Federal Circuit Delivers En Banc Opinion in Akamai v. Limelight

By Kevin E. Noonan & Michael Borella --

The Federal Circuit handed down a unanimous en banc decision today regarding the interplay between literal infringement and induced infringement in Akamai Technologies Inc. v. Limelight Networks, Inc.  On remand from a disapproving reversal by the Supreme Court, the en banc court took notice of the "opportunity" provided in this case to "revisit the § 271(a) question" in view of the High Court's opinion that there was "the possibility that [the Federal Circuit] erred by too narrowly circumscribing the scope of § 271(a)" in its earlier opinion.  Limelight Networks, Inc. v. Akamai Techs., Inc., 134 S. Ct. 2111, 2119, 2120 (2014).  The per curiam opinion announces that the Court now "unanimously set forth the law of divided infringement under 35 U.S.C. § 271(a)" and that, in this case there was substantial evidence to support the jury finding that Limelight directly infringed U.S. Patent No. 6,108,703.  Accordingly, the Federal Circuit reversed the District Court's grant of Limelight's motion for judgment of non-infringement as a matter of law.

To recap, the case arose in 2006, when Akamai sued Limelight in district court alleging infringement of U.S. Patent No. 6,108,703.  The '703 patent is assigned to the Massachusetts Institute of Technology ("MIT") and is exclusively licensed to Akamai.

Claim 34 of the '703 patent recites:

A content delivery method, comprising:
    distributing a set of page objects across a network of content servers managed by a domain other than a content provider domain, wherein the network of content servers are organized into a set of regions;
    for a given page normally served from the content provider domain, tagging at least some of the embedded objects of the page so that requests for the objects resolve to the domain instead of the content provider domain;
    in response to a client request for an embedded object of the page:
    resolving the client request as a function of a location of the client machine making the request and current Internet traffic conditions to identify a given region; and
    returning to the client an IP address of a given one of the content servers within the given region that is likely to host the embedded object and that is not overloaded. [Emphasis added]

The claimed invention is directed to delivering electronic data using a content delivery network (CDN).  It purports to facilitate faster delivery of the data by separating the content of a website onto multiple servers.  The content that requires greater network capacity (such as photos and videos) can be assigned to servers ("tagged") that provide this content at faster speeds.  The remaining content can be provided by non-specialized servers.  Other independent claims further recited a step of serving the embedded object from one of the content servers.

Limelight operates a CDN, and content providers are its customers.  Limelight carries out three of the four claimed steps (the distributing, resolving, and returning steps), but did not tag components of its customers' websites -- instead, Limelight contractually required its customers to do their own tagging, if those customers wanted to exploit the faster servers.  The relevant language of the contract stated "Customer [i.e., content provider] shall be responsible for identifying via the then current [Limelight] process all [URLs] of the Customer Content to enable such Customer Content to be delivered by [Limelight]," and "Customer shall provide [Limelight] with all cooperation and information necessary for [Limelight] to implement the [Content Delivery Service]."

At trial, the jury found that Limelight and its customers jointly and directly infringed '703 patent under 35 U.S.C. § 271(a), and awarded $40 million in damages.  Following this verdict, the Federal Circuit decided Muniauction, Inc. v. Thomson Corp.  In Muniauction, the Court held that direct infringement of a claimed method requires that a single entity perform every step of the claim (the "single entity rule").  But, this requirement is satisfied if steps are performed by multiple parties provided that a single defendant exercises "control or direction" over entire process.  Thus, neither party is liable for infringement if they perform all of the steps, but merely engage in an arms-length relationship to do so.

