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September 01, 2014

The Aftermath of Akamai: Induced Infringement and Opinions of Counsel

Richard M. Marsh Jr.

©2014. Published in Landslide, Vol. 7, No. 1, September/October 2014, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.

The Supreme Court’s decision in Limelight v. Akamai1 eliminated liability for induced infringement where no single party has directly infringed a patent, reversing the contrary conclusion reached by the Federal Circuit. However, liability for induced infringement, even under the Supreme Court’s holding in Akamai, can be substantial and remains a continuing concern. Recent developments suggest that opinions of counsel may play an increasing role in reducing the risks associated with induced infringement. These developments also provide specific guidance for how to maximize the shielding effects of opinions of counsel.

Supreme Court Rolls Back Expanded Basis for Induced Infringement

Akamai Technologies is the exclusive licensee of a patent covering a method of delivering electronic data using a “content delivery network” (CDN). Specifically, that patent covers methods in which website proprietors store content on servers and “tag” certain content to facilitate access to that content by the websites’ users. Limelight Networks also operates a CDN that uses tagged content but does not perform the tagging operations; rather the users themselves tag the content.2

Akamai accused Limelight of infringing its patent, but the district court and a panel of Federal Circuit judges held that Limelight did not directly infringe the patent under 35 U.S.C. § 271(a).3 In reaching that conclusion, the court relied on the then-recently decided case of Muniauction, Inc. v. Thomson Corp.,4 in which the Federal Circuit held that direct infringement of a method claim, where no single party performs all the claimed steps, occurs only when a single party exercises control or direction over the entire process.5 Where direct infringement occurs in such instances, it is often known as “joint infringement.” The court concluded that, even though Limelight’s customers performed the tagging step of the claim, Limelight did not direct or control its customers’ tagging and therefore did not perform all the steps necessary for direct infringement.6 The Federal Circuit granted en banc review but, instead of deciding the case on direct infringement, issued a fractured decision holding that Limelight could be liable for inducing infringement, in violation of 35 U.S.C. § 271(b), because it performed some steps in the claimed method and encouraged its customers to carry out the remaining step.7

The Supreme Court reversed that decision, holding that Limelight could not be liable for inducing infringement under § 271(b) where no one directly infringed under § 271(a).8 As a result, if there was no direct infringement, there could be no induced infringement.9 In its analysis, the Court “[a]ssume[d] without deciding” that the Federal Circuit’s holding in Muniauction with respect to direct infringement was correct.10 Akamai argued that, under the Supreme Court’s holding and Muniauction, collaborating entities could evade liability by dividing the steps of a method patent but not having either party control or direct the other. The Court acknowledged that concern, but stated that “[a]ny such anomaly . . . would result from the Federal Circuit’s interpretation of § 217(a) in Muniauction.”11 Rather than addressing the scope of direct infringement, the Supreme Court invited the Federal Circuit “to revisit the § 271(a) question if it so chooses” and remanded the case.12

The Immediate Impact of Akamai

The Court’s ruling in Akamai is a victory for many, including various companies and coalitions that filed amici briefs in Akamai articulating concerns that the Federal Circuit’s ruling would lead to increased problems from the activities of nonpracticing entities (a.k.a. patent trolls),13 raise the costs of baseless litigation,14 and create chaos in the telecommunications, financial, e-commerce, and high tech industries, among others.15 Those concerns appear to have been well founded, as several cases and presumably many more demand letters relied on the Federal Circuit’s expanded basis for induced infringement.16 At the same time, the way the Supreme Court treated the Federal Circuit’s interpretation of § 271(a), including Muniauction, could be seen as informing the Federal Circuit that its interpretation of direct infringement under § 271(a) is too narrow. If the Federal Circuit or the Supreme Court subsequently expands the scope of direct infringement, for example, so that companies are liable for patent infringement when their customers perform some of the method steps (as in Akamai), then many of the concerns raised by the Federal Circuit’s ruling may return.

