Today, the Supreme Court issued its decision in Impression Products v. Lexmark Int’l that draws a bright line for triggering the patent exhaustion doctrine when products are sold and leaves post-sale activity restrictions subject to any contractual rights between the parties, not patent law.  This decision is sure to have patent owners and licensees reviewing their existing licensing agreements and tweaking future ones.   The decision also provides another reason why patent owners may license their patents at an end product level, rather than a component level, to ensure that they have direct patent law remedies against the end product manufacturer that otherwise may be exhausted and unavailable if the patent is licensed at a component level.

The Supreme Court summarized its decision as follows:

This case presents two questions about the scope of the patent exhaustion doctrine:

First, whether a patentee that sells an item under an express restriction on the purchaser’s rights to reuse or resell the product may enforce that restriction through an infringement lawsuit.

And second, whether a patentee exhausts its patent rights by selling its product outside the United States, where American patent laws do not apply.

We conclude that a patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose or the location of the sale.

Importantly, the decision focuses on whether patent rights exist after an authorized sale.  The decision does not mean that the sale extinguishes other non-patent law remedies that a patent owner may have after the sale, such as remedies under contract law.

Continue Reading Supreme Court puts teeth into patent exhaustion (Impression Prods. v. Lexmark)

Today the Supreme Court ruled that the laches defense could not be used to limit 35 U.S.C. § 284 patent damages given the 35 U.S.C. § 286 statute of limitations that permits recovery of patent damages up to six years prior to filing an infringement suit.  Specifically, the Court ruled that “Laches cannot be interposed as a defense against damages where the infringement occurred within the period prescribed by §286.”  The result of the ruling is that the laches defense may limit equitable relief, such as an injunction, but will no longer preclude past damages in patent cases.

From a practical standpoint, the ruling may not be as significant as it otherwise might appear.  Laches is a frequently raised, but seldom successful, equitable defense in patent litigation.   Laches basically arises from a patent owner unreasonably delaying its assertion of a patent right during a period of time when the accused infringer made investments and the infringer would be prejudiced by the delayed assertion of the patent.  If successful, the defense traditionally would bar all past damages, limit injunctive relief and preclude future royalties on products purchased during the laches period.  The Federal Circuit’s en banc decision below in the instant case limited the defense so that it would no longer preclude any future royalties (see our Sep. 18, 2015 post explaining the en banc decision).  In sum, prior to today’s decision, the laches defense could limit damages prior to the filing of the lawsuit and limit injunctive relief.  This might have little impact in most patent cases where the period of past infringement may be relatively short and the patent has many years of life remaining for which future royalties would be paid even if an injunction were not granted.

Laches was a more promising defense when a litigation patent assertion entity purchased and asserted a near-end-of-life dormant patent (i.e., a never asserted patent) against defendants who have long-used the alleged infringing technology (see our Oct. 7, 2016 post on the FTC’s PAE Study and distinction between non-problematic “portfolio PAEs” and some problematic “litigation PAEs”).  In such circumstances, a laches defense could have a substantial impact because it would bar the bulk of the damages period (six years prior to the lawsuit) and would bar injunctive relief.  This would leave a remedy of only a future royalty for the short period of time remaining in the patent’s life.  For example, consider a patent with only a year remaining before it terminates.  The litigation PAE could seek seven years of damages: six years of damages prior to the lawsuit and one year of royalties before the patent terminates.  A successful laches defense would limit the damages exposure by over 85% — i.e., remove all six years of pre-suit damages, leaving only one year of future royalties before the patent expires.

The Supreme Court’s decision today will now permit six years of pre-suit damages notwithstanding a successful laches defense.  The related doctrine of equitable estoppel still remains as a defense.  Equitable estoppel is a somewhat harder defense to establish, because it requires proof that the infringer relied on some action by the patent owner indicating it would not assert the patent.  But equitable estoppel is a more effective defense, because it is a complete defense — i.e., it precludes all past and future damages and injunctive relief.

