The Federal Circuit Court of Appeals has established a new test for “divided” patent infringement. Direct infringement of a method patent exists when a single party performs all of the steps of the claimed method. 35 U.S.C. §271(a). Divided infringement occurs when all of the steps are not performed by a single party, but by two or more parties under circumstances such that one party is still responsible for the infringement.
The law of divided infringement has been a subject of much debate. The question is: should direct infringement be expanded so that a single party is liable for infringement of a method claim even if another party performed some of the steps of the method? Those who say “no” argue that one party cannot infringe a method patent if it does not perform all of the steps of the claimed method, and that any other interpretation is so broad that it would make infringers out of innocent parties. Those who say “yes,” however, argue that infringers can escape liability for patent infringement simply by dividing up the steps of the claimed method among two or more parties.
In its previous decision in this case, a panel at the Federal Circuit had held that a party can be liable for divided infringement if it shares a principal-agent relationship, a contract, or a joint enterprise with the other party who performs some of the steps. On appeal to the United States Supreme Court, however, the Supreme Court vacated that decision and remanded the case to the Federal Circuit, stating that the Federal Circuit’s test for divided infringement may have been too narrow.
On remand, in a unanimous, en banc decision, the Federal Circuit established a new, more expansive test for divided infringement. The court held that a party can be liable for infringement of a method claim when another party performs some of the steps of the claimed method in two situations: (1) where the first party directs or controls the actions of the other party; and (2) where the first party and the other party form a joint enterprise.
The court explained that the first situation exists if there is principle-agent or contractual relationship, but also exists if the accused party conditions participation or receipt of a benefit upon performance of the step of the method and determines the manner or timing of the other party’s performance. Under these circumstances, the actions of the other party are attributed to the accused party. The second situation exists if there is a joint enterprise between two or more parties, such that all parties are responsible for acts of the others.
The court emphasized that its new test is a “governing legal framework” and that future cases may present differing factual situations in which liability will be found. The court stated: “[g]oing forward, principles of attribution are to be considered in context of the particular facts presented.”
In this case, plaintiff Akamai Technologies, Inc. owned a patent covering methods of delivering content over the Internet. Akamai sued Limelight Networks, Inc. for patent infringement. At trial, the parties agreed that the customers of Limelight, not Limelight itself, performed two steps of the claimed method – “tagging” and “serving.” The jury found that Limelight infringed the patent based on its finding that Limelight directed or controlled its customers’ performance of the tagging and serving steps. However, the district court entered judgment as a matter of law in favor of Limelight.
On appeal, a panel of the Federal Circuit affirmed the decision on the grounds that Limelight did not directly control its customers’ acts because there was no principal-agent relationship, contract, or joint enterprise.
In its second decision in this case, after the Supreme Court vacated the first decision, the Federal Circuit reversed the district court’s judgment and reinstated the jury’s verdict against Limelight. The court found that Limelight was liable under the new test for divided infringement because there was substantial evidence that Limelight had directed and controlled its customers’ acts. Limelight had conditioned its customers’ use of Limelight’s service on the customers’ proper performance of tagging and serving, and had set forth the manner and timing of its customers’ performance of these steps. These actions satisfied the court’s new test, in which a party can be held to direct or control another’s performance if it conditions participation or receipt of a benefit upon performance of a step of the patented method and also sets forth the manner or timing of the performance. Because Limelight was held to direct or control the acts of its customers, even if Limelight itself did not perform these two steps, the steps were attributable to Limelight. Because all of the steps of the claimed method were either performed by Limelight itself or attributable to Limelight, Limelight was liable for directly infringing Akamai’s patent.
This case provides a new basis for plaintiffs in divided infringement cases to prove liability among multiple actors performing a method claim. The case is also a warning to businesses who believe they are immune from patent infringement because they only perform some of the steps of a claimed method – liability may arise if another party performs the remaining steps.