Infringement Without a Direct Infringer

The Decision

The nub of the Federal Circuit's holding is that while liability for inducement requires there to be infringement, (i.e., performance of every step of the claimed method), there does not have to be someone liable as a direct infringer under ' 271(c). If several actors each independently perform some of the claimed steps, so that together they perform all the steps, that constitutes “infringement,” even though none of the actors is a direct infringer. It makes no difference, the court observed, to the impact on the patentee, whether the inducer induces one person to perform all the claimed steps, or two different people each to perform some of them. Accordingly, there is no reason to hold the first inducer liable, but not the second. The same argument holds for an inducer who performs some of the steps itself and induces another to perform the balance.

The Federal Circuit found the text of ' 271(b) to be wholly consistent with this view of inducement liability. In addition, the legislative history of the 1952 Patent Act was invoked for additional support. Section 271(b), the inducement provision, was said to be a “broad” provision, in contrast to the contributory infringement provision of ' 271(c) and the testimony of Giles Rich (later Judge Rich) before Congressional Hearings was cited, approving the application of a doctrine of joint infringement to provide relief where “there is no direct infringement of the patent but only two contributory infringers.” At the time, “contributory” infringement was used to cover both inducement and what we now term contributory infringement as defined in ' 271(c). The new statute was considered necessary at the time to counter the limiting affect of Supreme Court cases dealing with patent misuse, i.e., attempting to enforce a patent against someone who practiced something other than the entire claimed invention.

The en banc opinion also draws support from other areas of the law where an actor is liable for acts committed by an “innocent intermediary,” induced to act in a certain way by the actor ' for example, the aiding and abetting provisions of the Federal Criminal Code, which provide that “[w]hoever commits an offense against the United States, or aids, abets, counsels, commands, induces, or processes its commission is punishable as a principal.” 18 U.S.C. ' 2(a). Liability for inducement does not require that the principal be found liable, only that the induced criminal conduct occur.

Also, in tort law, a person may be liable for tortious conduct if he “orders or induces the conduct, if he knows or should know of circumstances that would make the conduct tortious if it were his own.” Restatement (Second) of Torts ' 877(a) (1979). Section 271(b), the Federal Circuit noted, was based on the “old common law doctrine of joint tortfeasors,” where liability was premised on proof that the defendant “knowingly induced infringement and possessed specific intent to encourage another's infringement.” Those cases supported the court's view, it argued, because all involved situations in which injury is caused by intermediate actors who are not themselves liable, though the person who induced their acts was.

In response to Judge Linn's dissent, which argued for maintaining the existing rule of BMC Resources that direct infringement requires a single entity to perform, or be legally responsible for the performance of, all the claimed steps, the opinion states that ' 271(a) does not define “infringement,” rather it sets out a type of conduct (making, using, or selling the patented invention) that makes an actor liable for infringement. Section 271(b) provides that anyone who induces “infringement” shall be liable as an infringer, but does not require that the “infringement” be an act that would give rise to liability as an infringer under ' 271(a). The court points to other use of “infringement” in ' 271 as supporting this view.

The court also rejected Judge Linn's attack based on ' 281, which provides that “A patentee shall have remedy by civil action for infringement of his patent,” arguing that this does not promise that there is a civil action with respect to all acts of infringement. For example, infringement by state or federal officers cannot be remedied by civil action.

The BMC Resources decision had cited a 2004 Federal Circuit decision for the proposition that there cannot be indirect infringement without direct infringement. The court distinguished this earlier decision, Dynacore Holdings Corp. v. U.S. Philips Corp., 363 F.3d 1263, 1272 (Fed. Cir. 2004), by explaining that BMC Resources went beyond Dynacore in requiring that the “direct infringement” be committed by a single actor. Dynacore had not held that Dynacore could show direct infringement only by proving that a single entity created the claimed network. The claims in Dynacore were not method claims, and so the issue of direct infringement of method claims would not have squarely arisen in that case. The BMC Resources rule, the court stated, invites evasion of the principles of patent infringement and serves no policy-based purpose. “If an entity has induced conduct that infringes a patent, there is no justification for immunizing the inducer from liability simply because no single party commits all of the components of the appropriate act.”