Even though Akamai rolled back the risk of liability for induced infringement, the previous standards for inducement provide ample potential for significant exposure. For example, in Commil USA, LLC v. Cisco Systems, Inc.,17 Cisco faced allegations of direct and induced infringement. At trial, the jury found that Cisco directly infringed the patent at issue and awarded damages of $3.7 million. While the jury initially found that Cisco did not induce infringement, the court granted Commil’s motion for a new trial on the issues of indirect infringement and damages. At the end of the second trial, the jury found that Cisco had induced infringement and awarded over $63.7 million in damages.18 While the Federal Circuit has since vacated the jury’s finding of inducement due to an erroneous jury instruction on the scienter requirement,19 the jury’s conclusion that induced infringement merited $60 million more in damages than direct infringement indicates that the risk of induced infringement is not to be taken lightly, even when such a finding is predicated on a finding of direct infringement. Also, of particular interest, the court noted that opinions of counsel could negate a finding of induced infringement, as discussed further below.

Other developments have created additional opportunities for patent holders to allege induced infringement, further increasing liability risks. In particular, induced infringement requires knowledge of the patent,20 and recent case law has held that simply serving an infringement complaint provides sufficient notice of the patent to support an allegation of induced infringement. For example, in Clouding IP, LLC v. Rackspace Hosting, Inc., the court stated that “to plead indirect infringement based on conduct after a complaint was filed[,] a party need only allege a defendant’s receipt of the complaint and [its] decision to continue its conduct despite the knowledge gleaned from the complaint.”21 While those pleadings have been limited to post-complaint infringement, the fact that a company may be accused of inducing infringement of a patent about which it had no previous knowledge is a cause for great concern among many companies.22

Opinions of Counsel and Induced Infringement

Despite the Supreme Court’s ruling in Akamai, the potential for large liability under induced infringement likely means that allegations of induced infringement, e.g., by nonpracticing entities, will continue. In light of these concerns, what steps can be taken to mitigate the risk of liability for induced infringement? One source of potential relief is opinions of counsel. For example, as noted by one court, “[r]eliance on counsel’s advice that an accused product does not infringe can be very powerful” for undermining an allegation of induced infringement.23 In addition, the America Invents Act recently modified the patent laws so that, even if a party decides not to produce or rely on an opinion of counsel, that fact “may not be used to prove that the accused infringer . . . intended to induce infringement of the patent.”24 As a result, concerned companies may feel greater freedom to solicit opinions of counsel, knowing that they will not suffer a negative inference if they ultimately decide not to rely on those opinions. This increased freedom may be particularly important for quickly forming a good-faith belief of invalidity in situations in which the allegation of induced infringement is based on knowledge of the patent from the complaint.

While recent cases suggest that opinions may not immunize against liability in all situations, opinions such as those regarding invalidity may be powerful evidence to undermine allegations of induced infringement. In particular, these cases identify the following three steps for maximizing the shielding effect of such opinions and mitigating the risk of liability for induced infringement: (1) obtaining opinions soon after learning of the alleged infringement, (2) adequately documenting reliance on those opinions, and (3) relying on opinions that form a solid basis for subsequent challenges.

First, in Bose Corp. v. SDI Technologies Imation Corp.,25 the defendant, SDI, faced an allegation of induced infringement and obtained an invalidity opinion for the patent at issue. The district court relied on that fact in granting summary judgment in favor of SDI on the issue of induced infringement because “Bose cannot prove the specific intent necessary to proceed to trial on . . . inducement.”26 Subsequent to that decision, the Federal Circuit decided Commil. In that case, Judge Prost, writing for the Federal Circuit, held “that evidence of an accused inducer’s good-faith belief of invalidity may negate the requisite intent for induced infringement.”27 As suggested by the SDI case, “very powerful” evidence of that good-faith belief of invalidity could take the form of reliance on an opinion of counsel.28

