Precedential Patent Cases From the Federal Circuit in the Past Week
Lelo – The Circuit reverses the ITC's finding that the domestic industry requirements of § 337 are satisfied where only "qualitative" factors were relied upon to demonstrate the required "significant investment in plant or equipment" and a "significant employment of labor or capital." The purchase of crucial components from third-party U.S. suppliers is insufficient where there is an absence of "quantitative" evidence that connects the cost of the components to an increase of investment or employment in the U.S.
ArcelorMittal – The Circuit affirms summary judgment of invalidity as to certain claims that were broadened in a reissue application filed more than two years after issuance. The panel specifically rejects ArcelorMittal's argument that the successful prosecution of the reissue patent constitutes "new evidence" sufficient to contravene the Circuit's earlier construction, the law-of-the-case doctrine and the mandate rule. However, the panel reverses the district court ruling of invalidity as to new claims that were no broader than the properly-construed original claims.
Classen – The panel determines that the district court correctly decided that the safe harbor provision of § 271(e)(1) exempts Elan's activities reasonably relating to developing clinical data on its approved drug Skelaxin and submitting that information to the FDA in a citizen petition and a supplemental new drug application. Classen asserts that certain activities that occurred after the FDA submissions infringed its '472 patent and that those activities are not exempt. Because the district court did not determine whether those activities constituted infringement or whether they were exempt from liability under the safe harbor, the panel vacates the judgment of noninfringement and remands the case.
Akamai – In this remand of the Supreme Court's decision in Limelight Networks v. Akamai Technologies, a divided panel reaffirms the holdings in BMC and Muniauction and refuses to expand the scope of direct infringement to include joint tortfeasors when parties collectively practice all of the elements of a claimed invention. Therefore, the law remains as it was previously that a party is not liable for practicing several steps in a patented method and instructing others to perform the remaining steps. In dissent, Judge Moore contends that the majority divorces patent law from mainstream legal principles by refusing to accept that § 271(a) covers joint tortfeasor liability.
Lelo Inc. v. Int'l. Trade Comm'n, Fed. Cir. Case 2013-1582 (May 11, 2015)
Standard Innovation is a Canadian corporation that owns a '605 patent, and markets a line of sex toys covered by its patent. Standard Innovation formed a U.S. subsidiary, Standard US, to distribute products in the U.S. Neither Standard Innovation nor Standard U.S. manufactures in the U.S. Standard Innovation sources components from suppliers in the U.S. and other countries, and contracts Chinese manufacturers to assemble its devices. Once finished, the devices are exported from China to over fifty countries, including the U.S.
Lelo is a California corporation partially owned by a Chinese trading company. Lelo imports three vibrator devices into the U.S. Standard Innovation filed a § 337 complaint alleging that Lelo's imported devices and components thereof infringed its '605 patent.
Standard Innovation alleged it had a substantial domestic industry because four components included in each of the devices were sourced from the U.S.: a backbone material, a rubber, microcontrollers, and a pigment. Three of those components were entirely manufactured in the U.S. as well as one part of the fourth component. All other components of the devices were produced abroad.
An ITC Administrative Law Judge ("ALJ") construed the claims of the ‘605 patent and determined that the accused devices infringed, and rejected Lelo's arguments regarding invalidity. However, the ALJ determined that no violation of § 337 had occurred because Standard Innovation failed to satisfy the domestic industry requirements. The ALJ rejected Standard Innovation's arguments that its U.S. purchase of the four components constituted a "significant investment in plant and equipment," or a "substantial investment in its exploitation, including engineering, research and development, or licensing," under prongs (A) and (C), respectively, of the § 337 domestic industry requirement.
A claimant asserting patent rights under § 337 must satisfy the "domestic industry" requirement set out in the statute and establish, "with respect to the articles protected by the patent," that there is:
(A) significant investment in plant and equipment;
(B) significant employment of labor or capital; or
(C) substantial investment in its exploitation, including engineering, research and development, or licensing.
The ALJ concluded that Standard Innovation's U.S. purchases were not relevant to a prong (A) analysis because Standard Innovation failed to establish what portion, if any, of the purchase price actually contributed towards a domestic investment in plant or equipment. The ALJ also decided that the components were off-the-shelf items and not relevant to prong (C) because there was no proof that the components were developed specifically for Standard Innovation's devices, or what portion, if any, of the purchase price was allocable to research and development costs incurred in the development of the components. Further, the ALJ determined that even if the purchases were relevant, they were neither "substantial" nor "significant" under prongs (A) or (C), as the total purchase prices accounted for less than five percent of the total raw cost of the devices.