The court also distinguished the Supreme Court's decision in Aro Mfg. Co. v. Convertible Top Replacement Co., 365 U.S. 336 (1961). That case concerned whether the sale of fabric used to replace the original convertible top of an automobile constituted contributory infringement of a product patent that claimed a combination of the fabric, supporting structure for the fabric and means for sealing the fabric against the sides of the automobile. The basis for the decision of no contributory infringement centered on the absence of direct infringement by the purchaser of the fabric because the replacement of the original fabric was found not to be an infringing “reconstruction,” but a non-infringing “repair.” Accordingly, although the Aro Court stated that if the purchaser and user of the fabric could not be “amerced” (penalized) as an infringer, someone who sold the fabric “cannot be amerced for contributing to a non-existent infringement,” the Federal Circuit believed that the Aro Court was addressing direct infringement involving only a single actor. Thus, it could not provide authority for the proposition that if more than one actor performs the invention, there can be no direct infringement.

Judge Linn's Dissent

According to Judge Linn's dissent, joined by Judges Timothy B. Dyk, Sharon Prost and Kathleen M. O'Malley, the majority opinion, based solely on induced infringement without a showing of a direct infringer, is contrary to the statute and Supreme Court precedent, and “is rooted in [the majority's] conception of what Congress ought to have done rather than what it did.” The dissent faults the majority for redefining the term “infringement” and distinguishing liability for infringement from acts of infringement.

In contrast to the majority position, Judge Linn's dissenting opinion argues that: 1) direct infringement liability is required to support an indirect infringement claim, and 2) direct infringement requires a single entity to infringe either alone or under the principals of vicarious liability.

Judge Linn relies upon legislative history and Supreme Court statements in Aro Mfg. Co. to argue the term “infringement” is defined by ' 271(a) and is not ambiguous under the statute. The statute does not distinguish acts of infringement from the liability for infringement, and provides no statutory basis to conclude that independent action of two parties can constitute “infringement.”

His dissent further asserts that under the majority's construction, “the word 'infringement' in ' 271(b) ' can be defined however this court wants without reference to any statutory provision.” However, according to Judge Linn's dissent,
redefining “infringement” or the bases for infringement should be left to Congress, as it has been in the past. For example, Congress enacted ' 271(f) “to close a loophole in patent law” found in Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518 (1972). Judge Linn noted that when Congress enacted the America
Invents Act, Congress had the opportunity and did not change the law as it was interpreted in BMC Resources.

Based upon the conclusion that direct infringement liability is necessary for an indirect infringement claim, the dissent urged retention of the single actor rule for direct infringement. Because the majority elected to decide the case solely on an inducement theory, Judge Linn's dissent focuses on reiterating the basis for the single actor rule and addressing Judge Newman's separate dissent favoring the law of joint tortfeasors as a way of imposing direct infringement liability on persons whose acts, together, practice the entire claimed invention.

As discussed in prior cases, the single actor rule is based upon the strict liability nature of direct patent infringement. The single actor may be any one entity performing all the elements of a claim or any one entity that is deemed to perform all the elements of a claim through principals of vicarious liability, in particular by exerting “direction or control” over the other actors.

Judge Linn's dissent takes umbrage at Judge Newman's assertion that direct infringement under ' 271(a) is not a strict liability provision, challenging “the apparent consequence [of Newman's assertion] that innocent participants are in fact not liable.” The Supreme Court, Judge Linn argues, has held a direct infringer's knowledge and/or intent is irrelevant to the question of infringement. Further, Judge Linn asserts Judge Newman's joint tortfeasor interpretation would essentially eviscerate the need for inducement and contributory infringement statutory provisions.