Below is a short summary of the case and the Supreme Court’s decision. Continue Reading Supreme Court rules laches cannot preclude statutory damages within the 6 year period before a patent suit is filed (SCA v. First Quality)

Today the Supreme Court in Life Technologies v. Promega ruled that 35 U.S.C. § 271(f)(1) liability for supplying from the U.S. “all or a substantial portion of the components of a patented invention” is a quantitative, not qualitative, analysis of the number of  components supplied such that supplying only a single component of a multicomponent invention does not give rise to liability under that section (though it might give rise to liability under § 271(f)(2) if that single component “is especially made or especially adapted for use in the invention and not a staple article or commodity of commerce suitable for substantial noninfringing use”). (see also our June 27, 2016 post on the Supreme Court’s grant of review of this case).  As Justice Alito’s concurrence states, the opinion “establishes that more than one component is necessary, but does not address how much more.”   So the art of litigating Section 271(f)(1)  will focus on the litigants’ ability to delineate how many separate “components” are in a claimed invention and whether the resulting number of such components supplied from the U.S. is “substantial.” Continue Reading Supreme Court rules that number of components supplied from U.S., not their importance to invention, is relevant to Section 271(f)(1) infringement (Life Tech. v. Promega)

Last week, the Federal Circuit denied en banc review by the entire court of the three-judge panel decision in the Apple v. Samsung case that had revived the ability to obtain injunctive relief against multiple component products, such as smartphones (see our Sep. 17, 2015 post).  In doing so, the original three-judge panel (Prost, Moore and Reyna) issued an Order that withdrew their original opinion and issued a revised opinion that focuses on the patented feature being “one of several [features] that cause consumers to make their purchasing decision,” rather than the patented feature having to be “the exclusive or significant driver of customer demand” as prior decisions had intimated.

Continue Reading Federal Circuit revised injunction decision to emphasize patented feature being one of several that drive purchasing decision (Apple v. Samsung)

Today, a three-judge Federal Circuit panel (Prost (author),  Dyk and Hughes) issued its awaited decision in CSIRO v. Cisco that agreed-in-part and disagreed-in-part with Judge Davis’ damages award based on patents alleged to be essential to the IEEE 802.11 WiFi standard, but which patents did not have any FRAND or other standard-setting obligation (see our July 28, 2014 post on Judge Davis’ decision).  This is an important decision that provides incremental insight into proving and determining a reasonable royalty for a standard essential patent, which includes further insight into the Federal Circuit’s first decision on this issue a year ago in Ericsson v. D-Link that involved a standard essential patent that did have a FRAND obligation under the IEEE 802.11 WiFi standard (see our Dec. 5, 2014 post on the Ericsson v. D-Link decision).

This is an important decision to read directly to catch all the nuances and import of the decision, and the incremental guidance it provides in determining a royalty rate as a matter of patent damages law for past infringement of a patent that is essential to a standard.  A few particularly important points come from the decision.

First, the Federal Circuit soundly rejected as “untenable” the accused infringer’s argument that there is a “rule” that all patent damages methodologies always must start out using the smallest salable patent-practicing unit.  The smallest salable patent practicing unit is a principle that can aid courts to determine if a damages expert’s methodology reliably apportions to the patent only the value that the patented technology provides to the infringing product and not other unpatented features.  But it is not the only approach that may be considered, and different cases present different factual circumstances that could lend themselves to different reliable methodologies.  For example, damages methodologies properly may rely on real-world comparable licenses to reliably apportion value to the patented technology, whether the royalties are based on end products or components thereof.  This decision may very well put to rest arguments that there is some “rule” requiring use of the smallest salable patent-practicing unit or that there is any problem per se in royalties being based on the end product rather than its components.

Second, the Federal Circuit clarified that the need to apportion the value of the patented technology from the value of standardization applies whether or not a standard essential patent is subject to a FRAND or other standard setting obligation.  This is based on the long-standing, fundamental principal that statutory damages for infringement under 35 U.S.C. § 284 must be based on the value of the patented invention and not other unpatented features, whether that’s other unpatented technology in an infringing  product or the value of the patent being essential to a standard. Continue Reading Federal Circuit provides guidance on royalty determination for standard essential patents (CSIRO v. Cisco)

Today, a divided three-judge panel of the Federal Circuit (Prost, O’Malley concurring and Newman dissenting) ruled that the U.S. International Trade Commission’s (ITC) authority to provide remedies for unfair acts involving importation of “articles” does not extend to electronic transmission of digital data into the United States.  In addition to its impact on the ITC’s jurisdiction over certain patent infringement matters, this case provides insight into administrative law that may be worth reading for those interested in that issue.  We will not go into that lengthy analysis here, but do provide below a summary of the infringement at issue.  Given the division among the three-judge panel and impact of this decision on the scope of the ITC’s jurisdiction and emerging technologies (e.g., transmission of digital files used to print 3D models), this decision may be subject to requests for en banc review by the entire Federal Circuit or Supreme Court review.