On review, the Commission reversed the ALJ's domestic industry determination, finding that Standard Innovations' expenditures on the four components were critical to its devices and were produced domestically, and that this was sufficient for the Commission to determine the component expenses in the economic prong analysis. Although the purchases represented "a relatively modest proportion of domestic content," the Commission found the "contribution of the components at issue from a qualitative standpoint is indeed significant," and that the ALJ had failed to consider the critical nature of the components to the patented products.
The Commission Should Have but Failed to Consider Quantitative Factors
The appeal focused on the single question of whether qualitative factors alone are sufficient to satisfy the "significant investment" and "significant employment" requirements of § 337. The panel concludes that, while qualitative factors must be considered, the cases cited by the Commission cases do not stand for the proposition that qualitative data alone can satisfy the domestic industry requirements. Quantitative factors must also be considered.
The panel concludes that the Commission's finding that Standard Innovation's investment and employment under prongs (A) and (B) was quantitatively "modest" meant it was "insignificant" and agreed with that finding. Standard Innovation did not establish prong (C) and the Commission erred when it disregarded the quantitative data to reach its domestic industry finding based on qualitative factors. Accordingly, the panel finds that Standard Innovation did not satisfy the domestic industry requirement of § 337 and reverses the Commission's finding.
Holding: Qualitative factors alone are insufficient to show "significant investment in plant and equipment" and "significant employment of labor or capital" under prongs (A) and (B) of the § 337 domestic industry requirements. The purchase of so called "crucial" components from third-party U.S. suppliers are insufficient to satisfy the "significant investment" or "significant employment of labor or capital" criteria of § 37 where there is an absence of evidence that connects the cost of the components to an increase of investment or employment in the U.S.
ArcelorMittal France v. AK Steel Corp. , Fed. Cir. Case 2014-1189 (May 12, 2015)
The reissue patent at issue is directed to a steel sheet that has "a very high mechanical resistance," which was interpreted to be limited to steel with a tensile strength greater than 1500 magapascals. After a jury found the patent not infringed and invalid as anticipated and obvious, ArcelorMittal appealed, and while that appeal was pending, ArcelorMittal attempted to reissue the patent to broaden or avoid the court's construction. The application reissued with new dependent claim 23, which recited a mechanical resistance is in excess of 1000 MPa, thus providing broader scope than the Circuit's construction of the original patent claim. Two new dependent claims were added: claim 24, which confined claim 1 to the prior construction of a "mechanical resistance is in excess of 1500 MPa;" and claim 25, which depended from and further limits claim 24.
After ArcelorMittal amended its complaint to substitute the reissue patent, the court granted defendants' motion for summary judgment based upon claims 1 through 23 being impermissibly broadened. Sua sponte, the court also invalidated claims 24 and 25.
On appeal, ArcelorMittal argues that the reissued claims are no broader than the original claims because the successful prosecution of the reissue demonstrates the PTO's belief that the term "very high mechanical resistance" was broader than the Circuit construed it to be. ArcelorMittal also argues the court erred by invalidating all claims, including those that were not broader than the original claims.
The Reissue Prosecution is not "New Evidence" Sufficient to Overcome Law-of-the-Case
The law-of-the-case doctrine posits that when a court decides upon a rule of law, that decision should continue to govern the same issues in subsequent stages in the same case. The mandate rule, encompassed by the broader law-of-the-case doctrine, dictates that an inferior court has no power or authority to deviate from the mandate issued by an appellate court. Under the mandate rule and the law-of-the-case doctrine, a court may only deviate from a decision in a prior appeal if extraordinary circumstances exist. But such departures are rare. ArcelorMittal argues that the PTO's reissue of the patent is "new evidence" sufficient to constitute extraordinary circumstances to deviate from the Circuit's clear mandate and construction of "very high mechanical resistance" in claim 1.
The successful prosecution of the reissue patent is not "new evidence" sufficient to trigger the extraordinary circumstances exception to the mandate rule and the law-of-the-case doctrine. The basic inquiry under § 251 requires comparing the scope of the claims of the reissue patent to the scope of the original claims to determine if the reissue patent covers any conceivable apparatus or process which would not have infringed the original patent. If the reissue claim itself could be used to redefine the scope of the original claim, this comparison would be meaningless. The dispositive question is whether the original claim has the meaning sought by ArcelorMittal for the reissue claims—not what the original claim means in light of the reissue claims. And the Circuit already determined the proper scope of claim 1 during the first appeal.