Limelight moved for judgment of non-infringement as a matter of law (JMOL) in view of Muniauction, and the District Court granted the motion, holding that because (i) no single entity performed all of the claimed steps, and (ii) the contractual relationship between Limelight and its customers did not rise to the level of "control or direction" there was no liability.  On appeal, a Federal Circuit panel affirmed, but the Court reheard the case en banc, reversed, and remanded the case for further proceedings.  Particularly, the en banc majority reasoned that Limelight and its customers did not directly infringe, but "the evidence could support a judgment in its favor on a theory of induced infringement [under 35 U.S.C. § 271(b)]" because "inducement does not require that the induced party be an agent of the inducer or be acting under the inducer's direction or control."  The Court, however, also stated that "here can be no indirect infringement without direct infringement."

In a June 2014 appeal, the Supreme Court took issue with this apparent contradiction, and held that a defendant is not liable for inducing infringement under 35 U.S.C. § 271(b) when no one party has directly infringed the patent under § 271(a).  The High Court reversed the Federal Circuit finding that Limelight had infringed the '703 patent and sent the case back to the Federal Circuit for reconsideration.

On remand, a Federal Circuit panel considered whether Limelight has infringed under § 271(a).  Judge Linn authored the opinion of the court, joined by Chief Judge Prost with Judge Moore dissenting.  According to the majority, Limelight was not liable for direct infringement "because Limelight . . . did not perform all of the steps of the asserted method claims . . . and because the record contains no basis on which to impose liability on Limelight for the actions of its customers who carried out the other steps, Limelight has not directly infringed the '703 patent under § 271(a)."  The majority confirmed that "direct infringement liability of a method claim under 35 U.S.C. § 271(a) exists when all of the steps of the claim are performed by or attributed to a single entity -- as would be the case, for example, in a principal-agent relationship, in a contractual arrangement, or in a joint enterprise."  Here, there was no liability "[b]ecause this case involves neither agency nor contract nor joint enterprise" and "[e]ncouraging or instructing others to perform an act is not the same as performing the act oneself."

In dissent, Judge Moore disagreed.  She believed that "§ 271(a) includes joint tortfeasor liability." Characterizing the majority's rule as creating "a gaping hole in what for centuries has been recognized as an actionable form of infringement," she opined that the single entity rule "is a recent judicial creation inconsistent with statute, common law, and common sense."

The Court reheard the appeal en banc and arrived at the decision handed down today.  In its opinion, the per curiam court set out the basics, that only if a single tortfeasor performed all the steps in a claimed method would direct infringement lie and liability be found.  However, the Court recognized that situations (like the one at bar) could arise where no one tortfeasor can be fairly said to directly infringe by practicing all the steps of a claimed method.  However, according to the opinion, "an entity [is] responsible for others' performance of method steps in two sets of circumstances: (1) where that entity directs or controls others' performance, and (2) where the actors form a joint enterprise."  This holding leads to an assessment of whether a single entity "directs or controls the acts of another."

Turning to vicarious liability law for enlightenment (while recognizing that the circumstances under which vicarious liability arises are not entirely analogous to the question before the court), the opinion states that infringement liability can arise when the infringing acts are those of an agent or the subject of a contract for their performance.  Applying these principles to the Limelight situation, the Court held that joint infringement may apply "when an alleged infringer conditions participation in an activity or receipt of a benefit upon performance of a step or steps of a patented method and establishes the manner and timing of that performance," relying on Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913, 930 (2005).  And this question, according to the opinion, is one of fact (i.e., for a jury) that is to be reviewed under the "substantial evidence" standard.

The opinion also considers the other situation where direct infringement can be found through the actions of two or more actors who have formed a "joint enterprise."  Under these circumstances, each joint tortfeasor can be held responsible for the actions of the other "as if each is a single actor."  Such a joint enterprise is found only on proof of four elements:

(1) an agreement, express or implied, among the members of the group;
(2) a common purpose to be carried out by the group;
(3) a community of pecuniary interest in that purpose, among the members; and
(4) an equal right to a voice in the direction of the enterprise, which gives an equal right of control.

(citing the Restatement (Second) of Torts, § 491).  This is also a question of fact for the jury and subject to review using the substantial evidence standard.