The patents and infringement at issue concern using different stages of teeth aligners that are progressively swapped out over time to slowly transition a patient’s teeth from an initial (e.g., crooked) position into a final (e.g., straightened) position.  ClearCorrect US (located in the U.S.) would take measurements of the patient’s initial teeth positions and transmit that data to ClearCorrect Pakistan (located in Pakistan).  That Pakistani entity would generate digital models of intermediate positions of the teeth, each intermediate position corresponding to an aligner to be made in the progressive process of moving the teeth from an initial position to a final position.  The Pakistani entity electronically transmits those digital models back to the U.S. entity, which uses those digital models to 3D print each of the physical aligners to be used by the patient.

The patent owner argued that the Pakistani entity contributed to infringement of the patents by electronically transmitting the digital models of the different teeth aligners into the U.S.:

Here, the accused “articles” are the transmission of the “digital models, digital data and treatment plans, expressed as digital data sets, which are virtual three-dimensional models of the desired positions of the patients’ teeth at various stages of orthodontic treatment” (“digital models”) from Pakistan to the United States.

The full Commission reviewed the ALJ’s decision and held that (1) the U.S. entity’s direct infringement was solely in the United States and, thus, was not a 337 importation violation within the ITC’s jurisdiction, but (2) the Pakistani entity contributorily infringed the patents by transmitting the digital models into the United States and such infringement was a 337 violation within the ITC’s jurisdiction to grant exclsionary relief.

As discussed, on appeal, the panel majority held that the electronic transmission of digital data into the United States is not an “article” of importation into the United States within the remedial authority of the ITC.  The panel majority stated that Congress is in the best position to determine whether the term “article” should be extended to cover these circumstances.

Today, the Supreme Court granted certiorari in two patent cases to review the standard for willful infringement.  The two cases, consolidated for review, are Halo Electronics, Inc. v. Pulse Electronics, Inc., et al., No. 14-1513, and Stryker Corp. et al. v. Zimmer, Inc., et al., No. 14-1520.

The grant states that it will address Question 1 presented in the Halo case, which states:

     1.  Whether the Federal Circuit erred by applying a rigid, two-part test for enhancing patent infringement damages under 35 U.S.C. § 284, that is the same as the rigid, two-part test this Court rejected last term in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014) for imposing attorney fees under the similarly-worded 35 U.S.C. § 285.

The Stryker case had two questions presented, which were as follows:

     1. Has the Federal Circuit improperly abrogated the plain meaning of 35 U.S.C. § 284 by forbidding any award of enhanced damages unless there is a finding of willfulness under a rigid, two-part test, when this Court recently rejected an analogous framework imposed on 35 U.S.C. § 285, the statute providing for attorneys’ fee awards in exceptional cases?

2. Does a district court have discretion under 35 U.S.C. § 284 to award enhanced damages where an infringer intentionally copied a direct competitor’s patented invention, knew the invention was covered by multiple patents, and made no attempt to avoid infringing the patents on that invention?

The Federal Circuit’s opinions subject to review are Halo Electronics, Inc. v. Pulse Electronics, Inc., 769 F.3d 1371 (Fed. Cir. 2014), in which a divided court denied en banc review., and Stryker Corp. v. Zimmer, Inc., et al., 782 F.3d 649 (Fed. Cir. 2015), in which the original Federal Circuit three-judge panel granted limited panel rehearing that issued a revised opinion on the objective recklessness prong of willful infringement.