The prosecution history of a reissue claim can be relevant to determine the scope of the reissue claim, and it is possible that the prosecution history includes disavowals of claim scope that could preserve the reissue claim in the face of an apparent broadening. But that is not the case here. The only relevant change is the addition of a dependent claim which has the practical effect of expanding the scope of claim 1 to cover a claim scope expressly rejected by a previous claim construction ruling, and ArcelorMittal makes no argument that the reissue claims are otherwise narrowed.
Accordingly, the prosecution history of the reissue patent here is not "new evidence" of the scope of the original claims for the purposes of the § 251 inquiry. Under the law-of-the-case doctrine, the court was bound by the Circuit's prior construction of the original claims, which ArcelorMittal concedes was narrower than the scope of the reissue claims. Based on this prior construction, the court correctly found that claims 1 through 23 impermissibly broadened the original claims and are invalid under § 251.
New Claims 24 and 25 are Not Necessarily Invalid Just Because of the Invalidity of Claims 1-23
Having found claims 1 through 23 invalid under § 251, the panel looked to determine the fate of claims 24 and 25, which both parties agree have the same scope as claim 1 of the original patent—that is, they were not broadened on reissue. Section 251 provides that "no reissued patent shall be granted enlarging the scope of the claims of the original patent unless applied for within two years from the grant of the original patent" and a reissue patent may only be issued absent "deceptive intention" by the applicant. Section 282 provides: "each claim of a patent . . . shall be presumed valid independently of the validity of other claims." And "invalidity of the patent or any claim in suit for failure to comply with any requirement of [35 U.S.C. §§ 100 et seq.] or 251" "shall be a defense in any action involving the validity of infringement of a patent . . . ."
Section 282 plainly states that a patent's claims are presumed valid independent of one another. And § 282 uses the same language to reference § 251 as it does §§ 100 et seq., which we have long held to only apply on a claim-by-claim basis. Moreover, the plain language of § 253 confirms that "whenever, without any deceptive intention, a claim of a patent is invalid the remaining claims shall not thereby be rendered invalid."
While claims 24 and 25 are not identical to the original claims since they identify the specific level "1500 MPa," they nevertheless repeat and separately state the scope of claim 1 as construed by the district court and later affirmed by the Circuit. And, while we are mindful of the concerns over ArcelorMittal's attempts to modify the district court's claim construction through the reissue process, we are not persuaded that these policy concerns demand that we part from our precedent. Accordingly, we find the district court erred in invalidating claims 24 and 25 of the reissue patent.
Classen Immunotherapies, Inc. v. Elan Pharm., Inc., Fed. Cir. Case 2014-1671 (May 13, 2015)
Elan has marketed and sold metaxalone, a muscle relaxant, under the brand-name Skelaxin, and was the owner of an approved NDA. In July 2001, Elan initiated a clinical study on Skelaxin administered with and without food in humans and observed a significant effect of food on the drug's bioavailability. In October 2001, Elan submitted a citizen petition to the FDA, requesting that the FDA require both fed and fasting bioavailability data from an applicant of an ANDA for a generic version of Skelaxin. Concurrently, Elan also submitted an sNDA, to revise its product label. Elan included its clinical study report with those FDA submissions and explained to the FDA that the results of its clinical study showed that the bioavailability of Skelaxin was significantly increased when Skelaxin was administered with food. The FDA subsequently granted Elan's citizen petition and approved its sNDA. In December 2001 and March 2002, Elan filed two patent applications based on its clinical bioavailability data. Those applications issued but all of the claims were later invalidated in light of prior art.
Classen owns the '472 patent, which is directed to a method for analyzing data on a commercially available drug to identify a new use of that drug, and then commercializing that new use. Classen sued Elan in 2004, alleging that Elan infringed the '472 patent when it studied the effect of food on the bioavailability of Skelaxin, used the clinical data to identify a new use of the drug, and commercialized the new use. The court granted Elan's motion for summary judgment of noninfringement, finding Elan protected by the safe harbor provision of § 271(e)(1) because Elan submitted its clinical data to the FDA with its citizen petition and sNDA, and thus its activities were "reasonably related to the submission of information" under the Federal Food, Drug, and Cosmetic Act ("FDCA").
