Tuesday, June 24, 2014

Muniauction, Limelight and New Standards for Induced Infringement

By Harrison Thorne ‘16

This post originally appeared on Jurist.

It is not always clear exactly when a patent is infringed. People typically think of infringement in a black and white manner as the unauthorized use of another person's invention. However, infringement becomes more complicated for method patents. A method patent—unlike a regular patent—involves several steps a user must perform to achieve a particular result. But what if one user does not perform all of those steps? What if instead one user performs some of the steps, causing another person to perform the other steps? This concept, known as induced infringement, was dealt with by the Supreme Court in Limelight Networks, Inc. v. Akamai Technologies, Inc.

The facts of Limelight are fairly straightforward. Akamai was the exclusive licensee of a complicated, multistep method involving Internet content delivery. The patent claimed a method whereby users would designate components to be stored ("tagged") on servers. Limelight was a competitor that provided a similar service but required its customers to tag their own files. Limelight performed all but one of the steps patented by Akamai. Akamai sued Limelight for patent infringement and received a favorable verdict—including $40 million in damages—in the Federal District Court.

Two years after Akamai's victory, the Federal Circuit decided Muniauction, Inc. v. Thomson Corp. Like in Limelight, the defendant in Muniauction performed all but one of the steps of the plaintiff's method patent and left the remaining step to its customers. Muniauction held that where multiple parties are involved, direct infringement—using a patent without authority—is required before induced infringement can be considered. In such situations, direct infringement requires that one party directly infringed the entire method or exercised control over the entire process. The Federal Circuit consequently held that the defendant was not liable for infringement as it neither performed all the steps of the plaintiff's patent nor exercised control over the process when its customers carried out the remaining steps.

In light of Muniauction, Limelight moved for reconsideration. Limelight claimed it could not be liable for induced infringement of Akamai's patent where it was not liable for direct infringement or control over the process. The District Court granted Limelight's motion and correctly concluded that there was no direct infringement because Limelight did not perform all the steps of Akamai's claimed method and did not control its customers' completion of the remaining step—the "tagging." The Federal Circuit affirmed.

However, sitting en banc, the Federal Circuit reversed, holding that direct infringement was not the proper focus of a multi-party induced infringement claim. Rather the court focused on Limelight's actions, namely performing some of Akamai's claimed steps, while requiring its customers to perform the remaining steps. The court held that Limelight was liable for induced infringement even though it was not liable for direct infringement as direct infringement can exist independently of a violation of the Patent Act.

Limelight appealed the Federal Circuit's decision. The Supreme Court first noted that nobody—not even the Federal Circuit—would argue that direct infringement is a requirement of finding induced infringement. Even the Patent Act requires that. The Court next noted that under Muniauction, Limelight did not commit direct infringement as it neither performed all of the steps of Akamai's method patent nor exercised control over its customers who performed the remaining steps.

The Court fundamentally disagreed with the Federal Circuit's reasoning that there could be induced infringement merely because a party could have performed all of the steps. The Court was not willing to create a different set of rules for induced infringement. Therefore, without absolute direct infringement, there can be no induced infringement. Unfortunately, it does not seem to matter that Limelight might have encouraged its customers; the bottom line is that nobody directly infringed.

But should this be the case? If Limelight had forced its customers to engage in tagging, then Limelight would have exercised control under Muniauction. This would have constituted direct infringement, which would be enough to find induced infringement. However, as the Supreme Court noted, because Limelight did not literally force its customers to tag their materials, Limelight's actions did not rise to the level of control as required by Muniauction to find direct infringement. At the same time, because the only step the customers performed was the "tagging," the customers were not liable for direct infringement.

This raises obvious and foreseeable concerns. Business tactics could change in the future to avoid infringing method patents. Where one company wants to use a method another company holds, it could merely encourage its customers to perform some of the steps of that method. The problem with Limelight is that it seems to implicitly encourage suspect business tactics. After all, Limelight broadens Muniauction's gray areas between exercising control and mere encouragement. Though the law is clear in that direct infringement is required for a finding of induced infringement, maybe the correct outcome would have been lowering the threshold for control to encourage customers to perform some of the steps of a method patent. That would be less likely to lead to suspect business practices.

Harrison Thorne earned a B.A. in Philosophy from University of California, Berkeley. He has previously externed for the Los Angeles Superior Court.

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