The Evolution of Divided Infringement Doctrine And the Potential Risk to Critical Innovation in Life Sciences

The brief history of divided infringement doctrine has been devoted almost exclusively to computer- or network-implemented methods. In the flurry of attention surrounding the Supreme Court’s recent consideration of divided infringement in Limelight Networks, Inc. v. Akamai Techs., Inc., 134 S. Ct. 2111 (2014) (“Limelight”), however, other stakeholders have identified additional risk areas threatened by this developing line of cases. In particular, the amicus briefing leading up the Supreme Court’s decision painted a bleak picture for the future of biotechnology and pharmaceutical innovation in the event that the Supreme Court rejected the Federal Circuit’s en banc approach. Apparently, the Supreme Court was not persuaded.

On June 2, 2014, the Supreme Court issued its opinion and expressly rejected the Federal Circuit’s proposed solution. The Court ruled that a party can be liable for induced infringement under 35 U.S.C. §271(b) only when one party has committed direct infringement under §271(a). This decision reinstated the “single-entity rule” as a predicate for induced infringement liability. This article addresses the developing precedent and recent industry commentary concerning the potential impact of this area of the law on innovation in life sciences.

A. Akamai v. Limelight:
¹Akamai Techs., Inc. v. Limelight Networks, Inc., 629 F.3d 1311, 1319 (Fed. Cir. 2010); Akamai Techs. Inc. v. Limelight Networks Inc., 692 F.3d 1301 (Fed. Cir. 2012) (en banc). Background and the “Single Entity Rule”

1. BMC and Muniauction

In BMC Res. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007) (“BMC”), the Federal Circuit addressed the standard for finding liability for divided infringement of a method claim. The asserted claims were directed to methods for processing debit card transactions without the use of a PIN number, including “prompting the caller to enter a payment number” and “a payment amount” and then “the accessed remote payment network determining” whether the caller had sufficient funds to complete the transaction. (U.S. Patent No. 5,870,456, Claim 6 (emphasis added)). The accused method involved Paymentech’s system “prompting” the callers for information and the debit network “determining” whether the caller has sufficient funds. The court found that without “direction or control of both the debit networks and the financial institutions, Paymentech did not perform or cause to be performed each and every element of the claims.” Id. at 1382.

Shortly thereafter, the court revisited divided infringement in Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318 (Fed. Cir. 2008) (“Muniauction”). In Muniauction, the asserted claims related to an online bidding system comprising “inputting data associated with at least one bid … into said bidder’s computer” and “automatically computing at least one interest cost value.” (U.S. Patent No. 6,161,099, Claim 1 (emphasis added)). It was undisputed that at least the inputting step of the asserted claims was performed by the bidder, as instructed by Thomson, with some or all of the remaining steps being performed by Thomson’s systems. Id. at 1328-29. The Federal Circuit applied the “direction or control” test from BMC, and affirmed the district court’s finding of no infringement. Id. at 1330. The court held there was no “direction or control,” stating “[t]hat Thomson controls access to its system and instructs bidders on its use is not sufficient to incur liability for direct infringement.” Id. The court noted that “mere ‘arms-length cooperation’ will not give rise to direct infringement by any party.” Id. at 1329. Similarly, there was no “single entity” since “Thomson neither performed every step of the claimed methods nor had another party perform steps on its behalf,” and therefore “does not infringe the asserted claims as a matter of law.” Id. at 1329-30.

2. Akamai and McKesson

Akamai originally brought allegations against Limelight of direct infringement of patent claims directed to methods for content delivery for websites. The asserted method claims included a step of “tagging” content — a step which Limelight did not perform. Instead, Limelight provided instructions to its customers concerning how to perform the tagging step and had a customer contract dictating that if customers wanted to use Limelight’s service, they had to perform the tagging step themselves. Based on these facts, the district court overturned a jury verdict of infringement and held that there was no infringement by Limelight as a matter of law. Akamai appealed.

Based on BMC and Muniauction, the Federal Circuit affirmed the district court’s decision. The court held that Limelight had not directed or controlled the actions of its customers in a manner sufficient to establish an agency relationship. While there was a contract in place, the contact was permissive, and not compulsory, and therefore did not establish a predicate for liability. Akamai Techs., Inc. v. Limelight Networks, Inc., 629 F.3d 1311, 1319 (Fed. Cir. 2010).

