Friday, September 14, 2012, 6:27 PM

Patent Case in Georgia Part of Landmark Federal Circuit Decision Concerning Inducement to Infringe Method Claims

On August 31, 2012, the U.S. Court of Appeals for the Federal Circuit issued an eagerly-anticipated decision regarding the doctrine of inducement to infringe a patent method claim.  The appeal, decided en banc (by all the judges on the court), resolved two different cases involving closely similar issues concerning inducement to infringe.  The Federal Circuit reversed the district courts in both cases and remanded them back to the district courts for reassessment of patent infringement in light of its decision.

Section 271(b) of the Patent Act states: “Whoever actively induces infringement of a patent shall be liable as an infringer.”[1]  “[A]ctive inducement of infringement is, by definition, conduct that causes and encourages infringement.”[2] 

The August 31 appellate decision is Akamai Techs., Inc. v. Limelight Networks, Inc., Nos. 2009-1372, -1380, -1416, -1417, & 2010-1291, ___ F.3d ___, 2012 U.S. App. LEXIS 18532 (Fed. Cir. Aug. 31, 2012) (Akamai III).[3]  The key takeway from Akamai III is that it is now easier to establish inducement to infringe a patent method claim because it is now easier to prove the required element of direct infringement.[4] 

Proceedings in the Northern District of Georgia

One of the cases that got reversed and remanded in Akamai III is McKesson Techs., Inc. v. Epic Sys. Corp., No. 1:06-CV-2965, 2009 WL 2915778 (N.D. Ga. Sept. 8, 2009), decided by the U.S. District Court for the Northern District of Georgia.  At issue in McKesson were method claims in a McKesson patent directed to automatically communicating between a doctor and a patient using a personalized web page.  The accused software system was sold by Epic under the name MyChart®.  One of the McKesson patent claims read, in part:

1. A method of automatically and electronically communicating between at least one health-care provider and a plurality of users serviced by the health-care provider, said method comprising the steps of:

initiating a communication by one of the plurality of users to the provider for information, wherein the provider has established a preexisting medical record for each user . . . .

The parties agreed that Epic’s healthcare provider customers (“MyChart providers”) did not perform the “initiating” step, and that instead, the step was performed by patients (“MyChart users”).[5]  Additionally, “the parties [did] not dispute that MyChart users choose whether or not to initiate a communication with the provider and that the user is not under any obligation to initiate a communication.”[6] The district court found that these agreed-upon facts defeated a claim of direct infringement, because under principles of direct infringement of a method claim by two or more parties, as stated under Federal Circuit precedent applicable at that time, MyChart providers needed to have exercised control and direction over the MyChart users, and according to the court, there was no evidence of record to create a material issue of fact on that issue.[7]

Furthermore, given the finding as to lack of direct infringement, the district court found that McKesson’s claim of indirect infringement (including inducement to infringe) likewise failed, since under then-applicable precedent “a party must first show direct infringement in order to succeed on a claim of indirect infringement.”[8] 

As a result, the Northern District of Georgia granted Epic’s renewed motion for summary judgment for noninfringement.  The court did so reluctantly, however, observing unfairness in the state of the law at that time:

Although the current state of the law requires that the Court grant Epic’s motion for summary judgment, the Court notes that the single entity rule and BMC’s interpretation thereof severely limits the protection provided for patents which would otherwise be valid and enforceable.  A potential infringer seeking to take advantage of a patented process could likely avoid infringement simply by designing its otherwise infringing product in a way that allows customers to decide initially whether to access it. As long as the sale of a product constitutes an arms length transaction between the customer and the infringing company, which is insufficient to create vicarious liability, the patent holder would likely have no redress against the infringer. This result weakens the policy of providing protection to those who devote the time and resources to develop otherwise novel and patentable methods.[9]

The Federal Circuit Panel Decision (McKesson I)

A three-judge panel of the Federal Circuit affirmed the district court in McKesson Techs., Inc. v. Epic Sys. Corp., No. 2010-1291, 2011 U.S. App. LEXIS 7531 (Fed. Cir. Apr. 12, 2011) (McKesson I).  The Federal Circuit reasoned:

In this case, nothing indicates that MyChart users are performing any of the claimed method steps as agents for the MyChart providers.  Nor does McKesson argue an agency relationship existed here. . . .
Nor is there anything indicating that MyChart users were contractually obligated to perform any of the claimed method steps on behalf of the MyChart providers. These facts are undisputed.  MyChart users choose whether or not to initiate communications with their providers and are under no obligation to do so.  As in both Akamai and Muniauction[, Inc. v. Thomson Corp., 532 F.3d 1318 (Fed. Cir. 2008)], MyChart providers simply control the users’ access to MyChart.  Here, as in Akamai, MyChart users “acted principally for their own benefit and under their own control.”  Akamai, 629 F.3d at 1321.[10]
The Federal Circuit rejected McKesson’s argument that the nature of the doctor-patient relationship was such that the actions of the MyChart users could be attributed to the MyChart providers, reasoning that such a relationship still did not amount to either an agency relationship or a contractual obligation.[11] 

In a two-sentence concurring opinion, Judge Bryson agreed that the panel reached the correct result under BMC, Muniauction, and Akamai I, but then stated: “Whether those decisions are correct is another question, one that is close enough and important enough that it may warrant review by the en banc court in an appropriate case.”[12] 

In dissent, Judge Newman vociferously objected to the majority’s reasoning, accusing it of departing from earlier panel decisions and from joint tortfeasor principles engrained in patent infringement law, and excluding from protection all patents that are directed to interactive procedures.[13] 

 

Orders Granting Rehearing En Banc - Akamai II and McKesson II


In an order dated April 20, 2011, the Federal Circuit vacated its panel Akamai I decision, granting a rehearing en banc, and ordering the parties to brief the issue: “If separate entities each perform separate steps of a method claim, under what circumstances would that claim be directly infringed and to what extent would each of the parties be liable?”  Akamai II (see footnote 3).

