Guest Post by Professor Lynda J. Oswald. Editor’s Note – I asked Professor Oswald to write a guest post that links together her prior writing on divided infringement with the Supreme Court’s most recent decision on the subject-matter.
In its recent decision in Limelight Networks Inc. v. Akamai Techs., Inc., the Supreme Court decided the easy question—whether inducement must be supported by direct infringement—on precedent grounds, yet avoided the much more difficult question of how the courts should deal with multi-actor infringement of a method or process patent.
Precedent is indeed clear that direct infringement is a predicate to indirect infringement, and the Court’s decision on this question was exactly right. The interesting questions remaining, however, are why did the Federal Circuit attempt to rewrite precedent in this manner and what should the Federal Circuit do with multi-actor infringement doctrine on remand?
The answer to the why question is driven by the courts’ fundamental discomfort with strict liability. The Federal Circuit’s inartful attempt in its en banc decision in Akamai to move multi-actor infringement from direct infringement to inducement was an effort to relocate such infringement from the harsh rules of strict liability to the more forgiving rules of intent-based indirect liability. Justice Kagan highlighted this at oral argument:
But the reason [the Federal Circuit] put this under 271(b) rather than 271(a) is because of what Justice Scalia said, that 271(b) is not a strict liability offense . . . . [T[hey thought they were being very clever by putting it into a 271(b) box and avoiding the strict liability consequences of what they were doing, but also avoiding the possibility of an end run of the patent law.
As I explore in a work-in-progress, the courts similarly attempt to avoid the strictures of strict liability in other IP contexts such as imposition of officer liability in patent and copyright cases. Although strict liability is antithetical to the notions of fault-based liability that permeate most of American law, the courts are bound by the statutory language and the Supreme Court’s rejection of the Federal Circuit’s attempt to circumvent direct infringement’s strict liability requirement was spot-on.
The what question is harder to answer. The Supreme Court expressed significant skepticism about the Muniauction Inc. v. Thomson Corp. test, appearing, in fact, to characterize any current doctrinal difficulties as self-inflicted by the Federal Circuit:
[R]espondents, like the Federal Circuit, criticize our interpretation of §271(b) as permitting a would-be infringer to evade liability by dividing performance of a method patent’s steps with another whom the defendant neither directs nor controls. We acknowledge this concern. Any such anomaly, however, would result from the Federal Circuit’s interpretation of §271(a) in Muniauction. A desire to avoid Muniauction’s natural consequences does not justify fundamentally altering the rules of inducement liability that the text and structure of the Patent Act clearly require—an alteration that would result in its own serious and problematic consequences . . . .
The Court viewed the Federal Circuit’s multi-actor infringement precedent too narrowly, however. To adequately address the multi-actor infringement issue on remand, the Federal Circuit needs to reexamine not just Muniauction, but two additional decisions as well: BMC Resources, Inc. v. Paymentech and the panel decision in Akamai.
BMC Resources provided the foundation of the Federal Circuit’s current multi-actor infringement doctrine by stating that: (1) for inducement to exist, some other single entity must be liable for direct infringement but (2) a mastermind who controls or directs the activities of another party incurs vicarious liability for the actions of that other party such that the combination of acts would be deemed the act of a single actor for purposes of establishing liability. Muniauction‘s contribution was to refine the BMC Resources test by identifying a “spectrum” of relationships: at one pole is “mere arms-length cooperation,” which does not lead to liability; at the other is “control or direction over the entire process such that every step is attributable to the controlling party, i.e., the mastermind.” The panel decision in Akamai attempted to further clarify the standard by setting up two-pronged test of the type that the Federal Circuit seems to prefer these days: multi-actor infringement occurs only when the parties involved are in either (1) in an agency relationship or (2) contractually obligated to each other.
