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The Supreme Court Embarrasses The Fed Circuit In The Limelight

Summary

In Limelight Networks, Inc. v. Akamai Technologies, Inc., (June 2, 2014) 134 S.Ct. 2111, the Supreme Court overturned a Federal Circuit holding that inducement patent infringement can arise from a divided infringement that does not constitute direct infringement.  The Supreme Court acknowledged that this would permit a would-be infringer to evade infringement liability by dividing performance of a method patent’s steps with another whom the defendant does not direct or control (such as an end user).  However, the Supreme Court noted that this anomaly was the natural consequence of the Federal Circuit’s interpretation of a direct infringer in its prior holding in Muniauction, Inc. v. Thompson Corp., 532 F.3d 1318 (2008).  There, the Federal Circuit held that direct infringement of a method patent required a single party to perform every step of the claimed method and multiple parties performing different steps could only be direct infringers if a single defendant exercised control or direction over the aggregate of steps.  Thus, in Limelight, the Supreme Court reversed and remanded giving the Federal Circuit a chance to expand its interpretation of direct infringer espoused in Muniauction.

 

Facts and Procedural Posture

Akamai Technologies, Inc. is the exclusive licensee of a method patent (‘703 patent) for the delivery of electronic data using a content delivery network.  One of the method steps requires that certain components of a website’s content, which will be stored on Akamai’s servers, be designated or “tagged”.

Limelight Networks, Inc. is Akamai’s competitor in the content delivery network market.  It carries out several of the steps of the ‘703 patent.  However, instead of tagging its customers’ components, it requires the customers do their own tagging.

In 2006, Akamai sued Limelight and a jury determined Limelight directly infringed the ‘703 patent and awarded $40,000,000 in damages.  Akamai’s victory did not last long because after the verdict, the Federal Circuit decided the Muniauction case.  In light of Muniauction, Limelight moved for reconsideration of its previously denied motion for a judgment as a matter of law.  The District Court granted the motion, concluding that Muniauction precluded a finding of direct infringement under Section 271(a) because infringement of the ‘703 patent required tagging and Limelight does not control or direct its customers’ tagging.

A panel of the Federal Circuit affirmed, explaining that a defendant that does not itself undertake all of a patent’s steps can be liable for direct infringement only 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.  However, the Federal Circuit then granted en banc review and reversed.  En banc, the Federal Circuit concluded that the evidence could support a theory of induced infringement even though there was no direct infringement.

Supreme Court’s Analysis

The Supreme Court reversed and remanded.  It held that there could be no inducement liability without direct infringement.  The Federal Circuit had reasoned that a defendant can be liable for inducing infringement even if nobody committed direct infringement, because direct infringement can exist independently of a violation of the statutory patent scheme.  The Supreme Court took this as a post hoc attempt by the Federal Circuit to rationalize its ruling.  The Supreme Court then forced the Federal Circuit to look in the mirror at its opinion in Muniauction, in which the Federal Circuit itself determined that a method patent is directly infringed only when its steps are performed by the same defendant, or somebody controlled or directed by the defendant.  And, without direct infringement, there is no inducement liability.

The Supreme Court held that the Federal Circuit’s interpretation of inducement infringement would effectively deprive courts and litigants of any meaningful analytical framework of when a patent holder’s rights have been violated.  The Supreme Court noted that just because the Federal Circuit possibly erred by too narrowly defining direct infringement, there is no reason to compound the error by misconstruing the inducement statute to impose liability for inducement when no direct infringement occurred.

 

Conclusion

The Supreme Court resisted the siren song of reviewing the merits of the Federal Circuit’s Muniaction rule for direct infringement of method patents.  However, the Supreme Court did invite the Federal Circuit to determine whether it wanted to alter its definition of direct infringement.

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