McKesson Techs. Inc. v. Epic Sys. Corp., No. 2010-1291, 2011 U.S. App. LEXIS 7531 (Fed. Cir. 2011) (“McKesson”) involved allegations of indirect infringement brought by McKesson against Epic. McKesson alleged that Epic induced direct infringement by its health care provider customers and their patients. The district court granted Epic’s motion for summary judgment of non-infringement and the Federal Circuit affirmed on the basis that McKesson could not establish that the underlying acts of alleged infringement by the healthcare providers and patients met the “direction or control” test of BMC and Muniauction. Id. at *5-6. The Federal Circuit also noted that “[a] doctor-patient relationship does not by itself give rise to an agency relationship or impose on patients a contractual obligation such that the voluntary actions of patients can be said to represent the vicarious actions of their doctors.” Id. at *10. Based on no underlying act of direct infringement, the court held that Epic could not be liable for indirect infringement. Id. at *11.

The Federal Circuit reviewed en banc both Akamai and McKesson. The questions posed to the en banc court concerned (1) what circumstances would result in liability for direct infringement in the divided infringement context (from Akamai); (2) what circumstances would result in liability for indirect infringement in the divided infringement context (from McKesson); and (3) does the nature of the relationship between the actors, e.g., doctor-patient, impact the question of direct or indirect infringement liability (from McKesson).

The Federal Circuit set aside the first question and found that both cases could be resolved in the context of indirect infringement. The en banc court rejected the “single entity” rule for induced infringement and differentiated between acts of direct infringement, which may be a predicate to inducement, and liability for those acts. The court held that there could be liability under § 271(b) even if there was no “direct infringer” who could be found liable under § 271(a). The Federal Circuit held further that a party could be liable for inducement if it induced another to perform some of the steps of the claimed method and performed the remaining steps itself.

The court’s decision, side-stepping the question of the appropriate standard for liability for direct infringement, and introducing of the so-called “inducement only” rule, drew widespread criticism. ²For additional discussion of the Federal Circuit’s en banc decision, please see Michael Kahn and Beth Finkelstein, “A Court Still Divided on Joint Infringement.” Intellectual Property Today (October 2012). Text is at http://bit.ly/1ASvR8b.

B. Limelight v. Akamai: The Supreme Court’s Decision

The U.S. Supreme Court granted certiorari for both cases. The McKesson case settled and only Akamai reached oral argument. Interestingly, because the Federal Circuit’s decision addressed only the inducement framework set forth in the Federal Circuit’s decision, Akamai (the patent holder) found itself in the position of having to argue in favor of a liability theory (inducement) that was not the subject of its district court proceedings. As a result, Akamai cross-petitioned for briefing and oral argument on the appropriate standard for direct infringement liability. The Supreme Court did not grant (or address) Akamai’s cross-petition.

During briefing and oral argument, Limelight argued that inducement requires proof of actionable direct infringement. Akamai argued both that no actionable direct infringement is required for a finding of inducement under §271(b) and that Limelight should also be found liable for direct infringement under §271(a) because it directed or controlled its customers.

In a unanimous decision, the Supreme Court rejected the Federal Circuit’s analysis of §271(b) as “fundamentally misunderstand[ing] what it means to infringe a method patent.” Limelight Networks, Inc. v. Akamai Techs., Inc., 134 S. Ct. 2111, 2117 (2014). The Court reasoned that the standard applied by the Federal Circuit would “deprive §271(b) of ascertainable standards” and “would require the courts to develop two parallel bodies of infringement law: one for liability for direct infringement, and one for liability for inducement.” Id. at 2118.

The Court declined to review the Federal Circuit’s Muniauction decision, and noted that the Supreme Court rendered its decision “[a]ssuming but not deciding” that the direct infringement standard set forth in Muniauction is correct:

Assuming without deciding that the Federal Circuit’s holding in Muniauction is correct, there has simply been no infringement of the method in which respondents have staked out an interest, because the performance of all the patent’s steps is not attributable to any one person. And, as both the Federal Circuit and respondents admit, where there has been no direct infringement, there can be no inducement of infringement under §271(b).Assuming without deciding that the Federal Circuit’s holding in Muniauction is correct, there has simply been no infringement of the method in which respondents have staked out an interest, because the performance of all the patent’s steps is not attributable to any one person. And, as both the Federal Circuit and respondents admit, where there has been no direct infringement, there can be no inducement of infringement under §271(b).

Id. at 2117.

The Court thus determined that, because there was no direct infringement, “Limelight cannot be liable for inducing infringement that never came to pass.” Id. at 2117-2118.

