U.S. Federal Circuit Expands Liability for “Divided” Patent Infringement

On August 13, 2015, the U.S. Court of Appeals for the Federal Circuit issued an important decision strengthening the protections afforded to patent owners in the United States. In Akamai Technologies, Inc. v. Limelight Networks, Inc., the Federal Circuit established a new legal framework that expands the scope of activities giving rise to liability under the theory of “divided infringement.” It also noted that future factual scenarios may warrant even further expansion of attribution-based patent infringement liability.

The United States Court of Appeals for the Federal Circuit issued a unanimous decision on August 13, 2015 that departs from precedent in order to expand the scope of activities that can give rise to claims for patent infringement. As a result of the Court’s decision, online service providers and others are cautioned to carefully examine their products and services for potential infringement issues that did not previously exist under U.S. law.

Background: Akamai Technologies, Inc. v. Limelight Networks, Inc.

The case in question involved a patented technology for delivering content over the Internet. In 2006, the patent owner, Akamai Technologies, Inc., filed suit against Limelight Networks, Inc. alleging that Limelight’s software infringed its patent, U.S. Patent Number 6,108,703 (the “‘703 Patent”). Although Limelight’s software – standing alone – did not perform all of the necessary steps for infringement, actions taken by Limelight’s customers using Limelight’s software completed the final necessary step. As a result, Akamai claimed that Limelight was infringing the ‘703 Patent under the theory of “divided infringement.”

While the jury in the underlying district court action found in favor of Akamai, the district court judge eventually granted Limelight’s motion for reconsideration. This decision was based upon existing Federal Circuit precedent suggesting that Limelight’s software did not give rise to patent infringement liability as a matter of law. After the case made its way to the U.S. Supreme Court, the Federal Circuit found itself with the opportunity to expand the divided infringement doctrine.

Divided Infringement Before and After Akamai Technologies

Divided Infringement Before Akamai Technologies: Agency, Contracts, and Joint Enterprises

Under existing U.S. federal case law, one party could be held liable for activities undertaken in concert with another if, “the acts of [the second party were] attributable to the other such that a single entity is responsible for the infringement.” This theory, known as “divided infringement,” contemplated two specific sets of circumstances: (i) where the first entity “directs or controls” the second entity’s performance; and, (ii) where the entities are acting together in a “joint enterprise.”

In order to prove that a defendant “directs or controls” another party for purposes of establishing liability, prior to Akamai Technologies, plaintiffs had two options. They could establish direction and control through either:

• An agency relationship; or,
• A contractual relationship.

Both of these tests are derived from – though as the Federal Circuited noted in Akamai Technologies, not directly analogous to – the general common law theory of vicarious liability. In short, where all steps required for infringement could be attributed to a single party, even where that party did not take all of the necessary steps itself, it could be held fully liable under the “directs or controls” test  for divided patent infringement.

Divided Infringement After Akamai Technologies: the New “Conditioned Upon” Test

In Akamai Technologies, Inc. v. Limelight Networks, Inc., the Federal Circuit expressly expanded the “directs or controls” standard to include a third possible scenario: where the liable party “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 or timing of that performance.”

Limelight’s relationship with its customers was not sufficient to impute infringement based upon the existing vicarious liability-based tests. However, applying the new test, the Court held that Limelight could be held liable as a result of its customers taking the final step to infringe the ‘703 Patent. Citing Limelight’s terms of service and the intended functionality of the company’s software, the Court held that customers’ performance of the final step necessary to infringe Akamai Technologies’ patent was a condition to their use of Limelight’s content delivery network. As a result, Limelight was liable for divided infringement.

Lessons for Companies that Borrow from Patented Technologies

While Akamai Technologies involved software developed and licensed by an online service provider, it is clear that the Court’s new “conditioned upon” test has the potential to be broadly applied. In fact, noting that it was establishing a “legal framework,” the Court specifically acknowledged that other new factual scenarios may, “warrant attributing others’ performance of method steps to a single actor.” As a result, companies that rely upon patented technologies should be particularly wary of running afoul of the Federal Circuit’s expanded standard.

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