Perhaps it is a function of its narrow jurisdiction, but the Federal Circuit often misses the opportunity to apply traditional common law doctrines in a manner that would reconcile statutory language with the policies underlying the statute. As I discuss in a recent article, the Federal Circuit could resolve much (but not all—some aspects of this issue are amenable only to legislative resolution) of the confusion surrounding multi-actor infringement by explicitly invoking common law doctrines of tort and agency. The panel decision in Akamai got much of this right by looking at agency and contractual relationships. However, the Akamai panel decision ignored the possibility that there could be co-equals involved in the infringement, not bound by contract or agent-principal relationships but acting in concert in a joint tortfeasorship relationship. Early (pre-Federal Circuit) cases did recognize the role that joint torts can play in establishing multi-actor liability but that relationship was lost in the BMC Resources single-entity rule.
The Akamai Court issued a clear call to the Federal Circuit to revisit (and revamp) its troublesome multi-actor infringement standard. Judge Newman provided an elegant statement of how the court should approach this issue in her dissent in the Akamai en banc decision:
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.
On remand, the Federal Circuit will have the opportunity to articulate liability rules that are more principled, more grounded in traditional legal doctrine, and more consistent with the general patent law scheme; Judge Newman’s characterization provides an excellent starting point for that analysis.
Proposition: if a contributory infringer escapes liability because of lack of knowledge of the infringement, it would seem good practice to sue each and every one of its customers for direct infringement. At some point, the manufacturer of the infringing component will by peace and protect its customers by paying for his customer’s liability.
That’s the state we are in now.
It also illustrates why Aro II was wrong — fundamentally wrong.
In proving contributory infringement, one should always have as many direct infringers before the court as possible — perhaps by using the vehicle of a class action. That way, the court will seek to impose liability on the party that caused the infringement, rather than on his customer who is strictly liable.
Ah, here my earlier comment about the AIA induced limitations (joinder) may apply.
anon, indeed, “may” is the operative word. But if infringement is limited to the final assembly of components purchased from the named contributory infringer, there would seem to be no problem with the AIA. From 35 USC 299:
“infringers may be joined in one action as defendants or counterclaim defendants, or have their actions consolidated for trial, only if—
(1)
any right to relief is asserted against the parties jointly, severally, or in the alternative with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences relating to the making, using, importing into the United States, offering for sale, or selling of the same accused product or process; and
(2)
questions of fact common to all defendants or counterclaim defendants will arise in the action.”
Thanks Ned – a correction that I do not mind.
(I would note a wrinkle in our past discussion was that the party “causing” the infringement refused to indemnify the many direct infringers, thereby denying the basis of “same transaction” and defeating the effort for class action)
Newman often dissents, and often she is spot on.
271(a)’s “whoever” by statute means one or more. BMC Resources simply said, without analysis, that the statute required a single actor.
Erase this mistake and everything else is possible.
One does not have to decide all cases now, but the Federal Circuit should recognize as the Supreme Court has always recognized, that patent infringement is a strict liability tort. There is a wealth of case law on this tort from which the Federal Circuit should learn.
And, as you observed, Dennis, the Federal Circuit should stop trying to rewrite the statutory law and should stop trying to overturn the Supreme Court whenever it disagrees.
But its OK for the Supremes to rewrite statutory law (as in 101)?
Les, no it is not. That is why I think they have been pinning their cases on the statute recently. Myriad clearly held that the DNA sequence claimed was not a “new” composition.
Ned,
Once again, the problem is with your interpretation of cases and the statute.
No, anon, it is not. The SC has been citing generally to 101 for some time, but saying there are “exceptions.” But, in truth, all the so-called exceptions can be found in the statutory framework, including 112.
What I suggest, anon, is that if the court cannot clearly link an exception to the statutes, that it must, that is MUST, declare the exception non statutory and overruled by the ’52 Act.
“But, in truth, all the so-called exceptions can be found in the statutory framework, including 112.”
Don’t you think that the Court would have said so?
As it is, you are wrong and the Court still attempts to showhorn everything into 101.