The suit was then stayed pending an ex parte reexamination of the '472 patent, during which some of the claims were cancelled. After the reexamination certificate issued in 2010, Classen filed a motion seeking to lift the stay and to vacate the 2006 summary judgment. Classen argued that our decision in Classen Immunotherapies, Inc. v. Biogen IDEC, 659 F.3d 1057 (Fed. Cir. 2011) warranted reconsideration of the summary judgment because we held in Biogen that certain post-approval routine submissions to the FDA are outside the safe harbor of § 271(e)(1). In response, the court lifted the stay but denied reconsideration of its 2006 decision. The court concluded that Elan was protected by the safe harbor under both Biogen and our subsequent decision in Momenta Pharmaceuticals, Inc. v. Amphastar Pharmaceuticals, Inc., 686 F.3d 1348 (Fed. Cir. 2012). The court reasoned that unlike Biogen, where the post-approval submissions were routine, Elan's submissions to the FDA were "not routine" because they were necessary to update the Skelaxin product label and to change the FDA approval process for generic versions of Skelaxin. On the parties' joint motion, the court entered final judgment of noninfringement and Classen appealed.
Elan's Clinical Study and its FDA Submissions Fall Within the Scope of the Safe Harbor
In 1984, as part of the Hatch Waxman Act, Congress created an exemption from infringement for certain uses of a patented invention in the federal regulatory process. The safe harbor provision, § 271(e)(1), provides in relevant part:
It shall not be an act of infringement to make, use, offer to sell, or sell within the United States or import into the United States a patented invention . . . solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs . . . .
Under § 271(e)(1), the exemption extends to all uses of patented inventions that are reasonably related to the development and submission of any information under the FDCA. Although it may be less straightforward to determine whether an accused infringer's use of a patented invention was " solely for uses reasonably related to the development and submission of information," the statutory language does not categorically exclude post-approval activities from the ambit of the safe harbor. Indeed, under the FDCA, drug manufacturers may voluntarily, or sometimes may be required to, conduct post-approval studies on their products for purposes of developing and submitting information to the FDA.
In some circumstances, drug manufacturers voluntarily conduct post-approval clinical trials to support "supplemental" new drug applications, seeking the FDA's approval to revise the label of their products. Just like NDA or ANDA applicants, sNDA applicants must submit relevant data to the FDA to support their applications. Thus, after the initial approval of a drug, its manufacturer may perform additional research to further characterize the drug and submit that information to the FDA for a labeling change. Such post-approval studies help in ensuring the safety and efficacy of approved drugs. As an integral part of the regulatory approval process, those activities are "reasonably related to the development and submission of information" under § 271(e)(1), and are therefore exempt from infringement liability.
Here, Elan's clinical study and its FDA submissions clearly fall within the scope of the safe harbor. The court therefore did not err in holding that Elan's clinical activities and FDA submissions are exempt from infringement under the safe harbor provision.
Classen argues that after Elan generated and submitted the clinical data to the FDA, its subsequent actions of reanalyzing the clinical data to identify patentable information and filing patent applications are commercial activities outside the scope of the safe harbor. Classen also argues that Elan infringed the kit claims by making and selling Skelaxin with the revised label that contained the information derived from the clinical study. Classen contends that the safe harbor does not protect those post-submission commercial uses of information derived from the clinical study.
Elan responds that it generated the clinical data on Skelaxin mainly for submission to the FDA and that it did not reanalyze the data when filing the patent applications. Elan contends that subsequent uses of clinical data generated for the FDA in other contexts do not result in the removal of the safe harbor protection. Elan also responds that because each of the kit claims depends from a method claim that Elan did not infringe, Elan's making and selling of Skelaxin with the revised label is likewise not infringing.
As indicated, we have concluded that Elan's clinical study and its FDA submissions are exempt under the safe harbor provision. We have also held that the subsequent disclosure or use of information obtained from an exempt clinical study, even for purposes other than regulatory approval, does not repeal that exemption of the study, provided that the subsequent disclosure or use is itself not an act of infringement of the asserted claims. Telectronics Pacing Sys. v. Ventritex, Inc., 982 F.2d 1520 (Fed. Cir. 1992).
