringement without direct infringement, is well settled.” While this principle is left undisturbed, the rule that induced infringement under § 271(b) can be found only if all the requirements for a finding of direct infringement under § 271(a) is not left intact. In reaching this result, the majority relies upon some previously undiscovered distinctions in the language of § 271(a), (b), and (c), relating respectively to direct infringement, induced infringement, and contributory infringement.
The majority begins its reassessment of the intent, effect, and relationship to each other of these three subsections by stating: “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.” This statement, with its carefully chosen italicization for emphasis, does not seem to state current law, but the law as it will exist after the majority decision in this litigation. This understanding of the statement is supported by the fact that it is followed immediately by statements of policy to the effect that: (1) one who induces infringement should not be immunized from indirect infringement liability simply because the parties have structured their conduct so that no one has committed all the acts necessary to give rise to liability for direct infringement, (2) the impact on a patent owner of inducement to infringement in circumstances of divided performance is indistinguishable from inducement of infringement by a single direct infringer, and (3) it would be “bizarre” to hold a party liable for induced infringement if a single inducee performed all the steps and not to find liability if the inducer performed some of the steps himself.
While these policy objectives are unobjectionable, one could also find unobjectionable a policy objective of finding liability for direct infringement when multiple parties conspire “to ‘divide’ their acts of infringing conduct for the specific purpose of avoiding infringement liability.” Judge Linn appears to have supported such a policy in his dissenting opinion. Despite the centrality of these issues in the appeals of the two cases, the en banc majority chose to not address them.
The per curiam opinion finds grounds in the language of the statute for defining infringement differently for purposes of induced infringement under § 271(b) than for direct infringement under § 271(a). More precisely, the majority concludes that neither subsection defines infringement, but that subsection (a) “simply sets forth a type of conduct that qualifies as infringing; i.e., it provides that anyone who makes, uses, or sells, etc., any patented invention “infringes the patent.” On the other hand:
Section 271(b) sets forth another type of conduct that qualifies as infringing, i.e., it provides that anyone who induces infringement ‘shall be liable as an infringer.’ But nothing in the text of either subsection suggests that the act of ‘infringement’ required for inducement under section 271(b) must qualify as an act that would make a person liable as an infringer under section 271(a).
The law relating to proof on infringement in circumstances involving divided performance of process claims is in need of clarification. Just how much clarification is provided by the en banc decision in Akamai Technologies v. Limelight Networks is unclear. The one clear change is that proof of direct infringement by a single actor is no longer required in an action for induced infringement under 35 U.S.C. § 281(b), and probably also for contributory infringement under § 271(c). However, the decision states that proof of direct infringement is still a requirement in an action for inducing infringement. Does this mean that direct infringement must still be proven, but under some less demanding standards than those enunciated in recent Federal Circuit panel decisions, which the per curiam decision purports to leave undisturbed? If so, what standards will apply? The majority decision expressly states that proof of inducement does not require that the induced party be acting under the direction or control of the inducer to such an extent that the act of the induced party can be attributed to the inducer as a direct infringer. The decision clearly states that proof of a single infringer will not be required. Will district courts now be required or allowed to find direct infringement in divided performance circumstances under standards heretofore rejected by Federal Circuit panels? If so, will these standards apply only to proof of induced infringement or contributory infringement, but not to actions for direct infringement under § 271(a)?
The decision also leaves open the possibility the “well-settled” principle that “there can be no indirect infringement without direct infringement” alluded to in the decision will not require identification and proof of infringement by any particular party or parties. This prospect raises metaphysical questions as well as legal ones. Is any sound created when a tree falls in a deserted area where no auditory capacity to hear it is found? Can direct infringement exist without a direct infringer?
The decision purports to leave issues relating to direct infringement unchanged, but this of course is not possible. Opening doors to suits for indirect infringement that were previously closed will no doubt lead to migration of suits from § 271(a) direct infringement to actions for indirect infringement under § 271(b) and (c). The decision of the court certainly encourages and facilitates such a movement, in that it allows Akamai to take its case back to district court even though it “did not press its claim of induced infringement at trial,” and focused only on direct infringement. How will such migration affect remedies available to patent owners, including injunctive relief, if no direct infringer is identified and liability established?
It is unfortunate that the majority in the en banc proceeding did not choose to address the difficult issues regarding direct infringement in these multi-actor circumstances, either instead of or in addition to the issue of induced infringement on which the court disposed of the case. Judges Newman and Linn offered suggestions for changes in judicial standards for proof of direct infringement in these cases, which could form the basis for constructive change. Although Judge Linn would generally support adherence to the existing framework for determining direct infringement, he appears to express support for expanding the standards for determining direct infringement beyond “control or direction” to also include circumstances in which a party “participates in a joint enterprise to practice each and every limitation of the claim.” In this regard he called upon the en banc court to reverse a panel decision affirming a dismissal of a suit despite the fact that the two accused entities “formed a strategic partnership, enabled their programs to work together, and collaborated to sell the two programs as a unit.”
1. Johnny Mercer, Something’s Gotta Give (1955).
2. Epic developed and licensed a competing product to McKesson’s patented process for electronic communications between doctors and their patients. Epic did not itself use or operate the system, which depended on doctors deciding to offer the service to their patients, and patients electing to use it. McKesson therefore faced a steep slope to climb to reach the “control or direction” altitude of proof required by the Federal Circuit to establish direct infringement, which was a prerequisite to recovery in McKesson’s suit for inducing infringement.
3. “Because the reasoning of our decision today is not predicated on the doctrine of direct infringement, we have no occasion at this time to revisit any of those principles regarding the law of divided infringement as it applies to liability for direct infringement under 35 U.S.C. § 271(a).” Akamai Tech. v. Limelight Networks, No. 2009-1372, slip op. at 13 (Fed. Cir. Aug. 31, 2012).