Today, in SCA v. First Quality, the Federal Circuit sitting en banc ruled that the equitable doctrine of laches remains a valid defense in patent infringement actions notwithstanding the Supreme Court’s recent decision in Petrella v. MGM, 134 S. Ct. 1962 (2014), that precludes laches as a defense for copyrights.  This decision was not too surprising given the wording and history of the patent statute and laches defense as compared to copyright law.  But the Federal Circuit did make some changes as to the applicability of laches for on-going infringement after the patent suit is filed:

Specifically, as to injunctions, considerations of laches fit naturally within the eBay framework.  In contrast, Menendez v. Holt, 128 U.S. 514 (1888), and Petrella counsel that laches will only foreclose an ongoing royalty in extraordinary circumstances.

That is the key take-away from this decision.  You may find it to be a lengthy, but interesting, read on the history of the laches defense in patent cases.  We will see how the twist on applying laches post-suit for on-going infringement will develop.

With respect to an on-going royalty post-suit in the absence of an injunction, the Federal Circuit’s decision was premised on maintaining the distinction between laches, which focuses on the patent owner’s delay in filing suit, and equitable estoppel, which focuses on misleading acts by the patent owner that led the accused infringer to believe it could proceed with what later is alleged to infringe:

With respect to ongoing royalties, while the principles of equity apply, equity normally dictates that courts award ongoing royalties, despite laches.  Menendez, an influential case contrasting laches and equitable estoppel in the trademark context, guides us here.  According to Menendez, delay in exercising a patent right, without more, does not mean that the patentee has abandoned its right to its invention.  Rather, the patentee has abandoned its right to collect damages during the delay.  Equitable estoppel, on the other hand, is different–the patentee has granted a license to use the invention that extends throughout the life of the patent …

Menendez and Petrella caution against erasing the distinction between laches and estoppel.  As Petrella stated, “the doctrine of estoppel may bar the copyright owner’s claims completely, eliminating all potential remedies.  The test for estoppel is more exacting than the test for laches, and the two defenses are differently oriented.  The gravamen of estoppel … is misleading and consequent loss.  Delay may be involved, but is not an element of the defense.  For laches, timeliness is the essential element.  For that reason, absent egregious circumstances, when injunctive relief is inappropriate, the patentee remains entitled to an ongoing royalty. [internal citations omitted]

 

Today, a divided Federal Circuit panel issued a decision that vacates district court’s decision not to permanently enjoin Samsung from selling mobile devices having features found to infringe Apple’s patents.  The majority decision breaths life back into injunctive relief against multi-component/multi-featured devices (like mobile phones) by not requiring the patent owner to show that its patented feature “drive[s] customer demand” for the infringing product in order to show a nexus between the infringement and alleged irreparable harm required for injunctive relief.  Rather, the patent owner need show “some connection” between the patented feature and consumer demand for the infringing product, which can be shown in “a variety of ways.”  For example, evidence that the patented features “is one of several features that cause consumers to make their purchasing decisions” or “makes a product significantly more desirable.”

Background

This case involves three Apple patents directed to features in touchscreen mobile devices:

  1. Slide-to-unlock image on touchscreen to unlock mobile device (the ‘721 Patent)
  2. Generating links within text upon detecting data structures, such as detecting a phone number in a text message and creating a link to dial that number (the ‘647 Patent)
  3. Automatic spell check and correction on touchscreen (the ‘172 Patent)

In 2012, Apple sued Samsung for infringing those patents (as well as others).  Samsung was found to infringe the three patents and a jury awarded Apple over $119 million in damages.  Apple then sought to enjoin Samsung from selling mobile phones or tablets with those infringing features — i.e., did not seek to enjoin sales of the mobile phone or tablets per se, just use of the infringing features in those devices.  Further, Apple proposed a 30 day “sunset period” before products would be enjoined, which time period coincided with Samsung’s representations at trial that it could quickly and easily remove the infringing features from the accused infringing Samsung devices.

But Judge Koh denied Apple’s request for a permanent injunction, finding that Apple failed to show it would suffer irreparable harm without an injunction.  Among other things, Apple had not shown that it lost sales to Samsung infringing devices, because Apple had not shown that the patented features drove customer demand for those products.

Decision

Judge Moore wrote the majority decision, which was joined by Judge Reyna, who also wrote a concurring opinion.  Judge Prost dissented.