The Supreme Court also addressed what it viewed to be comparable circumstances in the history of the Patent Act when the existing statute was not sufficient to capture particular actions – the origins of § 271(f). Prior to the drafting and inclusion of 35 U.S.C. § 271(f), a party could not be held liable for shipping overseas components of a patented product that were not, themselves, patented, to induce assembly into an “infringing” product abroad. In this context, the Court noted that any change to liability under §271(b) should come from Congress:

[W]hen Congress wishes to impose liability for inducing activity that does not itself constitute direct infringement, it knows precisely how to do so. The courts should not create liability for inducement of non-infringing conduct where Congress has elected not to extend that concept.

Id. at 2118.

The Court reversed and remanded the case for further proceedings consistent with the opinion. The Supreme Court declined to address the Federal Circuit’s Muniauction decision, but noted that the Federal Circuit, on remand, “will have the opportunity to revisit the §271(a) question if it so chooses.” Id. at 2120.

C. The Impact of the Supreme Court’s Decision

The Supreme Court’s decision leaves significant uncertainty concerning the future of divided infringement liability. Innovative companies across all technologies may be impacted if either the Federal Circuit does not revisit the “direction or control” standard — one that is viewed by many as narrow and overly restrictive — or Congress does not amend the Patent Act to address divided infringement. For the purposes of this article, however, we will focus on feedback and response from the biotechnology and pharmaceutical industries.

There were multiple amicus briefs filed by companies and industry groups concerning the potential impact that the “single entity rule” would have on the ability to recoup research and development investment in life sciences innovation. For example, the Biotechnology Industry Organization (“BIO”) argued how certain types of method claims could be divided readily among numerous parties in an effort to avoid liability. For example, “medical diagnostic method claims,” “process[es] for making chemical substance[s],” and “methods of treatment or drug delivery claims.” BIO Br. at 8, 12 and 13. In addition to the above examples, BIO cited the increasing use of biomarkers in medical therapy, which “involves the application of biological assays in combination with treatment selection or therapy steps” that requires the participation of multiple actors. BIO cited the importance of these technologies, as well as the cost to develop them, and concluded that “rigid adherence to the single entity rule would invite potential infringers to circumvent a particularly valuable subset of biotechnology patents by ‘dividing up’ the steps of patented methods for separate practice.” Id. at 23.

Moreover, BIO countered the argument that any potential problem could be solved by proper claim drafting:

Process patents are of extreme importance in biotechnology, but it is a simplistic fallacy to argue that processes can be collapsed into single step claims – or otherwise written “differently” to capture only a single entity – and still provide the protection the patent system requires… . Consider, for example, the invention that arguably launched the field of biotechnology: cutting out pieces of DNA of one organism and splicing those pieces of DNA into the chromosome of another bacterium… . [T]he method steps call[ed] for (1) cleaving a piece of DNA to produce a fragment …; (2) combining that fragment with another piece of DNA in a unicellular organism …; (3) growing the unicellular organism with the combined fragment under appropriate nutrient conditions … and (4) isolating the bacteria that have incorporated the novel DNA… . [T]he patent could easily be circumvented by having one party perform steps (1) and (2) of the patented method and then having another party perform the remaining steps (3) and (4).

BIO Br. at 15-17.

Myriad Genetics, Inc. also filed an amicus brief concerning the impact of the current divided infringement standards on the field of “personalized medicine,” and, like BIO, referred to the use of biomarkers and diagnostic tests. It explained that diagnostic use claims are often categorized into two types of steps: 1) measuring biomarkers in a laboratory assay and 2) applying the laboratory result (diagnosing a disease character). Myriad Br. at 5-6. According to Myriad, these types of steps are “easily divided between two or more parties.” Id. at 6. And, according to Myriad, the single entity rule is “unfair,” and “enable[s] ready infringement of patents” in the personalized medicine industry. Id. at 13; see also Pharmaceutical Research and Manufacturers of America Br. at 21-22 (“The additional activities by many parties in delivering personalized medicines to the patients who will benefit from them creates a pronounced risk for innovators: namely, that the patent rights that encouraged these important pharmaceutical innovations will be more difficult, or even impossible, to use in practice.”).

