A Divided Court on Divided Patent Infringement

The Federal Circuit’s recently issued decision in the cases of Akamai Technologies, Inc. v. Limelight Networks, Inc. and McKesson Technologies, Inc. v. Epic Systems Corp. received less attention than its importance might have warranted, perhaps because Apple’s win over Samsung in the patent litigation between the Smartphone giants occurred at about the same time and soaked up all of the media’s appetite for patent news, or perhaps because the implications of the decision are not apparent from a casual perusal of the decision. The decision has significant implications for many industries and particularly those in the business of developing and implementing multiparty data and communications systems and software and those based on related business methods. Here’s why.

But first, some background. Akamai Technologies is in the Internet content delivery business and owns a patented method efficiently delivering third party content (such as Netflix movies) by mirroring that content on a number of different servers generally distributed geographically around the country or world and modifying the third party’s web page to instruct the web browser to retrieve user requested content from the most efficient mirror site.  Limelight is also in the Internet content delivery business and similarly maintains a network of mirror sites to provide efficient content delivery but does not modify a third party content provider’s web pages. Instead, Limelight instructs the content provider to modify its own website. McKesson Technologies is also in a business related to electronic communications as McKesson develops and installs electronic health record systems and owns a patented method of electronic communication between healthcare providers and patients. Similarly, Epic Systems provides licensed software to healthcare providers which permits them to communicate electronically with patients but unlike Akamai, Epic does not perform any of the steps of the patented method. Rather, all of the steps are performed by the patients who initiate communications with their provider, or by the licensed healthcare providers themselves.

McKesson sued Epic alleging that it induced patent infringement on the part of its licensees. Akamai sued Limelight alleging both direct patent infringement and induced patent infringement on the part of the third party content providers. In order for a court to find direct patent infringement, a single party must be found to perform all of the steps of a claimed method – a requirement sometimes referred to as the “single-entity rule.”  In order to find induced patent infringement a court must find that (1) actual infringement occurred; (2) the alleged inducer knew of the patent, and, nevertheless; (3) knowingly and intentionally induced the actual infringement. Prior to the Federal Circuit’s en banc decision in this case, that court had held in BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007), that the actual infringement required to find inducement had to be direct infringement which is to say that it had to be carried out by a single entity.  Both Limelight and Epic were granted summary judgment of non-infringement in district court based on the fact that there was no direct infringement in either case for lack of a single actor and thus could be no induced infringement. In each case the district court relied on BMC to reach its decision.

Under BMC it has been very difficult for patent holders to prove joint infringement or divided infringement where multiple parties carried out the steps of the claimed method unless they could show that one party (the “mastermind”) was vicariously liable for the acts of the others, a high hurdle. Absent the requisite level of control between the joint actors, a patent holder was left without recourse and such a scenario has been an increasingly common as patents for distributed electronic data systems and business methods built on such electronic data and communications systems have become widespread and increasingly valuable. In a divided per curiam decision, the Federal Circuit sitting en banc ruled 6-5 to overturn its decision in BMC, holding that “all the steps of a claimed method must be performed in order to find induced infringement, but that it is not necessary to prove that all the steps were committed by a single entity.”  This is a major departure from past law and will make it significantly easier for patent holder to avoid summary judgment if not prevail at trial, although it remains to be seen if either McKesson or Epic will seek review by the Supreme Court.

The majority expressly stated that it did not have occasion to resolve the question of whether direct infringement can be found where no single entity performs all of the claimed steps of a patent, despite the fact that this was precisely the question briefed to the court and the, in Judge Newman’s words, “the sole reason for [the] rehearing en banc.”  Judge Newman, however, did not hesitate to address that issue in her dissent in which she argued that the “single entity rule” rule is “flawed” and should be tossed out so as to “restore direct infringement to its status as occurring when all of the claimed steps are conducted, whether by a single entity or in interaction or collaboration.” Judge Linn also authored a dissent which was joined by Judges Dyk, Prost, and O’Malley in which he argued precisely the opposite and advocated that the en banc court should have adopted the panel decision in BMC. According to Judge Linn, direct infringement should require that all of the steps of a patented method to be performed by a single entity, acting either in its own capacity or through agents whose acts can be vicariously imputed to the single entity.