Here, unlike in Telectronics, Classen alleges that Elan's post-submission activities using the clinical data for non-regulatory purposes infringed the claims of Classen's '472 patent. Specifically, Classen asserts that Elan's filing of patent applications based on the clinical data infringed the method claims and that Elan's sale of Skelaxin with the revised label containing information derived from the clinical trial infringed the kit claims. As indicated, when granting summary judgment of noninfringement, the district court did not determine whether those post-submission activities constituted infringement of the '472 patent or whether they were exempt under the safe harbor. Therefore, the panel vacates the judgment of noninfringement and remands the case for further proceedings on the parties' pending claims and counterclaims, including issues of validity, enforceability, and infringement.
To assist the district court in its analysis of infringement, we make the following observations of the record. Filing a patent application is generally not an infringement of a patent. In addition, placing the information submitted to the FDA on the product label after sNDA approval generally cannot be an infringement. Information obtained from exempt activities does not cease to be exempt once the sNDA is approved. It is a requirement of law that a drug product contains the labeling approved by the FDA.
Akamai Tech., Inc. v. Limelight Networks, Inc. , Fed. Cir. Cases 2009-1372; 1380; 1414; and 1417 (May 13, 2015)
I. Divided Infringement Under § 271(a)
Direct infringement under § 271(a) requires a party to perform or use each and every step or element of a claimed method. Warner-Jenkinson Co. v. Hilton Davis Chem. Co., 520 U.S. 17, 29 (1997). For method patent claims, direct infringement only occurs when a single party or a joint enterprise performs all of the steps of the process. This holding derives from § 271(a) itself, which states "whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent." Encouraging or instructing others to perform an act is not the same as performing the act oneself and does not result in direct infringement. BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007), and Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318 (Fed. Cir. 2008). This is evidenced by the fact that § 271 has separate subsections addressing induced and contributory infringement. When a party participates in or encourages infringement but does not directly infringe a patent, the normal recourse under the law is for the court to apply the standards for liability under indirect infringement. However, indirect infringement requires, as a predicate, a finding that some party is directly liable for the entire act of direct infringement. Limelight Networks, Inc. v. Akamai Techs., Inc., 134 S. Ct. 2111 (2014). In circumstances in which one party, acting as "mastermind" exercises sufficient "direction or control" over the actions of another, such that those actions may be attributed to the mastermind, the combined performance of the steps of a method claim will directly infringe under § 271(a). "Under BMC Resources, the control or direction standard is satisfied in situations where the law would traditionally hold the accused direct infringer vicariously liable for the acts committed by another party that are required to complete performance of a claimed method." Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318, 1330 (Fed. Cir. 2008). This may occur in a principal-agent relationship, a contractual relationship or in circumstances in which parties work together in a joint enterprise functioning as a form of mutual agency.
Akamai asserts that the Supreme Court's Limelight decision "strongly implies that a change in direction on § 271(a) is warranted." It claims that in lieu of overruling Muniauction, this panel can decline to extend it to the facts of this case. According to Akamai, an accused infringer "directs or controls" a third party if the accused infringer goes beyond loosely providing instructions and specifically tells a third party the step or steps to perform. Akamai cites joint tortfeasor principles as support.
We begin by considering whether § 271(a) incorporates joint tortfeasor liability, as Akamai and the dissent advocate. Unquestionably, it does not. As codified by Congress, § 271(a) includes only the principles of vicarious liability, as embodied in the single entity rule. Presented with numerous conflicting theories of joint liability that existed in the common law prior to 1952, Congress enacted specific rules for inducement and contributory liability in § 271(b) and (c), respectively. While the dissent believes this leaves a "gaping hole," Dissent at 1, it is not our position to legislate or contravene Congress' choice right or wrong—by importing other theories of joint liability into § 271(a).
The alternative—stretching § 271(a) to include joint tortfeasor liability—is flawed. To make joint tortfeasor liability consistent with the well-established fact that direct infringement liability under § 271(a) is strict liability, Akamai and the dissent must abandon several core tenets of joint tortfeasor law. This position also leads to untenable results. For example, the dissent advocates holding a customer jointly and severally liable for patent infringement based on its performance of a single step of a claimed method, even when it has no knowledge of the patent.
In the analysis that follows we address, in turn, three subjects: the statutory scheme of § 271, the divided infringement case law, and the errors in importing joint tortfeasor liability into § 271(a).
A. The Statutory Scheme of § 271
Patent infringement is not a creation of common law. It is a tort defined by statute. Title 35 U.S.C. § 271(a) provides that:
Except as otherwise provided in this title, whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.