The Federal Circuit’s standard of review here is whether the district court abused its discretion in deciding whether to grant injunctive relief based on the four eBay factors, which are whether the party seeking a permanent injunction has shown:

(1) that it has suffered an irreparable injury;
(2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury;
(3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and
(4) that the public interest would not be disserved by a permanent injunction.

The majority then walked through each of the four factors, the most decisive one in this instance being whether Apple had shown irreparable harm through a “causual nexus relat[ing] the alleged harm to the alleged infringement.”

Irreparable Harm.  The patent owner satisfies this first factor by showing it has been “irreparably harmed by the infringement” based on “proof that a ‘causal nexus relates the alleged harm to the alleged infringement.'”  The majority rejected Apple’s argument that there is no causal nexus requirement when the patent owner seeks only to enjoin infringing features, rather than an entire product.  The majority explained that “[t]he causal nexus requirement ensures that an injunction is only entered … on account of a harm resulting from the defendant’s wrongful conduct, not some other reason.”  This is “entirely independent of the scope of the proposed injunction.”

But the majority found that the district court erred by requiring Apple to show that the infringing features “drive consumer demand for Samsung’s infringing products” in order to establish irreparable harm based on a causal nexus between the infringement and Apple’s lost sales.  While making such a showing would establish the causal nexus, it is not required and may be “nearly impossible from an evidentiary standpoint [to show] when the accused devices have thousands of features, and thus thousands of other potential causes that must be ruled out.”  Rather, the patent owner need only “show ‘some connection’ between the patented features and the demand for the infringing products”:

Thus, in a case involving phones with hundreds of thousands of available features, it was legal error for the district court to effectively require Apple to prove that the infringement was the sole cause of the lost downstream sales.  The district court should have determined whether the record established that a smartphone feature impacts customers’  purchasing decisions.  Though the fact that the infringing features are not the only cause of the last sales may well lessen the weight of any alleged irreparable harm, it does not eliminate it entirely.

In a footnote, the majority provide more insight into the range of ways that “some connection” between the patented feature and customer demand may be shown, which provides further insight into this issue:

As we explained in Apple III [735 F.3d 1352 (Fed. Cir. 2013)], “some connection” between the patented feature and consumer demand for the products may be shown in “a variety of ways,” including, for example, “evidence that a patented feature is one of several features that cause consumers to make their purchasing decisions,” “evidence that the inclusion of a patented feature makes a product significantly more desirable,” and “evidence that the absence of a patented feature would make a product significantly less desirable.”  These examples do not delineate or set a floor on the strength of the connection that must be shown to establish a causal nexus.  Apple III included a fourth example to demonstrate a connection that does not establish a casual nexus–where consumers are only willing “to pay a nominal amount for an infringing feaure.” (using example of $10 cup holder in $2000 car).  There is a lot of ground between the examples that satisfy the causal nexus requirement and the example that does not satisfy this requirement.  The required minimum showing lies somewhere in the middle, as reflected by the “some connection” language.

Thus the district court erred in requiring Apple to show that “the infringing features were the exclusive or predominant reason why consumers bought Samsung’s [infringing] products.”  Rather, the court should have required Apple to show that “the patented features impact consumers’ decisions to purchase the accused devices.”

The majority then went through the record in the case and concluded that Apple had made the requisite showing here:

In short, the record establishes that the [patented] features … were important to product sales and that customers sought these features in the phones they purchased.  While this evidence of irreparable harm is not as strong as proof that customers buy the infringing products only because of these particular features, it is still evidence of causal nexus for lost sales and thus irreparable harm. … Apple does not need to establish that these features are the reason customers bought Samsung phones instead of Apple phones–it is enough that Apple has shown that these features were related to infringement and were important to customers when they were examining their phone choices. [emphasis in original]

The majority thus concluded that this irreparable harm factor weighs in favor of granting Apple’s requested injunction.

Inadequate Remedy at Law.  This second factor considers whether “remedies available at law, such as monetary damages, are inadequate to compensate” for the irreparable harm caused by continued infringement.  The district court had found that Apple’s lost sales “were difficult to quantify,” but still concluded that this factor weighed against an injunction because Apple had failed to establish irreparable harm.  The majority found this was error given its ruling on irreparable harm, finding that this factor “strongly weighs” in favor of an injunction given “the extent of Apple’s downstream and network effect losses are very difficult to quantify.”

