On June 2, 2014, the Supreme Court issued its ruling in Limelight Networks, Inc. v. Akamai Technologies, Inc., No. 12-786, holding that a party can only be found liable for induced infringement when some party performs every step of a patent. In a unanimous opinion authored by Justice Alito, the Court overturned an en banc Federal Circuit decision and held that a defendant cannot be liable for inducing infringement of a patent under 35 U.S.C. §271(b) when no one has directly infringed the patent under 35 U.S.C. §271(a) or any other statutory provision.

Background:

Akamai is the exclusive licensee of a patent that claims a method of delivering electronic data using a content delivery network. A recited step of the method patent claim is "tagging" the data components to be stored on a server. Limelight also operates a content delivery network and carries out all of the recited steps in Akamai's patent, except the tagging step, which is independently performed by Limelight's customers.

In 2006, the U.S. District Court for the District of Massachusetts held that Limelight was liable for direct infringement, and awarded Akamai $40 million in damages. However, following the Federal Circuit's decision inMuniauction, Inc. v. Thomson Corp., 532 F.3d 1318 (2008), the District Court granted Limelight's motion for reconsideration, concluding thatMuniauction precluded a finding of direct infringement against Limelight under 35 U.S.C. §271(a). In Muniauction, the Federal Circuit determined that direct infringement requires a single party to perform every step of a claimed method. This requirement is satisfied, even though the steps are actually undertaken by multiple parties, when a single defendant "exercises 'control or direction' over the entire process such that every step is attributable to the controlling party." Applying the "direction or control" standard set forth in Muniauction, the District Court reversed its decision of direct infringement, holding that Limelight could not have directly infringed the patent because performance of the "tagging" step could not be attributed to Limelight. The Federal Circuit affirmed, but following an en banc review, reversed that even though no one party may be liable for direct infringement, there can nonetheless be liability for inducing infringement.

Analysis:

The Supreme Court reversed the en banc decision stating, "[t]he Federal Circuit's analysis fundamentally misunderstands what it means to infringe a method patent." (Slip. Op. at 5.) The Court noted well-established law that a party cannot be liable for induced infringement if no one is liable for direct infringement and that the Federal Circuit erroneously ruled that direct infringement can exist independently of these statutory provisions. Chief Justice Alito stated, "[w]hen Congress wishes to impose liability for inducing activity that does not itself constitute direct infringement, it knows precisely how to do so. The courts should not create liability for inducement of non-infringing conduct where Congress has elected not to extend that concept." (Slip. Op. at 7.) The Court reasoned that the standard applied by the Federal Circuit would "deprive 35 U.S.C. §271(b) of ascertainable standards" and "would require the courts to develop two parallel bodies of infringement law: one for liability for direct infringement, and one for liability for inducement." (Slip. Op. at 6.)

The Court relied heavily on Muniauction and held that a method claim is not infringed unless all the steps are carried out because each claim element "is deemed material ... and a patentee's rights extend only to the claimed combination of elements, and no further." (Slip. Op. at 5.) In this case, applying the Muniauction direct infringement standard, not all steps performed are attributable to any one party so there is no infringement of the claimed method. Thus, Limelight "cannot be liable for inducing infringement that never came to pass." (Slip. Op. at 7.)

It is important to note that the decision was heavily predicated by the Federal Circuit's decision inMuniauction, and that the Court rendered its decision on the assumption, that the direct infringement standard set forth in Muniauction was correct, but refused to decide whether Muniauction was correct. The Court acknowledged that its ruling would leave loopholes based on the Federal Circuit's narrow Muniauction rule for direct infringement because it would permit a would-be infringer to evade liability by dividing performance of a method patent's steps with another whom the defendant neither directs nor controls. The Court suggested that the Muniauction decision might be incorrect and should be revised upon remand of Limelight to the Federal Circuit, but it noted several times that it was not reviewing Muniauction.

Practice pointer:

It appears that the only definitive answer to come out of the Supreme Court's decision in Limelight is that direct infringement and inducement are tied together and if there is no direct infringement under 35 U.S.C. § 271(a) because no one party has performed or controlled all of the required claim steps, there is no direct infringement and there can be no inducement for infringement under 35 U.S.C. § 271(b). This case has been closely followed by many internet and tech companies because it considers the reach of liability for inducing infringement under 35 U.S.C. § 271(b). Specifically, this ruling has major implications for cloud computing and web-related companies where Internet users perform some steps of a method patent because it is increasingly rare for a single company to perform all the steps of an online transaction. This new decision will most likely force patent holders to show one company has control or direction over another company either through an agency relationship or a contractual relationship to prove induced infringement. For companies that are accused of infringement of a method claim, this decision will provide them with a defense if they can show that the performance of a claimed method is distributed among multiple parties without the direction or control of the accused company.