Section 271(a) defines infringement. Subsections (b) and (c), in turn, codify the doctrines of inducement and contributory infringement respectively.
The Supreme Court has observed that "the 1952 Act did include significant substantive changes, and . . . § 271 was one of them." In the 1952 Patent Act, Congress removed joint-actor patent infringement liability from the discretion of the courts, defining "infringement" in § 271(a) and expressly outlining in § 271(b) and (c) the only situations in which a party could be liable for something less than an infringement. This was purposeful. In enacting § 271(b) and (c), Congress cleared away the morass of multi-actor infringement theories that were the unpredictable creature of common law in favor of two infringement theories that it defined by statute. We must respect Congress' deliberate choice to enact only certain forms of contributory liability in § 271(b) and (c).
Furthermore, Akamai's broad theory of attribution in which a defendant would be liable for "causing and intending an act or result," —would render § 271(b) redundant. Subsection (b) states: "Whoever actively induces infringement of a patent shall be liable as an infringer." The Supreme Court in Global-Tech, quoting Webster's, explained that to induce "means to lead on; to influence; to prevail on; to move by persuasion or influence." GlobalTech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060 (2011). And even the definitions expressly quoted in Global-Tech—namely: to lead on; to influence; to prevail on; to move by persuasion or influence—are all ways to "cause." The Supreme Court in Global-Tech further explained that the adverb "actively" means that "the inducement must involve the taking of affirmative steps to bring about the desired result." This "obviously [requires] know[ing] the action that [the inducer] wishes to bring about." Thus, a defendant actively induces patent infringement under § 271(b) if she causes infringement while intending the act or result to occur (along with certain other requirements).
But if, as Akamai contends, there is liability under § 271(a) for "one causing and intending an act or result," there is no need for a separate tort for induced infringement. This is crystallized by the language of the Restatement (Second) of Torts § 877(a)—cited by Akamai which subjects a defendant to liability for tortious conduct of another if the defendant "orders or induces the conduct" (emphasis added).
For essentially the same reasons, Akamai's broad reading of § 271(a) would make § 271(c) redundant as well. Subsection (c), as originally enacted, stated:
(c) Whoever sells a component of a patented machine, manufacture, combination or composition, or a material or apparatus for use in practicing a patented process, constituting a material part of the invention, knowing the same to be especially made or especially adapted for use in an infringement of such patent, and not a staple article or commodity of commerce suitable for substantial noninfringing use, shall be liable as a contributory infringer.
As with § 271(b), liability for § 271(c) requires knowledge or willful blindness of the patent, Global-Tech, 131 S. Ct. at 2068, and requires direct infringement. Thus, § 271(c) also entails causing customers to act as they did and intending the acts and/or results. There is no principled reason why Akamai's attribution theory should not apply to combination patents. But it is well settled that the sale of an unpatented component will at most raise a question of infringement under subsection (c), not subsection (a).
B. Divided Infringement Case Law
Under the language of § 271(a), this court's "divided infringement" case law is rooted in traditional principles of vicarious liability. Under the principles of vicarious liability, direct infringement does not occur unless all steps of a method claim are performed by or attributable to a single entity. This is the single entity rule. BMC confirmed that where the actions of one party can be legally imputed to another, such that a single entity can be said to have performed each and every element of the claim, that single entity is liable as a direct infringer. 498 F.3d at 1380-81. Before BMC, the judiciary and the patent law community recognized that multiple actors could together infringe a patent only if one controlled the other(s). Applying traditional principles of vicarious liability to direct infringement under § 271(a) protects patentees from a situation where a party attempts to "avoid infringement . . . simply by contracting out steps of a patented process to another entity . . . . It would be unfair indeed for the mastermind in such situations to escape liability." BMC, 498 F.3d at 1381. In addition, in patent law, unlike in other areas of tort law—where the victim has no ability to define the injurious conduct upfront—the patentee specifically defines the boundaries of his or her exclusive rights in the claims appended to the patent and provides notice thereby to the public so that it can avoid infringement. As this court correctly recognized in BMC, "[t]he concerns over a party avoiding infringement by arms-length cooperation can usually be offset by proper claim drafting. A patentee can usually structure a claim to capture infringement by a single party." 498 F.3d at 1381. Further, many amici have pointed out that the claim drafter is the least cost avoider of the problem of unenforceable patents due to joint infringement. It would thus be unwise to overrule decades of precedent in an attempt to enforce poorly-drafted patents.