Balance of Hardships.  This third factor concerns “assess[ing] the relative effect of granting or denying an injunction on both parties.”  The district court found that this factor favored injunctive relief based on (1) the proposed injunction targeting specific features, not entire products; (2) the proposed 30-day sunset provision and (3) Samsung’s repeated argument to the jury that “designing around the asserted claims … would be easy and fast.”  The latter point raises the typical Catch-22 accused infringers encounter when arguing that a patented feature has little value in order to avoid a large damages award, and then that argument being used against them when trying to avoid injunctive relief.  The majority held that this factor strongly weighed in favor of injunctive relief:

On this record, it is clear–Samsung will suffer relatively little harm from Apple’s injunction, while Apple is deprived of its exclusivity and forced to compete against its own innovation usurped by its largest and fiercest competitor.  Given the narrow feature-based nature of the injunction, this factor strongly weighs in favor of granting Apple this injunction.

Public Interest.  This fourth and final factor requires the patent owner to show that “the public interest would not be disserved by a permanent injunction.”  The district court found this factor favors injunctive relief, because (1) “enforc[ing] patent rights … promote[s] the encouragement of investment-based risk” and (2) “an injunction may prompt introduction of new alternatives to the patented features.”  The majority agreed, and then some, stating that “the public interest strongly favors an injunction” here [emphasis in original]:

Samsung is correct–the public often benefits from healthy competition.  However, the public generally does not benefit when that competition comes at the expense of a patentee’s investment-backed property right.  To conclude otherwise would suggest that this factor weighs against an injunction in every case, when the opposite is generally true.  We based this conclusion not only on the Patent Act’s statutory right to exclude, which derives from the Constitution, but also on the importance of the patent system in encouraging innovation.  Injunctions are vital to this system.  As a result, the public interest nearly always weighs in favor of protecting property rights in the absence of countervailing factors, especially when the patentee practices his inventions.  The encouragement of investment-based risk is the fundamental purpose of the patent grant, and is based directly on the right to exclude.

The majority thus vacated the district court’s denial of an injunction and remanded the case back to the district court for further proceedings consistent with this opinion.  The majority concluded that, “[i]f an injunction were not to issue in this case, such a decision would virtually foreclose the possibility of injunctive relief in any multifaceted, multifunction technology.”

Judge Reyna Concurrence.  Judge Reyna issued a concurring opinion, noting that the decision “leaves open the door for obtaining an injunction in a case involving infringement of a multi-patented device, a door that appears near shut under current law.”  He also would have ruled that irreparable harm would arise based on “injury that the infringement causes Apple’s reputation as an innovator.”  This type of harm, when it occurs, is irreparable. The majority decision written by Judge Moore, which Judge Reyna joined, stated that it need not reach that issue given the finding of irreparable harm based on lost sales.

Judge Prost Dissent.  Judge Prost dissented, finding that “[t]his is not a close case.”  Among other things, Apple did not use the patented spell correction feature and the other two patented features were “minor features (two out of many thousands) in Apple’s iPhone.”  The record does not show “clear error” in the district court’s factual findings underlying its decision to deny injunctive relief.

Today, the Federal Circuit sitting en banc changed direction again on § 271(a) direct infringement and ruled that Limelight was liable for direct infringement based on substantial evidence supporting the jury verdict of infringement where the “alleged infringer conditions participation in an activity or receipt of a benefit upon performance of a step or steps of a patented method and establishes the manner or timing of that performance.” (this overrules the panel decision in this case that was the subject of our May 13, 2015 post).  This is a relatively short–and very important–decision, so we highly recommend reading it in its entirely.  But we also provide a short summary below.

Background

We provided background on this case in our prior posts as this case made its way from the Federal Circuit, to the Supreme Court, and back to the Federal Circuit (see our May 13, 2015 post, June 2, 2014 postJan. 10, 2014 post and Aug. 31, 2013 post).

Patent owner Akamai sued Limelight in 2006 for infringing a patent with method claims directed to delivering content over the Internet.  Limelight performed all steps of a method claim except that Limelight’s customers performed the claimed method steps of “tagging” and “serving”.  The trial court instructed the jury that Limelight would be responsible for the customer’s performing those steps if Limelight directs or controls its customers’ activities.  The jury found that Limelight infringed, which the court initially confirmed, but later set aside after the Federal Circuit’s decision in Muniauction v. Thomson Corp., 532 F.3d 1318 (Fed. Cir. 2008).

