January 07, 2011

Federal Circuit Limits the Role of the "Control or Direct" Test for Joint Patent Infringement

On December 20, 2010, the Federal Circuit issued a decision in Akamai Technologies v. Limelight Networks clarifying that the test for joint patent infringement requires that the joint defendants have either an agency relationship or a contractual obligation to perform the acts necessary to establish infringement. As set forth in 35 U.S.C. Section 271(a), a direct infringer is any person or entity who makes, uses, offers to sell, or sells any patented invention within the U.S. or imports such invention into the U.S. To be liable for direct infringement, a single party must make, use, sell, or import each and every element of a claimed product or perform all the claimed steps of a claimed method.  See, e.g., Warner-Jenkinson Corp. v. Hilton Davis Corp., 520 U.S. 17 (1997) and Joy Technols., Inc. v. Flakt, Inc., 6 F.3d 770 (Fed. Cir., 1993).

The Federal Circuit has recently considered several situations where infringement of patent claims required the actions of more than one party. The first case to address divided infringement was BMC Resources v. Paymentech in 2007. In that case, the Federal Circuit expressly restricted the ability of patent holders to assert claims of joint infringement to those situations where the patent owner was able to establish that one entity operated to "control or direct" all other entities to the extent required to establish infringement. A year later, the court reaffirmed "control or direct" as the prevailing test for joint patent infringement in Muniauction v. Thomson. In that case, the court stated that "[w]here 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.'" More recently, in Golden Hour v. emsCharts, the court found no joint infringement of claims directed to an electronic medical charting system, because neither party acted as the mastermind to control the entire claimed system.

This brings us to the most recent case before the Federal Circuit.  Akamai Technologies is the exclusive licensee of three patents, all of which include method claims directed to optimizing storage of web page content by storing different portions of web pages on different servers. Limelight and Akamai are competitors in the marketplace and host servers that enable this storage approach.

Akamai sued Limelight under a joint infringement theory, as the asserted claims require certain steps be performed by Limelight and others steps be performed by its customers. Akamai argued that Limelight directs and controls the activities of its customers, and so it is liable for joint infringement. After a trial on infringement of several claims, a jury found infringement and awarded Akamai $41.5 million in damages. At trial, it was undisputed that one or more steps of each of the asserted claims were performed only by Limelight's customers, so the award was based on a theory of joint infringement liability. Following the verdict, the district court overturned the jury verdict, as it found the facts indistinguishable from those of Muniauction.

On appeal, Akamai argued that Limelight exercises control or direction over its customers by (1) creating and assigning a unique host name for each customer, (2) providing explicit instructions to perform the claimed steps, (3) offering technical assistance with respect to the claimed steps, and (4) contractually requiring the customers to perform the claimed steps if they use the Limelight service. Limelight, like the district court, argued that these facts are indistinguishable from those found not to satisfy the "control or direct" test in Muniauction.

The Federal Circuit first revisited the "control or direct" test for joint liability set forth in BMC Resources and Muniauction, and it concluded that the test "left several questions unanswered," including whether instructing another party to perform a claimed step is sufficient. The court then stated that "[w]hile direction or a control is a consideration," and the extent to which one party instructs another is a consideration, the key question is whether the parties have a relationship such that the actions of one party may be attributed to the other.

The court then articulated the following revised test for joint patent infringement:

"This court therefore holds as a matter of Federal Circuit law that there can only be joint infringement when there is an agency relationship between the parties who perform the method steps or when one party is contractually obligated to the other to perform the steps."

In this case, the court found that the test was not satisfied, because while Limelight did provide explicit instruction to and engage in contracts with its customers, the customers were never acting as Limelight's agents and were not obligated to perform the claimed steps. To the contrary, the contract "merely explains that the customer will have to perform the steps if it decided to take advantage of Limelight's service."

Finally, as it did in both BMC Resources and Muniauction, the court acknowledges the difficulties with proving infringement of claims that require the actions of multiple parties, but notes that a patentee can "usually structure a claim to be infringed by a single party." And, with respect to granted claims, the court notes that a patentee may be able to "correct" a claim by seeking a reissue patent.

Joint patent infringement remains a rapidly developing area of law. Stay tuned for a decision in Centillion v. Qwest, which was argued before the Federal Circuit on November 4, 2010. In this case (among other interesting issues), the court will decide the extent to which a party obtaining "beneficial use" of a system controlled by multiple parties is a direct infringer.

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