Chapter §14.05 Divided Direct Infringement by Multiple Entities

• Jurisdiction: United States

§14.05 Divided Direct Infringement by Multiple Entities

[A] Introduction

Many patents include claims to methods or processes reciting multiple steps. Depending on the manner in which a method claim is drafted, no single entity may perform all the steps. This is particularly common in claims to business methods, which may involve acts (i.e., the performance of individual method steps) by suppliers, distributors, end users, and various intermediaries.

Hence, a 35 U.S.C. §271(a) "use[]" of a patented method such as a business method could involve acts by multiple entities.²¹⁹ These entities may be completely unrelated, for example, as are the typical software manufacturer and consumer end user. Alternatively, the entities may be in some sort of contractual relationship (such as licensor/licensee), they may be in an agency relationship (e.g., employer/employee), they may form a joint enterprise, they may be nominally related only at arm's length, or they may interact in some other type of relationship. The issue concerning such multi-actor scenarios is under what circumstances liability for direct infringement may arise.²²⁰ The overarching inquiry is "whether all method steps can be attributed to a single entity."²²¹

Likely due to the burgeoning number of issued business method patents in the 21st century, the Federal Circuit and Supreme Court have given significant attention to the question of so-called "divided infringement." The case law progression is detailed below.

A classic example of the divided infringement problem arose in the 2007 Federal Circuit case, BMC Resources, Inc. v. Paymentech, L.P.²²² The patents in suit claimed a method for processing debit or credit card transactions without having to enter a personal identification number (PIN). The method allowed a customer to pay her bills by accessing an interface between a standard touch-tone telephone and a debit or credit card network. Performance of the method as claimed required acts by four different entities, each of whom participated in carrying out and authorizing the transaction, that is, the merchant whom the customer sought to pay, an agent of the merchant (such as the patentee BMC Resources), a remote payment network such as an ATM network, and the financial institution that issued the debit or credit card.²²³

BMC Resources sued Paymentech, a payment services processor, alleging that Paymentech's PIN-less debit bill payment service directly infringed BMC's patented method claims.²²⁴ Paymentech responded that it could not be a direct infringer because it did not perform all the steps of the claimed process, nor did it perform all the steps "in coordination with its customers and financial institutions."²²⁵

Section 271(a) of Title 35, U.S.C. creates direct infringement liability for "whoever" without authority "uses" a patented invention within the United States during the term of the patent. Thus, the precise issue raised by BMC Resources was, who qualifies as the statutory "whoever"? Must "whoever" be limited to a single entity that performs each and every method step, or could a single entity (e.g., Paymentech, the sole named defendant in BMC Resources) be liable for direct infringement based on its participation in the combined acts of multiple entities under a theory of "divided" infringement?²²⁶

The Federal Circuit in BMC Resources rejected a mere "participation and combined action" standard,²²⁷ holding instead that direct (i.e., §271(a)) liability exists in a joint infringement scenario only when the accused infringer is the effective "mastermind" who "controls or directs" all the other entities performing the method steps.²²⁸ For example, if an accused infringer entered into contracts with other entities requiring them to perform steps of a patented process, the accused infringer presumably would be "in control" and liable as a direct infringer; "[a] party cannot avoid infringement . . . simply by contracting out steps of a patented process to another entity."²²⁹

In BMC Resources, however, the various entities that carried out the multiple steps of the claimed process were related merely at "arm's length,"²³⁰ not by contract.²³¹ The evidence proffered by BMC to establish "some relationship" between Paymentech and the other entities was not sufficient to create a genuine issue of material fact as to whether Paymentech controlled or directed the activity of the other entities. Accordingly, the Federal Circuit in BMC Resources affirmed the district court's grant of summary judgment of no direct infringement under §271(a).²³² The appellate court concluded that "[i]n this situation, neither the financial institutions, the debit networks, nor the payment services provider, Paymentech, bears responsibility for the actions of the other."²³³