At the same time, Commil placed limits on the immunizing effect of such evidence. In particular, Judge Prost, perhaps to placate the dissent, to preserve a majority of the panel, and/or foreseeing the five judges who would ultimately dissent from the denial of rehearing en banc,29 was quick to note that evidence of an accused infringer’s good-faith belief of invalidity does not “preclude[] a finding of induced infringement.”30 Judge Prost also wrote, “We certainly do not hold that if the inducer of infringement believes in good faith that the patent is invalid, there can be no liability for induced infringement.”31

The Federal Circuit expanded on these points during its review of the district court’s holding in the SDI case,32 which occurred after the court decided Commil. In that case, the Federal Circuit approvingly cited Commil for its holding that evidence of a good-faith belief in invalidity may negate the requisite intent for induced infringement, but criticized and overturned the district court’s grant of summary judgment that “entirely absolved SDI of indirect infringement liability based on the opinion of counsel.”33 A closer look at the Federal Circuit’s holding in this case provides guidance for more fully leveraging invalidity opinions.

In particular, the Federal Circuit focused its analysis on four different time periods. For the first time period—i.e., the time before SDI learned of the patent at issue—the Federal Circuit agreed that summary judgment was appropriate because SDI did not know of the patent. However, for the time between when SDI learned of the patent and when SDI obtained an opinion of counsel, the Federal Circuit held that “summary judgment incorrectly absolves SDI of liability.”34 Specifically, the Federal Circuit stated that, for that time interval, “the record reveals . . . nothing about SDI’s state of mind in reaction to [knowledge of the potential infringement].”35 Thus, this case demonstrates that quickly obtaining an opinion of counsel can help limit liability.

As for the time between receipt of the opinion of counsel and the potential trial, the Federal Circuit reversed summary judgment on the ground that the record did not adequately reflect that SDI had relied on the opinion. The court also noted that “even if the case presented an uncontested fact of good-faith reliance on the opinion of counsel, summary judgment could not lie without uncontested proof of the date upon which such good-faith reliance began.”36 Thus, the need to adequately document good-faith reliance on an opinion, including “the date upon which such good-faith reliance began,” will help to minimize the risk of liability.

Finally, the Federal Circuit also criticized the district court for absolving SDI of “potential post-verdict liability” at the summary judgment stage. During the district court proceedings, the court determined that the issue of validity was a “triable issue[] for the jury.”37 One possible outcome of that trial would be the jury finding the patent valid, and if that situation were to occur, “SDI could not credibly argue that it maintained its good-faith belief of invalidity following a verdict to the contrary.”38 In other words, according to the Federal Circuit, a jury verdict of patent validity trumps an opinion of counsel of invalidity, and the possibility of a jury verdict of patent validity precludes summary judgment of noninfringement for induced infringement for that post-verdict time period.39 As a result, reducing the possibility that the jury will find the patent to be valid increases the probability of prevailing against a charge of induced infringement, either at the summary judgment stage or at trial. One avenue to that result is an opinion that provides a strong foundation for a successful challenge to the patent. Thus, having a strong opinion can significantly decrease liability exposure.

In sum, while the Federal Circuit was critical of the timing of the opinion, the evidence of good-faith reliance, and the potential for a contrary verdict, the court nonetheless approved of the use of opinions to counter allegations of induced infringement. Consequently, these cases suggest that obtaining opinions early and documenting the good-faith reliance on those opinions can increase the shielding effects of those opinions. Moreover, even though opinions of counsel may not entirely insulate companies against allegations of induced infringement, having a strong invalidity opinion that lays the groundwork for invalidating that patent—e.g., at trial or as part of a post-grant proceeding—may significantly lower a company’s liability profile.