On appeal, the Federal Circuit took the matter en banc and decided not to review the direct infringement issue, because there was indirect infringement if all steps are performed even if by different actors — i.e., even if no § 271(a) direct infringement attributed to a single actor. (see our Aug. 31, 2012 post).  The Supreme Court reviewed and reversed that decision, holding that § 271(a) direct infringement attributable to a single person is required for indirect infringement. (see our Jan. 10, 2014 post and June 2, 2014 post).  The Supreme Court raised questions whether the Federal Circuit’s standard for multiple-actor direct infringement (also called “divided” or “joint” infringement) was proper, but left that issue for the Federal  Circuit to sort through on remand.  On remand, the three-judge panel endorsed the prior divided infringement standard of direct infringement and found that Limelight was not liable for infringement. (see our May 13, 2015 post).

Decision

The Federal Circuit stated there were two instances where an entity will be held responsible as a § 271(a) direct infringer for steps of a method claim performed by others:

(1) where that entity directs or controls others’ performance, and

(2) where the actors form a joint enterprise.

But the court further counseled that “Section 271(a) is not limited solely to principal-agent relationships, contractual arrangements, and joint enterprises,” leaving the issue up for further case-by-case development.  Thus, the ultimate consideration is “whether all method steps can be attributed to a single entity.”

“Directs or Controls”.  The Federal Circuit looks to “general principles of vicarious liability” to determine “if a single entity directs or controls the acts of another.”  The court ruled that this is a question of fact that, when tried to a jury, is reviewed under the deferential “substantial evidence” standard.  The court identified three circumstances where a single actor is liable for § 271(a) direct infringement for directing and controlling the actions of another:

First, where that single actor “acts through an agent (applying traditional agency principles.”

Second, where that single actor “contracts with another to perform one or more steps of a claimed method.”

Third, as in this case, “when an alleged infringer conditions participation in an activity or receipt of a benefit upon performance of a step or steps of a patented method and establishes the manner or timing of that performance.”

“Joint Enterprise”.  The court also held that, “where two or more actors form a joint enterprise, all can be charged with the acts of the other, rendering each liable for the steps performed by the other as if each is a single actor.”  The court ruled that this, too, is a “question of fact” reviewed under the deferential “substantial evidence” standard when tried to a jury.

The court held that such joint enterprise liability for § 271(a) direct infringement 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.

In this case, the Federal Circuit found Limelight liable as a § 271(a) direct infringer under the “directs and controls” test, rather than this “joint enterprise” test.

 Standard Applied to This Case.  The Federal Circuit ruled that substantial evidence supported the jury verdict of infringement based on evidence that Limelight “condition[s] use of the content delivery network” upon its customers performing the “tagging” and “serving” steps and that Limelight “establish[es] the manner or timing of performance” of those steps by the customer.

First, Limelight’s standard contract requires its customers to perform the tagging and serving steps if they want to use Limelight’s service: “if Limelight’s customers wish to use Limelight’s product, they must tag and serve content.”

Second, evidence supports finding that Limelight established the manner or timing of its customers performance.  Limelight sends a welcoming letter telling customers that a Limelight Technical Account Manager will lead implementation of Limelight’s services, and includes a “hostname” that Limelight assigns to the customer to integrate into the customer’s webpages, which integration includes the “tagging” step.  Limelight provides “step-by-step instructions” that customers must follow to use the service and Limelight provides guidelines to customers with further information on tagging content.  Further, Limelight’s engineers “continuously engage with customers’ activities”, including installation, testing and availability when problems arise.

In sum, Limelight’s customers do not merely take Limelight’s guidance and act independently on their own.  Rather, Limelight establishes the manner and timing of its customers’ performance so that customers can only avail themselves of the service upon their performance of the method steps.

The court thus concluded that substantial evidence supported the jury’s verdict “that all steps of the claimed methods were performed by or attributable to Limelight.”  The court then remanded the case to the Federal Circuit three-judge panel “for resolution of all residual issues consistent with this opinion.”