A Divided En Banc Federal Circuit Changes the Law of Divided Infringement

For the last five years, the law with respect to liability for inducement of a method claim was relatively clear and fairly consistently applied.  (A rare treat in patent law!) When infringement of a method claim was based on inducement, there needed to be either one party performing all of the steps of the claimed method or, if more than one party was involved in performing the method, there needed to be a “mastermind” directing all of the parties to perform the various steps of the method.  Without a "mastermind" (later clarified as requiring a contractual or agency relationship) there was no direct infringement of the method and, therefore, no liability for inducement.  The Federal Circuit took two cases en banc to consider the propriety of this “single actor” requirement.  Akamai Technologies, Inc. v. LimelightNetworks, Inc.,  2009-1372 and McKessonTechnologies, Inc. v. Epic Systems Corp., 2010-1291.  In a deeply divided decision, including a per curiam opinion along with dissenting opinions by Newman and Linn (joined by Dyk, Prost and O’Malley), the Federal Circuit announced a dramatic change in the law, holding that “we reconsider and overrule the 2007 decision of this court in which we held that in order for a party to be liable for induced infringement, some other single entity must be liable for direct infringement.  BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007).  To be clear, we hold that all the steps of a claimed method must be performed in order to find induced infringement, but that it is not necessary to prove that all the steps were committed by a single entity.” 

The majority opinion sets out the elements of the inducement claim in the context of multiple actors as follows:  When the party accused of infringement does not itself perform any steps of the claimed method, such as in the McKesson case, “a party can be found liable for inducing infringement if it can be shown that (1) it knew of [the] patent, (2) it induced the performance of the steps of the method claimed in the patent, and (3) those steps were performed.”  Majority Opinion at 35. In the case where the party accused of inducement performs some steps and another party performed other steps, as in Akamai, the elements are slightly modified to “1) it knew of [the] patent, (2) it performed all but one of the steps of the method claimed in the patent, (3) it induced the [other party] to perform the final step of the claimed method, and (4) the [other party] in fact performed that step.”   Majority Opinion at 36.  From these two statements from the court, we can generalize a bit, and set out the current law of inducement for a method claim as a single set of elements: (1) the defendant knew of the patent; (2) it either performed certain steps of the method claimed in the patent itself and/or induced others to perform those steps; and (3) all steps of the method were performed.

Interestingly, and much to the chagrin of J. Newman, this holding only applies to inducement under 35 U.S.C § 271(b).  With respect to direct infringement, the majority punted, stating that “[b]ecause the reasoning of our decision today is not predicated on the doctrine of direct infringement, we have no occasion at this time to revisit any of those principles regarding the law of divided infringement as it applies to liability for direct infringement under 35 U.S.C. 271(a)."  Majority Opinion at 13.  As a result, the law remains that for direct infringement liability, a single party needs to perform all steps of a method.  Those parties that perform only some of the steps, but do not induce the performance of the remaining steps of a claimed method, can still invoke divided infringement as a viable defense to an allegation of infringement and likely face no liability.

J. Newman, in her dissent, harshly criticizes the majority, stating “[t]he majority’s theory is a spontaneous judicial creation.  And it is wrong.”  Newman dissent at 7.  J. Newman argues that precedent, legislative history and cannons of construction all indicate that under 271(a) direct infringement can be established when multiple actors perform the steps of the method and this act of direct infringement is the necessary predicate for finding liability for inducement. 

The Linn camp’s dissent is equally harsh on the majority, arguing that “[t]he majority opinion is rooted in its conception of what Congress ought to have done rather than what it did.”  Linn dissent at 3.  The Linn dissent argues that the single actor rule is properly founded in 271(a) and, like J. Newman, argues that precedent requires an act of direct infringement before there can be liability for inducement.   

As a result of this dramatic shift in the law, we can expect an increase in patent cases asserting inducement for method claims.  There are certainly patents out there with claims that were not asserted due to a divided infringement issue, but now are back in play. Companies that have previously evaluated patents and determined that they likely did not have exposure for infringement of method claims based on a divided infringement theory may need to revisit those patents and reevaluate those claims under this new law.

Given the import of this issue and the deep divide in the Federal Circuit, it would not be surprising to see this case go on the Supreme Court for final resolution.

Reflections On The Erosion of Method Claims

It wasn’t that long ago that patent practitioners held the view that means-plus-function claims were the broadest and best way to protect an invention. Over time, many learned (the hard way) that this isn’t true anymore. With means-plus-function claims being construed narrowly in view of the specification, it became increasingly popular to include method claims to cover the process taking place in the described apparatus. After all, what could be better than not being limited by any structural limitations? Well, as it turns out, the last couple of years have not been particularly kind to method claims.