Similarly, in an order dated May 26, 2011, the Federal Circuit vacated its panel McKesson I decision, granting a rehearing en banc, and ordering the parties to brief the following two issues:

1.  If separate entities each perform separate steps of a method claim, under what circumstances, if any, would either entity or any third party be liable for inducing infringement or for contributory infringement?  See Fromson v. Advance Offset Plate, Inc., 720 F.2d 1565 (Fed.Cir.1983).

2.  Does the nature of the relationship between the relevant actors—e.g., service provider/user; doctor/patient—affect the question of direct or indirect infringement liability?

McKesson Techs., Inc. v. Epic Sys. Corp., No. 2010-1291, 2011 WL 2173401 (Fed. Cir. May 26, 2011) (McKesson II).

“The appeals court decided to hear both cases at once en banc because both deal with the joint infringement defense.”[14]  At the en banc hearing in November 2011, Akamai and McKesson “tried to persuade the full Federal Circuit . . . that entities that perform some – but not all – steps in a method patent claim have committed infringement, eliciting some sympathy from the court.”[15]    

Results of the En Banc Decision in Akamai III
Though the details of the Federal Circuit’s decision in Akamai III are covered elsewhere,[16] a couple of key points prove noteworthy here. 
The Federal Circuit ruled that to establish the direct infringement required for a case of inducement to infringe a method claim under § 271(b), the patentee is not required to establish liability for direct infringement.  Instead, it is sufficient to establish an act of direct infringement, and that act of direct infringement may be performed by two or more parties.[17]
Thus, to succeed in a claim of inducement to infringe a method claim, a patentee no longer needs to first prove that only a single entity performed all method steps, or that one party is vicariously liable for infringing acts performed by others over whom that party had direction and control.  While such proof is still necessary to establish liability for direct infringement of a method claim (that part of BMC survives), it is no longer required for purposes of establishing the direct infringement prerequisite for an inducement case (that part of BMC overruled).[18] 
Once the prerequisite hurdle of direct infringement is cleared, other elements of an inducement claim must still be met, i.e., “a patent owner must show that the accused infringer induced the infringing acts and knew or should have known that its actions would induce actual infringement.”[19] 
Toward the end of its majority opinion in Akamai III, the Federal Circuit issued the following instruction for the Northern District of Georgia on remand:
In the McKesson case, Epic can be held liable for inducing infringement if it can be shown that (1) it knew of McKesson's patent, (2) it induced the performance of the steps of the method claimed in the patent, and (3) those steps were performed.  McKesson preserved its claim of induced infringement, even though this court’s decisions in BMC and Muniauction made the inducement claim difficult to maintain. McKesson is entitled to litigate that issue on remand to the district court.[20]
Will the U.S. Supreme Court Weigh In?   
Whether the McKesson case will in fact be returned, at this point in time, to the Northern District of Georgia remains to be seen, because Supreme Court involvement is a distinct possibility.  Since the Federal Circuit decided Akamai III by only a slim majority (6-5 decision), and given the importance of the issues litigated, Akamai III “appears destined for review by the U.S. Supreme Court.”[21]
UPDATE: On December 28, 2012, the defendants in both Akamai and McKesson filed petitions for writ of certiorari with the Supreme Court, seeking its review of the Federal Circuit's Akamai III decision.  The docket entries for both petitions can be viewed here and here.

[1] 35 U.S.C. § 271(b). 
[2] Laserdynamics, Inc. v. Quanta Computer, Inc., Nos. 2011-1440, 2011-1470, ___ F.3d ___, 2012 U.S. App. LEXIS 18441, at *59 (Fed. Cir. Aug. 30, 2012).
[3] Earlier decisions in Akamai were Akamai Techs. Inc. v. Limelight Networks, Inc., 494 F.Supp.2d 34 (D. Mass. 2007), aff’d, 629 F.3d 1311 (Fed. Cir. 2010) (Akamai I), vacated and reh’g en banc granted, 419 Fed.Appx. 989, 2011 WL 1518909 (Fed. Cir. Apr. 20, 2011) (Akamai II).
[4] For more details on the Akamai III decision itself, see the well-reasoned commentary by Mr. Gene Quinn in the IP Watchdog Blog. 
[5] McKesson, 2009 WL 2915778, at *6.
[6] Id.
[7] Id.
[8] Id. (citing Dynacore Holdings Corp. v. US Phillips Corp., 363 F.3d 1263, 1272 (Fed. Cir. 2004)).
[9] Id. at *7 (referring to BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007); other citations omitted).
[10] McKesson I, 2011 U.S. App. LEXIS 7531, at *10-*11 (quoting and citing Akamai I). 
[11] Id. at *10.
[12] Id. at *15.
[13] Id. at *15-*39.
[14] C. Norton, “Fed. Circ. Urged to Retool Joint Infringement Standard,” Law360.com (Nov. 18, 2011). 
[15] Id. (italics added).
[16] See Note 4, supra.
[17] Akamai III, 2012 U.S. App. LEXIS 18532, at *19-*21.
[18] Id. at *11-*12 (“To be clear, we hold that all the steps of a claimed method must be performed in order to find induced infringement, but that it is not necessary to prove that all the steps were committed by a single entity.”).
[19] Fujitsu Ltd. v. Netgear, Inc., 620 F.3d 1321, 1332 (Fed. Cir. 2010).
[20] Akamai III, 2012 U.S. App. LEXIS 18532, at *49.
[21] R. Davis, “Fed Circ. Makes Induced Infringement Easier to Prove,” Law360.com (Aug. 31, 2012).

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