Judge Newman's Dissent

In her separate dissenting opinion, in which no other judge joined, Judge Newman sharply criticized the majority's holding that the act of infringement required for inducement under ' 271(b) need not qualify as an act of infringement that would make a person liable for infringement under ' 271(a). Noting the principal that for “all forms of indirect liability, it is necessary to establish the claimed invention is directly infringed.” Judge Newman dismissed the majority's premise that there could be direct infringement but no-one liable under ' 271(a) as a direct infringer.

She characterized the majority's opinion as creating an “inducement-only rule” ' namely, a rule that “when more than one entity performs the steps of a patented invention, the only liable entity is the inducer, not those who directly infringe the claim.” She pointedly added that “[s]uch an inducement-only rule has never been held, in any case. It has no foundation in statute, or in two centuries of precedent.” In addition to criticizing the lack of doctrinal support for the “inducement-only rule,” Judge Newman expressed concern that it opened the door to abuse, as “the entity that advises or enables or recommends the divided infringement is fully responsible for the consequences of the direct infringement.” She succinctly summed up her opinion of the majority's new “inducement-only rule” as serving no public interest or innovation need, yet causing uncertainty, disincentive and abuse.

Judge Newman's solo dissent reflects her disagreement with not just the majority's “inducement-only rule,” but also the “single-entity rule” from the BMC Resources and Muniauction, Inc. v. Thompson Corp., 532 F.3d 1318 (Fed. Cir. 2008), cases ' the “single-entity rule” that Judge Linn's dissent advocated as the correct legal standard. Under the “single-entity rule,” if there is no “mastermind” performing and/or controlling every step, there could be no direct infringement, and as a result, no induced infringement.

Judge Newman had previously rejected the single-entity rule in her dissenting opinion in McKesson, in which she suggested joint infringement occurs if the acts of several parties together performed every step of a claimed method, provided there was some combination or collaboration among them. She noted that “[i]nfringement is not a question of how many people it takes to perform a patented method” and advocated that the “court should simply acknowledge that a broad, all-purpose single-entity requirement is flawed, and restore infringement to its status as occurring when all of the claimed steps are performed, whether by a single entity or more than one entity, whether by direction or control, or jointly, or in collaboration or interaction.” Judge Newman advances such a rule as both consistent with ' 271 and predictable to enforce and apportion liability among the collaborators. In contrast, she opines that both the majority's “inducement-only rule” and the “single-entity rule” of Judge Linn's dissent are legally unsound and “poorly suited to the issues and technologies that dominate today's commerce.”

The Result

The result of the majority opinion is that in a situation in which several actors combine to perform different steps of a claimed method, none of them is liable for direct infringement under ' 271(a), but one of them, or a third party, could be liable under ' 271(b) if the patentee can prove inducement. Inducement of whom, to do what, may be the future battleground, unless of course, the Supreme Court decides that this opinion, from a heavily divided court adopting, on its face, an extension of existing law, merits further review.

John Cone, Megan O'Laughlin and John Tower are attorneys with Hitchcock Evert LLP in Dallas, TX, specializing in patent and trademark litigation. Cone, a member of this newsletter's Board of Editors, was counsel for Paymentech in BMC Resources, Inc. v. Paymentech, L.P.

An en banc panel of the Court of Appeals for the Federal Circuit convened to consider the question of joint or divided infringement of method claims. Akamai Techs. Inc. v. Limelight Networks, Inc. and McKesson Techs., Inc. v. Epic Sys., Corp. (Fed. Cir. Aug. 31, 2012). The court decided, in a per curiam opinion adopted by six of the 11 panel judges, that there could be liability under 35 U.S.C. ' 271(b) for inducing infringement of a method patent, provided all the steps of the method were performed, even if they were not performed by a single actor who was liable for direct infringement under ' 271(a). In so holding, the Federal Circuit expressly overruled its single-entity rule adopted in BMC Resources, Inc. v. Paymentech, L.P. , 498 F.3d 1373 (Fed. Cir. 2007). Judge Richard Linn authored a dissenting opinion in which three other judges joined, and Judge Pauline Newman authored a separate dissent.