C. Errors in Importing Joint Tortfeasor Liability into § 271(a)
The majority and dissent agree that liability exists under traditional principles of vicarious liability, such as where a mastermind directs or controls another to perform all steps of a claimed method. But the dissent's rule is far broader—Akamai and the dissent insist that they can thrust common law joint tortfeasor liability into § 271(a). The dissent would extend liability to "include parties who act in concert to collectively perform the claimed process pursuant to a common plan, design, or purpose." The error of this approach is that it attempts to fit a square peg in a round hole: joint tortfeasor law and § 271 are fundamentally incompatible. To import joint tortfeasor law into § 271(a), Akamai and the dissent depart from three indispensable common law limits on joint tortfeasor liability.
First, the Restatement is clear that joint tortfeasor liability "includes only situations in which the defendant has been personally guilty of tortious conduct." Restatement (Second) of Torts § 875, cmt. a (1979). Second, the dissent purports to adopt the Restatement's rule of action in concert. But, according to the Restatement, "[p]arties are acting in concert when they act in accordance with an agreement to cooperate in a particular line of conduct or to accomplish a particular result." Restatement (Second) of Torts § 876, cmt. There is no mutual agency or cooperation when parties act independently for their own benefit, such as in arms-length seller-customer relationships.
The dissent, meanwhile, would extend liability even to arms-length agreements, so long as one party "know[s] of th[e] [other] party's actions." This position contravenes both patent law and tort law. The Supreme Court in Global-Tech held that "a direct infringer's knowledge or intent is irrelevant," 131 S. Ct. at 2065 n.2, yet the dissent imposes a knowledge requirement. And common tort law requires both parties to know the others' actions to act in concert.
Third, the Restatement describes yet another requirement for concerted action: knowledge of harm. The common law sources cited in Akamai's briefs acknowledge that, for joint liability, a defendant needs knowledge of damage done or harm caused. Indeed, this common law requirement was statutorily enacted into 35 U.S.C. § 271(b) and (c). See Global-Tech, 131 S. Ct. at 2068 (holding that both subsections (b) and (c) "require knowledge [or willful blindness] of the existence of the patent that is infringed"). Adopting such a requirement for liability under § 271(a) would be contrary to centuries of settled Supreme Court precedent that "a direct infringer's knowledge or intent is irrelevant." Global-Tech, 131 S. Ct. at 2065 n.2.
The dissent's rule leads to several extraordinary results. For example, a customer who performs a single step of a patented method by merely using a product as intended would be jointly and severally liable for direct infringement under § 271(a). It is nothing short of remarkable that while Congress and state legislators express their concern about the vulnerability of innocent customers to charges of patent infringement, Akamai and the dissent labor to create an unprecedented interpretation of existing law to make customers significantly more vulnerable to such charges. This is especially troubling given that the customer can be liable even without knowing of the patent. Moreover, the dissent's "knowledge of the others' actions" requirement is an illusory protection for customers and other unsuspecting parties. Institution of a patent infringement lawsuit informs accused infringers of third parties' actions, so, at most, requiring knowledge of the others' actions limits the patentee's recovery to post-suit damages.
The drastic expansion of predatory customer suits is not a theoretical concern. Several amici, the White House, and other commentators identify numerous instances where patentees have sent demand letters to or sued dozens, hundreds, or, in some cases, even thousands of unsophisticated downstream users. If the law were expanded to impose joint and several liability on users of a single prior art method step, it would subject swathes of innocent actors across diverse industries to these practices.
II. THE FACTS OF THIS CASE
Akamai argues that the facts here are different from those in Muniauction, because Limelight provides more specific instructions and because it has a contract with its customers. Limelight argues that the law has not changed since the original panel decision. The same precedents that led to the original panel decision, most notably BMC and Muniauction, are still binding on this court. In its original panel briefing, it argued that the district court was correct that this case is "indistinguishable" from Muniauction. It further argues that even if there is a contract between Limelight and its customers, which it contests, this contract "does not compel the customer to do anything."