The take-away message of BMC Resources, Muniauction, and other cases that denied direct infringement liability when multiple actors were required is that patent professionals who draft business method claims should strive whenever possible to craft single-user claims. For example, the Federal Circuit in BMC Resources suggested that the method claims at issue in that case could have been drafted to "feature[] references to a single party's supplying or receiving each element of the claimed process."²³⁴

In cases where such drafting strategies are not a feasible way to capture the invention, a patentee seeking to establish direct infringement liability under §271(a) likely will be required to show that the defendant/accused infringer satisfies the "direction and control" standard with respect to the other entities performing the method steps. Although BMC Resources, Muniauction and other Federal Circuit decisions initially defined "direction and control" quite narrowly, a series of cases styled Akamai v. Limelight, analyzed below, eventually expanded the scope of the "direction and control" standard for direct infringement liability.

[B] Akamai II (Fed. Cir. 2012) (en banc)

Following the BMC Resources decision in 2007, Federal Circuit judges continued to debate the proper test for direct liability in divided (or "joint" or "distributed") infringement situations. Attempting to clarify the issues raised in BMC Resources and similar cases (including its 2008 decision in Muniauction, Inc. v. Thomson Corp.²³⁵), the appellate court in 2011 took two additional divided infringement cases under en banc review.²³⁶ In Akamai Techs., Inc. v. Limelight Networks, Inc. (hereafter "Akamai II"),²³⁷ the en banc court avoided answering the question "whether direct infringement can be found when no single entity performs all of the claimed steps of the patent."²³⁸ The court observed:

Much of the briefing in these cases has been directed to the question whether direct infringement can be found when no single entity performs all of the claimed steps of the patent. It is not necessary for us to resolve that issue today because we find that these cases and cases like them can be resolved through an application of the doctrine of induced infringement. ²³⁹

Thus, rather than decide the direct infringement question, the Akamai II en banc majority (by a 6-5 vote) resolved the joint infringement issue in the cases before it under the theory of induced infringement under 35 U.S.C. §271(b), a doctrine analyzed in depth in a later chapter of this treatise.²⁴⁰ To summarize, the Akamai II en banc majority rejected the single entity rule of BMC Resources insofar as the rule applied to induced infringement liability.²⁴¹ Although "all the steps of a claimed method must be performed in order to find induced infringement," the majority held, "it is not necessary to prove that all the steps were committed by a single entity."²⁴² Instead, "[i]f a party has knowingly induced others to commit the acts necessary to infringe the plaintiff's patent and those others commit those acts, there is no reason to immunize the inducer from liability for indirect infringement simply because the parties have structured their conduct so that no single defendant has committed all the acts necessary to give rise to liability for direct infringement."²⁴³

As to direct infringement, the Akamai II en banc court observed that in the Federal Circuit's prior decisions, "the court has recognized that direct infringement applies when the acts of infringement are committed by an agent of the accused infringer or a party acting pursuant to the accused infringer's direction or control."²⁴⁴ But absent such an agency relationship or its equivalent, "a party that does not commit all the acts necessary to constitute infringement has not been held liable for direct infringement even if the parties have arranged to 'divide' their acts of infringing conduct for the specific purpose of avoiding infringement liability."²⁴⁵ The Akamai II en banc court concluded that because the reasoning of its decision was "not predicated on the doctrine of direct infringement," it had "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)."²⁴⁶

Thus the Federal Circuit's 2012 en banc decision in Akamai II did not purport to change the law of direct infringement liability under §271(a) when multiple actors are involved. Under Akamai II, the law remained that unless the multiple actors were in an agency relationship, e.g., employer/employee or some other type of principal/agent relationship exercising equivalent direction and control, a single actor that did not perform all steps of an asserted method or process claim would not be held liable for direct infringement based on §271(a) "use[]" of a claimed method or process.

On the other hand, the en banc Federal Circuit in Akamai II did hold that if sufficient intent (i.e., specific intent to cause infringement) was proven, a single actor could be liable under a theory of indirect infringement for inducing other actors (or itself plus...