In BMC Resources, the Federal Circuit held that inducement required there to be a single actor who performed, or was legally responsible for the performance of, each and every step of the method. The parties in Akamai and McKesson had principally addressed the question of joint liability for direct infringement when different actors perform different steps. The court found it unnecessary to decide that question, noting that because direct infringement is a strict liability tort, extending direct liability to someone who performed less than all the steps could ensnare people who had no knowledge that others were performing steps that, collectively, resulted in performance of the entire claimed invention.

The six member majority consisted of Chief Judge Randall R. Rader and Judges Alan D. Lourie, William C. Bryson, Kimberly A. Moore, Jimmie V. Reyna, and Evan J. Wallach. Chief Judge Rader, who had authored the court's opinion in BMC Resources and the original decision in Akamai, changed sides to join the majority.

The Decision

The nub of the Federal Circuit's holding is that while liability for inducement requires there to be infringement, (i.e., performance of every step of the claimed method), there does not have to be someone liable as a direct infringer under ' 271(c). If several actors each independently perform some of the claimed steps, so that together they perform all the steps, that constitutes “infringement,” even though none of the actors is a direct infringer. It makes no difference, the court observed, to the impact on the patentee, whether the inducer induces one person to perform all the claimed steps, or two different people each to perform some of them. Accordingly, there is no reason to hold the first inducer liable, but not the second. The same argument holds for an inducer who performs some of the steps itself and induces another to perform the balance.

The Federal Circuit found the text of ' 271(b) to be wholly consistent with this view of inducement liability. In addition, the legislative history of the 1952 Patent Act was invoked for additional support. Section 271(b), the inducement provision, was said to be a “broad” provision, in contrast to the contributory infringement provision of ' 271(c) and the testimony of Giles Rich (later Judge Rich) before Congressional Hearings was cited, approving the application of a doctrine of joint infringement to provide relief where “there is no direct infringement of the patent but only two contributory infringers.” At the time, “contributory” infringement was used to cover both inducement and what we now term contributory infringement as defined in ' 271(c). The new statute was considered necessary at the time to counter the limiting affect of Supreme Court cases dealing with patent misuse, i.e., attempting to enforce a patent against someone who practiced something other than the entire claimed invention.

The en banc opinion also draws support from other areas of the law where an actor is liable for acts committed by an “innocent intermediary,” induced to act in a certain way by the actor ' for example, the aiding and abetting provisions of the Federal Criminal Code, which provide that “[w]hoever commits an offense against the United States, or aids, abets, counsels, commands, induces, or processes its commission is punishable as a principal.” 18 U.S.C. ' 2(a). Liability for inducement does not require that the principal be found liable, only that the induced criminal conduct occur.

Also, in tort law, a person may be liable for tortious conduct if he “orders or induces the conduct, if he knows or should know of circumstances that would make the conduct tortious if it were his own.” Restatement (Second) of Torts ' 877(a) (1979). Section 271(b), the Federal Circuit noted, was based on the “old common law doctrine of joint tortfeasors,” where liability was premised on proof that the defendant “knowingly induced infringement and possessed specific intent to encourage another's infringement.” Those cases supported the court's view, it argued, because all involved situations in which injury is caused by intermediate actors who are not themselves liable, though the person who induced their acts was.

In response to Judge Linn's dissent, which argued for maintaining the existing rule of BMC Resources that direct infringement requires a single entity to perform, or be legally responsible for the performance of, all the claimed steps, the opinion states that ' 271(a) does not define “infringement,” rather it sets out a type of conduct (making, using, or selling the patented invention) that makes an actor liable for infringement. Section 271(b) provides that anyone who induces “infringement” shall be liable as an infringer, but does not require that the “infringement” be an act that would give rise to liability as an infringer under ' 271(a). The court points to other use of “infringement” in ' 271 as supporting this view.