(Their choice – argue with them)
ahhh…
See Post 1 below (and it is worth repeating: reading a map is just not the same thing as writing a map).
reading a map is just not the same thing as writing a map
More deep stuff from the King of Vapid Drivel.
patent infringement is a strict liability tort
You can repeat this until you are blue in the face, Ned. It doesn’t address the fundamental issue that if the steps in a method claim are carried out by separate actors acting independently there is no “infringement” of anybody’s patent. There’s just a bunch of people doing perfectly legal stuff and minding their own business.
Patentees rights are shrinking. If that bothers you, you can take comfort in Big G’s promise that “the pendulum is going to swing back.” After all, Big G is an expert. You can trust him.
LOL.
MM, you keep this, Malcolm, yet you do not seem to have answered this question:
A process comprises steps A, and B, and C, to produce a product D. Steps A and B are performed by party X, the partially completed product is sold to party Y, who performs step C to produce product D.
Why is this not an infringement by party Y?
Consider §271(g). Party Y now sells the completed product D. Is he in infringer under this section?
Ned: A process comprises steps A, and B, and C, to produce a product D. Steps A and B are performed by party X, the partially completed product is sold to party Y, who performs step C to produce product D.Why is this not an infringement by party Y?
Because Y is not carrying out steps A and B, nor is Y causing steps A and B to be carried out by anyone else, nor is Y “conspiring” with any other actors to cause steps A and B to be carried out. Y is just carrying out step C which (as far as I can tell from your hypo) is an unpatented processes.
Basic, fundamental stuff.
If carrying out step C is so innovative and valuable, then the patentee should have hired a competent patent prosecutor to claim and obtain a patent on step C.
Nobody except lazy incompetent grifting patentees cares about the “lost rights” of patentees in this kind of case. Why should they? What policy would justify finding liability for Y in this situation, Ned?
maybe because the step – parsed out and separated on its own – is not the invention.
You know, sort of like an electron on its own.
Or a proton on its own.
Or a neutron on its own.
But, hey – grab enough of theses things and configure them together, well, then we can start talking.
Sort of like that thing, what was it? Oh yeah : the claim as a whole.”
“Steps” are not electrons or protons.
Nice try, though! Keep tossing your word salad and maybe something substantial will randomly pop out.
the claim as a whole
Yeah, go with that. Reading the “claim as a whole” supports the notion of finding infringement liability for someone practicing an unpatented step in a multi-step claim.
Your patent txxbxggers, folks! They really can’t help themselves.
You are not paying attention, are you?
““Steps” are not electrons or protons.”
Right. You kinda missed the “sort of like” phrase. You know, a phrase that can be important when dealing with an analogy.
/face palm
OK, asked and answered MM regarding the process.
Now the Federal Circuit has held regarding 271(g) that person who performs the final step on a partially completed product imported from abroad, then sells (uses) the ultimate product is a direct infringer of a process patent. Zoltek Corp. v. US, 672 F.3d 1309 (Fed. Cir. 2012).
Could the practicer of steps A and B, producing partial product D, infringe contributorily if partial product D has no non infringing use?
What about C? He is guilty of direct infringement by making as well as by using or selling? Can someone be liable for direct infringement by selling a product produced by a patented process when no one is liable for practicing the patent product?
I would suggest, Malcolm, that your thinking on this is too doctrinaire. Ultimately, I suggest the courts will reverse BMC Resources not only because Newman was right, but because of Zoltek, an en banc case subsequent to BMC Resources, requires it.
Malcolm, what is it with your obsession over the Big G?
In considering whether direct infringement of a method claim can arise where multiple actors are “co-equals involved in the infringement, not bound by contract or agent-principal relationships but acting in concert in a joint tortfeasorship relationship,” one factor that seems important (but mostly overlooked) is the presence of 271(b) stating where liability will be imposed for active inducement. Imposing direct liability on actors acting in concert should not be an excuse to go beyond the deliberate limitations on liability under 271(b).
GM Imposing direct liability on actors acting in concert should not be an excuse to go beyond the deliberate limitations on liability under 271(b).
Assuming you’re referring to the scienter requirement, George, I agree. Good point.