The Court's synthesis of these legal principles is directed to the question of "whether all method steps can be attributed to a single entity" and is "not limited solely to principal-agent relationships, contractual arrangements, and joint enterprise, as the vacated panel decision held."  This approach is also consistent with the Supreme Court's admonishments in its opinion regarding the extent to which the Federal Circuit did and did not understand what constituted literal infringement under § 271(a).  But the en banc court also acknowledged "other factual scenarios [that] may arise warranting attributing others' performance of method steps to a single actor," consistent with the fact-based nature of the inquiry.

Applying these principles to the case before the Court, the en banc opinion held that "[t]he jury heard substantial evidence from which it could find that Limelight directs or controls its customers' performance of each remaining method step, such that all steps of the method are attributable to Limelight."  This control was found by the panel in Limelight's conditions imposed on its customers to perform certain steps (the "tagging" and "serving" steps) of the claimed method under conditions where Limelight determined the "manner or timing" of such performance.  These conditions include Limelight's requirement that its customers sign a "standard contract" containing the requirement for tagging and serving content.  After discussing the content of these contractual provisions, the Court concluded "if Limelight's customers wish to use Limelight's product, they must tag and serve content.  Accordingly, substantial evidence indicates that Limelight conditions customers' use of its content delivery network upon its customers' performance of the tagging and serving method steps."

With regard to the "manner and timing" question, the Court held that there was substantial evidence that Limelight was in control of that, too.  This evidence was found in Limelight's "welcome letter" that instructed each customer how to use Limelight's services.  These instructions included "step-by-step" instructions on how to tag content, under circumstances where failure to follow "these precise steps" will make Limelight's services unavailable.  Further, "Limelight's engineers assist with installation and perform quality assurance testing [and] remain available if the customer experiences any problems."

Taking these (and other facts) into consideration, the en banc court held that "Limelight's customers do not merely take Limelight's guidance and act independently on their own.  Rather, Limelight establishes the manner and timing of its customers' performance so that customers can only avail themselves of the service upon their performance of the method steps."

This opinion signals a move away from the restrictive Muniauction joint infringement framework to something that resembles a "totality of the circumstances" test.  Arguably, after today, joint infringement will be able to be established in more scenarios.  But the burden of doing so may be higher, as a multitude of factors may need to be considered.

This is not the end of the line for the parties, however.  As the opinion notes, because there are remaining issues in both the appeal and cross-appeal, the matter will be once more before the panel.  Perhaps more troubling for Akamai, however, is the following language from the Supreme Court's 2014 opinion:

[T]here has simply been no infringement of the method [of the '703 patent], because the performance of all the patent's steps is not attributable to any one person.

[W]here there has been no direct infringement, there can be no inducement of infringement under §271(b).

[T]he reason Limelight could not have induced infringement under §271(b) is not that no third party is liable for direct infringement; the problem, instead, is that no direct infringement was committed [emphasis in opinion].

These statements suggest that, insofar as the Court considered the issue of direct infringement, the Justices had decided it did not arise from the behavior relied upon by the en banc court in arriving at its decision today.  Which suggests that another trip back to the Supreme Court may be in the offing.

Akamai Technologies, Inc. v. Limelight Networks, Inc. (Fed. Cir. 2015)
Before Chief Judge Prost and Circuit Judges Newman, Lourie, Linn, Dyk, Moore, O'Malley, Reyna, Wallach, and Hughes
Per curiam opinion

Comments

[Skeptical]

Was that Supreme DICTA that just lost out to a direct ruling....?

Or does "dicta" trump everything, if that "dicta" come from Royalty?

[Skeptical]

...and I would hasten to add that Benson and Flook would be even more of a mess today for statutory law if we did not have a "lower" court that dared to notice and point out when the Emperor was in the buff...

[GrzeszDeL]

I like yesterday's Akamai decision because it makes my job easier, but I have this uneasy sense that the SCotUS will not let this ruling stand. What exactly is the value of 271(c) under this new reading of 271(a)? It looks to me like yesterday's construction of 271(a) makes 271(c) rather superfluous, and it is not good when a statutory construction renders part of the statutory text superfluous.

