After The Supreme Court's Limelight Decision, Attention May Shift To Contract Analysis In Patent Cases

In Limelight Networks, Inc. v. Akamai Tech., Inc., the Supreme Court unanimously held that there can be no liability for induced infringement of a patented method where the steps of the method are carried out by separate actors. Yet, only one week later, the district court in Digital Reg of Tex., LLC v. Adobe Sys., 2014 U.S. Dist. LEXIS 79854 (N.D. Cal. June 10, 2014) denied summary judgment of non-infringement where the plaintiff had conceded that the acts of infringement were divided among multiple parties. Why? Because although the Limelight decision precludes liability for induced infringement under 35 U.S.C. §271(b) where no single entity is liable for direct infringement, the Supreme Court left untouched the existing law that liability for direct infringement under §271(a) can be found if the defendant exercises "control or direction" over the other actors. The Federal Circuit has explained that such control or direction can exist where a third party is "contractually obligated" to the accused infringer to perform the infringing acts. Indeed, the court in Digital Reg held that there was a genuine issue of material fact as to whether the terms of the defendants' license agreements with their customers gave rise to liability under a control or direction theory. Thus, in the wake of Limelight's rejection of §271(b) claims in divided infringement cases, it will be all the more important for patent practitioners (and contract drafters) to consider whether the terms and conditions of business agreements place the contracting party in a position of controlling the performance of other entities.

Arms-Length Contracts Generally Do Not Amount To "Control Or Direction"

The Federal Circuit's decision in BMC Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373 (Fed. Cir. 2007) laid the foundation for recent jurisprudence regarding divided direct infringement. In BMC Resources, the patent was directed to a multi-step debit transaction. Paymentech received customer information (e.g., debit card numbers) and contracted with third party debit networks who authorized the transactions with financial institutions. The court explained that "[a] party cannot avoid infringement...simply by contracting out steps of a patented process to another entity. In those cases, the party in control would be liable for direct infringement. It would be unfair indeed for the mastermind in such situations to escape liability." However, as applied to the facts of the case...