In this case, there is nothing to indicate that Limelight's customers are performing any of the claimed method steps as agents for Limelight, or in any other way vicariously on behalf of Limelight. To the contrary, Limelight's customers direct and control their own use of Limelight's content delivery network ("CDN"). Limelight's customers serve their own web pages, and decide what content, if any, they would like delivered by Limelight's CDN. Customers sometimes even have Limelight's CDN and competing CDNs simultaneously deliver the same content. As such, customers—not Limelight—direct and control which CDN delivers each and every object of their content. Limelight's customers do not become Limelight's agents simply because Limelight provides its customers a written manual explaining how to operate Limelight's product.
Moreover, Limelight's CDN is a service similar to Thomson's on-line auction system in Muniauction, and Limelight's relationship with its customers is similar to Thomson's relationship with the bidders. In both cases, customers are provided instructions on use of the service and are required to perform some steps of the claimed method to take advantage of that service. In Muniauction, the customers performed the step of bidding. Here, the customers determine what website content should be delivered by Limelight's CDN and then, allegedly, perform the step of "tagging" that content. Limelight's customers also perform the step of "serving" their own web pages. As the district court found, there is "no material difference between Limelight's interaction with its customers and that of Thompson in Muniauction."
Akamai also argues that the relationship between Limelight and its customers compels a finding of infringement because Limelight "contracts out to content providers the claim steps that it alone does not perform." This assertion stems from Limelight's standard form contract that, according to Akamai, "obligates content providers to perform the claim steps of tagging the embedded objects and serving the tagged page so that requests for the embedded objects resolve to Limelight's network instead of the content provider's." For this argument, Akamai relies on the statement in BMC that "[a] party cannot avoid infringement . . . simply by contracting out steps of a patented process to another entity,"
Akamai's reliance on this statement is misplaced. As discussed above, Limelight's customers decide what content, if any, they choose to have delivered by Limelight's CDN and only then perform the "tagging" and "serving" steps. The form contract does not obligate Limelight's customers to perform any of the method steps. It merely explains that customers will have to perform the steps if they decide to take advantage of Limelight's service. Because the customers were acting for their own benefit, Limelight is not vicariously liable for the customers' actions. See BMC, 498 F.3d at 1379 (holding that liability exists only where the accused infringer has "someone else carry out one or more of the claimed steps on its behalf'); Muniauction, 532 F.3d at 1329 ("mere 'arms-length cooperation' will not give rise to direct infringement by any party") (quoting BMC, 498 F.3d at 1381).
In the present case, the asserted claims were drafted so as to require the activities of both Limelight and its customers for a finding of infringement. Thus, Akamai put itself in a position of having to show that the allegedly infringing activities of Limelight's customers were attributable to Limelight. Akamai did not meet this burden because it did not show that Limelight's customers were acting as agents of or otherwise contractually obligated to Limelight or that they were acting in a joint enterprise when performing the tagging and serving steps. Accordingly, we affirm the district court's grant of Limelight's motion for JMOL of non-infringement under § 271(a).
We also confirm our previously reinstated affirmance of the district court's judgment of noninfringement of the '413 and '645 patents.
Judge Moore's Dissent
Today the majority holds that the actions of multiple parties can only result in direct infringement of a method claim in three circumstances: in a principal-agent relationship, in a contractual arrangement, or in a joint enterprise functioning as a form of mutual agency. It divorces patent law from mainstream legal principles by refusing to accept that § 271(a) includes joint tortfeasor liability. The majority's rule creates a gaping hole in what for centuries has been recognized as an actionable form of infringement. It claims that this result is mandated by the statute. I do not agree. The single entity rule promulgated in BMC and Muniauction is a recent judicial creation inconsistent with statute, common law, and common sense. For centuries, the concerted actions of multiple parties to infringe a patent gave rise to liability. The plain language of § 271(a) codified this joint infringement. To construe that language otherwise would permit identical language in the statute to have inconsistent meanings. Congress meant to and did codify liability for joint infringement. It did not, as the majority suggests, purposefully do away with a broad swath of recognized forms of liability for infringement. I respectfully dissent from the majority's decision to interpret § 271(a) in a manner that condones the infringing conduct in this case.
Comment: Muniauction set forth what has been described as the single-entity rule, providing that there is no direct infringement unless all of the steps of a patent are performed by one entity. Many patents recite steps that are performed by multiple actors so this opinion will provide further support for those accused on infringement. Patent drafters will have to assume, given Muniauction, BMC and now Akamai, that the single-entity rule will remain part of the jurisprudence. However, given the importance of this issue and the sharp tone of the dissent, this would seem to be a case destined for en banc consideration.