Inducement under (b) is a separate and (possibly) additional count. Not sure you can step around the strict liability aspect so easily.
Any comment by Malcolm with the word “scienter” in it is pretty funny from a KA-BLOOEY ! irony explosion sense.
Do you suppose that the doctrine of the hub and spokes conspiracy could be adapted to this context–liability based on knowing adherence to a common scheme, where the actors know that success depends on common adherence to the scheme by the “spokes.”
Can you cite a case?
Interstate Circuit, Inc. v. United States, 306 U.S. 208, 226-27 (1939) ((“It was enough that, knowing that concerted action was contemplated and invited, the distributors gave their adherence to the scheme and participated in it. Each distributor was advised that the others were asked to participate; each knew that cooperation was essential to successful operation of the plan. They knew that the plan, if carried out, would result in a restraint of commerce, which, we will presently point out, was unreasonable within the meaning of the Sherman Act, and, knowing it, all participated in the plan. The evidence is persuasive that each distributor early became aware that the others had joined.”). See also, for example, Total Benefits Planning Agency, Inc. v. Anthem Blue Cross & Blue Shield, 552 F.3d 430, 434 (6th Cir. 2008) (“A hub and spoke conspiracy involves a hub, generally the dominant purchaser or supplier in the relevant market, and the spokes, made up of the distributors involved in the conspiracy. The rim of the wheel is the [inferred] connecting agreements among the horizontal competitors (distributors) that form the spokes.”). More recently (July 2013), Apple was convicted of a hub and spoke conspiracy with book publishers to raise the price of e-books. A problem with proving such conspiracies is that some courts require a showing that it was contrary to the individual self-interest of the spokes to join in the scheme unless the other spokes also were joining.
There is a variation on this that is referred to as a “rimless wheel” h&s conspiracy, found in some recent drug industry cases. In these cases, a large drug company enters into a series of agreements with unrelated spokes, such as purchasing organizations that purchase on behalf of member hospitals. In Applied Med. Res. Corp. v. Johnson & Johnson, in the C.D. Calif., the court seems to have allowed a Sherman Act § 1 case to be based on a hub and spokes with the spokes not having much of a connection with one another besides entering into similar agreements with the hub (J&J). The basis seemed to be that the market effect of the arrangements collectively was substantial. This theory seems to be based on a FTC case that has not been heard of for many years, FTC v. Motion Picture Adv. Serv. Co., 344 U.S. 392 (1953) (§ 1 case against hub only, based on collective but not collusive foreclosure of market). In the Applied Medical case, the court said: “[J&J’s] contracts with the two largest GPOs, Novation and Premier, foreclose 65% of the relevant markets for trocars and clip appliers. The court finds that aggregating the foreclosure produced by these agreements between [J&J] and multiple buyers is appropriate, in spite of Novation’s assertions to the contrary.”
Conspiracy is known to be one of the more powerful tools to combat criminal enterprises.
Perhaps that is what appears to be so very scary to those that disfavor patents in general. One appears to be on the cusp of providing a very strong, pro-patent tool – not in a criminal environment with its requisite proof and innocence until proven guilty foundation, but rather, in a strict-liability foundation.
I think that Congress wants a middle ground, perhaps more so in favor of patents than purely neutral – judging from the substantial non-infringing use clause as an example of a modification showing a desire not to be in full force and effect and possibly ameliorating a full open ended (as in not just “direct and control” or agency) conspiracy liability.
criminy, let’s try again…
Conspiracy is known to be one of the more powerful tools to combat criminal enterprises.
Perhaps that is what appears to be so very scary to those that disfavor patents [as typical]. One appears to be on the cusp of providing a very strong, pro-patent tool – not in a criminal environment with its requisite proof and innocence until proven guilty foundations, but rather, in a strict-liability foundation.
I think that Congress wants a middle ground, perhaps more so in favor of patents than purely neutral – judging from the substantial non-infringing use clause as an example of a modification showing a desire not to be in full force and effect and thus possibly ameliorating a full open ended (as in not just “direct and control” or agency) conspiracy liability.