The court also rejected Judge Linn's attack based on ' 281, which provides that “A patentee shall have remedy by civil action for infringement of his patent,” arguing that this does not promise that there is a civil action with respect to all acts of infringement. For example, infringement by state or federal officers cannot be remedied by civil action.

The BMC Resources decision had cited a 2004 Federal Circuit decision for the proposition that there cannot be indirect infringement without direct infringement. The court distinguished this earlier decision, Dynacore Holdings Corp. v. U.S. Philips Corp. , 363 F.3d 1263, 1272 (Fed. Cir. 2004), by explaining that BMC Resources went beyond Dynacore in requiring that the “direct infringement” be committed by a single actor. Dynacore had not held that Dynacore could show direct infringement only by proving that a single entity created the claimed network. The claims in Dynacore were not method claims, and so the issue of direct infringement of method claims would not have squarely arisen in that case. The BMC Resources rule, the court stated, invites evasion of the principles of patent infringement and serves no policy-based purpose. “If an entity has induced conduct that infringes a patent, there is no justification for immunizing the inducer from liability simply because no single party commits all of the components of the appropriate act.”

The court also distinguished the Supreme Court's decision in Aro Mfg. Co. v. Convertible Top Replacement Co. , 365 U.S. 336 (1961). That case concerned whether the sale of fabric used to replace the original convertible top of an automobile constituted contributory infringement of a product patent that claimed a combination of the fabric, supporting structure for the fabric and means for sealing the fabric against the sides of the automobile. The basis for the decision of no contributory infringement centered on the absence of direct infringement by the purchaser of the fabric because the replacement of the original fabric was found not to be an infringing “reconstruction,” but a non-infringing “repair.” Accordingly, although the Aro Court stated that if the purchaser and user of the fabric could not be “amerced” (penalized) as an infringer, someone who sold the fabric “cannot be amerced for contributing to a non-existent infringement,” the Federal Circuit believed that the Aro Court was addressing direct infringement involving only a single actor. Thus, it could not provide authority for the proposition that if more than one actor performs the invention, there can be no direct infringement.

Judge Linn's Dissent

According to Judge Linn's dissent, joined by Judges Timothy B. Dyk, Sharon Prost and Kathleen M. O'Malley, the majority opinion, based solely on induced infringement without a showing of a direct infringer, is contrary to the statute and Supreme Court precedent, and “is rooted in [the majority's] conception of what Congress ought to have done rather than what it did.” The dissent faults the majority for redefining the term “infringement” and distinguishing liability for infringement from acts of infringement.

In contrast to the majority position, Judge Linn's dissenting opinion argues that: 1) direct infringement liability is required to support an indirect infringement claim, and 2) direct infringement requires a single entity to infringe either alone or under the principals of vicarious liability.

Judge Linn relies upon legislative history and Supreme Court statements in Aro Mfg. Co. to argue the term “infringement” is defined by ' 271(a) and is not ambiguous under the statute. The statute does not distinguish acts of infringement from the liability for infringement, and provides no statutory basis to conclude that independent action of two parties can constitute “infringement.”

His dissent further asserts that under the majority's construction, “the word 'infringement' in ' 271(b) ' can be defined however this court wants without reference to any statutory provision.” However, according to Judge Linn's dissent,
redefining “infringement” or the bases for infringement should be left to Congress, as it has been in the past. For example, Congress enacted ' 271(f) “to close a loophole in patent law” found in Deepsouth Packing Co. v. Laitram Corp. , 406 U.S. 518 (1972). Judge Linn noted that when Congress enacted the America
Invents Act, Congress had the opportunity and did not change the law as it was interpreted in BMC Resources.

Based upon the conclusion that direct infringement liability is necessary for an indirect infringement claim, the dissent urged retention of the single actor rule for direct infringement. Because the majority elected to decide the case solely on an inducement theory, Judge Linn's dissent focuses on reiterating the basis for the single actor rule and addressing Judge Newman's separate dissent favoring the law of joint tortfeasors as a way of imposing direct infringement liability on persons whose acts, together, practice the entire claimed invention.