[Mike Borella]

Hopefully this is just a case of the justices pointing out where the CAFC contradicted itself, the CAFC fixing the contradiction, and we all move on from there.

[EG]

"[T]here has simply been no infringement of the method [of the '703 patent], because the performance of all the patent's steps is not attributable to any one person."

Kevin,

Let me emphasize that this statement was also made by Alito in the context of an egregious faux pas in his Opinion for the Court which grossly mischaracterizes the Federal Circuit per curiam majority’s basis for its ruling that there was inducing infringement liability under Section 271(b):

"“The Federal Circuit’s contrary view would deprive §271(b) of ascertainable standards. If a defendant can be held liable under §271(b) for inducing conduct that does not constitute infringement, then how can a court assess when a patent holder’s rights have been invaded? What if a defendant pays another to perform just one step of a 12-step process, and no one performs the other steps, but that one step can be viewed as the most important step in the process? In that case the defendant has not encouraged infringement, but no principled reason prevents him from being held liable for inducement under the Federal Circuit’s reasoning, which permits inducement liability when fewer than all of a method’s steps have been performed within the meaning of the patent.”

As others have observed, the Federal Circuit’s “reasoning” in Chief Judge Radar’s majority ruling contains no such “view” that infringement liability (including inducing infringement liability under Section 271(b)) may be based upon anything other than that all steps of the claimed method must be performed, whether by one actor or by a combination of several actors. Such a faux pas in Alito’s opinion is not only astonishing, but frankly undermines the credibility of the ruling made by the Supreme Court because it is based upon a fundamental factual error, i.e., inaccurately characterizing the lower court’s (i.e., the Federal Circuit’s) ruling.

And as others have also observed, it is utterly embarrassing for the Royal nine to make such a fundamental "gaff" as mischaracterizing the ruling of the appellate court being overturned, one that any law student would certainly be chastised for in the class room. I'm sure Seth Waxman (who is to be commended for his skillful advocacy in this case) will undoubtedly point this egregious faux pas out far more delicately and tactfully than I have.

[BPatMan]

The en banc Federal Circuit seems to have thumbed its nose at the Supreme Court. So the big question is whether the Supreme Court will grant cert once again. I wouldn't rely on this decision quite yet.

[Skeptical]

I am struck with the contrast between Mike Borella and EG's posts.

I am also reminded of the words of the Supreme Court itself, concerning the difference between "being right" and merely "being final."

Mike,

a question in earnest for you: what happens when that "final" body is the one in error (including being self-contradictory), and those errors are pointed out?

Do we have a case like Brulotte, where the error is even recognized, but minimized and someone else is called to clean up the mess?

Do we have a case like Benson, where dicta overpasses holding?

Do we have a case like Graham, where the Supremes attempt to spin the actions of Congress and attempt to reclaim their pre-1952 powers?

Must we fawn and attempt to be "delicate and tactful" when being direct, even brutally direct, appears to be the path required?

Have we turned into the crowd, fearfully mindful of the power of the emperor, murmuring how delightful his new clothes are?

[Mike Borella]

Skeptical,

There are two errors here.

The CAFC contradicted itself when it stated that "[t]hat principle, that there can be no indirect infringement without direct infringement, is well settled," then concluded that "[n]othing in the text indicates that the term infringement in section 271(b) is limited to infringement by a single entity. Rather, infringement in this context appears to refer most naturally to the acts necessary to infringe a patent, not to whether those acts are performed by one entity or several." The court went on to conclude that there was no direct infringement in Akamai, but there was indirect infringement.

This raised Justice Alito's ire. Unfortunately, his opinion completely mischaracterized the whole notion of infringement of a method claim, as EG points out above.

As it stands right now, the CAFC seems to have fixed their error, and set forth a more reasonable test. Hopefully, Alito's error will continue to be ignored, as that is the only rational thing to do with it.

Mike