It can’t be done. There’s due process issues (imposition of more than minor fees in strict liability based upon possibly unknown actions of another), federalism police power issues, even constructive notice issues.
RandomGuy, a patent covers a widget, but widgets are old but for a special feature in one component that the patent recites as an element. You make and sell widgets, buying components off-the-shelf. Some of the components you buy have the special feature, some do not.
Under the law, you are liable as an infringer. Where is the due process concern here?
There is a separate concern, and I think you know what it is. It has to do with 35 USC 112. Name the problem.
Or is that…
name the canard?
I hope that no one is seriously suggesting adopting such “infringement”of a patent claim by totaling up partial steps performed separately and independently by any number of separate and independent parties, thereby creating a new mess of some new and unknown form of damages / fault apportionment between such parties [for which there is not even any consistency between states for other torts]? Can anyone realistically see the Sup. Ct. sustaining that?
…but wouldn’t it be fun if Congress writ the law thusly? If (and yes, this is a mere hypothetical – the law as written indicates otherwise with its “substantial noninfringing use” mirror) Congress had written infringement as you described – clearly and unequivocally – on what basis then wold the Supreme Court not be able to sustain that law?
If … Congress had written infringement as you described – clearly and unequivocally – on what basis then wold the Supreme Court not be able to sustain that law?
The law could be found unconstitutional for lack of a sufficiently rational basis to justify the diminishment of freedom resulting from the law.
Put the shoe on the other foot and imagine you are a member of Congress. What argument would you present to the people in your city or town that such a law should be passed? What reason do you give them when they ask you why they should vote for you if you vote to pass this law?
“The needs of the many outweigh the needs of the few, or the one.”
In this case, the needs of the many for the promotion of innovation outweigh the needs of the few to conspire to infringe patents.
LLAP
There’s no “conspiring” in the hypothetical law Paul is discussing. The actors are “separate and independent.”
I think we need a glossary entry for “independent.”
Due process for lack of notice, due process for strict liability, nonliability for lack of actus rea, federalism police power, first amendment for all claims involving communication, lack of power under the patent clause (as it would extend protection beyond inventions and discoveries), failing a rational basis test.
Just those.
RandomGuy, patents are published. Their claims are required to be clear. And, yet, you claim that strict liability for infringement is unconstitutional.
Your argument seems to suggest that any liability without actual knowledge of the patent is unconstitutional.
There are strict liability torts. Why? Are these unconstitutional as well?
Can Congress or a state impose strict liability on any action without violating due process? When I grew up, knowledge of the law was no excuse. Has that changed?
Consider trespass. You walk onto someone else land and burn down a house. Do you have to know that your actions are illegal — or do you simply have to prove that you did the actions?
Copyright infringement of all kinds is strict liability. One does not have to know that one infringes a copyright to be liable. Is this constitutional?
You shoot a woman and her baby dies. Can you claim lack of liability for the death because you didn’t know she was pregnant?
I think there is too much coddling of infringers already. Obviously, you do not share that view.
“ first amendment for all claims involving communications”
(to pick one of his absurdities at random)
LOL – Random Examiner has no clue (and another one who fails to understand just how easy it is to pass a rational basis test).
/face palm
There are such cases, Paul, and the court did apportion damages. There was a case involving a patent covering stained glass windows. The general contractor and the architect who specified the infringing windows were both sued and both were held liable – and the court did apportion damages, 50-50.
Baut v. Pethick Construction Company, 262 F. Supp. 350 (M.D. Pa. 1966).
link to scholar.google.com
A contractor and a subcontractor and the architect who prepared the infringing designs, not a party but central to the infringement, all were determined to be infringers in making patented stained glass windows. They tried to pass liability off among each other, but that failed.
The case is a good read.
Interesting, but I remain uncomfortable with allowing common law tools to so easily be put in use for what is clearly marked a statutory law realm.
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