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U.S. Supreme Court Rejects Federal Circuit’s Standard for Inducement of Patent Infringement

(U.S. Supreme Court, Decision of 2 June 2014, No. 12-786, Limelight Networks, Inc. v. Akamai Techs., Inc.)

Rejecting the Federal Circuit’s fractured en banc decision, the U.S. Supreme Court held that a defendant is not liable for inducing patent infringement under 35 U.S.C. § 271(b) when no direct infringement has occurred under § 271(a).

Akamai and Limelight operate content-delivery networks (CDNs), which store content (e.g., pictures, movies) on servers in different geographic locations. The patent-in-suit claims a method of delivering electronic data using a CDN. The method includes a step of “tagging” or designating which media should be stored on servers in the CDN. Akamai sued Limelight for infringement. Limelight performed many of the steps in the patented method but its customers performed the “tagging” step. Nevertheless, Akamai obtained a jury award of more than $40 million in damages.

After trial, the District Court overturned the verdict in light of the Federal Circuit’s decision in Muniauction Inc. v. Thomson Corp., 532 F.3d 1318 (Fed. Cir. 2008), where direct infringement of a method claim was held to require a single entity either to perform, or direct or control others to perform, all of the steps of a patented method. The District Court reasoned that Muniauction precluded liability for direct infringement because the step of tagging was not attributable to Limelight directly or vicariously. A three-judge panel of the Federal Circuit affirmed.

After rehearing the case en banc, however, the Federal Circuit reversed. It held that while liability for direct infringement under 35 U.S.C. § 271(a) requires all steps to be performed by a single entity, for induced infringement “it is not necessary to prove that all the steps were committed by a single entity” — only that all of the steps were performed. In other words, liability for inducement could exist even if liability for direct infringement did not.

On June 2, 2014, the Supreme Court unanimously reversed. The Court found that Limelight could not be liable for inducement because there was no underlying direct infringement. Limelight neither performed all of the steps of the patented method nor directed or controlled its customers to perform the “tagging” step.

The Supreme Court acknowledged that its holding permits “would-be infringer[s] to evade liability by dividing performance of a method patent’s steps with another whom the defendant neither directs nor controls,” but pointed to Muniauction’s definition of direct infringement as the source of the problem. The opinion invited the Federal Circuit to reconsider Muniauction on remand.

Thus, for the moment, the “divided infringement” defense to induced infringement persists. Unless the Federal Circuit revisits Muniauction (which it very well may on remand), establishing inducement liability will remain a challenge where multiple actors perform only some steps of a patented process.