Federal Circuit Reaffirms the Single-Entity Rule for Joint Infringement

Software patents often include method claims, where inventiveness generally depends on the functionality of the software rather than unique hardware structures.  However, if not properly claimed, the value of method claims can be significantly diminished, particularly in light of recent Supreme Court and Federal Circuit precedent.  As a result of this precedent, an actor may avoid infringement of a method claim when another party performs at least one step of the method.

In May, the Federal Circuit reaffirmed the “single entity rule” for infringement of method claims in the latest installment of a decade-long court battle between Akamai and Limelight networks.  Akamai v. Limelight Networks, Nos. 2009-1372, 2009-1280, 2009-1416, 2009-1417 (Fed. Cir. 2015), available at http://www.cafc.uscourts.gov/images/stories/opinions-orders/9-1372.Opinion.5-11-2015.1.PDF.

Akamai owns the rights to a patent directed to methods for delivering content over the internet via a content delivery network.  Akamai’s competitor Limelight Networks sold a service similar to Akamai’s patented methods.  However, Limelight only performed some of the steps of the patented methods, enabling its customers to perform the remaining steps of Akamai’s patented method.

Akamai originally sued Limelight, alleging joint infringement under 35 U.S.C. § 271(a) and induced infringement under 35 U.S.C. § 271(b).

In 2012, the Federal Circuit, sitting en banc, held that Limelight could be liable for induced infringement under § 271(b) if it performed some of the steps of Akamai’s patent, and induced its customers to perform the remaining steps.

In 2014, the Supreme Court unanimously rejected the Federal Circuit’s infringement analysis.  The Supreme Court held that a party could not be liable for inducement under § 271(b) unless there is direct infringement under § 271(a).

The Court declined to review the Federal Circuit’s decision in Muniauction v. Thomson Corporation, in which the Federal Circuit held that multiple parties could only directly infringe under § 271(a) if the parties acted under the control and direction of a central mastermind.  532 F.3d 1318 (Fed. Cir. 2008).  This restriction is known as the “single entity rule.”

In 2015, the Federal Circuit reaffirmed the single entity rule, and held that Limelight was not liable for direct infringement under § 271(a), because the actions of Limelight’s customers could not be imputed to Limelight.

Under the single entity rule, multiple parties may directly infringe on a method claim if (1) the parties have a principle-agent relationship, (2) the parties are contractually bound to perform the patented steps, or (3) the parties are in in a joint enterprise.

In contrast, Limelight never exerted control over its customers or obligated them to perform patented steps.  Rather, its customers unwittingly performed some of the patented elements, while Limelight knowingly performed the other patented elements.  Accordingly, under the single-entity rule, neither Limelight nor its customers are liable for infringement, effectively circumventing Akamai’s patent protection.

Chief Judge Moore issued a strong dissent.  In particular, she criticized the majority’s reliance on the 2007 Federal Circuit case BMC Resources v. Paymentech, LP, which introduced the single-entity rule.  See 498 F.3d 1373 (Fed. Cir. 2007).  Judge Moore characterized BMC Resources as logically flawed and lacking precedential support.  She also criticized the application of the single-entity rule for upsetting long-standing patent drafting conventions, and creating a “gaping loophole” in patent infringement.

If the decision stands, patent applicants will need to be particularly cautious in navigating around this gaping hole.  To the greatest extent possible, method claims should be drafted to capture steps most likely performed by a single party.  Otherwise, when arguing inducement, patent owners may more frequently be forced to rely on device and system claims.

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