Takeaways

While the risk of liability for induced infringement has decreased with Akamai, the potential exposure for liability under induced infringement can still be substantial. Recent developments suggest that opinions of counsel, including invalidity opinions, can reduce the risk of liability for induced infringement. Those cases also provide guidance for fully leveraging opinions of counsel. In particular, they suggest that obtaining invalidity opinions quickly and documenting the good-faith reliance on those opinions will increase the shielding effects of those opinions. These actions may be particularly effective for situations in which allegations of induced infringement are based on knowledge of the patent from the complaint. In addition, recent cases indicate that, where an invalidity opinion lays a strong groundwork for invalidating that patent, invalidity opinions can be an especially effective tool for mitigating the risk of liability.

Endnotes

1. Limelight Networks, Inc. v. Akamai Techs., Inc., 134 S. Ct. 2111 (2014).

2. Id. at 2115.

3. Akamai Techs., Inc. v. Limelight Networks, Inc., 629 F.3d 1311, 1320–21 (Fed. Cir. 2010).

4. 532 F.3d 1318, 1330 (Fed. Cir. 2008).

5. Akamai, 629 F.3d at 1318–20.

6. Id. at 1320–21.

7. Akamai Techs., Inc. v. Limelight Networks, Inc., 692 F.3d 1301, 1319 (Fed. Cir. 2012) (per curiam).

8. Limelight Networks, Inc. v. Akamai Techs., Inc., 134 S. Ct. 2111, 2115 (2014).

9. In support of its conclusion, the Supreme Court also noted that Congress knows how to impose infringement liability separate from direct liability, as it did in § 271(f)(1), which imposes liability on a party who supplies the components of a patented invention to actively induce conduct outside the United States that would have constituted infringement if performed within the United States. Id. at 2118.

10. Id. at 2117.

11. Id. at 2120.

12. Id.

13. See, e.g., Brief of Amici Curiae Cargill, Inc. et al. in Support of Petitioner Limelight Networks, Inc., Akamai, 134 S. Ct. 2111 (2014) (No. 12-786), 2014 WL 880935, at *11–16; Brief of CTIA—The Wireless Ass’n as Amicus Curiae in Support of Petitioner, Akamai, 134 S. Ct. 2111 (2014) (No. 12-786), 2014 WL 880932, at *9–10; Amicus Curiae Brief of Newegg & L.L. Bean in Support of Petitioner, Akamai, 134 S. Ct. 2111 (2014) (No. 12-786), 2014 WL 880929, at *20–21.

14. See, e.g., Brief of Amici Curiae Cargill, Inc. et al. in Support of Petitioner, supra note 13, at *11; Brief of the Clearing House & the Fin. Servs. Roundtable as Amici Curiae in Support of Petitioner Limelight Networks, Inc. & Reversal, Akamai, 134 S. Ct. 2111 (2014) (No. 12-786), 2014 WL 827990, at *7; Brief of CTIA—The Wireless Ass’n as Amicus Curiae in Support of Petitioner, supra note 13, at *20; Brief of Google, Inc. et al. as Amici Curiae in Support of Petitioner, Akamai, 134 S. Ct. 2111 (2014) (No. 12-786), 2014 WL 880931, at *15; Amicus Curiae Brief of Newegg & L.L. Bean in Support of Petitioner, supra note 13, at *17–20, *23–29.

15. See, e.g., Brief of Amici Curiae Cargill, Inc. et al. in Support of Petitioner, supra note 13, at *1 (“Amici are submitting this brief to make it clear that the negative consequences of the decision below are not limited to the information-technology context in which it arose. To the contrary, those consequences extend to all industries that depend on supply chains—which is to say, nearly all industries in the modern economy.”); Brief of the Clearing House & the Fin. Servs. Roundtable as Amici Curiae in Support of Petitioner, supra note 14, at *7; Brief of CTIA—The Wireless Ass’n as Amicus Curiae in Support of Petitioner, supra note 13, at *12–13; Brief of Google, Inc. et al. as Amici Curiae in Support of Petitioner, supra note 14, at *12–14; Amicus Curiae Brief of Newegg & L.L. Bean in Support of Petitioner, supra note 13, at *12–13.