As discussed in prior cases, the single actor rule is based upon the strict liability nature of direct patent infringement. The single actor may be any one entity performing all the elements of a claim or any one entity that is deemed to perform all the elements of a claim through principals of vicarious liability, in particular by exerting “direction or control” over the other actors.

Judge Linn's dissent takes umbrage at Judge Newman's assertion that direct infringement under ' 271(a) is not a strict liability provision, challenging “the apparent consequence [of Newman's assertion] that innocent participants are in fact not liable.” The Supreme Court, Judge Linn argues, has held a direct infringer's knowledge and/or intent is irrelevant to the question of infringement. Further, Judge Linn asserts Judge Newman's joint tortfeasor interpretation would essentially eviscerate the need for inducement and contributory infringement statutory provisions.

Judge Newman's Dissent

In her separate dissenting opinion, in which no other judge joined, Judge Newman sharply criticized the majority's holding that the act of infringement required for inducement under ' 271(b) need not qualify as an act of infringement that would make a person liable for infringement under ' 271(a). Noting the principal that for “all forms of indirect liability, it is necessary to establish the claimed invention is directly infringed.” Judge Newman dismissed the majority's premise that there could be direct infringement but no-one liable under ' 271(a) as a direct infringer.

She characterized the majority's opinion as creating an “inducement-only rule” ' namely, a rule that “when more than one entity performs the steps of a patented invention, the only liable entity is the inducer, not those who directly infringe the claim.” She pointedly added that “[s]uch an inducement-only rule has never been held, in any case. It has no foundation in statute, or in two centuries of precedent.” In addition to criticizing the lack of doctrinal support for the “inducement-only rule,” Judge Newman expressed concern that it opened the door to abuse, as “the entity that advises or enables or recommends the divided infringement is fully responsible for the consequences of the direct infringement.” She succinctly summed up her opinion of the majority's new “inducement-only rule” as serving no public interest or innovation need, yet causing uncertainty, disincentive and abuse.

Judge Newman's solo dissent reflects her disagreement with not just the majority's “inducement-only rule,” but also the “single-entity rule” from the BMC Resources and Muniauction, Inc. v. Thompson Corp. , 532 F.3d 1318 (Fed. Cir. 2008), cases ' the “single-entity rule” that Judge Linn's dissent advocated as the correct legal standard. Under the “single-entity rule,” if there is no “mastermind” performing and/or controlling every step, there could be no direct infringement, and as a result, no induced infringement.

Judge Newman had previously rejected the single-entity rule in her dissenting opinion in McKesson, in which she suggested joint infringement occurs if the acts of several parties together performed every step of a claimed method, provided there was some combination or collaboration among them. She noted that “[i]nfringement is not a question of how many people it takes to perform a patented method” and advocated that the “court should simply acknowledge that a broad, all-purpose single-entity requirement is flawed, and restore infringement to its status as occurring when all of the claimed steps are performed, whether by a single entity or more than one entity, whether by direction or control, or jointly, or in collaboration or interaction.” Judge Newman advances such a rule as both consistent with ' 271 and predictable to enforce and apportion liability among the collaborators. In contrast, she opines that both the majority's “inducement-only rule” and the “single-entity rule” of Judge Linn's dissent are legally unsound and “poorly suited to the issues and technologies that dominate today's commerce.”

The Result

The result of the majority opinion is that in a situation in which several actors combine to perform different steps of a claimed method, none of them is liable for direct infringement under ' 271(a), but one of them, or a third party, could be liable under ' 271(b) if the patentee can prove inducement. Inducement of whom, to do what, may be the future battleground, unless of course, the Supreme Court decides that this opinion, from a heavily divided court adopting, on its face, an extension of existing law, merits further review.

John Cone, Megan O'Laughlin and John Tower are attorneys with Hitchcock Evert LLP in Dallas, TX, specializing in patent and trademark litigation. Cone, a member of this newsletter's Board of Editors, was counsel for Paymentech in BMC Resources, Inc. v. Paymentech, L.P.