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.
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 post, Jan. 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).
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.”