16. E.g., Move, Inc. v. Real Estate Alliance Ltd, 709 F.3d 1117 (Fed. Cir. 2013); Travel Sentry, Inc. v. Tropp, 497 F. App’x 958 (Fed. Cir. 2012).

17. 720 F.3d 1361 (Fed. Cir. 2013).

18. Id. at 1365.

19. Id. at 1366–67.

20. Akamai Techs., Inc. v. Limelight Networks, Inc., 692 F.3d 1301, 1308 (Fed. Cir. 2012) (per curiam).

21. No. 12-675-LPS, 2014 WL 495752, at *2 (D. Del. Feb. 6, 2014) (internal quotation marks omitted).

22. See, e.g., Brief of Amici Curiae Altera Corp. et al. in Support of Petitioner, Limelight Networks, Inc. v. Akamai Techs., Inc., 134 S. Ct. 2111 (2014) (No. 12-786), 2014 WL 827988, at *11.

23. Bose Corp. v. SDI Techs. Imation Corp., No. 09-11439-WGY, 2012 WL 2862057, at *10 (D. Mass. July 10, 2012), rev’d on other grounds, No. 2013-1347, 2014 WL 982765 (Fed. Cir. Mar. 14, 2014); see DSU Med. Corp. v. JMS Co., 471 F.3d 1293, 1307 (Fed. Cir. 2006); Manville Sales Corp. v. Paramount Sys., Inc., 917 F.2d 544, 553–54 (Fed. Cir. 1990) (reversing liability for induced infringement because of a “‘good faith belief,’ based on advice of counsel, that [the defendant’s] product did not infringe.”).

24. 35 U.S.C. § 298; Pub. L. No. 112-29, . § 298; 125 Stat. 329 (2011).

25. 2012 WL 2862057.

26. Id. at *11.

27. Commil USA, LLC v. Cisco Sys., Inc., 720 F.3d 1361, 1368 (Fed. Cir. 2013).

28. 2012 WL 2862057, at *10.

29. Commil USA, LLC v. Cisco Sys., Inc., 737 F.3d 699 (Fed. Cir. 2013). A petition for certiorari has been filed.

30. Commil, 720 F.3d at 1368–69.

31. Id. at 1368 n.1 (internal quotation marks omitted). While these statements were made in the context of invalidity, it appears that they may apply equally to evidence of noninfringement.

32. Bose Corp. v. SDI Techs., Inc., No. 2013-1347, 2014 WL 982765 (Fed. Cir. Mar. 14, 2014).

33. Id. at *7–8. Ironically, the Federal Circuit reversed a grant of summary judgment and remanded for trial a case in which the judge snarkily criticized the Federal Circuit for removing too many issues of patent law away from a jury. See SDI, 2012 WL 2862057, at *10 n.11 (“Continuing its seemingly irreversible trend of ousting the American jury from the adjudication of patent cases, the Federal Circuit has recently decided that the issue of willfulness is now [a] matter of law for the court, subject to de novo appellate review.” (citations omitted)).

34. SDI, 2014 WL 982765, at *8.

35. Id. (e also i2765 at *8; 8.L 982765 in the context of invalidity, it appears that they may apply equally to evidence

36. Id. at *10.

37. Id. at *8.

38. Id.

39. Yet the Federal Circuit is able to undermine jury verdicts due to issues such as claim construction or even when the verdict is against the clear weight of the evidence. Accordingly, query whether a party can still credibly argue that it maintains a good-faith belief of invalidity, even in face of a verdict of validity. For example, suppose the invalidity opinion relied on a claim construction position with which the district court disagreed and on which the jury premised validity. What if the defendant had a good-faith belief that the Federal Circuit would reverse that claim construction? What happens if the Federal Circuit ultimately agrees with the defendant? The Federal Circuit does not appear to have considered these implications.

Richard M. Marsh Jr.

Richard M. Marsh Jr. is a patent attorney with Faegre Baker Daniels in Denver, Colorado. He specializes in patent law and in the strategic development and analysis of patent portfolios, including non-infringement and invalidity opinions.