Mcle Self-study Article

• Publication year: 2014
• Author: Jeff Dodd

MCLE Self-Study Article

Jeff Dodd

Andrews Kurth LLP

Paul Ackerman

Andrews Kurth LLP

MCLE: FOUR RECENT SUPREME COURT CASES EXAMINING THE FEDERAL CIRCUIT'S PATENT DOCTRINE: AKAMAI, NAUTILUS, OCTANE FITNESS, AND HIGHMARK

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Patents and patent reform have been the subject of intense debate recently, largely fueled by perceived increases in patent litigation and in particular, perceived frivolous patent litigation. As legislators consider whether statutory changes are necessary, during this Supreme Court term, the Court has decided a relatively large number of patent cases that may well impact the course of this debate. Until recently, every one of those decisions was a reversal of a case coming from the Federal Circuit, putting the Federal Circuit this term in the unenviable position of being reversed more frequently (in percentage, though not number) than the often reversed Ninth Circuit. Indeed, the Supreme Court has done so unanimously in each instance, a rarity from the Supreme Court, which often finds itself divided in many other cases.

We discuss the following four patent cases decided by the Court this term: Limelight Networks, Inc. v. Akamai Technologies, Inc.,¹ Nautilus, Inc. v. Biosig, Instr, Inc.,² Octane Fitness LLC v. Icon Health & Fitness Inc.,³ and Highmark Inc. v. Allcare Health Management Systems Inc.⁴ We offer some observations about what the Supreme Court has done with its patent cases this term. These cases, read in conjunction with its recent patent decisions over the past few terms, collectively establish a new trend in review of patent decisions and will have profound effects on the prosecution, enforcement and defense of patents.

AKAMAI

Let us start with Limelight Networks, Inc. v. Akamai Technologies, Inc.⁵ In this highly anticipated decision, the United States Supreme Court unanimously held that a defendant will not be liable for inducing infringement of method claims in a "patent under 35 U. S. C. § 271 (b) when no one has directly infringed the patent under § 271(a) or any other statutory provision."⁶ Section 271(a) and (b) are quite straightforward, at least in their expression, if not interpretation:

(a) Except as otherwise provided in this title, whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.
(b) Whoever actively induces infringement of a patent shall be liable as an infringer.⁷

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Section 271(a) establishes the cause of action for direct infringement: whoever uses, offers to sell or sells a patented invention during the patent's life infringes, absent permission. Section 271(b), of course, deals with inducement: whoever "actively" induces infringement is just as liable for infringement as the direct infringer. So much is clear.

Before the Federal Circuit's en banc holding in Akamai Technologies v. Limelight Networks, Inc.,⁸ the Federal Circuit had repeatedly held that liability for inducement could only be found where there was an underlying act of direct infringement under 35 U.S.C.§ 271(a). It had also held that direct infringement of a method claim required that all steps of the claimed method be performed either by a single entity, or by entities in which a "mastermind" was exercising direction or control over the other(s).⁹ In Akamai, the majority of a deeply divided en banc Federal Circuit expressly overruled longstanding precedent requiring an actionable occurrence of direct infringement as a predicate to inducement. In doing so, the Federal Circuit drew a distinction between liability for an act of direct infringement under 271(a) —i.e., where all of the steps of the method claim are performed by a single entity—and an act of inducing infringement under Section 271(b). As to inducement claims, the en banc majority held that an act of "infringement" could take place even if no party could be found liable for direct infringement under 271(a), such as where each of the steps of the method claim are performed by multiple, unrelated entities.

A unanimous Supreme Court rejected both the reasoning and holding of the Federal Circuit. Citing its almost fifty year old decision in Aro Mfg. Co. v. Convertible Top Replacement Co.,¹⁰ the Supreme Court pointed out that "our case law leaves no doubt that inducement liability may arise 'if, but only if, [there is]...direct infringement.'"¹¹ In a particularly sharp rebuke, the Supreme Court stated that the analysis by the Federal Circuit—which is, we note, the specialized Court of Appeals created to hear, most prominently, patent cases—"fundamentally misunderstands what it means to infringe a method patent."¹²

Pointing to the Federal Circuit's own holding in Muniauction v. Thomson Corp.,¹³ the Supreme Court noted that the Federal Circuit had held that "a method's steps have not all been performed as claimed by the patent unless they are all attributable to the same defendant, either because the defendant actually performed those steps or because he directed or controlled others who performed them."¹⁴ We hasten to add that the Supreme Court did not actually endorse Muniauction's holding with respect to this point, declining to address the issue of direct infringement under 35 U.S.C. § 271(a) since that issue was not properly before the Court. That said, even though the Supreme Court did not specifically address the issue of direct infringement, we believe that the most probable result of the Supreme Court's decision is that, to establish inducement, a patent holder will now need to establish a predicate act of direct infringement by showing that a single actor performed all steps of the claimed method or directed or controlled others to do so (i.e., the old Muniauction standard.) A failure of this entity or entit(ies) to perform even one step of the claimed method will result in no direct infringement under 35 U.S.C. § 271(a) and no liability for inducement under 35 U.S.C. § 271(b).¹⁵

For patent owners, the Supreme Court's decision in Akamai will require care during patent prosecution to draft method claims with an eye to having all steps performed by one party. For companies that are accused of infringement of a method claim, this decision may provide them with a defense if performance of a claimed method is distributed among two or more parties. Indeed, prior to the en banc holding of the Federal Circuit, several defendants successfully asserted this defense, especially in the context of technology and Internet-related inventions, where performance of a method is often distributed over a computer network and involve a number of participating entities.

NAUTILUS

In Nautilus, Inc. v. Biosig, Instr., Inc.¹⁶ the Supreme Court addressed another important patent doctrine. Patent claims must meet a variety of standards in order to be enforceable. For example the inventions they claim must be new, useful, and non-obvious when compared to the prior art. In addition, the claims of the patent must...