Eli Lilly and Company also supported Akamai and presented potential consequences for the pharmaceutical industry. Eli Lilly explained the importance of method of treatment claims to the pharmaceutical industry, specifically in instances in which a new use is discovered for an existing compound and, therefore, the compound itself is not patentable. Eli Lilly Br. at 5-6. Such claims frequently involve multiple actors:

For example, arguments have been made that even a simple claim directed to a “method of treating disease X comprising administering drug Y to a patient in need thereof,” requires multiple actors to infringe the claim. This is because a physician will be required to diagnose the disease and write a prescription for a patient in need thereof, a pharmacist will fill the prescription, and a patient or another healthcare provider will administer the drug. The situation is even more complicated with combination therapy claims where more than one drug is administered to a patient or with method claims that require a doctor to determine whether a particular marker is present or absent in a biological tissue before writing a prescription or administering a drug.

Eli Lilly Br. at 9.

Under the current state of the law, defendants will argue that the doctor-patient relationship does not give rise to an agency relationship sufficient to support “direction or control.” As a result, many method-of-treatment claims arguably could not be directly infringed and, therefore, would not support an inducement allegation. Additionally, according to Eli Lilly, direct infringement is often not an option because it would punish healthcare providers; induced infringement “is often the only infringement provision under which pharmaceutical and diagnostic innovators can protect their inventions.” Id. at 11; see also Pharmaceutical Research and Manufacturers of America Br. at 21 (“Protecting rights in pharmaceutical treatment patents is a critically important issue for ensuring continued innovation in the pharmaceutical field.”).

D. The Intersection Between Divided Infringement Doctrine and Section 101

Recent Supreme Court precedent concerning the scope of patentable subject matter further underscores the potential impact of the current law of divided infringement on pharmaceutical and biotechnology patents. First, in the diagnostics context, the Supreme Court decided in Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012) that a method for optimizing therapeutic efficacy based on the amount of drug in a patient’s bloodstream was not patentable because “the claims inform a relevant audience about certain laws of nature” and did not add “significantly more” to make them patent eligible. Id. at 1297-1298. Then, in Ass’n for Molecular Pathology v. Myriad Genetics, Inc., 133 S. Ct. 2107 (2013), the Court held that a naturally occurring DNA segment is a product of nature and not patent eligible merely because it has been isolated.

Patent applicants in the field of personalized medicine must, therefore, claim additional steps that “provide practical assurance that the process is more than a drafting effort designed to monopolize the law of nature itself.” Mayo, 132 S. Ct. at 1297. Including additional steps, however, may result in a greater likelihood that multiple parties are required (or indeed likely) to perform those steps.

The narrowing of available claim scope via § 101 and the “direction or control” standard puts the incentive for life sciences innovation at risk. Research and development in the pharmaceutical and biotechnology industries span years and require significant financial investment. Specifically in the field of biotechnology, it may be the case that only method claims are available to the innovator because claims to isolated DNA or proteins are unavailable under 35 U.S.C. §101. In the pharmaceutical industry, a new use of an existing compound similarly will be claimed as a method, in the absence of any new compound. Because many of the resulting method claims involve multiple steps that may be divided among and practiced by multiple parties, these companies may now have less incentive to invest in the research and development of new technology.

E. The Future of “Divided Infringement” Liability

The Federal Circuit’s en banc decision, while unexpected by many, purported to solve many of the problems associated with the “single entity rule” raised by the amici, discussed above. The Federal Circuit attempted to stretch the bounds of a statute that is being outpaced by rapidly-advancing technology. Not surprisingly, the Supreme Court rejected the attempted judicial solution and made clear that any change must be legislative.

The Supreme Court’s decision does not solve the potential problems associated with divided infringement, and questions still remain: (1) will Congress address the concerns raised by Akamai and its amici and bring infringement law up to speed with current technology; (2) will multiple parties successfully divide steps of claimed methods to avoid liability and dis-incentivize innovation; and (3) will claim drafters be able to draft claims that require a single actor.

As described above, the Supreme Court also noted that the Federal Circuit “will have the opportunity to revisit the §271(a) [Muniauction] question if it so chooses.” Limelight Networks, Inc., 134 S. Ct. at 2120. To that end, less than two weeks after the Court’s Opinion, Akamai filed a statement in support of continued en banc review with the Federal Circuit, requesting that the court revisit the standard for divided infringement liability under 35 U.S.C. §271(a). On July 24, 2014, however, the Federal Circuit decided not to consider §271(a) en banc, choosing instead to refer the case to the two remaining panel members and a newly-selected judge. This leaves open the possibility that the Federal Circuit panel could again attempt to address this gap in patent doctrine by addressing or modifying the “direction or control” standard. There is likely more to come…