US Federal Circuit to reconsider “mastermind” infringement defense

Over the past few years, companies accused of infringing method claims in America have had a new defense available to them:  the absence of a “mastermind” directing the performance of the method.

[W]here the actions of multiple parties combine to perform every step of a claimed method, the claim is directly infringed only if one party exercises “control or direction” over the entire process such that every step is attributable to the controlling party, i.e., the “mastermind.” . . . [T]he control or direction standard is satisfied in situations where the law would traditionally hold the accused direct infringer vicariously liable for the acts committed by another party that are required to complete performance of a claimed method.

Muniauction Inc. v. Thomson Corp., 532 F.3d 1318 (Fed. Cir. 2008).

Subsequently, in Akamai Technologies v. Limelight Networks, Inc., 629 F.3d 1311 (Fed. Cir. 2010), the panel clarified the standard for finding vicarious liability under the “mastermind” theory.  It held that “there can only be joint infringement when [i] there is an agency relationship between the parties who perform the method steps or [ii] when one party is contractually obligated to the other to perform the steps.”  The test for fork [i] is based on “traditional agency law.”

A common scenario in which the “mastermind” defense applies is where some steps of the method claim are considered to be performed by the accused infringer and some are considered to be performed by the accused infringer’s customer.  Under Akamai, unless there is a contract between accused infringer and customer which either compels the customer to perform the steps it performs or compels the accused infringer to perform its steps, there can be no direct infringement of the method claim.  In U.S. law it is well established that there can be no liability for contributory infringement or inducement in the absence of direct infringement, and so the accused infringer wins.

In Akamai, the accused infringer’s customers, content providers on the Web, tagged objects called out in their Web pages so that the tagged objects would be served from the accused infringer’s servers.  This tagging was one of the steps in the asserted method claims.  Other steps were carried out by the accused infringer.  Although the tagging was the way for such customers to make use of the accused infringer’s hosting services, which is presumably the reason why they were customers of the accused infringer in the first place, the panel found that the accused infringer was not vicariously liable for this tagging, and so the method claim was not directly infringed – by anyone.

On April 21, the Federal Circuit granted rehearing en banc in Akamai Technologies, vacating the panel opinion.  The question presented is “If separate entities each perform separate steps of a method claim,  under what circumstances would that claim be directly infringed and to what extent would each of the parties be liable?”  The breadth of this question suggests that the entire “mastermind” doctrine might very well be up for reconsideration in this case, as two judges recently urged in McKesson Technologies, Inc. v. Epic Systems Corp., No. 10-1291 (Fed. Cir. Apr. 12, 2011).

While it is speculative to venture a view on what the en banc will finally decide, the dispute over the “mastermind” doctrine calls to mind the earlier dispute over the state of mind requirement for inducement.  Some panels believed that “the only intent required of [the inducing party] is the intent to cause the acts that constitute infringement.”  Moba B.V. v. Diamond Automation, Inc., 325 F.3d 1306 (Fed. Cir. 2003) (per curiam).  Others felt that “the plaintiff has the burden of showing that the alleged infringer’s actions induced infringing acts and that he knew or should have known his actions would induce actual infringements.”  Manville Sales Corp. v. Paramount Systems Inc., 917 F.2d 544, 553-54 (Fed. Cir. 1990).  The issue was finally resolved in DSU Medical Corp. v. JMS Co., 471 F.3d 1293 (Fed. Cir. 2006) (en banc in part), which adopted Manville’s formulation.

Thinking in terms of the user-accused infringer situation set out above, an obvious way that the “mastermind” defense could be pared back, if the en banc court is so inclined, is to require only a species of inducement of the user’s steps by the accused infringer, rather than a contractual obligation to perform them or an agency relationship.  Defining what this species of inducement means will be tricky just as it was tricky to define just what regular inducement meant.  However, if for example (i) an accused infringer gives the user instructions for performing a step of a method claim, (ii) as a result of those instructions the user performs the step, and (iii) the accused infringer then performs the remaining steps, it seems intuitively possible that at least some members of the court will want to find a way to cause liability to exist.

Because the Federal Circuit likes references to “traditional” legal principles and because it may want to avoid a conflation of inducement with the standards for vicarious liability in the method claim context, it is possible that a variety of other verbal formulations different from “inducement” may come out for the vicarious liability portion of the mastermind test if the en banc court does choose to revisit its scope.  In DSU Medical, there was considerable reference to the copyright vicarious liability case MGM Studios, Inc. v. Grokster, Ltd., 545 U.S. 913 (2005), so the en banc court in Akamai may draw further wisdom from that source.

In addition to the question of when one party can be held liable for the acts of another, the “mastermind” theory raises the issue of which party performs a particular method step carried out by software.  For example, if a user’s computer or handheld device runs software provided by the accused infringer, and that software performs a method step, is the step being performed by the user or by the accused infringer?  In SiRF Technology Inc. v. ITC, 601 F.3d 1319 (Fed. Cir. 2010), where a GPS device provided to users by the accused infringer performed a method step, that performance was attributed to the accused infringer.  In other cases, however, steps seemingly performed with the assistance of the accused infringer’s software have been attributed to the user.  For example, in Muniauction itself, there was a step of “inputting data associated with at least one bid for at least one fixed income financial instrument into said bidder’s computer via said input device.”  Given that the accused product was Web based, the inputting process would seemingly make use of both the user’s computer and browser and the HTML, Javascript, or other code provided to that browser by the accused infringer’s website.  Nonetheless, the panel found that “the inputting step of claim 1 is completed by the bidder.”

Finally, the question arises whether there is an analog to the divided infringement defense for system claims where the claimed system is controlled by more than one party.  The issue was recently treated in Centillion Data Systems, LLC v. Qwest Communications Int’l, Inc., 631 F.3d 1279 (Fed. Cir. 2011).  The issues there are different from those in Akamai because it constitutes infringement in U.S. law to “use” a claimed system, even if that system belongs to someone else.  The claim at issue in Centillion recited a “personal computer data processing means” as well as other things which the accused infringer controlled.  The panel found that “to ‘use’ a system for purposes of infringement, a party must put the invention into service, i.e., control the system as a whole and obtain benefit from it.”  Thus, Qwest did not “use” the claimed system (giving “use” its patent law meaning) due to the “personal computer data processing means” belonging to the user.  Qwest was thus not a direct infringer.  However, the panel also held that “the customers ‘use’ the system . . . . [W]e make no comment on whether Qwest may have induced infringement by a customer,” an issue left for proceedings on remand.

Flavio M. Rose, Irell & Manella LLP

All images and illustrations used in our posts are licensed and have been legally acquired through official sources such as Adobe Stock