Patentable Subject Matter:

Today the Supreme Court is hearing oral argument in Bilsky, a case that many feel will significantly redefine the scope of patentable subject matter for method claims. (And providing motivation for today's musings.) Bilsky is the culmination of at least a two year trend at the Federal Circuit where 35 U.S.C. 101 has been increasingly applied as the basis for denying patent protection for claims directed to methods. The Federal Circuit's now infamous “machine or transformation test,” set forth in Bilsky represents a considerable narrowing of patentable subject matter for methods. Clearly, those post-State Street feel good days for business method patents are behind us for the moment. But, Bilsky and Section 101 is a subject all its own (and the subject to countless other posts and articles), so lets move on to some other issues.

Infringement of Method Claims

Divided Infringement:
Last year, in Muni-Auction v. Thomas, 532 F. 3d 1318 (Fed Cir. 2008) the Federal Circuit addressed the issue of infringement of a method claim when two or more entities were required to act in order to perform all of the steps of a claimed method. In the patent in dispute in Muni-Auction “at least the inputting step of claim 1 is completed by the bidder, whereas at least a majority of the remaining steps are performed by the auctioner’s system.” Id. at 1328. In finding that there was no direct infringement (and therefore no predicate for third party liability based on inducement or contributory infringement) the Federal Circuit looked to the relationship between the bidder and the auctioner. The court held that:

Accordingly, where the actions of multiple parties combine to perform every step of a claimed method, the claim is directly infringed only if one party exercises “control or direction” over the entire process such that every step is attributable to the controlling party, i.e., the “mastermind.” [Citation omitted] At the other end of this multi-party spectrum, mere “arms-length cooperation” will not give rise to direct infringement by any party.

* * *
Under BMC Resources, the control or direction standard is satisfied in situations where the law would traditionally hold the accused direct infringer vicariously liable for the acts committed by another party that are required to complete performance of a claimed method.

Although the holding in Muni-Auction is consistent with earlier cases on the issue of divided infringement, such as BMC Resources v. Paymentech, L.P., 498 F.3d. 1373 (Fed. Cir. 2007), this decision seems to raise the bar regarding the nature of the relationship required in order to find liability under a “divided infringement” theory. Under Muni-Auction, to establish infringement of a method claim under a divided infringement theory, one must not only show that the entities involved perform all of the steps within the scope of the claim, but must also establish a close legal relationship among those entities.

Steps performed Abroad:

In August, an en banc Federal Circuit addressed whether a method claim could be infringed under 35 U.S.C. 271(f). The Court held that “because one cannot supply the step of a method, Section 271(f) cannot apply to method or process patents.” Cardiac Pacemakers v. St. Jude Medical, 2007-1296 (Fed. Cir., August 19, 2009). The court further held that “271(f) does not encompass devices that may be used to practice a patented method.” Id. at 30. Thus, a device built in the United States that is capable of performing a patented method, but does not actually perform that method in the United States, does not infringe a claim to the patented method under 35 U.S.C. 271(a) or (f). Again, without direct infringement, there is no basis for assertions of third party liability based on threats of inducement or contributory infringement.

Going back a few years, in NTP v. Research in Motion, the Federal Circuit held that “a process cannot be used ‘within’ the United States as required by section 271(a) unless each of the steps if performed within this country.” 418 F.3d 1282, 1318 (Fed. Cir. 2005)(en banc)(emphasis added). In contrast, the Court also held that “use of a claimed system under section 271(a) is the place at which the system as a whole is put into service, i.e., the place where control of the system is exercised and beneficial use of the system obtained.” Id. at 1317 (emphasis added). Unlike the method claim, for the system claim, the Federal Circuit upheld the finding of infringement even though one component of the claimed system was not present in the United States.

Conclusion

Whether the Supreme Court limits or expands the scope of patentable subject matter in Bilsky, it is apparent that the scope of method claims have already been limited. For those who thought (or just hoped) that method claims were the next best thing since means-plus-function claims…well, just like with means-plus-function claims, this was a good theory put to rest by subsequent case law. Its now time to adapt again.


Common Sense Practice Note: Things that today are considered "conventional wisdom" may not always have been considered "conventional" in the past, and may not always be considered "wisdom" in the future. For patent practitioners, the best strategy remains timeless - keep applying for claims of varying format, varying subject matter and varying scope, since one never knows what tomorrow may bring.