Federal Circuit Redefines Liability for Direct Infringement
By Michael Bonella // August 14, 2015
The Federal Circuit, en banc, set forth new standards for establishing liability for direct infringement of a method claim under 35 U.S.C. § 271(a) where a single actor does not perform all the steps of claimed method, but multiple actors do perform all of the claimed method steps. Akami Techs., Inc. v. Limelight Networks, Inc., 2015 U.S. App. LEXIS 14175 (Fed. Cir. Aug. 13, 2015). The Federal Circuit held that a single actor is responsible for another’s practice of method steps where either (1) the single actor “directs or controls” the others’ performance; or (2) the “actors form a joint enterprise.” The Federal Circuit also held that these tests are not exclusive and general legal principles of attribution should be considered in the context of the facts of a particular case to determine whether the acts of another can be attributed to a single actor.
The Federal Circuit set for forth tests for both the “direction and control” and “joint enterprise” standards. To determine whether a single actor “directs or controls” another, the Federal Circuit relied on general principles of vicarious liability. The “direction and control” test is satisfied where an actor acts through an agent under traditional agency principles or contracts with another to perform one or more steps of a claimed method. In addition, the Federal Circuit held that the “direction and control” standard can be satisfied when “an alleged infringer conditions participation in an activity” or receives “a benefit upon performance of a step or steps of a patented method and establishes the manner or timing of that performance.” The “joint enterprise” test requires proof of four elements:
(1) an agreement, express or implied, among the members of the group;
(2) a common purpose to be carried out by the group;
(3) a community of pecuniary interest in that purpose, among the members; and
(4) an equal right to a voice in the direction of the enterprise, which gives an equal right of control.
The question of whether the “direction and control” and “joint enterprise” tests are satisfied are both questions of fact reviewable for substantial evidence.
Based on the facts, the Federal Circuit reversed the District Court’s judgment as a matter of law that there was no infringement because Limelight was not responsible for steps practiced by Limelight’s customers and reinstated the jury verdict of infringement. The Federal Circuit found the “direction and control” test satisfied based on (i) Limelight conditioning its customers use of its network upon the customers practicing steps of the claimed method; (2) Limelight requiring all of its customers to sign a standard contract delineating that the customers must perform steps of the claimed method; (3) Limelight’s welcoming letter sent to customers instructing them to practice steps of the claimed method and stating that if the steps are not performed, Limelight’s services will not be available; (4) Limelight’s installation guidelines providing information on practicing a claimed method step; and (5) Limelight’s engineers continuously engaging in customer activities and assisting with installation and quality assurance testing. Based on these facts, the Federal Circuit concluded that Limelight established the “manner and timing” of its customers’ performance, so that the customers could only avail themselves of Limelight’s service upon performance of the claimed method steps.
In Limelight, the Federal Circuit expanded the “direction and control” and “agency” tests previously applied by the Federal Circuit and the Federal Circuit overruled any prior inconsistent holdings. The Federal Circuit’s decision has the potential for expanding liability for the practice of method claims in the “distributed infringement” context. For example, where internet service providers and software providers have form contracts and instructions that delineate practice of a claimed method and the provider and its customers together practice the claimed method steps there is a higher potential for liability. Likewise, for chemical and biotech applications, there is a higher likelihood of liability where for instance a provider of a health care product or pharmaceutical and a customer jointly practice a claimed method. For instance, the provider may provide instructions that include claimed method steps and condition purchase of the products with compliance with those instructions. How expansive this new “distributed infringement” test is will evolve as it is applied over time.