No Inducing Patent Infringement Unless There is Direct Infringement

In a June decision, the U.S. Supreme Court resolved a key issue in patent law: whether a party can be liable for patent infringement when there is no underlying act of direct infringement.  Specifically, the court addressed whether a party who instructs multiple parties to perform different steps of a method patent can be liable for inducing infringement.  The Court’s answer:  no. The case is Limelight Networks, Inc. v. Akamai Technologies, Inc. (U.S. Supreme Court June 2, 2014) 2014 U.S. LEXIS 3817.

Patent infringement is either direct or indirect.  Direct infringement exists when a defendant makes, uses, sells, offers to sell, or imports into the United States a patented product or performs all of the steps of a patented method.  Indirect infringement exists when the defendant does not itself commit direct infringement, but causes another party to do so.  There are two types of indirect infringement: inducing and contributory.  A defendant has induced infringement when it instructs or causes another party to infringe a patent.  For a method patent, a defendant induces infringement if it instructs another party to perform all of the steps of the method.  The party who performs all of the steps is liable as a direct infringer, while the inducer is liable as an indirect infringer.  Contributory infringement, which is not relevant here, exists when a defendant sells or offers to sell a component that can only be used in infringing a patented invention.

Up until 2012, the law as established by the Federal Circuit Court of Appeals’ decisions, was that there could be no liability for inducing infringement unless there was an underlying act of direct infringement committed by a single party.  This was referred to as “single-entity rule.”  In the last few years, however, both parties and the courts have struggled with the issue of “divided infringement.”  Divided infringement is a phrase used to describe the situation where multiple parties perform the steps of a method patent, and no single party actually performs or controls the performance of all of the steps.  In such a case, there is no act of direct infringement committed by any party.  In 2012, the Federal Circuit decided Akamai Technologies, Inc. v. Limelight Networks, Inc., 672 F.3d 1301 (Fed. Cir. 2012) and dramatically changed existing law.

In Akamai, the Federal Circuit overruled its prior case law and held that a defendant could be liable for inducing infringement even if multiple parties performed different steps of the method as long as each step was performed by someone.  The court said that there should be no difference between an inducer who instructs a single party to perform all of the steps of a claimed method, an inducer who instructs multiple parties to each perform different steps of the claimed method, and an inducer who performs some of the steps itself and instructs others to perform the remaining steps.  According to the Federal Circuit, all three types of inducers should be liable for inducing infringement if they satisfy the following test: (1) the defendant knew of the plaintiff’s patent; (2) the defendant induced the performance of the steps of the claimed method (by performing one or more steps itself and inducing others to perform the remaining steps or by inducing others to perform all of the steps); and (3) the steps of the claimed method were actually performed.

The Supreme Court could not have been more clear in its reversal of the Federal Circuit’s decision, stating:

“The Federal Circuit’s analysis fundamentally misunderstands what it means to infringe  a method patent……[W]here there has been no direct infringement, there can be no inducement of infringement…”

Limelight Networks, Inc. v. Akamai Technologies, Inc.,  2014 U.S. LEXIS 3817, *10.

The Court went on to say, at *10:

“The Federal Circuit’s contrary view would deprive §271(b) of ascertainable standards.  If a defendant can be held under §271(b) for inducing conduct that does not constitute infringement, then how can a court assess when a patent holder’s rights have been invaded?……The decision below would require the courts to develop two parallel bodies of infringement law: one for liability for direct infringement, and one for liability of inducement.”

The Court explained that Congress clearly knows how to establish liability for inducing infringement, as shown by the adoption of section 271(f)(1).  That section imposes liability for a defendant who supplies components from the U.S. that are assembled into an infringing product outside the U.S.

The Court analyzed all of Akamai’s arguments under one principle: “Limelight cannot be liable for inducing infringement that never came to pass.”  Id. at *14.  The Court doubted that Congress intended to allow liability for inducing infringement when there was no direct infringement.  The Court dismissed Akamai’s argument that under tort law, a defendant may be liable for an injury caused by a third party even if the third party is not liable.  The Court said that in this case, the problem was not that the third parties were not liable, but that no injury (patent infringement) had occurred.  Id.  at *14-*15.

Akaimi also argued that the Court’s rule would allow a party to escape liability by simply dividing the steps of a method patent among multiple parties whom it did not control.  The Court acknowledged this problem, but concluded that any other rule would “creat[e]…some free-floating concept of infringement both untethered to the statutory text and difficult for the lower courts to apply consistently.”  Id. at *18.