- Federal Circuit Requires Principal/Agent Relationship or Contractual Obligation for Joint Infringement
- February 23, 2011 | Author: Jason Rockman
- Law Firm: Cadwalader, Wickersham & Taft LLP - New York Office
In latest of a recent line of cases addressing infringement of multi-step method patents where the accused infringer performs some but not all of the steps recited in the claim, the Federal Circuit has held that joint infringement requires that the accused infringer do more than provide instructions to another party for performing the other claimed step(s). Rather, joint infringement requires either (1) that the joint infringers were consensually acting as principal and agent, with the party who performs one or more steps of the claimed method acting on the accused infringer's behalf and subject to the accused infringer's control, or (2) that the party who performed the other steps recited in the claim was contractually obligated to do so. Akamai Techs., Inc. v. Limelight Networks, Inc., 2010 U.S. App. LEXIS 25825 (Fed. Cir. Dec. 20, 2010).
The patent in Akamai was directed to an improved method of providing content on web pages. In the claimed method, content providers (Limelight's customers) serve their web pages from their own domains. However, certain embedded objects from those web pages are stored on computers maintained by Limelight and placed at various geographic locations to maximize efficient delivery of information over the Internet. To allow those embedded objects to be accessed, the links to them on the customer's web page must be modified to point to Limelight's servers instead of a server within the content provider's domain. This modification of the link to any given embedded object is called "tagging" and is one of the steps in the asserted method claims.
Limelight practiced all but two of the method steps in the asserted claims: the step of "tagging" the embedded web-page content and the step of "serving" the web page. Limelight's customers performed the tagging step with respect to the content they wished to have accessed through Limelight. Limelight provided its customers with express instructions regarding how to tag embedded web page content that the client wished to be delivered by Limelight. The choice of what embedded web page content to tag, however, was completely up to the customer. Further, Limelight's standard contract provided that the customer was responsible for tagging whatever web page content it wanted Limelight to deliver and for serving the underlying web page.
In the district court, the jury found that Limelight directly infringed because Limelight "controlled or directed" the activities of its customers by providing explicit directions for carrying out the tagging and serving steps and including a provision in its standard contract providing that the customer was responsible for performing those steps. The "controlled or directed" standard set forth in the district court's jury instruction was based on BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373, 1381 (Fed. Cir. 2007) ("BMC"), in which the Federal Circuit held that providing information to a third party, "absent any evidence . . . [of] provid[ing] instructions or directions" on how to use the information, did not create liability for joint infringement.
Limelight moved for JMOL, which was denied by the district court based on BMC. In the interim, the Federal Circuit decided Muniauction, Inc. v. Thompson Corp., 532 F.3d 1318 (Fed. Cir. 2008), which addressed the issue of whether furnishing instructions was sufficient to find joint liability - an issue that was left open by BMC - and held that merely furnishing instructions on how to access an on-line auction was not sufficient control or direction to find joint infringement liability. Limelight filed for JMOL once again based on Muniauction, and the motion was granted.
Agency Relationship or Contractual Obligation Required
The Federal Circuit affirmed the grant of JMOL. In an opinion by Judge Linn, joined by Chief Judge Rader and Judge Prost, the court explained that the BMC "control or direction" inquiry is based on principles of common-law agency. It went on to hold that a principal/agent relationship, where both parties consent that the agent is acting on the principal's behalf, or a contractual obligation, must exist between joint infringers for liability to attach, and that this notion was implicit in the BMC and Muniauction decisions:
This court therefore holds as a matter of Federal Circuit law that there can only be joint infringement when there is an agency relationship between the parties who perform the method steps or when one party is contractually obligated to the other to perform the steps. Neither is present here.
Citing the Restatement (Third) of Agency and Supreme Court precedent, the court explained that "[f]or an agency relationship to exist, and thus, for infringement to be found, both parties must consent that the agent is acting on the principal's behalf and subject to the principal's control." Accordingly, the fact that Limelight provided instructions for its customers to carry out the "tagging" and "serving" steps was not sufficient:
"An essential element of agency is the principal's right to control the agent's actions. Control is a concept that embraces a wide spectrum of meanings, but within any relationship of agency the principal initially states what the agent shall and shall not do, in specific or general terms.". . . Like BMC Resources, the Restatement and the Supreme Court refer to the words "control" and "direction" when assessing whether an agency relationship exists, but there is no indication that an agency relationship arises when one party simply provides direction, no matter how explicit, to another party. All the elements of an agency relationship must be present.
The Federal Circuit also dismissed the patentee's argument that Limelight's standard contract "obligates content providers to perform the claim steps of tagging the embedded objects and serving the tagged page":
Limelight's customers decide what content, if any, they choose to have delivered by Limelight's [servers] and only then perform the "tagging" and "serving" steps. The form contract does not obligate Limelight's customers to perform any of the method steps. It merely explains that the customer will have to perform the steps if it decides to take advantage of Limelight's service. . . . Limelight's customers did not perform the actions of tagging and serving as Limelight's agents and were not contractually obligated to perform those actions. Instead, the evidence leaves no question that Limelight's customers acted principally for their own benefit and under their own control. (emphasis in original).
Therefore, no joint infringement liability could attach. As in BMC, the Federal Circuit effectively blamed the patentee for this result because of the way the claims were drafted. The court pointed out that the patent holder could have drafted the asserted claims to focus on the acts of a single infringer, but failed to do so. The court also observed that "in addition to initially structuring a claim to capture infringement by a single party, patentees may be able to correct a claim that can only be infringed by multiple parties by seeking a reissue patent." The patentee did not avail itself of that option. "Thus, Akamai put itself in a position of having to show that the allegedly infringing activities of Limelight's customers were attributable to Limelight. Akamai did not meet this burden because it did not show that Limelight's customers were acting as agents of or were contractually obligated to Limelight when performing the tagging and serving steps. Thus, the district court properly granted JMOL of noninfringement to Limelight."
Akamai significantly narrows the circumstances under which an accused infringer can be found liable for infringement where it practices some but not all of the steps of a patented method. While the Federal Circuit's BMC and Muniauction cases held that joint infringement liability would arise if the accused infringer "directed or controlled" the other party's practice of one or more of the method steps, Akamai holds that liability arises only where the other party is acting as the accused infringer's agent under traditional principles of agency law, or where the other party is contractually obligated to perform the relevant method steps. This holding underscores the importance of drafting claims in a manner that avoids having certain of the method steps performed by two different parties. Akamai's suggestion of seeking reissue of patents drafted in that manner may be a useful strategy for patentees seeking to avoid the rigors of proving infringement under the Federal Circuit's new agency or contractual obligation standard.